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, 2025. 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.

Sale of Property and Equipment

During the three months ended March 31, 2025, we sold an office complex in India for proceeds of $70 million and recorded a gain on the transaction of $62 million, which was reported in "(Gain) on sale of property and equipment" on our unaudited consolidated statement of operations.

Accelerated Share Repurchase Agreements

During the three months ended June 30, 2026, we entered into, and completed, ASR agreements with financial institutions to purchase our Class A common stock (the "May 2026 ASR") for consideration of $500 million. In total,9.7 million shares were repurchased under the May 2026 ASR at an average repurchase price of $51.54. Shares are returned to the status of authorized and unissued shares in the periods they are delivered to us under an ASR. Upfront payments related to ASRs are accounted for as a reduction to stockholders’ equity in the consolidated statements of financial position in the period the payments are made.

Goodwill

The Company evaluates goodwill for impairment annually as of October 31, and more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit has declined below its carrying amount. The Company's most recent annual impairment test, performed as of October 31, 2025, indicated that the fair value of each of the Company's reporting units exceeded its carrying amount, and that there was no impairment.

During the three months ended June 30, 2026, the Company's common share price and market capitalization declined, reaching a recent low, before partially recovering in July 2026. Management performed a qualitative assessment of this decline, together with other relevant events and circumstances, weighed against positive and mitigating factors and the substantial headroom established at the last annual test, and concluded that it was not more likely than not that the fair value of any of our reporting units was less than the carrying value of any of our reporting units as of June 30, 2026. The Company’s share price recovered during the three months ended September 30, 2026, and in the absence of any indicators of impairment, management concluded that there was no need to perform a qualitative assessment or an interim quantitative impairment test before the next annual impairment test on October 31, 2026.

Recently Adopted Accounting Pronouncements

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 nine months ended September 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 nine months ended September 30:

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

Revenues recognized during the nine months ended September 30, 2026 for performance obligations satisfied or partially satisfied in previous periods were immaterial.

Remaining Performance Obligations

As of September 30, 2026, the aggregate amount of transaction price allocated to remaining performance obligations was $6,224 million, of which approximately 35% is expected to be recognized as revenues within 1 year, approximately 60% is expected to be recognized as revenues within 2 years and approximately 95% 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

The following table presents the activity in the allowance for credit losses for trade accounts receivable for the nine months ended September 30:

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

Note 3 — Business Combinations

On January 1, 2026, pursuant to a purchase agreement, we acquired 100% ownership in 3Cloud, one of the largest independent Microsoft Azure services providers and a global leader in Azure-dedicated AI enablement solutions and products. On December 31, 2025, we placed cash consideration of $733 million in escrow, which was deemed to be restricted cash and included in "Other noncurrent assets" in our consolidated statement of financial position.

On June 22, 2026, pursuant to a purchase agreement, we acquired 100% ownership in Astreya Partners, Inc., a global AI-first IT managed services and solutions provider.

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

(1)The purchase price for Astreya includes a contingent consideration component with a maximum payout of $25 million, valued at $25 million at the date of acquisition, which is contingent upon achievement of certain business outcomes.

Goodwill from our acquisition of 3Cloud and Astreya have been allocated across all of our reportable segments. 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 dates of acquisition.

Note 4 — Restructuring Charges

In the second quarter of 2026, we initiated Project Leap, a program designed to accelerate our transformation to the operating model of the future by funding investments in our integrated offerings, AI capabilities and partnerships, reshaping productivity through competitive offerings and upskilling our workforce. In connection with Project Leap, we expect to record total costs of $180 million to $250 million consisting of $150 million to $200 million of employee severance and other personnel related costs and $30 million to $50 million of other charges.

The costs related to Project Leap 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 12.

Project Leap charges for the three months ended September 30, 2026 were $51 million and included $46 million of employee separation costs and $5 million of other costs. Project Leap charges for the nine months ended September 30, 2026 were $135 million and included $102 million of employee separation costs and $33 million of other costs. Other costs included certain facility exit costs and other costs related to Project Leap.

