SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000
Commission file number 0-24429

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
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(Exact Name of Registrant as Specified In Its Charter)

Delaware 13-3728359
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

500 Glenpointe Centre West, Teaneck, New Jersey 07666
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(Address of Principal Executive Offices) (Zip Code)

(201) 801-0233
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(Registrant's Telephone
Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
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Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, par value $0.01 per share
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Class B Common Stock, par value $0.01 per share
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes: X No:
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant: $304,957,796 at March 1, 2001
based on the last sales price on that date.

Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 1, 2001:

Class Number of Shares
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Class A Common Stock, par value $0.01 per share 7,424,436

Class B Common Stock, par value $0.01 per share 11,290,900

The following documents are incorporated by reference into the Annual
Report on Form 10-K: Portions of the Registrant's definitive Proxy Statement for
its 2001 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Report.

TABLE OF CONTENTS
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Item Page
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PART I 1. Business................................................ 4

2. Properties.............................................. 15

3. Legal Proceedings....................................... 16

4. Submission of Matters to a Vote of Security Holders..... 16

PART II 5. Market for the Company's Common Equity and
Related Stockholder Matters............................. 17

6. Selected Consolidated Financial Data.................... 19

7. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 20

8. Financial Statements and Supplementary Data............. 28

9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................. 28

PART III 10. Directors and Executive Officers of the Company......... 29

11. Executive Compensation.................................. 29

12. Security Ownership of Certain Beneficial Owners
and Management.......................................... 29

13. Certain Relationships and Related Transactions.......... 29

PART IV 14. Exhibits, Financial Statement Schedule,
and Reports on Form 8-K............................. 30

SIGNATURES................................................................ 31

EXHIBIT INDEX............................................................. 33

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1

PART I

ITEM 1. BUSINESS

OVERVIEW

Cognizant Technology Solutions Corporation ("CTS" or the "Company")
delivers high-quality, cost-effective, full life cycle solutions to complex
software development and maintenance problems that companies face as they
transition to e-business. These services are delivered through the use of a
seamless on-site and offshore consulting project team. The Company's solutions
include application development and integration, application management, and
re-engineering services.

The Company provides professional services to its customers through an
integrated business model that combines a technical and account management team
located on-site at the customer location and eleven development centers located
in India. The Company's core competencies include web-centric applications, data
warehousing, component-based development, and legacy and client-server systems.

The Company markets and sells its technology consulting services directly
through its professional staff, senior management and sales personnel. The
Company operates out of its Teaneck, New Jersey headquarters and its regional
and international offices. The number of customers for whom the Company has
provided services has grown from 40 customers in 1998 to 57 customers in 1999
and 90 customers in 2000. The Company's customers include:

ACNielsen Corporation First Data Corporation
CCC Information Services Incorporated GEAC Computer Systems Incorporated
Computer Sciences Corporation Nielsen Media Research, Inc.
The Dun & Bradstreet Corporation Northwest Airlines, Inc.
IMS Health Incorporated ("IMS Health") Pacific Exchange, Inc.

INDUSTRY BACKGROUND

Many companies today face increasing customer demands to improve service
levels, lower costs and shorten time to market. In this competitive environment,
improving Information Technology ("IT") systems and leveraging the internet are
critical to achieving these objectives. At the same time, the pace of technology
evolution has accelerated. In order to remain competitive, companies are
increasingly required to adopt emerging technologies, such as:

o e-business and e-commerce applications;

o data warehousing;

o supply chain management; and

o middleware / enterprise application integration.

These emerging technologies offer the promise of faster, more responsive,
lower cost business operations. However, their development, integration and
on-going management present major challenges and require a large number of
highly skilled individuals trained in many diverse technologies. In addition,
companies also require additional technical resources to maintain, enhance and
re-engineer their core legacy systems for e-business and to address application
management projects such as Eurocurrency compliance, decimalization in the
securities industry, and the health insurance portability and accountability act
("HIPAA") regulations in the healthcare industry. Increasingly, companies turn
to solutions providers such as CTS to provide these services.

Many companies have made the strategic decision to focus on their core
competencies and reduce their cost structures rather than invest in the
additional large IT staffs that are necessary to evaluate, implement and manage
IT initiatives in a rapidly changing environment. Consequently, these companies
have turned to IT service providers both to develop and implement new IT
solutions and to maintain core systems.

As the global demand for IT services has increased, the number of qualified
technical professionals has not kept pace with such demand. As a result, some IT
service providers have attempted to access the large talent pool in certain
developing countries, particularly India. India is widely acknowledged as a
leader in offshore software development and has the second largest pool of IT
talent behind the U.S. Historically, IT service providers have used the offshore
labor pool primarily to supplement the internal staffing needs of customers.
However, evolving customer demands have led to the utilization of offshore
resources for higher value-added services. Such services include application
development, integration and maintenance. The use of offshore personnel can
offer a number of benefits, including faster delivery of new IT solutions, more
flexible scheduling and lower costs. However, utilizing an offshore workforce to
provide value-added services presents a number of challenges to IT service
providers.

The offshore implementation of value-added software services requires
highly developed project management skills. Such skills are necessary to design,
develop and deploy high-quality technology solutions in a timely and
cost-effective manner. In addition, IT service providers must have the
methodologies, processes and communications capabilities to successfully
integrate offshore workforces with on-site personnel. Service providers must
also have strong research and development capabilities and technology competency
centers. Finally, service providers utilizing offshore workforces must
continually recruit and manage their workforces to deliver solutions using
emerging technologies. As a result of the increasing demand for global IT
services, a significant opportunity exists for IT service providers that can
successfully address the challenges in utilizing an offshore talent pool. In a
recent study, McKinsey and Company has estimated that the market for offshore
work in India will grow from approximately $4 billion in 1998 to $87 billion in
2008.

THE CTS SOLUTION

CTS is a leader in delivering high-quality, cost-effective, full life-cycle
solutions to complex IT problems to clients transitioning to e-business through
the use of a seamless on-site and offshore project team. These solutions are
comprised of application development and integration, application management and
re-engineering services.

The Company provides professional services to its customers through an
integrated business model. The Company's business model combines a technical and
account management team located on-site at the customer location and eleven
development centers located in India. To support this business model, the
Company has recruited and trained in excess of 2,500 programmers in India. The
Company has also put in place well developed facilities, technology and
communications infrastructure. By basing the Company's technical operations in
India, the Company has access to a large pool of skilled, English-speaking IT
and Internet technology professionals. Such IT and Internet technology
professionals service customers on a cost basis significantly lower than in
developed countries. The main elements of the CTS solution, which the Company
believes differentiates it from other IT service providers, include the
following:

Established and Scalable Proprietary Processes. To facilitate the Company's
cost-effective, on-time delivery of high-quality projects integrating an on-site
and offshore team, the Company has developed proprietary methodologies. Such
methodologies are encapsulated in the Company's QView software engineering
process, which is available to all on-site and offshore programmers. The Company
utilizes this ISO 9000 certified process to define and implement projects from
the design, development and deployment stages through to ongoing application
maintenance. For most projects, QView is used to make an extensive front-end
assessment. This assessment allows the Company to define the scope and risks of
the project and subdivide the project into smaller phases with frequent
deliverables and feedback from customers. The Company also utilizes its QView
process to detect, mitigate and correct possible quality defects and to
establish appropriate contingencies for each project. In order to ensure
implementation of the quality process, the Company assigns a quality facilitator
to each project. This facilitator reports to a centralized quality assurance and
software engineering group. This group performs, on a sample basis, continuous
quality audits, deliverables verifications, metrics collection and analysis,
which are used to continually improve processes and methodologies. The Company's
processes and methodologies have proven to be scalable as the Company has
significantly increased its number of offshore development centers, customers
and projects. In addition, the Company is assessed by KPMG at Level 5 (on a 1 to
5 scale) of the Capability Maturity Model of the Software Engineering Institute
at Carnegie Mellon University. The assessment for the Software Capability
Maturity Model is widely regarded as the best means to measure the quality and
maturity of an organization's software development and maintenance processes.

Highly Skilled Workforce. The Company has placed significant emphasis on
recruiting and training its workforce of highly skilled professionals. Such
professionals must be versed in the Company's processes and methodologies,
particularly the QView software engineering process. The Company has over 240
project managers and senior technical personnel on its worldwide staff, many of
whom have significant work experience in the United States and Europe. The
Company's project managers and senior technical personnel provide in-depth
project management expertise to customers. The Company maintains programs and
personnel, including an extensive campus recruiting program in India, to hire
and train the best available technical professionals in both legacy systems and
emerging technologies. The Company provides five months of combined classroom
and on-the-job training to new hires. The Company provides additional training
each year to continually enhance the business practices, tools, technology and
consulting skills of its professional staff.

Research & Development and Competency Centers. The Company has project
experience and expertise across multiple architectures and technologies, and
makes a substantial on-going investment in competency centers and research and
development to keep abreast of the latest technology developments.

Because most of the Company's programmers are trained in multiple
technologies and architectures, the Company is able to react to customers' needs
and quickly redeploy programmers to new technologies. To facilitate this
ability, the Company has made a substantial investment in competency centers to
leverage its knowledge base across the company. In addition, through its
investment in research and development activities and the continuing education
of technical personnel, the Company assures that its knowledge base and
collective skill set keeps pace with emerging technologies. The ability to work
in new technologies allows the Company to foster long-term relationships by
addressing the needs of both its existing and new customers.

Well Developed Infrastructure. The Company's extensive facilities,
technology and communications infrastructure facilitates the seamless
integration of its on-site and offshore workforces. This is accomplished by
permitting team members in different locations to access common project
information and to work directly on customer projects. This infrastructure
allows for:

o rapid completion of projects;

o highest level of quality;

o off-peak utilization of customers' technological resources; and

o real-time access to project information by the on-site account manager
or the customer.

By using the excess capacity of a customer's existing computing facilities
during off-peak hours, the Company's offshore development centers can undertake
additional projects without substantial customer investment in new hardware and
software. In addition, for large projects with short time frames, the Company's
offshore facilities allow for parallel processing of various development phases
to accelerate delivery time.

STRATEGY

The Company's objective is to be a leading provider of full life-cycle
e-business and application development projects, take full responsibility for
on-going management of a client's software systems, and move legacy
transformation projects through to completion. The Company provides services to
its North American and European customers, supported by its offshore Indian
development centers. The Company pursues the following strategies to achieve
this objective:

Develop Long-Term Customer Relationships and Strategic Alliances. The
Company seeks to develop long-term strategic relationships with its customers
and business partners. The Company tries to leverage these relationships into
additional project opportunities. For example,

the knowledge of customers' systems gained during the performance of Year 2000
compliance services provided the Company with a competitive advantage in
securing additional software development and maintenance projects from these
customers. In addition, the Company believes that through its working
relationships with independent software vendors it can obtain projects from such
vendors' customers due to the detailed knowledge gained in the development
process. Finally, the Company has partnered with select IT service firms which
offer complementary services in order to best meet customer requirements.

Extend Service Offerings and Solutions. The Company has several teams
dedicated to developing new service offerings in emerging technologies. These
teams collaborate with the Company's customers to develop such offerings. For
example, the Company is currently developing new solutions for data warehousing
and e-business in selected industries such as healthcare. To facilitate the
development of new solutions, the Company invests in internal research and
development and promotes knowledge building and sharing across the organization.
The Company believes that the continued expansion of its service offerings will
reduce its reliance on any one technology initiative and foster long-term
relationships with its customers. Because of the Company's low offshore cost
structure, it is able to substantially leverage its investment in these
activities.

Enhance Processes, Methodologies and Productivity Toolsets. The Company is
committed to improving and enhancing its proprietary QView software engineering
process and other methodologies and toolsets. With the rapid evolution of
technology, the Company believes that continued investment in research and
development is critical to its success. The Company is constantly designing and
developing additional productivity software tools to automate testing processes
and improve project estimation and risk assessment techniques. The Company
continually refines its processes by utilizing groupware technology to share
project experience and best practice methodologies across the organization.

Expand Domestic and International Geographic Presence. As the Company
expands its customer base, it plans to open additional sales and marketing
offices in the United States and internationally. This will enable the Company
to sell to and support existing and prospective customers. The Company has
established sales and marketing offices in Atlanta, Chicago, Cincinnati, Dallas,
Minneapolis, Los Angeles, San Francisco and Teaneck, NJ. In addition, the
Company has been pursuing market opportunities in Europe through its U.K.
office, which was established in the beginning of 1998 and its Germany office,
which opened during 1999. The Company operates in Canada through its Toronto
office, which was established in 1997.

Pursue Selective Strategic Acquisitions. The Company believes that
opportunities exist in the fragmented IT services market to expand its business
through selective strategic acquisitions and/or joint ventures. The Company
believes that acquisition and/or joint venture candidates may enable it to
expand its geographic presence, enter new technology areas or expand capacity.

SERVICES

The Company provides a broad range of software services, including:

o application development and integration;

o application management; and

o re-engineering.

The Company's range of services enables it to meet customer needs for
systems development/ integration, application management and re-engineering
services. The Company uses its QView software engineering process, its on-site
and offshore delivery model and well developed facilities, technology and
communications infrastructure to deliver these services. For each of these
services, the Company utilizes its QView proprietary processes and methodologies
to define the execution and delivery of the projects.

