COGNIZANT TECHNOLOGY SOLUTIONS CORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Interim Consolidated Financial Statements

The terms “Cognizant,” “we,” “our,” “us” and “the Company” refer to Cognizant Technology Solutions Corporation and its subsidiaries unless the context indicates otherwise. We have prepared the accompanying unaudited consolidated financial statements included herein in accordance with GAAP and the Exchange Act. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in our Annual Report on Form 10-K for the year ended December 31, 2023. In our opinion, all adjustments considered necessary for a fair statement of the accompanying unaudited consolidated financial statements have been included and all adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year.

New Accounting Pronouncements

Note 2 — Revenues and Trade Accounts Receivable

Disaggregation of Revenues

The tables below present disaggregated revenues from contracts with clients by client location, service line and contract type for each of our reportable business segments. We believe this disaggregation best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by industry, market and other economic factors. Our consulting and technology services include consulting, application development, systems integration, quality engineering and assurance services as well as software solutions and related services while our outsourcing services include application maintenance, infrastructure and security as well as business process services. Revenues are attributed to geographic regions based upon client location, which is the client's billing address. Substantially all revenues in the North America region relate to clients in the United States.

Costs to Fulfill

The following table shows significant movements in the capitalized costs to fulfill for the six months ended June 30:

Costs to obtain contracts were immaterial for the periods disclosed.

Contract Balances

The table below shows significant movements in contract assets (current and noncurrent) for the six months ended June 30:

The table below shows significant movements in the deferred revenue balances (current and noncurrent) for the six months ended June 30:

Revenues recognized during the six months ended June 30, 2024 for performance obligations satisfied or partially satisfied in previous periods were immaterial.

Remaining Performance Obligations

As of June 30, 2024, the aggregate amount of transaction price allocated to remaining performance obligations was $4,442 million, of which approximately 55% is expected to be recognized as revenues within 2 years and approximately 85% is expected to be recognized as revenues within 5 years. Disclosure is not required for performance obligations that meet any of the following criteria:

(1)contracts with a duration of one year or less as determined under ASC Topic 606: "Revenue from Contracts with Customers",

(2)contracts for which we recognize revenues based on the right to invoice for services performed,

(3)variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or

(4)variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.

Many of our performance obligations meet one or more of these exemptions and therefore are not included in the remaining performance obligation amount disclosed above.

Trade Accounts Receivable and Allowance for Credit Losses

We calculate expected credit losses for trade accounts receivable based on historical credit loss rates for each aging category as adjusted for the current market conditions and forecasts about future economic conditions. The following table presents the activity in the allowance for credit losses for trade accounts receivable for the six months ended June 30:

(1)Reported in "Selling, general and administrative expenses" in our unaudited consolidated statements of operations.

Note 3 — Business Combinations

On January 22, 2024, through the execution of a share purchase agreement, we acquired 100% ownership in Thirdera, an Elite ServiceNow Partner specializing in advisory, implementation and optimization solutions related to the ServiceNow platform.

The acquisition completed during the six months ended June 30, 2024 was not material to our operations. Accordingly, pro forma results have not been presented. We have allocated the purchase price related to this transaction to tangible and intangible assets acquired and liabilities assumed, including goodwill, based on their estimated fair values.

The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as follows:

Goodwill from our acquisition of Thirdera is expected to benefit all of our reportable segments and has been allocated as such. The primary items that generated goodwill are the acquired assembled workforce and synergies between the acquired companies and us, neither of which qualify as identifiable intangible assets. The above allocations are preliminary and will be finalized as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition.

Note 4 — Restructuring Charges

In the second quarter of 2023, we initiated the NextGen program aimed at simplifying our operating model, optimizing corporate functions and consolidating and realigning office space to reflect the post-pandemic hybrid work environment. We expect the NextGen program to be completed by the end of 2024.

The total costs related to our NextGen program are reported in "Restructuring charges" in our unaudited consolidated statements of operations. We do not allocate these charges to individual segments in internal management reports used by the CODM. Accordingly, such expenses are separately disclosed in our segment reporting as “unallocated costs”. See Note 13. The costs related to our NextGen program are presented in the table below for the three and six months ended June 30:

(1)For the three and six months ended June 30, 2024, facility exit costs include accelerated depreciation charges of $5 million and $7 million, respectively. For the three and six months ended June 30, 2023, facility exit costs include accelerated depreciation charges of $10 million for each period.

(2)Third party and other costs include certain non-facility related asset impairments and other professional services fees directly related to the NextGen program.

We expect to record total costs of approximately $325 million in connection with the NextGen program. For the year ended December 31, 2023, we incurred $229 million of costs in connection with the NextGen program.

Changes in our accrued employee separation costs included in "Accrued expenses and other current liabilities" in our unaudited consolidated statements of financial position are presented in the table below for the six months ended June 30:

Note 5 — Investments

Our investments were as follows:

(1)As of December 31, 2023 the balance of restricted time deposits contains $96 million of restricted cash equivalents. See Note 8.

Equity Investment Security

Our equity investment security is a U.S. dollar denominated investment in a fixed income mutual fund. Realized and unrealized gains and losses were immaterial for the three and six months ended June 30, 2024 and 2023.

Held-to-Maturity Investment Securities

As of June 30, 2024, we hadno held-to-maturity securities. As of December 31, 2023, the amortized cost and fair value of the held-to-maturity investments were each$3 million. Our held-to-maturity investment securities consisted of an Indian rupee denominated investment in commercial paper, which was in an unrealized loss position but had not been in an unrealized loss position for longer than 12 months.

Other Investments

As of June 30, 2024 and December 31, 2023, we had an equity method investment of $80 million and $74 million, respectively, in the technology sector. Additionally, as of each of June 30, 2024 and December 31, 2023, we had equity securities without a readily determinable fair value of $6 million.

Note 6 — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:

Note 7 — Debt

We have a Credit Agreement providing for a $650 million Term Loan and a $1,850 million unsecured revolving credit facility, which are each due to mature in October 2027. We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan.

The Credit Agreement requires interest to be paid, at our option, at either the Term Benchmark, Adjusted Daily Simple RFR or the ABR Rate (each as defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the Applicable Margin is 0.875% with respect to Term Benchmark loans and RFR loans and 0.00% with respect to ABR loans. Subsequently, the Applicable Margin with respect to Term Benchmark loans and RFR loans will be determined quarterly and may range from 0.75% to 1.125%, depending on our public debt ratings or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement. Since issuance of the Term Loan, the Term Loan has been a Term Benchmark loan. The Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. We were in compliance with all debt covenants and representations of the Credit Agreement as of June 30, 2024.

In April 2024, we amended the Credit Agreement to replace the Canadian Dollar Offered Rate, which was an option to be used in connection with the Term Benchmark Rate, with the Canadian Overnight Repo Rate Average, as required by the terms of the Credit Agreement due to a Benchmark Transition Event (as defined therein).

Short-term Debt

As of each of June 30, 2024 and December 31, 2023, we had $33 millionof short-term debt related to current maturities of our Term Loan.

Long-term Debt

The following table summarizes the long-term debt balances as of:

The carrying value of our debt approximated its fair value as of June 30, 2024 and December 31, 2023.