Service Summary Description of Service Offerings
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Application Development
and Integration............... Define requirements, write specifications and
design, develop, test and integrate software
across multiple platforms including internet
technologies.

Application Management........ Support some or all of a customer's applications
ensuring that systems remain operational and
responsive to changing user requirements, and to
provide on-going enhancement as required by the
customer.

Re-engineering................ Modify and test applications to enable systems
to function in new operating environments.

Application Development Services. The Company follows either of two
alternative approaches to application development and integration:

o full life cycle application development, in which the Company assumes
start-to-finish responsibility for analysis, design, implementation,
testing and integration of systems; or

o cooperative development, in which the Company's employees work with a
customer's in-house IT personnel to jointly analyze, design,
implement, test and integrate new systems.

In both cases, the Company's on-site team members work closely with the
end-users of the application to develop specifications and define requirements.
Detailed design, implementation and testing are generally performed offshore at
the Company's eleven software

development centers located in India. In addition, the Company maintains an
on-site presence at the customer's location in order to address evolving
customer needs and resulting changes to the project.

A key part of the Company's application development and integration
offering is a suite of services to help organizations build and integrate
e-business applications with the rest of the enterprise. In this suite of
offerings, the Company leverages its skills in e-business applications
development and enterprise application integration to build sophisticated
e-business applications and to integrate these new applications and websites
with mainstream and legacy systems. The Company builds and deploys robust,
scalable and extensible Internet architectures for transaction intensive,
mission critical applications. The Company has competency centers specializing
in Microsoft, IBM and Sun Technologies. The Company builds secure applications
using several advanced technologies including RSA and SSL standards.

Application Management Services. The Company provides services to ensure
that a customer's core operational systems are free of defects and responsive to
end-users' changing needs. In doing so, the Company is often able to introduce
product and process enhancements and improve service levels to customers
requesting modifications and on-going support.

Through the Company's on-site and offshore delivery model, the Company is
able to provide a range of support services to its customers. On-site team
members often provide help desk services at the customer's facility. These team
members typically carry pagers in the event of an emergency service request and
are often available to quickly resolve customer problems from remote locations.
More complex maintenance services, including modifications, enhancements and
documentation, which typically have longer turn around times, are completed
offshore. Such services are completed utilizing satellite and fiber-optic
telecommunications and the resources of the Company's software development
centers.

As part of its application management services, the Company assists
customers in renovating their core systems to meet the requirements imposed by
new regulations, new standards, or other external events. Such services include,
or have previously included, Year 2000 compliance, Eurocurrency compliance,
decimalization within the securities industry and HIPAA, a new set of
regulations for the healthcare industry.

Re-Engineering Services. Through the Company's re-engineering service
offerings, the Company works with customers to migrate systems based on legacy
computing environments to newer, open systems-based platforms and client/server
architectures, often in response to the more stringent demands of e-business.
The Company's re-engineering tools automate many of the processes required to
implement advanced client/server technologies. Such automation substantially
reduces the time and cost to perform these services. These tools enable the
Company to perform source code analysis and to re-design target databases and
convert certain programming languages. If necessary, the Company's software
engineers also re-design and convert user interfaces.

CUSTOMERS

The Company provided services to a total of 40, 57 and 90 customers in
1998, 1999 and 2000, respectively. During 1998, 1999 and 2000, the Company's top
five customers accounted for 60.5%, 57.3% and 39.5% of revenues, respectively.
During 1998, 1999 and 2000, IMS Health and its current subsidiaries accounted
for 18.0%, 16.7% and 10.4% of revenues, respectively. The volume of work
performed for specific customers is likely to vary from year to year, and a
significant customer in one year may not use the Company's services in a
subsequent year. The Company's ten largest customers accounted for, in the
aggregate, approximately 81.0%, 75.3% and 59.1% of the Company's revenues in
1998, 1999 and 2000, respectively. In 1998, IMS Health, First Data Corporation
and ACNielsen each accounted for more than 10.0% of revenue. In 1999, IMS Health
and First Data Corporation each accounted for more than 10.0% of revenue. In
2000, IMS Health accounted for more than 10.0% of revenue. Approximately 44.1%,
15.6% and 0.4% of the Company's revenues were derived from Year 2000 compliance
services in 1998, 1999 and 2000, respectively. Application development services
represented approximately 25.8%, 32.3% and 46.1% of the Company's revenues in
1998, 1999 and 2000, respectively. Application maintenance services accounted
for 21.1%, 44.0% and 47.0% of the Company's revenues in 1998, 1999 and 2000,
respectively.

SALES AND MARKETING

The Company markets and sells its services directly through its
professional staff, senior management and direct sales persons operating out of
its Teaneck, New Jersey headquarters and business development offices in
Atlanta, Chicago, Cincinnati, Dallas, Minneapolis, Los Angeles San Francisco,
Toronto, Frankfurt and London. At December 31, 2000, the Company had 20 direct
sales persons and approximately 58 account managers. The sales and marketing
group works with the Company's technical team as the sales process moves closer
to the customer's selection of an IT service provider. The duration of the sales
process varies depending on the type of service, ranging from approximately two
months to over one year. The account manager or sales executive works with the
technical team to:

o define the scope, deliverables, assumptions and execution strategies
for a proposed project;

o develop project estimates;

o prepare pricing and margin analyses; and

o finalize sales proposals.

Management reviews and approves proposals, which are then presented to the
prospective customer. Sales and account management personnel remain actively
involved in the project through the execution phase.

The Company focuses its marketing efforts on businesses with intensive
information processing needs. The Company maintains a prospect/customer
database, which is continuously updated and utilized throughout the sales cycle
from prospect qualification to close. As a result

of this marketing system, the Company prequalifies sales opportunities, and
direct sales representatives are able to minimize the time spent on prospect
qualification. In addition, substantial emphasis is placed on customer retention
and expansion of services provided to existing customers.

COMPETITION

The IT services market includes a large number of participants, is subject
to rapid change and is intensely competitive. This market includes participants
from a variety of market segments, including:

o systems integration firms;

o contract programming companies;

o application software companies;

o Internet solutions providers;

o the professional services groups of computer equipment companies;

o facilities management and outsourcing companies; and

o "Big Five" accounting firms.

The market also includes numerous smaller local competitors in the various
geographic markets in which the Company operates. The Company competes with,
among others:

Alydaar Corp. I-Gate Capital Corporation
Cambridge Technology Partners, Inc. Sapient Corporation
Cap Gemini America, Inc. Satyam Computer Services Limited
Covansys Inc. SHL Systemhouse (a division of MCI
Computer Horizons Corp. Communications Corporation)
Computer Task Group, Inc. Syntel, Inc.
Information Management Resources, Inc. Tanning Technology Corporation
Infosys, Inc. Tata Consultancy Services
IBM Global Services Whittman-Hart, Inc.
Keane, Inc. Proxicom, Inc.

In certain markets in which the Company competes, there are no significant
barriers to entry. Current and potential competitors may introduce new and more
competitive services, make strategic acquisitions or establish cooperative
relationships among themselves or with third parties. As a result, these
competitors increase the ability of their services to address the needs of
customers. Many of the Company's competitors have significantly greater
financial, technical and marketing resources and greater name recognition than
us. The principal competitive factors affecting the markets for the Company's
services include:

o performance and reliability;

o quality of technical support, training and services;

o responsiveness to customer needs;

o reputation, experience and financial stability; and

o competitive pricing of services.

The Company competes by offering:

o a well developed recruiting, training and retention model;

o a successful service delivery model;

o an excellent referral base;

o continual investment in process improvement and knowledge capture;

o investment in research and development; and

o continued focus on responsiveness to customer needs, quality of services
competitive prices, project management capabilities and technical
expertise.

In order to be successful in the future, the Company must continue to
respond promptly and effectively to technological change and competitors'
innovations. There can be no assurance that the Company will be able to compete
successfully against current and future competitors. The Company's failure to
successfully compete could have a material adverse effect upon its business,
results of operations and financial condition.

INTELLECTUAL PROPERTY

The Company's consulting business includes the co-development, with the
customer, of software applications and other technology deliverables. These
include written specifications and documentation in connection with specific
customer engagements. The Company's future success depends in part on its
ability to protect its intellectual property rights. The Company presently holds
no patents or registered copyrights. The Company relies upon a combination of
copyright and trade secret laws, non-disclosure and other contractual
arrangements and various security measures to protect its intellectual property
rights. India is a member of the Berne Convention, and has agreed to recognize
protections on copyrights conferred under the laws of foreign countries,
including the laws of the United States. The Company believes that laws, rules,
regulations and treaties in effect in the United States and India are adequate
to protect it from misappropriation or unauthorized use of the Company's
copyrights. However, there can be no assurance that such laws will not change
and, in particular, that the laws of India will not change in ways that may
prevent or restrict the transfer of software components, libraries and toolsets
from India to the United States. There can be no assurance that the steps taken
by the Company to protect its intellectual property rights will be adequate to
deter misappropriation of

any of the Company's intellectual property, or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce the Company's
rights.

Pursuant to the License Agreement between CTS and IMS Health, all rights to
the "Cognizant" name and certain related trade and service marks were
transferred to the Company in July, 1998.

EMPLOYEES

At December 31, 2000, the Company employed approximately 631 persons on a
full-time basis in its North American headquarters and satellite offices and
on-site North American customer locations. The Company also employed
approximately 117 persons on a full-time basis in its European satellite office
and on-site European customer locations and approximately 2,416 persons on a
full-time basis in its offshore software development centers in India. None of
the Company's employees is subject to a collective bargaining arrangement. The
Company considers its relations with employees to be good.

The Company's future success depends to a significant extent on its ability
to attract, train and retain highly skilled software development professionals.
In particular, the Company needs to attract, train and retain project managers,
software engineers and other senior technical personnel. The Company believes
that in both the United States and India there is a shortage of, and significant
competition for, software development professionals with the advanced
technological skills necessary to perform the services offered by the Company.
The Company has an active recruitment program in India. The Company has
developed a recruiting system and database that facilitates the rapid
identification of skilled candidates. During the course of the year, the Company
conducts extensive recruiting efforts at premier colleges and technical schools
in India. The Company evaluates candidates based on academic performance, the
results of a written aptitude test measuring problem-solving skills and a
technical interview. In addition, the Company has an active lateral recruiting
program.

Senior project managers are hired from leading consulting firms in the
United States and India. The Company's senior management and substantially all
of the project managers have experience working in the United States and Europe.
This enhances the Company's ability to attract and retain other professionals
with experience in the United States.

The Company also has adopted a career and education management program to
define the employees' objectives and career plans. Through an intensive
orientation and training program, the Company introduces new employees to the
QView software engineering process and its services.

ITEM 2. PROPERTIES

The Company's executive and business development office is located in
Teaneck, New Jersey. The Company believes that its current facilities are
adequate to support its existing operations. The Company also believes that it
will be able to obtain suitable additional facilities on commercially reasonable
terms on an "as needed" basis.

The Company occupies the following properties, which are all leased:

Approximate Area
Location (in sq. feet) Use Nature of Occupancy
- ----------------------------------------------------------------------------------------------------------------------------------

Bangalore, India 35,500 Software Development Facility Multiple leases expiring 6/30/06 with renewal options

Chennai, India 58,800 Software Development Facility Lease expiring 10/24/03 with renewal options

Chennai, India 15,500 Software Development Facility Multiple leases expiring 1/31/06 - 4/30/06 with
renewal options

Chennai, India 38,200 Software Development Facility Multiple leases expiring 8/31/04 - 12/31/06 with
renewal options

Chennai, India 35,100 Software Development Facility Multiple leases expiring 4/30/06 with renewal options

Chennai, India 33,700 Software Development Facility Lease expiring 12/15/06 with renewal options

Pune, India 23,000 Software Development Facility Multiple leases expiring 10/8/07 - 6/28/08 with renewal
options

Calcutta, India 13,900 Software Development Facility Lease expiring 10/7/07 with a renewal option

Calcutta, India 10,900 Software Development Facility Lease expiring 6/14/06 with a renewal option

Calcutta, India 9,300 Software Development Facility Lease expiring 11/30/03 with a renewal option

Calcutta, India 4,000 Software Development Facility Multiple leases expiring 4/30/02 - 1/15/03 with renewal
options

Teaneck, New Jersey 20,400 Executive and Business Multiple leases expiring 5/31/02 - 9/30/05
Development Office

Atlanta, Georgia 1,000 Business Development Office Lease expiring 9/14/03

Chicago, Illinois 5,100 Business Development Office Lease expiring 7/31/05

Cincinnati, Ohio 300 Business Development Office Lease expiring 4/30/01

Dallas, Texas 800 Business Development Office Lease expiring 3/31/03

Los Angeles, California 1,100 Business Development Office Lease expiring 6/30/01

Approximate Area
Location (in sq. feet) Use Nature of Occupancy
- ----------------------------------------------------------------------------------------------------------------------------------

Minneapolis, Minnesota 800 Business Development Office Lease expiring 6/30/03

San Francisco, California 2,000 Business Development Office Multiple leases expiring 1/31/02

Toronto, Canada 200 Business Development Office Lease expiring 2/28/02

Frankfurt, Germany 200 Business Development Office Lease expires 3/31/02

London, England 3,700 Business Development Office Multiple leases expiring 9/28/04 and month-to-month

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Prior to June 1998, there was no established market for the Company's Class
A Common Stock. Since June 19, 1998, the Class A Common Stock has traded on the
Nasdaq National Market ("NNM") under the symbol "CTSH".

All of the issued and outstanding shares of Class B Common Stock are held
by IMS Health. Each outstanding share of Class B Common Stock is convertible at
the holder's option into one share of Class A Common Stock at any time prior to
a Tax-Free Spin-Off (as defined below). If a Tax-Free Spin-Off occurs, the
stockholders of IMS Health will receive Class B Common Stock, which will
continue to have ten votes per share (as compared to one vote per share for
Class A Common Stock). Such shares of Class B Common Stock shall convert upon
transfer to Class A Common Stock. Additionally, each share of Class B Common
Stock automatically converts into one share of Class A Common Stock if at any
time the number of outstanding shares of Class B Common Stock represents less
than 35.0% of the economic ownership represented by the aggregate number of
shares of Common Stock then outstanding.

Except as provided below, any shares of Class B Common Stock transferred to
a person other than IMS Health shall automatically convert to shares of Class A
Common Stock upon such disposition. Shares of Class B Common Stock transferred
to stockholders of IMS Health in a transaction intended to be on a tax-free
basis (a "Tax-Free Spin-Off") under the Code shall not convert to shares of
Class A Common Stock upon the occurrence of such Tax-Free Spin-Off.

Following a Tax-Free Spin-Off, shares of Class B Common Stock shall convert
upon transfer to Class A Common Stock; provided, however, that shares of Class B
Common Stock shall automatically convert into shares of Class A Common Stock on
the fifth anniversary of the Tax-Free Spin-Off, unless prior to such Tax-Free
Spin-Off, IMS Health delivers to the Company written advice of counsel
reasonably satisfactory to the Company to the effect that (i) such conversion
could adversely affect the ability of IMS Health to obtain a favorable ruling
from the Internal Revenue Service that the distribution would be a Tax-Free
Spin-Off or (ii) the Internal Revenue Service has adopted a general non-ruling
policy on tax-free spin-offs and that such conversion could adversely affect the
status of the transaction as a Tax-Free Spin-Off. If such written advice is
received, approval of such conversion shall be submitted to a vote of the
holders of the Common Stock as soon as practicable after the fifth anniversary
of the Tax-Free Spin-Off, unless IMS Health delivers to the Company written
advice of counsel reasonably satisfactory to the Company prior to such
anniversary that such vote could adversely affect the status of the distribution
as a Tax-Free Spin-Off, including the ability to obtain a favorable ruling from
the Internal Revenue Service. If such written advice is delivered, such vote
shall not be held. Approval of such conversion will require the affirmative vote
of the holders of a majority of the shares of both Class A Common Stock and
Class B Common Stock present and voting, voting together as a single class, with
each share entitled to one vote for such purpose. No assurance can be given that
such conversion would be consummated. The foregoing requirements are intended to
ensure that tax-free treatment of a Tax-Free Spin-Off is preserved should the
Internal Revenue Service challenge such automatic conversion as violating the
80.0% vote requirement currently required by the Code for a Tax-Free Spin-Off.

The following table sets forth the high and low sales price for the Class A
Common Stock for each of the quarters since the quarter ended March 31, 1999 as
reported on NNM. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.

Quarter Ended High Low
---------------------------------- --------- ---------
March 31, 1999..................... $24 $11 3/4
June 30, 1999...................... $15 19/32 $9 5/8
September 30, 1999................. $16 3/8 $10 3/16
December 31, 1999.................. $60 1/2 $12 13/16
March 31, 2000..................... $72 1/8 $36 1/2
June 30, 2000...................... $65 $24 1/4
September 30, 2000................. $49 $30 15/16
December 31, 2000.................. $45 $28 7/8

As of March 1, 2001, the approximate number of holders of record of the
Class A Common Stock was 34 and the approximate number of beneficial holders of
the Class A Common Stock was 4,778.

As of March 1, 2001, all of the outstanding Class B Common Stock of the
Company was owned by IMS Health.

The Company has never declared or paid cash dividends on its Class A or
Class B Common Stock. The Company currently intends to retain any future
earnings to finance the growth of the business and, therefore, does not
currently anticipate paying any cash dividends in the foreseeable future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated historical financial
data of the Company as of the dates and for the periods indicated. The selected
consolidated financial data set forth below for the Company as of December 31,
1999 and 2000 and for each of the three years in the period ended December 31,
2000 have been derived from the audited financial statements included elsewhere
herein. The selected consolidated financial data set forth below for the Company
as of December 31, 1996, 1997 and for each of the years ended December 31, 1996,
1997 and 1998 are derived from the audited financial statements not included
elsewhere herein. The selected consolidated financial information for 1998, 1999
and 2000 should be read in conjunction with the Consolidated Financial
Statements and the Notes and "Item 7". Management's Discussion and Analysis of
Financial Condition and Results of Operations" which are included elsewhere in
this Annual Report on Form 10-K.

YEAR ENDED DECEMBER 31,
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Revenues.................................. $ 2,775 $ 13,898 $ 45,031 $ 74,084 $122,758
Revenues - related party.................. 9,257 10,846 13,575 14,820 14,273
-------- -------- -------- -------- --------

Total revenues......................... 12,032 24,744 58,606 88,904 137,031

Cost of revenues.......................... 6,020 14,359 31,919 46,161 70,437
-------- -------- -------- -------- --------

Gross profit.............................. 6,012 10,385 26,687 42,743 66,594

Selling, general and administrative
expenses............................... 3,727 6,898 15,547 23,061 35,959

Depreciation and amortization expense..... 819 1,358 2,222 3,037 4,507
-------- -------- -------- -------- --------

Income from operations.................... 1,466 2,129 8,918 16,645 26,128

Other income:
Interest income........................ 8 25 638 1,263 2,649
Other income (expense) - net........... 1 -- 83 37 (530)
-------- -------- -------- -------- --------
Total other income..................... 9 25 721 1,300 2,119
-------- -------- -------- -------- --------

Income before provision for income taxes.. 1,475 2,154 9,639 17,945 28,247

Provision for income taxes................ (341) (581) (3,606) (6,711) (10,564)

Minority interest......................... (492) (545) -- -- --

Net income................................ $ 642 $ 1,028 $ 6,033 $ 11,234 $ 17,683
======== ======== ======== ======== ========

Net income per share, basic............... $ 0.05 $ 0.08 $ 0.38 $ 0.61 $ 0.95
======== ======== ======== ======== ========

Net income per share, diluted............. $ 0.05 $ 0.08 $ 0.37 $ 0.58 $ 0.87
======== ======== ======== ======== ========

Weighted average number of common
shares outstanding..................... 13,000 13,094 15,886 18,342 18,565
======== ======== ======== ======== ========

Weighted average number of common
shares and stock options outstanding... 13,000 13,010 16,538 19,416 20,256
======== ======== ======== ======== ========

CONSOLIDATED STATEMENT OF FINANCIAL
POSITION DATA:

Cash and cash equivalents................. $ 1,810 $ 2,715 $ 28,418 $ 42,641 $ 61,976
Working capital........................... 2,781 5,694 29,416 43,507 61,501
Total assets.............................. 7,827 18,298 51,679 69,026 109,540
Due to related party...................... 976 6,646 9 -- 8
Stockholders' equity...................... 2,806 3,419 32,616 45,461 66,116

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

The Company delivers high-quality, cost-effective, full life cycle
solutions to complex software development and maintenance problems that
companies face as they transition to e-business. These services are delivered
through the use of a seamless on-site and offshore consulting project team. The
Company's service offerings include:

o application development and integration;

o application management; and

o re-engineering.

The Company began its software development and maintenance services
business in early 1994, as an in-house technology development center for The Dun
& Bradstreet Corporation and its operating units. In 1996, the Company, along
with Erisco, IMS International, Nielsen Media Research, Pilot Software and
Strategic Technologies and certain other entities, plus a majority interest in
Gartner Group were spun-off from The Dun & Bradstreet Corporation to form a new
company, Cognizant Corporation. 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 by the Company.

In June 1998, the Company completed its initial public offering. On June
30, 1998, a majority interest in the Company, Erisco, IMS International and
certain other entities were spun-off from Cognizant Corporation to form IMS
Health. At December 31, 2000, IMS Health owned approximately 60.5% of the
outstanding stock of the Company and held approximately 93.9% of the combined
voting power of the Company's common stock.

On February 11, 2000, the Board of Directors declared a 2-for-1 stock split
effected by a 100% dividend payable on March 16, 2000 to stockholders of record
on March 2, 2000. The stock split has been reflected in the accompanying
consolidated financial statements, and all applicable references as to the
number of common shares and per share information have been restated.
Appropriate adjustments have been made in the exercise price and number of
shares subject to stock options. Stockholder equity accounts have been restated
to reflect the reclassification of an amount equal to the par value of the
increase in issued common shares from the additional paid-in-capital account to
the common stock accounts.

On May 23, 2000, the stockholders of the Company approved an increase in
the number of authorized Class B common Stock from 15,000,000 shares to
25,000,000 shares.

During 1996, the Company made a strategic decision to attract customers
that were not affiliated with Cognizant Corporation or any of the former
affiliates of The Dun & Bradstreet Corporation. As a result of the
implementation of this strategy, the Company has successfully transitioned from
a company primarily serving affiliated customers to a company whose customer
base now consists primarily of unaffiliated third parties. For example, revenues

derived from customers not currently or previously affiliated with The Dun &
Bradstreet Corporation, Cognizant Corporation, IMS Health, and any of their
respective subsidiaries grew from $26.9 million, or 46.0% of revenues, in 1998
to $50.5 million, or 56.8% of revenues, in 1999 and $92.3 million, or 67.4% of
revenues, in 2000. Approximately 54.0%, 43.2% and 32.6% of the Company's
revenues in 1998, 1999 and 2000, respectively, were generated from current and
former affiliates including approximately 18.0%, 16.7% and 10.4%, respectively,
from IMS Health and its current subsidiaries.

The Company has derived and believes that it will continue to derive a
significant portion of its revenues from a limited number of large third-party
customers. During 1998, 1999 and 2000, the Company's five largest customers
(other than IMS Health and its current subsidiaries) accounted for 43.7%, 44.9%
and 34.5% of revenues, respectively. In 1998, IMS Health, First Data Corporation
and ACNielsen each accounted for more than 10.0% of revenue. In 1999, IMS Health
and First Data Corporation accounted for more than 10.0% of revenue. In 2000,
IMS Health accounted for more than 10.0% of revenues. The volume of work
performed for IMS Health and its subsidiaries and other customers is likely to
vary from year to year. Major customers, whether affiliated or unaffiliated, in
one year may not provide the same level of revenues in any subsequent year.

Prior to fiscal 2000, Year 2000 compliance services were an important
element of the Company's service offerings. Approximately 44.1%, 15.6% and 0.4%
of the Company's revenues were derived from Year 2000 compliance services in
1998, 1999 and 2000, respectively. The Company believes that it has successfully
utilized its Year 2000 compliance expertise to establish new client
relationships and to deepen its relationships with existing customers. The
knowledge of customers' systems gained while performing Year 2000 compliance
services gave the Company a competitive advantage in securing additional
application development and application management projects for such customers.

Application development and integration services represented approximately
25.8%, 32.3% and 46.1% of revenues in 1998, 1999 and 2000, respectively.
Application management services accounted for 21.1%, 44.0% and 47.0% of revenues
in 1998, 1999 and 2000, respectively.

The Company's services are performed on either a time-and-materials or
fixed-price basis. Revenues related to time-and-materials contracts are
recognized as the service is performed. Revenues related to fixed-price
contracts are recognized using the percentage-of-completion method of
accounting. Under such method, the sales value of performance, including
earnings thereon, is recognized on the basis of the percentage that each
contract's cost to date bears to the total estimated contract cost. Estimates
are subject to adjustment as a project progresses, to reflect changes in
expected completion costs. The cumulative impact of any revision in estimates of
the percentage of work completed is reflected in the financial reporting period
in which the change in the estimate becomes known. Additionally, any anticipated
losses are recognized immediately. Since the Company bears the risk of cost
over-runs and inflation associated with fixed-price projects, the Company's
operating results may be adversely affected by changes in estimates of contract
completion costs.

The majority of the Company's revenues are earned within North America.
Revenues outside of North America totaled $10.7 million, $17.7 million and $22.1
million, in 1998, 1999 and 2000, respectively, based upon where the customers
are located. Revenues from customers located outside of North America have been
generated primarily in the United Kingdom and Germany. As a percentage of
revenues, revenues outside of North America represented 18.3%, 19.9% and 16.1%
in 1998, 1999 and 2000, respectively. The primary denomination for invoices
issued by the Company is U.S. dollars, with the exception of invoices issued in
Canada, Germany and the United Kingdom. Invoices issued in Canada, Germany and
the United Kingdom are issued in local currency. Gains and losses as a result of
fluctuations in foreign currency exchange rates have not had a significant
impact on historical results of operations.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain financial
data expressed as a percentage of total revenue:

YEAR ENDED DECEMBER 31,
1998 1999 2000
---------- ---------- ----------

Total revenues................................ 100.0% 100.0% 100.0%
Cost of revenues.............................. 54.5 51.9 51.4
------ ------ ------
Gross profit............................... 45.5 48.1 48.6
Selling, general and administrative expenses.. 26.5 25.9 26.2
Depreciation and amortization expense......... 3.8 3.4 3.3
------ ------ ------
Income from operations..................... 15.2 18.8 19.1
Other income (expense):
Interest income............................ 1.1 1.4 1.9
Other income (expense)..................... 0.1 -- (0.4)
------ ------ ------
Total other income............................ 1.2 1.4 1.5
------ ------ ------
Income before provision for income taxes...... 16.4 20.2 20.6
Provision for income taxes.................... (6.2) (7.6) (7.7)
------ ------ ------
Net income................................... 10.3% 12.6% 12.9%
====== ====== ======

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenue. Revenue increased by 54.1%, or $48.1million, from $88.9 million
during 1999 to $137.0 million during 2000. This increase resulted primarily from
a $61.5 million (82.0%) increase in application development and integration,
application management, re-engineering and other services partially offset by an
approximately $13.4 million (96.5%) decrease in Year 2000 compliance services.
The percentage of revenues derived from unrelated parties increased from 83.3%
during 1999 to 89.6% during 2000. This increase resulted primarily from the
Company's continued efforts to pursue unaffiliated third-party customers and
expanded service offerings to existing unaffiliated customers. For statement of
operations purposes, revenues from related parties only include revenues
recognized during the period in which the related party was affiliated with the
Company. During 2000, sales to related party customers accounted for 10.4% of
revenues and no third party accounted for greater than 10% of revenues. During
1999, sales

to related party customers accounted for 16.7% of revenues and one third-party
customer accounted for 17.4% of revenues.

Gross profit. The Company's cost of revenues consists primarily of the cost
of salaries, payroll taxes, benefits, immigration and travel for technical
personnel, and the cost of sales commissions related to revenues. The Company's
cost of revenues increased by 52.6%, or $24.3 million, from $46.2 million during
1999 to $70.4 million during 2000. The increase was due primarily to the
increased cost resulting from the increase in the number of the Company's
technical professionals from approximately 2,000 employees at December 31, 1999
to approximately 2,800 employees at December 31, 2000. The increased number of
technical professionals is a direct result of greater demand for the Company's
services. The Company's gross profit increased by 55.8%, or approximately $23.9
million, from approximately $42.7 million during 1999 to approximately $66.6
million during 2000. Gross profit margin increased from 48.1% of revenues during
1999 to 48.6% of revenues during 2000. The increase in such gross profit margin
was primarily attributable to the increased third-party revenue and the shift
toward newer, higher margin customers.

Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries, employee benefits,
travel, promotion, communications, management, finance, administrative and
occupancy costs. Selling, general and administrative expenses, including
depreciation and amortization, increased by 55.1%, or $14.4 million, from $26.1
million during 1999 to $40.5 million during 2000, and increased as a percentage
of revenue from approximately 29.4% to 29.5%, respectively. The increase in such
expenses in absolute dollars and as a percentage of revenue was primarily due to
expenses incurred to expand the Company's sales and marketing activities and
increased infrastructure expenses to support the Company's revenue growth.

Income from Operations. Income from operations increased 57.0%, or
approximately $9.5 million, from approximately $16.6 million during 1999 to
approximately $26.1 million during 2000, representing approximately 18.7% and
19.1% of revenues, respectively. The increase in operating margin was primarily
due to the increased third-party revenue and the shift toward newer, higher
margin customer services.

Other Income. Other income consists primarily of interest income offset, in
part, by foreign currency exchange losses. Interest income increased by
approximately 109.7%, from $1.3 million during 1999 to approximately $2.6
million during 2000. The increase in such interest income was attributable
primarily to generally higher operating cash balances. The Company recognized a
net foreign currency exchange loss of approximately $538,000 during 2000, as a
result of the effect of changing exchange rates on the Company's transactions.

Provision for Income Taxes. Historically, through the date of the IPO, the
Company had been included in the consolidated federal income tax returns of The
Dun & Bradstreet Corporation and Cognizant Corporation. The Company's provision
for income taxes in the consolidated statements of income reflects the federal
and state income taxes calculated on the Company's stand alone basis. The
provision for income taxes increased from $6.7 million in 1999 to $10.6 million
in 2000, with an effective tax rate of 37.4% in both 1999 and 2000.

Net Income. Net income increased from approximately $11.2 million in 1999
to approximately $17.7 million in 2000, representing approximately 12.6% and
12.9% as a percentage of revenues, respectively.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Revenue. Revenue increased by 51.7%, or $30.3 million, from $58.6 million
during 1998 to $88.9 million during 1999. This increase resulted primarily from
a $42.3 million (129.1%) increase in application development and integration,
application management, re-engineering and other services partially offset by an
approximately $12.0 million (46.4%) decrease in Year 2000 compliance services.
The percentage of revenues derived from unrelated parties increased from 76.8%
during 1998 to 83.3% during 1999. This increase resulted primarily from the
Company's continued efforts to pursue unaffiliated third-party customers and the
impact of the spin-off in June 1998 of a majority interest in the Company,
Erisco, IMS International and certain other entities to form IMS Health. For
statement of operations purposes, revenues from related parties only include
revenues recognized during the period in which the related party was affiliated
with the Company. During 1999, sales to related party customers accounted for
16.7% of revenues and one third-party customer accounted for 17.4% of revenues.
During 1998, sales to related party customers accounted for 23.2% of revenues
and two third-party customers accounted for 12.5% and 11.3% of revenues,
respectively.

Gross profit. The Company's cost of revenues increased by 44.6%, or $14.2
million, from $31.9 million during 1998 to $46.2 million during 1999. The
increase was due primarily to the increased cost resulting from the increase in
the number of the Company's technical professionals from approximately 1,400
employees at December 31, 1998 to approximately 2,000 employees at December 31,
1999. The increased number of technical professionals is a direct result of
greater demand for the Company's services. The Company's gross profit increased
by 60.2%, or approximately $16.1 million, from approximately $26.7 million
during 1998 to approximately $42.7 million during 1999. Gross profit margin
increased from 45.5% of revenues during 1998 to 48.1% of revenues during 1999.
The increase in such gross profit margin was primarily attributable to the
increased third-party revenue and the shift toward newer, higher margin
customers.

Selling, general and administrative expenses. Selling, general and
administrative expenses, including depreciation and amortization, increased by
46.9%, or $8.3 million, from $17.8 million during 1998 to $26.1 million during
1999, but decreased as a percentage of revenue from approximately 30.3% to
29.4%, respectively. The dollar increase in such expenses was primarily due to
expenses incurred to expand the Company's sales and marketing activities and
increased infrastructure expenses to support the Company's revenue growth. The
decrease in selling, general and administrative expenses as a percentage of
revenue resulted from the Company's increased revenues.

Income from Operations. Income from operations increased 86.6%, or
approximately $7.7 million, from approximately $8.9 million during 1998 to
approximately $16.6 million during 1999, representing approximately 15.2% and
18.7% of revenues, respectively. The increase in operating margin was primarily
due to the increased third-party revenue and the shift toward newer, higher
margin customers, discussed above.

Other Income. Other income consists primarily of interest income and
foreign currency exchange gains. Interest income increased by approximately
$625,000, from $638,000 during 1998 to approximately $1.3 million during 1999.
The increase in such interest income was attributable primarily to the
investment of the net proceeds generated from the Company's initial public
offering and generally higher operating cash balances. The Company recognized a
net foreign currency exchange loss of approximately $32,000 during 1999, as a
result of changes in exchange rates on its transactions.

Provision for Income Taxes. The provision for income taxes increased from
$3.6 million in 1998 to $6.7 million in 1999, with an effective tax rate of
37.4% in both 1998 and 1999.

Net Income. Net income increased from approximately $6.0 million in 1998 to
approximately $11.2 million in 1999, representing 10.3% and 12.6% as a
percentage of revenues, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Historically, through the date of the IPO, the Company's primary sources of
funding had been cash flow from operations and intercompany cash transfers with
its majority owner and controlling parent company Cognizant Corporation and IMS
Health. In June 1998, the Company consummated its initial public offering of
5,834,000 shares of its Class A Common Stock at a price to the public of $5.00
per share, of which 5,000,000 shares were issued and sold by the Company and
834,000 shares were sold, at that time, by Cognizant Corporation. The net
proceeds to the Company from the offering were approximately $22.4 million after
$845,000 of direct expenses. The funds received by the Company from the initial
public offering were invested in short-term, investment grade, interest bearing
securities, after the Company used a portion of the net proceeds to repay
approximately $6.6 million of then-existing non-trade related party balances to
Cognizant Corporation. The Company has used and plans to use the remainder of
the net proceeds from the offering as well as other cash for (i) expansion of
existing operations, including its offshore software development centers; (ii)
continued development of new service lines and possible acquisitions of related
businesses including cost and equity investments; and (iii) general corporate
purposes including working capital.

Net cash provided by operating activities was approximately $30.2 million,
$19.4 million and $13.4 million for the years ended December 31, 2000, 1999 and
1998, respectively. The increase for 2000 compared to 1999 results primarily
from increased levels of accrued liabilities and accounts payable, increased net
income and an increase in deferred taxes, partially offset by increases in
accounts receivable and other current assets. The increase for 1999 compared to
1998 results primarily from increased net income and a decrease in accounts
receivable partially offset by a lower increase in accrued liabilities versus
the prior year. Accounts receivable decreased from $11.1 million at December 31,
1998 to $10.0 million at December 31, 1999 and increased to $20.5 million at
December 31, 2000. The increase in accounts receivable during 2000 was due
primarily to increased revenue. The Company monitors turnover, aging and the
collection of accounts receivable through the use of management reports which
are prepared on a customer basis and evaluated by the Company's finance staff.
At December 31, 2000, the Company's day's sales outstanding, including unbilled
receivables, was approximately 50 days.

The Company's investing activities used net cash of $12.6 million, $5.9
million and $3.7 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The increase in 2000 compared to 1999 primarily reflects the
Company's increased purchases of land, buildings and equipment to expand the
Company's offshore development infrastructure and an investment in Questra
Corporation of approximately $2.0 million in June 2000. The increase in 1999 of
net cash used in investing activities compared to 1998 primarily reflects an
increase in purchases of property and equipment.

In June 2000, the Company announced a strategic relationship with Trident
Capital, a leading venture capital firm, to jointly invest in emerging
e-business service and technology companies. In accordance with this strategy,
the Company invested approximately $2 million in Questra Corporation, an
e-business software and consulting firm headquartered in Rochester, New York, in
return for a 5.8% equity interest. Trident Capital also independently made a
direct investment in Questra Corporation. The Company's investment is being
accounted for under the cost basis of accounting.

The Company's financing activities provided net cash of $1.8 million, $0.7
million and $16.1 million for the years ended December 31, 2000, 1999 and 1998,
respectively. The increase in 2000 compared to 1999 was primarily related to a
higher level of cash proceeds from the exercise of stock options. The decrease
in 1999 compared to 1998 resulted from the absence of the net proceeds generated
from the initial public offering of $22.4 million, offset by the repayment of
non-trade related party balances of approximately $6.6 million.

As of December 31, 2000, the Company had no significant third-party debt.

The Company had working capital of $61.5 million at December 31, 2000 and
$43.5 million at December 31, 1999.

The Company believes that its available funds and the cash flows expected
to be generated from operations, will be adequate to satisfy its current and
planned operations and needs for at least the next 12 months. The Company's
ability to expand and grow its business in accordance with current plans, to
make acquisitions and form joint ventures and to meet its long-term capital
requirements beyond this 12-month period will depend on many factors, including
the rate, if any, at which its cash flow increases, its ability and willingness
to accomplish acquisitions and joint ventures with capital stock and the
availability to the Company of public and private debt and equity financing. The
Company cannot be certain that additional financing, if required, will be
available on terms favorable to it, if at all.

FOREIGN CURRENCY TRANSLATION

The assets and liabilities of the Company's Canadian and European
subsidiaries are translated into U.S. dollars at current exchange rates and
revenues and expenses are translated at average monthly exchange rates. The
resulting translation adjustments are recorded in a separate component of
stockholders' equity. For the Company's Indian subsidiary, the functional
currency is the U.S. dollar since its sales are made primarily in the United
States, the sales price is predominantly in U.S. dollars; and there is a high
volume of intercompany transactions denominated in U.S. dollars between the
Indian subsidiary and the Company's U.S. affiliates.

Non-monetary assets and liabilities are translated at historical exchange rates,
while monetary assets and liabilities are translated at current exchange rates.
A portion of the Company's costs in India are denominated in local currency and
subject to exchange fluctuations, which has not had any material effect on the
Company's results of operations.

EFFECTS OF INFLATION

The Company's most significant costs are the salaries and related benefits
for its programming staff and other professionals. Competition in India and the
United States for professionals with advanced technical skills necessary to
perform the services offered by the Company have caused wages to increase at a
rate greater than the general rate of inflation. As with other IT service
providers, the Company must adequately anticipate wage increases, particularly
on its fixed-price contracts. There can be no assurance that the Company will be
able to recover cost increases through increases in the prices that it charges
for its services in the United States and elsewhere.

RECENT ACCOUNTING PRONOUNCEMENTS

During 1999 and 2000, various new accounting pronouncements were issued
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 on Form 10-K that are not
historical facts are forward-looking statements (within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. From time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission, or press releases or
oral statements made by or with the approval of an authorized executive officer
of the Company. These forward-looking statements, such as statements regarding
anticipated future revenues, contract percentage completions, capital
expenditures, and other statements regarding matters that are not historical
facts, involve predictions. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Potential risks and uncertainties that
could affect the Company's future operating results include, but are not limited
to: (i) the significant fluctuations of the Company's quarterly operating
results caused by a variety of factors, many of which are not within the
Company's control, including (a) the number, timing, scope and contractual terms
of software development and maintenance projects, (b) delays in the performance
of projects, (c) the accuracy of estimates of costs, resources and time to
complete projects, (d) seasonal patterns of the Company's services required by
customers, (e) levels of market acceptance for the Company's services, and (f)
the hiring of additional staff; (ii) changes in the Company's billing and
employee utilization rates; (iii) the Company's ability to manage its

growth effectively, which will require the Company (a) to increase the number of
its personnel, particularly skilled technical, marketing and management
personnel, and (b) to continue to develop and improve its operational,
financial, communications and other internal systems, both in the United States
and India; (iv) the Company's limited operating history with unaffiliated
customers; (v) the Company's reliance on key customers and large projects; (vi)
the highly competitive nature of the markets for the Company's services; (vii)
the Company's ability to successfully address the continuing changes in
information technology, evolving industry standards and changing customer
objectives and preferences; (viii) the Company's reliance on the continued
services of its key executive officers and leading technical personnel; (ix) the
Company's ability to attract and retain a sufficient number of highly skilled
employees in the future; (x) the Company's ability to protect its intellectual
property rights; and (xi) general economic conditions. The Company's actual
results may differ materially from the results disclosed in such forward-looking
statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required to be filed pursuant to this Item 8 are
appended to this Annual Report on Form 10-K. A list of the financial statements
filed and financial statement schedule herewith is found at "Item 14. Exhibits,
Financial Statement Schedule, and Reports on Form 8-K."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information relating to the Company's directors, nominees for election
as directors and executive officers under the headings "Election of Directors"
and "Executive Officers" in the Company's definitive proxy statement for the
2001 Annual Meeting of Stockholders is incorporated herein by reference to such
proxy statement.

ITEM 11. EXECUTIVE COMPENSATION

The discussion under the heading "Executive Compensation" in the Company's
definitive proxy statement for the 2001 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The discussion under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for the 2001
Annual Meeting of Stockholders is incorporated herein by reference to such proxy
statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 2001 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE, AND
REPORTS ON FORM 8-K

(a) (1) Consolidated Financial Statements.

Reference is made to the Index to Consolidated Financial Statements on
Page F-1.

(a) (2) Consolidated Financial Statement Schedule.

Reference is made to the Index to Financial Statement Schedule on Page
F-1.

(a) (3) Exhibits.

Reference is made to the Index to Exhibits on Page 33.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended December
31, 2000.

Schedules other than as listed above are omitted as not required or
inapplicable or because the required information is provided in the consolidated
financial statements, including the notes thereto.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 15th day of March,
2001.

COGNIZANT TECHNOLOGY
SOLUTIONS CORPORATION

By: /s/Wijeyaraj Mahadeva
-----------------------------------
Wijeyaraj Mahadeva, Chairman of the
Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/Wijeyaraj Mahadeva Chairman of the Board and March 15, 2001
- -------------------------
Wijeyaraj Mahadeva Chief Executive Officer
(Principal Executive Officer)

/s/Gordon Coburn Chief Financial Officer, March 15, 2001
- -------------------------
Gordon Coburn Treasurer and Secretary
(Principal Financial and
Accounting Officer)

/s/Anthony Bellomo Director March 15, 2001
- -------------------------
Anthony Bellomo

Director
- -------------------------
Robert W. Howe

/s/John Klein Director March 15, 2001
- -------------------------
John Klein

/s/Venetia Kontogouris Director March 15, 2001
- -------------------------
Venetia Kontogouris

Director
- -------------------------
David Thomas

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------- -----------------------

3.1 Amended and Restated Certificate of Incorporation.
(Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File Number 333-49783)
which became effective on June 18, 1998.)

3.2 Certificate of Amendment to the Company's Amended and
Restated Certificate of Incorporation. (Incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000.)

3.3 By-laws. (Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (File Number
333-49783) which became effective on June 18, 1998.)

10.1* Form of Indemnification Agreement for Directors and
Officers. (Incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (File Number
333-49783) which became effective on June 18, 1998.)

10.2* Amended and Restated Cognizant Technology Solutions Key
Employees' Stock Option Plan. (Incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-1 (File Number 333-49783) which became effective on June
18, 1998.)

10.3* Amended and Restated Cognizant Technology Solutions
Non-Employee Directors' Stock Option Plan. (Incorporated by
reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File Number 333-49783) which became
effective on June 18, 1998.)

10.4* Option Agreement between the Company and Wijeyaraj Mahadeva.
(Incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (File Number 333-49783)
which became effective on June 18, 1998.)

10.5 Form of Master Services Agreement between the Company and
each of I.M.S. International, Inc., IMS America, Ltd. and
Nielsen Media Research, Inc. (Incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form
S-1 (File Number 333-49783) which became effective on June
18, 1998.)

10.6 License Agreement between the Company and Cognizant
Corporation. (Incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-1 (File
Number 333-49783) which became effective on June 18, 1998.)

10.7 Intercompany Agreement between the Company and Cognizant
Corporation. (Incorporated by reference to Exhibit 10.7 to
the Company's Registration Statement on Form S-1 (File
Number 333-49783) which became effective on June 18, 1998.)

10.8 Intercompany Services Agreement between the Company and
Cognizant Corporation. (Incorporated by reference to Exhibit
10.8 to the Company's Registration Statement on Form S-1
(File Number 333-49783) which became effective on June 18,
1998.)

10.9* Form of Severance and Non-Competition Agreement between the
Company and each of its Executive Officers. (Incorporated by
reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (File Number 333-49783) which became
effective on June 18, 1998.)

10.10 Sublease dated August 28, 1998 by and between Trans Tec
Services, Inc., as Sublessor, and the Company, as Sublessee
(Incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the Year ended December 31,
1998.)

10.11* 1999 Incentive Compensation Plan, as amended. (Incorporated
by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000.)

10.12* Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999.)

21 List of subsidiaries of the Company. (Incorporated by
reference to Exhibit 21 to the Company's Registration
Statement on Form S-1 (File Number 333-49783) which became
effective on June 18, 1998.)

23** Consent of PricewaterhouseCoopers LLP.

- --------------

* A management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.

** Filed herewith. All other exhibits previously filed.

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

Page
----

Consolidated Financial Statements:

Report of Independent Accountants..................................... F-2

Consolidated Statements of Financial Position as of
December 31, 2000 and 1999......................................... F-3

Consolidated Statements of Operations for the
years ended December 31, 2000, 1999 and 1998....................... F-4

Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998....................... F-5

Consolidated Statements of Cash Flows for the
years ended December 31, 2000, 1999 and 1998....................... F-6

Notes to Consolidated Financial Statements............................ F-7

Unaudited Quarterly Financial Data......................................... F-25

Financial Statement Schedule:
Schedule of Valuation and Qualifying Accounts...................... F-26

F - 1

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 30 present fairly, in all material
respects, the financial position of Cognizant Technology Solutions Corporation
at December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 30 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
New York, New York
February 6, 2001

F - 2

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands, except par values)

AT DECEMBER 31,
2000 1999
---- ----

ASSETS
Current assets:
Cash and cash equivalents........................................ $ 61,976 $ 42,641
Trade accounts receivable, net of allowances of $516 and $225,
respectively................................................... 19,187 8,166
Trade accounts receivable - related party........................ 1,361 1,848
Unbilled accounts receivable..................................... 1,941 1,071
Unbilled accounts receivable - related party -- 73
Other current assets............................................. 3,758 2,912
-------- -------

Total current assets........................................... 88,223 56,711
-------- -------

Property and equipment, net of accumulated depreciation of
$10,997 and $6,817, respectively............................... 15,937 9,474
Goodwill, net.................................................... 1,195 1,513
Investment....................................................... 1,955 --
Other assets..................................................... 2,230 1,328
-------- -------
Total assets................................................... $ 109,540 $ 69,026
======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 2,849 $ 1,435
Accounts payable-related party................................... 8 --
Accrued expenses and other liabilities........................... 23,865 11,769
-------- -------
Total current liabilities...................................... 26,722 13,204
Deferred income taxes............................................ 16,702 10,361
-------- -------
Total liabilities.............................................. 43,424 23,565
-------- -------

Commitments and contingencies (See Notes 11 and 12 to the
Consolidated Financial Statements)

Stockholders' equity:
Preferred stock, $.10 par value, 15,000 shares authorized, none
issued........................................................ -- --
Class A common stock, $.01 par value, 100,000 shares authorized,
7,362 and 7,202 shares issued and outstanding at December 31,
2000 and 1999, respectively.................................... 73 72
Class B common stock, $.01 par value, 25,000 shares authorized,
11,290 shares issued and outstanding at December 31, 2000 and
1999, respectively............................................. 113 113
Additional paid-in capital....................................... 29,094 26,082
Retained earnings................................................ 36,886 19,203
Cumulative translation adjustment................................ (50) (9)
-------- -------
Total stockholders' equity..................................... 66,116 45,461
-------- -------
Total liabilities and stockholders' equity..................... $ 109,540 $ 69,026
======== =======

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

F - 3

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
---- ---- ----

Revenues.............................................. $122,758 $ 74,084 $ 45,031
Revenues-related party................................ 14,273 14,820 13,575
-------- -------- --------
Total revenues...................................... 137,031 88,904 58,606
Cost of revenues...................................... 70,437 46,161 31,919
-------- -------- --------
Gross profit.......................................... 66,594 42,743 26,687
Selling, general and administrative expenses.......... 35,959 23,061 15,547
Depreciation and amortization expense................. 4,507 3,037 2,222
-------- -------- --------
Income from operations................................ 26,128 16,645 8,918
Other income:
Interest income....................................... 2,649 1,263 638
Other (expense) income, net.......................... (530) 37 83
-------- -------- --------
Total other income.................................. 2,119 1,300 721
-------- -------- --------
Income before provision for income taxes.............. 28,247 17,945 9,639
Provision for income taxes............................ (10,564) (6,711) (3,606)
-------- -------- --------
Net income............................................ $ 17,683 $ 11,234 $ 6,033
======== ======== ========

Net income per share, Basic........................... $ 0.95 $ 0.61 $ 0.38
======== ======== ========

Net income per share, Diluted......................... $ 0.87 $ 0.58 $ 0.36
======== ======== ========

Weighted average number of common shares outstanding
- Basic.............................................. 18,565 18,342 15,886
Dilutive effect of shares issuable as of period-end
under stock option plans............................ 1,691 1,074 652
-------- -------- --------

Weighted average number of common shares - Diluted.... 20,256 19,416 16,538
-------- -------- --------

Comprehensive Income:
Net income.......................................... $ 17,683 $11,234 $ 6,033
Foreign currency translation adjustment............. (41) 2 (9)
-------- -------- --------
Total comprehensive income............................ $ 17,642 $11,236 $ 6,024
======== ======== ========

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

F - 4

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)

CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL CUMULATIVE
------------ ------------ PAID-IN RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ------ ------ ------ ------- -------- ---------- -----

Balance, December 31, 1997.. 834 $ 8 12,166 $ 122 $ 1,355 $ 1,936 $ (2) $ 3,419
Net transfers from
Related party............... -- -- -- -- 63 -- -- 63
Translation adjustment ..... -- -- -- -- -- -- (9) (9)
Net Proceeds from IPO/
Issued Shares............. 5,226 53 -- -- 22,791 -- -- 22,844
Exercise of Overallotment
Stock..................... 876 9 (876) (9) -- -- -- --
Exercise of Stock Options... 74 -- -- -- 144 -- -- 144
Compensatory Grant.......... -- -- -- -- 248 -- -- 248
Less Unearned portion.... -- -- -- -- (126) -- -- (126)
Net income ................. -- -- -- -- -- 6,033 -- 6,033
------- ------- -------- ------- ---------- ---------- --------- ----------
Balance, December 31, 1998.. 7,010 70 11,290 113 24,475 7,969 (11) 32,616
======= ======= ======== ======= ========== ========== ========= ==========

Translation adjustment ..... -- -- -- -- -- -- 2 2
Exercise of Stock Options... 192 2 -- -- 549 -- -- 551
Tax Benefit related to
Option Exercises.......... -- -- -- -- 886 -- -- 886
Compensatory Grant.......... -- -- -- -- 340 -- -- 340
Less Prior year charge... -- -- -- -- (122) -- -- (122)
Less Unearned portion.... -- -- -- -- (46) -- -- (46)
Net income ................. -- -- -- -- -- 11,234 -- 11,234
------- ------- -------- ------- ---------- ---------- --------- ----------
Balance, December 31, 1999.. 7,202 72 11,290 113 26,082 19,203 (9) 45,461
======= ======= ======== ======= ========== ========== ========= ==========

Translation Adjustment...... -- -- -- -- -- -- (41) (41)
Exercise of Stock Options... 129 1 -- -- 782 -- -- 783
Tax Benefit related to
Option Exercises.......... -- -- -- -- 1,258 -- -- 1,258
Employee Stock Purchase
Plan........................ 32 -- -- -- 937 -- -- 937

Compensatory Grant.......... -- -- -- -- 340 -- -- 340
Less Prior year change.... -- -- -- -- (294) -- -- (294)
Less Unearned portion..... -- -- -- -- (11) -- -- (11)
Net Income.................. -- -- -- -- -- 17,683 -- 17,683
------- ------- -------- ------- ---------- ---------- --------- ----------
Balance, December 31, 2000.. 7,363 $ 73 11,290 $ 113 $ 29,094 $ 36,886 $ (50) $ 66,116
======= ======= ======== ======= ========== ========== ========= ==========

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

F - 5

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----

Cash flows from operating activities:
Net income......................................... $ 17,683 $ 11,234 $ 6,033
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation and amortization.................... 4,507 3,037 2,222
Provision/(reduction) for doubtful accounts...... 572 (31) 45
Deferred income taxes............................ 6,341 4,258 3,510
Tax benefit related to option exercises.......... 1,258 886 --
Changes in assets and liabilities:
Accounts receivable................................ (10,825) 1,068 (3,959)
Other current assets............................... (1,924) (1,143) (1,854)
Other assets....................................... (902) (116) (410)
Accounts payable................................... 1,414 (309) 201
Accrued and other liabilities...................... 12,096 562 7,548
Other adjustments for non-cash items............... -- -- 22
-------- -------- --------
Net cash provided by operating activities.......... 30,220 19,446 13,358
-------- -------- --------

Cash flows used in investing activities:
Purchase of property and equipment................. (10,652) (5,924) (3,743)
Investment......................................... (1,955) -- --
-------- -------- --------

Net cash used in investing activities.............. (12,607) (5,924) (3,743)

Cash flows from financing activities:
Proceeds from Initial Public Offering.............. -- -- 23,250
Costs associated with Initial Public Offering...... -- -- (843)
Proceeds from stock plans / compensatory grant ... 1,755 723 327
Proceeds from (payments to) related party......... 8 (24) (6,637)
-------- -------- --------
Net cash provided by financing activities.......... 1,763 699 16,097

Effect of currency translation..................... (41) 2 (9)

Increase in cash and cash equivalents.............. 19,335 14,223 25,703
Cash and cash equivalents, at beginning of year.... 42,641 28,418 2,715
-------- -------- --------
`
Cash and cash equivalents, at end of year.......... $ 61,976 $ 42,641 $ 28,418
======== ======== =========

Supplemental information:
Cash paid for income taxes during the year......... $ 1,186 $ 2,546 $ 53
======== ======== =========

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

F - 6

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

1. BASIS OF PRESENTATION

Cognizant Technology Solutions Corporation (the "Company" or "CTS") is
principally engaged in providing high-quality, cost-effective, full life cycle
solutions to complex software development and maintenance requirements that
companies face as they transition to e-business. The Company has operations and
subsidiaries in India, the United Kingdom, Germany, Canada and the United
States. These services are delivered through the use of a seamless on-site and
offshore consulting project team. These solutions include application
development and integration, application management, and re-engineering
services.

The Company began its software development and maintenance services
business in early 1994 as an in-house technology development center for The Dun
& Bradstreet Corporation ("D&B") and its operating units. These operating units
principally included A.C.Nielsen, Dun & Bradstreet Information Services, Dun &
Bradstreet Software, Erisco, Inc. ("Erisco"), IMS International, Inc. ("IMS
International"), NCH Promotional Services, Inc., Nielsen Media Research, Inc.
("Nielsen Media Research"), The Reuben H. Donnelley Corporation, Pilot Software,
Inc. ("Pilot Software") and Strategic Technologies, Inc. ("Strategic
Technologies"), and a majority interest in Gartner Group, Inc. ("Gartner
Group"). In November 1996, the Company, Erisco, IMS International, Nielsen Media
Research, Pilot Software, Strategic Technologies and certain other entities,
plus a majority interest in Gartner Group, were spun-off from D&B to form
Cognizant, the then majority owner and controlling parent of the Company. At
that time, ACNielsen was separately spun-off from D&B and Dun & Bradstreet
Software was sold to GEAC Software. In 1997, Cognizant sold Pilot Software to a
third party.

In 1997, the Company purchased the 24.0% minority interest in its Indian
subsidiary from a third party for $3,468 making the Indian subsidiary wholly
owned by the Company.

On January 15, 1998, Cognizant announced that it would, subject to certain
conditions, reorganize itself (the "Reorganization"), by spinning the Nielsen
Media Research business from the rest of its businesses, creating two publicly
traded companies, IMS Health Corporation ("IMS Health") and Nielsen Media
Research. The reorganization became effective on July 1, 1998. The shares of the
Company previously held by Cognizant are now held by IMS Health and all services
previously provided to the Company by Cognizant are now being provided by IMS
Health.

In June 1998, the Company completed its IPO. (See Note 3 to the
Consolidated Financial Statements.) As of December 31, 2000, IMS Health owned a
majority and controlling interest in the outstanding Common Stock of the Company
and held approximately 93.9% of the combined voting power of the Company's
Common Stock

IMS Health currently provides the Company with certain administrative
services, including payroll and payables processing, e-mail, tax planning and
compliance, and permits the Company to participate in IMS Health's business
insurance plans. Certain employees also participate in IMS Health's employee
benefit plans. Costs for these services for all periods prior to the IPO were
allocated to the Company based on utilization of certain specific services. All

F - 7

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

subsequent services were performed and charged to the Company under the CTS /
IMS Health intercompany services agreement. (See also Note 10 to the
Consolidated Financial Statements.)

On February 11, 2000, the Board of Directors declared a 2-for-1 stock split
of Class A and Class B Common Stock effected by a 100% dividend payable on March
16, 2000 to stockholders of record on March 2, 2000. The stock split has been
reflected in the accompanying financial statements, and all applicable
references to the number of outstanding common shares and per share information
has been restated. Appropriate adjustments have been made in the exercise price
and number of shares subject to stock options. Stockholders' equity account have
been restated to reflect the reclassification of an amount equal to the par
value of the increase in issued common shares from the capital in excess of par
value account to the common stock accounts.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements reflect the
consolidated financial position, results of operations and cash flows of the
Company and its consolidated subsidiaries as if it were a separate entity for
all periods presented.

Cash and Cash Equivalents. Cash and cash equivalents primarily include time and
demand deposits in the Company's operating bank accounts. The Company considers
all highly liquid instruments with an initial maturity of three months or less
to be cash equivalents.

Investments. Investments in business entities in which the Company does not have
control or the ability to exercise significant influence over the operating and
financial policies are accounted for under the cost method. Investments are
evaluated, at each balance sheet date, for impairment.

Property and Equipment. Property and equipment are stated at cost, net of
accumulated depreciation. Depreciation is calculated on the straight-line basis
over the estimated useful lives of the assets. Leasehold improvements are
amortized on a straight-line basis over the shorter of the term of the lease or
the estimated useful life of the improvement. Maintenance and repairs are
expensed as incurred, while renewals and betterments are capitalized.

Purchased Software. Purchased software that is intended for internal use is
capitalized, including the salaries and benefits of employees that are directly
involved in the installation of such software. The capitalized costs are
amortized on a straight-line method over the lesser of three years or its useful
life.

Goodwill. Goodwill represents the excess of the purchase price of the former
minority interest in the Company's Indian subsidiary over the fair values of
amounts assigned to the incremental net assets acquired. Amortization expense is
recorded using the straight-line method over a period of seven years.
Amortization expense was $317 for each of the years ended December 31, 2000,
1999 and 1998. Accumulated amortization was $1,028 and $711 at December 31, 2000
and 1999, respectively.

F - 8

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

Impairment of Long-Lived Assets. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
reviews for impairment of long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In general, the Company will recognize an
impairment loss when the sum of undiscounted expected future cash flows is less
than the carrying amount of such assets. The measurement for such an impairment
loss is then based on the fair value of the asset.

Revenue Recognition. The Company's services are entered into on either a
time-and-materials or fixed-price basis. Revenues related to time-and-material
contracts are recognized as the service is performed. Revenues related to
fixed-price contracts are recognized as the service is performed using the
percentage-of-completion method of accounting, under which the sales value of
performance, including estimated earnings thereon, is recognized on the basis of
the percentage that each contract's cost to date bears to the total estimated
cost. Fixed price contracts are cancellable subject to a specified notice
period. All services provided by the Company through the date of cancellation
are due and payable under the contract terms. The Company issues invoices
related to fixed price contracts based upon achievement of milestones during a
project. Estimates are subject to adjustment as a project progresses to reflect
changes in expected completion costs. The cumulative impact of any revision in
estimates is reflected in the financial reporting period in which the change in
estimate becomes known and any anticipated losses on contracts are recognized
immediately. 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 represent revenues on
contracts to be billed, in subsequent periods, as per the terms of the
contracts.

Foreign Currency Translation. The assets and liabilities of the Company's
Canadian and European subsidiaries are translated into U.S. dollars from local
currencies at current exchange rates and revenues and expenses are translated
from local currencies at average monthly exchange rates. The resulting
translation adjustments are recorded in a separate component of stockholders'
equity. For the Company's Indian subsidiary ("CTS India"), the functional
currency is the U.S. dollar, since its sales are made primarily in the United
States, the sales price is predominantly in U.S. dollars and there is a high
volume of intercompany transactions denominated in U.S. dollars between CTS
India and its U.S. affiliates. Non-monetary assets and liabilities are
translated at historical exchange rates, while monetary assets and liabilities
are translated at current exchange rates. The resulting gain (loss) is included
in other income.

Risks and Uncertainties. The preparation of financial statements in accordance
with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements, and the reported amounts of revenues and
expenses during the reported period. The most significant estimates relate to
the allowance for doubtful accounts, reserve for warranties, reserves for
employee benefits,

F - 9

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

depreciation of fixed assets and long-lived assets and the recognition of
revenue and profits based on the percentage of completion method of accounting
for fixed bid contracts. Actual results could vary from the estimates and
assumptions used in the preparation of the accompanying financial statements.

All of the Company's software development centers, including a substantial
majority of its employees are located in India. As a result, the Company may be
subject to certain risks associated with international operations, including
risks associated with foreign currency exchange rate fluctuations and risks
associated with the application and imposition of protective legislation and
regulations relating to import and export or otherwise resulting from foreign
policy or the variability of foreign economic conditions. To date, the Company
has not engaged in any significant hedging transactions to mitigate its risks
relating to exchange rate fluctuations. Additional risks associated with
international operations include difficulties in enforcing intellectual property
rights, the burdens of complying with a wide variety of foreign laws,
potentially adverse tax consequences, tariffs, quotas and other barriers.

Net Income Per Share. Basic earnings per share ("EPS") excludes dilution and is
computed by dividing earnings available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
includes all dilutive potential common stock in the weighted average shares
outstanding. (See Note 8 to the Consolidated Financial Statements)

Concentration of Credit Risk. Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist primarily of cash
and cash equivalents and trade accounts receivable. The Company maintains its
cash and cash equivalents with high credit quality financial institutions.

Income Taxes. Prior to the consummation of the Company's IPO, the Company had
been included in the federal and certain state income tax returns of Cognizant
and D&B. The provision for income taxes in the Company's consolidated financial
statements has been calculated on a separate company basis. Income tax benefits
realized by the Company and utilized by Cognizant or D&B are included in
stockholders' equity. The Company is no longer included in the consolidated
return of its majority owner and controlling parent company, and is required to
file separate income tax returns.

On a stand-alone basis, the Company provides for income taxes utilizing the
asset and liability method of accounting for income taxes. Under this method,
deferred income taxes are recorded to reflect the tax consequences in future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each balance sheet date, based on enacted tax
laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. If it is determined that it is more
likely than not that future tax benefits associated with a deferred tax asset
will not be realized, a valuation allowance is provided. The effect on deferred
tax assets and liabilities of a change in the tax rates is recognized in income
in the period that includes the enactment date.

F - 10

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

CTS India is an export oriented company that is entitled to claim a tax
holiday for a period of nine years from April 1995 through March 2004 in respect
to its export profits. Under the Indian Income Tax Act of 1961, substantially
all of the earnings of the Company's Indian subsidiary are currently exempt from
Indian Income Tax as profits are attributable to export operations. However,
since management currently intends to repatriate all accumulated earnings from
India to the United States, the Company has provided deferred U.S. income taxes
on all such Indian undistributed earnings.

Stock-Based Compensation. With respect to stock options granted to employees,
SFAS No. 123 "Accounting for Stock-Based Compensation" permits companies to
continue using the accounting method promulgated by the Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," to
measure compensation or to adopt the fair value based method prescribed by SFAS
No. 123. Management has decided to continue to use the provisions of APB 25 and
not to adopt SFAS No. 123's accounting provisions, but has included the required
pro forma disclosures.

Reclassifications. Certain prior-year amounts have been reclassified to conform
with the 2000 presentation.

Recently Issued Accounting Standards. In July 1999, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of the FASB
Statement No. 133, an Amendment of FASB Statement No. 133". SFAS No. 137 defers
the effective date of FASB No. 133, which establishes accounting and reporting
standards for derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variability in cash flows attributable to a particular risk, or (c) a hedge of
the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available for sale security and a forecasted
transaction. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities an amendment of FASB
Statement No. 133", which amends certain provisions of SFAS No. 133. As a result
of SFAS No. 137, the Company intends to implement SFAS No. 133 and the
corresponding amendments of SFAS No. 138 for the fiscal quarter ending March 31,
2001. The adoption of this SFAS No. 133 as amended by SFAS No. 138 will not have
a material effect on the Company's results of operations, financial position or
cash flows.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition, which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the Securities and Exchange Commission. SAB 101 outlines
the basic criteria that must be met to recognize revenue and provides guidance
for disclosures related to revenue recognition policies. The Company's revenue
recognition policies and practices are in conformance with SAB 101.

F - 11

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

In March 2000, the FASB issued Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation, an interpretation of APB
Opinion No. 25" ("FIN No. 44"). The interpretation provides guidance for certain
issues relating to stock compensation involving employees that arose in applying
APB Opinion 25. The provisions of FIN No. 44 are effective July 1, 2000.
Adoption of FIN 44 had no effect on the Company's financial statements.

3. INITIAL PUBLIC OFFERING

On June 24, 1998, the Company consummated its Initial Public Offering
("IPO") of 5,834,000 shares of its Common Stock at a price of $5.00 per share
(on a post-split basis), 5,000,000 of which were issued and sold by the Company
and 834,000 of which were sold by Cognizant Corporation ("Cognizant"), the
Company's then majority owner and controlling parent company. The net proceeds
to the Company from the IPO were approximately $22,407 after $843 of direct
expenses. In July 1998, IMS Health (the accounting successor to Cognizant) sold
875,000 shares of Class B Common Stock, which were converted to Class A Common
Stock pursuant to an over allotment option granted to the underwriters of the
IPO. Of the total net proceeds received by the Company upon the consummation of
its IPO, approximately $6,637 was used to repay the related party balance then
owed to Cognizant. The related party balance resulted from certain advances to
the Company from Cognizant used to purchase the minority interest of the
Company's Indian subsidiary and to fund payroll and accounts payable. Concurrent
with the IPO, the Company reclassified the amounts in mandatorily redeemable
common stock to stockholders' equity as the redemption feature was voided. (See
Note 8 to the Consolidated Financial Statements.)

F - 12

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

4. SUPPLEMENTAL FINANCIAL DATA

Property and Equipment

Property and equipment consist of the following:

ESTIMATED DECEMBER 31
USEFUL LIFE -----------
(YEARS) 2000 1999
------- ---- ----

Buildings......................... 40 $ 509 --
Computer equipment and
purchased software.............. 3 14,018 $ 8,397
Furniture and equipment........... 5 - 9 6,559 4,760
Land.............................. 1,580 --
Leasehold improvements............ Various 4,268 3,134
-------- --------
Sub-total....................... 26,934 16,291
Accumulated depreciation and
amortization.................... (10,997) (6,817)
-------- --------
Property and Equipment - Net...... $ 15,937 $ 9,474
======== ========

Accrued Expenses and Other Liabilities

Accrued expenses and other current liabilities consist of the following:

DECEMBER 31,
------------
2000 1999
---- ----

Accrued bonuses and commissions.................... $ 10,581 $ 5,143
Accrued vacation................................... 1,873 1,217
Accrued travel and entertainment................... 2,398 948
Deferred revenue................................... 2,199 677
Accrued income taxes............................... 1,446 --
Other.............................................. 5,368 3,784
-------- --------
$ 23,865 $ 11,769
======== ========

F - 13

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

5. INVESTMENT

In June 2000, the Company announced a strategic relationship with Trident
Capital, a leading venture capital firm, to jointly invest in emerging
e-business service and technology companies. In accordance with this strategy,
the Company invested approximately $2,000 in Questra Corporation, an e-business
software and consulting firm headquartered in Rochester, New York, in return for
a 5.8% equity interest. Trident Capital also independently made a direct
investment in Questra Corporation. The Company's investment is being accounted
for under the cost basis of accounting.

6. EMPLOYEE BENEFITS

Beginning in 1997, certain U.S. employees of the Company were eligible to
participate in Cognizant's and now IMS Health's 401(k) plan. The Company matches
up to 50.0% of the eligible employee's contribution. The amount charged to
expense for the Company's matching contribution was $31, $49 and $55 for the
years ended December 31, 2000, 1999 and 1998, respectively. In 2000, the Company
established a 401(k) plan which certain U.S. employees of the Company became
eligible to participate in. The Company matches up to 50.0% of the eligible
employee's contribution. The amount charged to expense for the matching
contribution was $195 for the year ended December 31, 2000.

Certain of the Company's employees participate in IMS Health's defined
benefit pension plan. The costs to the Company recognized as postretirement
benefit costs and related liabilities were not material to the Company's results
of operations or financial position for the years presented. (See Note 10 to the
Consolidated Financial Statements.)

CTS India maintains an employee benefit plan that covers substantially all
India-based employees. The employees' provident fund, pension and family pension
plans are statutory defined contribution retirement benefit plans. Under the
plans, employees contribute up to twelve percent of their base compensation,
which is matched by an equal contribution by CTS India. Contribution expense
recognized was $501, $338, and $186 for the years ended December 31, 2000, 1999
and 1998, respectively.

CTS India also maintains a statutory gratuity plan that is a statutory
postemployment benefit plan providing defined lump sum benefits. CTS India makes
annual contributions to an employees' gratuity fund established with a
government-owned insurance corporation to fund a portion of the estimated
obligation. The Company estimates its obligation based upon employees' salary
and years of service. Expense recognized by the Company was $511, $358 and $135
for the years ended December 31, 2000, 1999 and 1998, respectively.

F - 14

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

7. INCOME TAXES

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

2000 1999 1998
---- ---- ----

U.S...................................................... $ 7,469 $ 7,553 $ (2,862)
Non-U.S.................................................. 20,778 10,392 12,501
-------- -------- --------
Total.................................................... $ 28,247 $ 17,945 $ 9,639
======== ======== ========

The provision (benefit) for income taxes consists of the following for the
years ended December 31:

2000 1999 1998
---- ---- ----

U.S. Federal and state:
Current................................................ $ 3,276 $ 3,079 $ 75
Deferred............................................... 6,409 3,354 3,516
-------- -------- --------
Total U.S. Federal and state........................... 9,685 6,433 3,591
-------- -------- --------
Non-U.S.:
Current................................................ 961 315 20
Deferred............................................... (82) (37) (5)
-------- -------- --------
Total non-U.S.......................................... 879 278 15
-------- -------- --------
Total.................................................. $10,564 $ 6,711 $ 3,606
======== ======== ========

The following table sets forth the significant differences between the U.S.
federal statutory taxes and the Company's provision for income taxes for
consolidated financial statement purposes:

2000 1999 1998
---- ---- ----

Tax expense at U.S. Federal statutory rate............... $ 9,604 $ 6,101 $ 3,277
State and local income taxes, net of Federal benefit..... 375 398 (110)
Goodwill................................................. 108 109 108
Other.................................................... 477 103 331
-------- -------- --------
Total income taxes....................................... $ 10,564 $ 6,711 $ 3,606
======== ======== ========

F - 15

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

The Company's deferred tax assets (liabilities) are comprised of the following
at December 31:

2000 1999
---- ----

Deferred tax assets:
Net operating losses........................................ $ 120 $ 37
---------- ----------
Net deferred tax assets....................................... 120 37
---------- ----------
Deferred tax liabilities:
Undistributed Indian income................................. (16,822) (10,398)
---------- ----------
Total deferred tax liabilities................................ (16,822) (10,398)
---------- ----------
Net deferred tax liability.................................... $ 16,702 $(10,361)
========== ==========

At December 31, 2000, the Company had $120 of tax credit carry forwards related
to Germany net operating losses, which do not expire. At December 31, 2000, the
Company had $33 of tax credits related to Canada net operating losses, which can
be carried back for three years and carried forward for seven.

8. CAPITAL STOCK

A. Common Stock. On June 12, 1998, the Company amended and restated its
certificate of incorporation to authorize 100,000,000 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 preferred stock, par value $.10
per share, and effected a 0.65 for one reverse stock split. Holders of Class A
common stock have one vote per share and holders of Class B common stock have
ten votes per share. Holders of Class B common stock are entitled to convert
their shares into Class A common stock at any time on a share for share basis.
Shares of Class B Common Stock transferred to stockholders of IMS Health in a
transaction intended to be on a tax-free basis (a "Tax-Free Spin-Off") under the
Code shall not convert to shares of Class A Common Stock upon the occurrence of
such Tax-Free Spin-Off. No preferred stock has been issued.

Subsequent to the IPO, the underwriters exercised their right to purchase
an additional 875,100 shares of Class A Common Stock. As a result, IMS Health,
the majority owner and controlling parent of the Company, converted 875,100
shares of Class B Common stock into Class A Common Stock and subsequently sold
such shares.

F - 16

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

On May 23, 2000, the stockholders of the Company approved an increase in
the number of authorized Class B common Stock from 15,000,000 shares to
25,000,000 shares.

B. Redeemable Common Stock. On July 25, 1997, certain management employees of
the Company and its affiliates subscribed and subsequently purchased Common
Stock under the "Key Employees Restricted Stock Purchase Plan." These shares
were purchased by the employees at the then estimated fair market value of $1.93
per share. Holders of the stock may put, at any time, to the Company their
shares at the lower of the purchase price or the share price based on a
valuation of the Company at the time of the put. Upon consummation of the IPO,
this put right terminated. The Company initially recorded the value of the
purchased stock outside the equity section. In 1998, upon the completion of the
initial public offering, all redemption conditions were removed, and the shares
were reclassified to common stock.

9. EMPLOYEE STOCK OPTIONS PLANS

In July 1997, CTS adopted a Key Employees Stock Option Plan, which provides
for the grant of up to 1,397,500 stock options to eligible employees. Options
granted under this plan may not be granted at an exercise price less than fair
market value of the underlying shares on the date of grant. As a result of the
IPO, all options have a life of ten years, vest proportionally over four years
and have an exercise price equal to the fair market value of 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 up to 143,000 stock options to eligible
directors. Options granted under this plan may not be granted at an exercise
price less than fair market value of the underlying shares on the date of grant.
As a result of the IPO, all options have a life of ten years, vest
proportionally over two years and have an exercise price equal to the fair
market value of the common stock on the grant date.

In March 1998, CTS granted non-qualified stock options to purchase an
aggregate of 97,500 shares to CTS's Chairman and Chief Executive Officer at an
exercise price of $13.84 per share, an amount less than the then fair market
value of the shares on the date of the grant. The Company has recorded the
related compensation expense over the vesting period of these options.

F - 17

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

In May 1999, CTS adopted the 1999 Incentive Compensation Plan, which
provides for the grant of up to 2,000,000 stock options to eligible employees,
nonemployee Directors and independent contractors. Options granted under this
plan may not be granted at an exercise price less than fair market value of the
underlying shares on the date of grant. All options have a life of ten years,
vest proportionally over four years, unless specified otherwise, and have an
exercise price equal to the fair market value of the common stock on the grant
date. On May 23, 2000, the stockholders of the Company approved an increase in
the number of shares available for issuance under this plan from 2,000,000 to
3,000,000 shares.

A summary of the Company's stock option activity, and related information
is as follows:

DECEMBER 31,
------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----

Outstanding at beginning of year....... 2,551,808 $ 8.37 1,370,052 $ 2.93 1,079,650 $ 2.02
Granted, Employee Option Plan........ -- -- 122,400 $ 13.73 371,900 $ 4.87
Granted, Directors Option Plan....... -- -- 40,000 $ 11.16 73,000 $ 5.00
Granted, 1999 Incentive Comp. Plan... 1,407,900 $ 37.59 1,277,000 $ 12.58 -- --
Exercised............................ (129,868) $ 6.01 (191,494) $ 2.88 (74,222) $ 1.93
Canceled/Expired..................... (148,628) $ 26.43 (66,150) $ 4.51 (80,276) $ 2.79
--------- ------- --------- ------- --------- ------
Outstanding - end of year.............. 3,681,212 $ 18.90 2,551,808 $ 8.37 1,370,052 $ 2.93
--------- ------- --------- ------- --------- ------
Exercisable - end of year.............. 956,608 $ 5.83 441,902 $ 3.40 224,130 $ 2.35

The following summarizes information about the Company's stock options
outstanding and exercisable by price range at December 31, 2000:

- ----------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE WEIGHTED AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE IN YEARS EXERCISE PRICE OPTIONS EXERCISE PRICE
- ---------------- ----------- ------------------------- -------------- ------- ----------------

$1.93 - $1.93 666,951 6.5 Years $ 1.93 445,285 $ 1.93
$3.46 - $5.00 309,234 7.3 Years $ 4.48 192,358 $ 4.35
$5.44 - $8.06 36,300 7.7 Years $ 6.36 13,300 $ 6.38
$10.75 - $15.36 1,324,527 8.4 Years $12.43 303,665 $12.31
$28.94 - $42.13 1,106,200 9.6 Years $33.43 2,000 $29.94
$43.88 - $65.00 234,000 9.2 Years $55.41 0
$66.56 - $68.75 4,000 9.2 Years $67.66 0
---------

Total 3,681,212 8.4 Years $18.90 956,608 $ 5.83

- ----------------------------------------------------------------------------------------------------------------

F - 18

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

Compensation cost recognized by the Company under APB 25 was $35, $172 and $122
for 2000 1999, and 1998, respectively.

Had compensation cost for the Company's stock-based compensation plans, as
well as the IMS Health options held by certain executive officers (See Note 10
to the Consolidated Financial Statements), been determined based on the fair
value at the grant dates for awards under those plans, consistent with the
method prescribed by SFAS No. 123, the Company's net income and net income per
share would have been reduced to the pro forma amounts indicated below:

DECEMBER 31,
------------
2000 1999 1998
---- ---- ----

Net income
As reported......................................... $17,683 $11,234 $6,033
Pro forma........................................... $12,815 $10,047 $5,747
As reported
Net income per share, basic......................... $0.95 $0.61 $0.38
Net income per share, diluted....................... $0.87 $0.58 $0.36
Pro forma
Net income per share, basic......................... $0.69 $0.55 $0.36
Net income per share, diluted....................... $0.63 $0.52 $0.35

The pro forma disclosures shown above are not representative of the effects
on net income and earnings per share in future years.

For purposes of pro forma disclosures only, the fair value for all Company
options was estimated at the date of grant using the Black-Scholes option model
with the following weighted average assumptions in 2000; risk-free interest rate
of 6.1%, expected dividend yield of 0.0%, expected volatility of 75% and
expected life of 3.9 years. 1999 assumptions; risk-free interest rate of 5.6 %,
expected dividend yield of 0.0%, expected volatility of 75.0% and expected life
of 3.9 years. 1998 assumptions; 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. The weighted-average fair value of the Company's options granted during
2000, 1999 and 1998 was $21.71, $7.45 and $2.34, respectively. The assumptions
used in 1999 for IMS Health stock options were: risk-free interest rate of 4.8%,
expected dividend yield of 0.3%, expected volatility of 35.0% and expected life
of 3.0 years. The assumptions used in 1998 for IMS Health stock options were:
risk-free interest rate of 5.5%, expected dividend yield of 0.3%, expected
volatility of 25.0% and expected life of 3.0 years. The weighted average fair
value of IMS Health stock options granted to certain executive officers in 1998
was $7.14 and in 1999 was $9.99.

F - 19

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

10. OTHER TRANSACTIONS WITH AFFILIATES

Affiliated Agreements. In 1997, the Company entered into various agreements with
Cognizant which were assigned to IMS Health as part of the 1998 Reorganization.
The agreements include an Intercompany Services Agreement for services provided
by IMS Health such as payroll and payables processing, tax, real estate and risk
management 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 the
Company.

Revenues. In 2000, the Company recognized related party revenues totaling
$14,273 including revenues from IMS Health and Strategic Technologies (through
August 30, 2000). In 1999, the Company recognized related party revenues
totaling $14,820 including revenues from IMS Health and Strategic Technologies.
In 1998, the Company recognized related party revenues totaling $13,575
including revenues from IMS Health, Nielsen Media Research (through June 30,
1998), Strategic Technologies and Gartner Group.

Services. The Company, IMS Health and Nielsen Media Research have entered into
Master Services Agreements pursuant to which the Company provides IT services to
such subsidiaries. IMS Health, Cognizant and D&B provided the Company with
certain administrative services, including financial planning and
administration, legal, tax planning and compliance, treasury and communications,
and permitted the Company to participate in their insurance and employee benefit
plans during their respective periods of ownership (See Note 1 to the
Consolidated Financial Statements). Costs for these services for all periods
prior to the IPO were allocated to the Company based on utilization of certain
specific services. All subsequent services were performed under the CTS / IMS
Health intercompany services agreement. Management believes that these
allocations are reasonable. Total costs charged to the Company by IMS Health in
connection with these services were $254, $350 and $1,666 for the years ended
December 31, 2000, 1999 and 1998, respectively. The decrease in such costs
during 1999 and 2000 was a result of the majority of the Company's employees no
longer participating in IMS Health's employee benefits plan effective January 1,
1999.

The Company financed the acquisition of the minority interest and its
operations through intercompany balances with Cognizant, which were repaid with
proceeds from the IPO. No interest was charged on these transactions.

F - 20

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

Such transactions in 2000, 1999 and 1998 are as follows:

2000 1999 1998
---- ---- ----
Proceeds from (payments to), net........... $8 $(24) $(6,637)

Leases. In 1998, the Company leased office space from a subsidiary of IMS Health
and made annual lease payments to the subsidiary of $107.

Pension Plans. Certain U.S. employees of the Company participate in IMS Health's
defined benefit pension plans. The plans are cash balance pension plans under
which six percent of creditable compensation plus interest is credited to the
employee's retirement account on a monthly basis. The cash balance earns monthly
investment credits based on the 30-year Treasury bond yield. At the time of
retirement, the vested employee's account balance is actuarially converted into
an annuity. The Company's cost for these plans is included in the allocation of
expense from IMS Health for employee benefits plans.

Stock Options. In November 1996, in consideration for services to the Company,
Cognizant Corporation granted an executive officer and director of the Company
options to purchase an aggregate of 114,900 shares (on a pre-split basis) of the
common stock of Cognizant Corporation at an exercise price of $33.38 per share.
Such executive officer and director agreed to forfeit options to purchase 58,334
shares (on a pre-split basis) of Cognizant Corporation common stock upon the
consummation of the Company's initial public offering. In July 1998, IMS Health
granted an executive officer options to purchase an aggregate of 8,158 shares
(on a pre-split basis) of the common stock of IMS Health at an exercise price of
$30.17 per share. All remaining such options have since been converted into
options to purchase the common stock of IMS Health as a result of the
Reorganization that occurred on July 1, 1998, the two-for-one split of IMS
Health stock that occurred on January 15, 1999, the distribution of Gartner
Group shares that occurred on July 26, 1999 and the distribution of Synavant
Inc. (formerly known as Strategic Technologies) shares that occurred on August
30, 2000. At December 31, 2000 after adjusting for the Reorganization, the split
of IMSH stock and the distribution of Gartner Group and Synavant Inc. shares,
such officer had 172,297 options in IMS Health outstanding at a weighted average
exercise price of $15.96 per share. At December 31, 2000, 136,750 options were
exercisable.

In November 1996, Cognizant Corporation granted an executive officer
options to purchase an aggregate of 60,000 shares (on a pre-split basis) of the
common stock of Cognizant Corporation at an exercise price of $33.38 per share.
In addition, in November 1996, such executive officer was granted options to
purchase an aggregate of 20,000 shares (on a pre-split basis) of the common
stock of Cognizant Corporation at an exercise price of $33.38 per share, which
was equal to the fair market value at the grant date, by paying ten percent of
the option exercise price as an advance payment toward such exercise. The
unvested portion of such advance payment is refundable under certain conditions.
The remaining 90 percent is payable at exercise. In July 1998, IMS Health
granted an executive officer options to purchase an

F - 21

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

aggregate of 9,106 shares (on a pre-split basis) of the common stock of IMS
Health at an exercise price of $30.17 per share. All remaining such options have
since been converted into options to purchase the common stock of IMS Health as
a result of the Reorganization, the two-for-one split of IMS Health stock, the
distribution of Gartner Group and Synavant Inc. shares discussed above. At
December 31, 2000, after adjusting for the Reorganization, the split of IMSH
stock and the distribution of Gartner Group and Synavant Inc. shares, such
officer had 19,001 options in IMS Health outstanding at a weighted average
exercise price of $16.84 per share. At December 31, 2000, 19,001 options were
exercisable.

11. COMMITMENTS

The Company leases office space under operating leases, which expire at
various dates through the year 2008. Certain leases contain renewal provisions
and generally require the Company to pay utilities, insurance, taxes, and other
operating expenses. Future minimum rental payments under operating leases that
have initial or remaining lease terms in excess of one year as of December 31,
2000 are as follows:

2001........................................................... $ 3,441
2002........................................................... 2,934
2003........................................................... 2,537
2004........................................................... 1,454
2005........................................................... 901
Thereafter..................................................... 180
------
Total minimum lease payments................................... $11,447
=======

Rental expense totaled $3,472, $1,823 and $1,260 for years ended December
31, 2000, 1999 and 1998, respectively.

12. CONTINGENCIES

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the outcome of such
claims and legal actions, if decided adversely, is not expected to have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, many of the Company's engagements involve
projects that are critical to the operations of its customers' business and
provide benefits that are difficult to quantify. Any failure in a customer's
computer system could result in a claim for substantial damages against the
Company, regardless of the Company's responsibility for such failure. Although
the Company attempts to contractually limit its liability for damages arising
from negligent acts, errors, mistakes, or omissions in rendering its software
development and maintenance services, there can be no assurance that the
limitations of liability set forth in its contracts will be enforceable in all
instances or will otherwise protect the Company from liability for damages.
Although the Company has general liability insurance coverage, including
coverage for errors or omissions, there can be no assurance that such coverage
will continue to be available on reasonable terms or will be available in
sufficient amounts to cover one or more large claims, or that the insurer will
not disclaim coverage as to

F - 22

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

any future claim. The successful assertion of one or more large claims against
the Company that exceed available insurance coverage or changes in the Company's
insurance policies, including premium increases or the imposition of large
deductible or co-insurance requirements, would have a material adverse effect on
the Company's business, results of operations and financial condition.

13. SEGMENT INFORMATION

The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." Information about the Company's operations
and total assets in North America, Europe and Asia for the years ended December
31, 2000, 1999 and 1998 are as follows:

2000 1999 1998
---- ---- ----
REVENUES (1)
North America.............. $ 114,932 $ 71,171 $ 47,883
Europe..................... 20,959 17,352 10,481
Asia....................... 1,140 381 242
--------- -------- --------
Consolidated............... $ 137,031 $ 88,904 $ 58,606
========= ======== ========

OPERATING INCOME (1)
North America.............. $ 21,918 $ 13,328 $ 6,724
Europe..................... 3,994 3,245 2,098
Asia....................... 216 72 96
--------- -------- --------
Consolidated............... $ 26,128 $ 16,645 $ 8,918
========= ======== ========

IDENTIFIABLE ASSETS
North America.............. $ 71,464 $ 43,671 $ 36,294
Europe..................... 7,293 3,408 2,846
Asia....................... 30,783 21,947 12,539
--------- -------- --------
Consolidated............... $ 109,540 $ 69,026 $ 51,679
========= ======== ========

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

F - 23

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

The Company, operating globally, provides software services for medium and
large businesses. North American operations consist primarily of software
services in the United States and Canada. European operations consist primarily
of software services principally in the United Kingdom and Germany. Asian
operations consist primarily of software services principally in India.

During 1998, 1999 and 2000, the Company's top five customers accounted for,
in the aggregate, 60.5%, 57.3% and 39.5% of revenues, respectively. The
Company's ten largest customers accounted for, in the aggregate, approximately
81.0%, 75.3% and 59.1% of the Company's revenues in 1998, 1999 and 2000,
respectively. In 2000, sales to related party customers accounted for 10.4% of
revenues. No third party customer accounted for sales in excess of 10% of
revenues in 2000. In 1999, sales to related party customers accounted for 16.7%
of revenues and one third party customer accounted for 17.4% of revenues. In
1998, sales to related party customers accounted for 23.2% of revenues and two
third party customers accounted for 12.5% and 11.3% of revenues, respectively.
For statement of operations purposes, revenues from related parties only include
revenues recognized during the period in which the related party was affiliated
with the Company.

F - 24

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

QUARTERLY FINANCIAL DATA (UNAUDITED)

Three Months Ended
-----------------------------------------------------
2000 March 31 June 30 September 30 December 31 Full Year
- -------------------------------------------------------------------------------------------------------

Operating Revenue $27,070 $31,801 $37,107 $41,053 $137,031
Gross Profit $13,131 $15,425 $17,997 $20,041 $66,594
Income from Operations $5,123 $6,041 $7,079 $7,885 $26,128
Net Income $3,461 $4,017 $4,785 $5,420 $17,683
Earnings Per Share of Common Stock
Basic $0.19 $0.22 $0.26 $0.29 $0.95(1)
Diluted $0.17 $0.20 $0.24 $0.27 $0.87(1)
- -------------------------------------------------------------------------------------------------------

Three Months Ended
----------------------------------------------------
1999 March 31 June 30 September 30 December 31 Full Year
- -------------------------------------------------------------------------------------------------------

Operating Revenue $20,426 $21,498 $22,876 $24,104 $88,904
Gross Profit $9,715 $10,349 $11,003 $11,676 $42,743
Income from Operations $4,070 $3,863 $4,176 $4,536 $16,645
Net Income $2,759 $2,555 $2,860 $3,060 $11,234
Earnings Per Share of Common Stock
Basic $0.15 $0.14 $0.16 $0.17 $0.61(1)
Diluted $0.14 $0.13 $0.15 $0.15 $0.58(1)
- -------------------------------------------------------------------------------------------------------

(1) The sum of the quarterly earnings per share does not equal full year
earnings per share due to rounding.

F - 24

Cognizant Technology Solutions Corporation
Valuation and Qualifying Accounts
(Dollars in Thousands)

Accounts Receivable Allowance:

Balance at Charged to Charged to
Beginning of Costs and Other Balance at
Year Period Expenses Accounts Deductions End of Period
- ---- ------------ ---------- ---------- ---------- -------------
2000 $ 225 $ 572 $ 281 $ 516
1999 $ 274 $ (31) $ 18 $ 225
1998 $ 239 $ 45 $ 10 $ 274

F - 26