Changes in our accrued employee separation costs related to Project Leap included in "Accrued expenses and other current liabilities" in our unaudited consolidated statements of financial position are presented in the table below for the nine months ended September 30:

There wereno restructuring charges for the three and nine months ended September 30, 2025.

Note 5 — Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:

Note 6 — Debt

In 2022, we entered into the Credit Agreement providing for the $650 million Term Loan and a $1,850 million unsecured revolving credit facility, which were each due to mature in October 2027. During the second quarter of 2026, we borrowed $1,000 million under our revolving credit facility. On October 5, 2026, we entered into a new credit agreement with a commercial bank syndicate ("New Credit Agreement") providing for a $550 million unsecured term loan ("New Term Loan") and a $1,850 million unsecured revolving credit facility, which are each due to mature in October 2031. The Credit Agreement was terminated upon the closing of the New Credit Agreement and the proceeds from the New Term Loan were used primarily to repay our outstanding Term Loan balance. Additionally, in October 2026, we borrowed $1,000 million under the new revolving credit facility and used the proceeds to repay the outstanding balances under the previous revolving credit facility.

The Credit Agreement required interest to be paid at either the Term Benchmark, Adjusted Daily Simple RFR or the ABR rate (each as defined in the Credit Agreement), as applicable in each case, plus, in each case, an Applicable Margin (as defined in the Credit Agreement). The Applicable Margin was 0.875% with respect to Term Benchmark loans and RFR loans and 0.00% with respect to ABR loans. The Term Loan was a Term Benchmark loan.

The Credit Agreement contained 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 September 30, 2026.

The New Credit Agreement requires interest to be paid at either the Term Benchmark, Adjusted Daily Simple RFR or the ABR rate (each as defined in the New Credit Agreement), as applicable in each case, plus, in each case, an Applicable Margin (as defined in the New 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%, and with respect to ABR loans may range from 0.00% to 0.125%. The Applicable Margin will be determined by reference to the lower of the rate available under (i) a grid based upon the Index Debt Rating (as defined in the New Credit Agreement) if we have received public index debt ratings from certain ratings agencies and (ii) a grid based on our Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the New Credit Agreement. Initially, the New Term Loan is a Term Benchmark loan.

We are required under the New Credit Agreement to make scheduled quarterly principal payments under the New Term Loan beginning in December 2027. The New Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. The financial covenant is tested at the end of each fiscal quarter and requires us to maintain a Leverage Ratio not in excess of 3.50:1.00, or at our election for a period of up to four quarters following certain material acquisitions,4.00:1.00.

Short-term Debt

Scheduled quarterly principal payments on the New Term Loan will begin in December 2027. As long-term debt (in the form of the New Term Loan) has been issued after the balance sheet date refinancing the short-term balances under the Term Loan, all balances related to the Term Loan were presented as long-term debt as of September 30, 2026. As such, there wereno short-term debt balances as of September 30, 2026. As of December 31, 2025, 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 September 30, 2026 and December 31, 2025.

Note 7 — Income Taxes

Our effective income tax rates were as follows:

The effective income tax rate for the nine months ended September 30, 2026, was positively impacted by $34 million of discrete benefits in Q1 2026, driven by the agreed terms of an anticipated conclusion of an advance pricing agreement.

In July 2025, the OBBBA was enacted in the United States, which, among other provisions, repealed the requirement to capitalize U.S. research and experimental costs. As a result, we concluded that it is not more likely than not that we will realize our deferred tax asset of $390 million related to research and experimental costs capitalized outside the United States. Therefore, in the third quarter of 2025, we recorded a one-time, non-cash income tax expense of $390 million, which increased our effective income tax rate for the three and nine months ended September 30, 2025.

We are involved in two separate ongoing disputes with the ITD in connection with previously disclosed share repurchase transactions undertaken by CTS India in 2013 and 2016 to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at $523 million and $2.8 billion, respectively.

The 2016 transaction was undertaken pursuant to a plan approved by the High Court in Chennai, India, and resulted in the payment of $135 million in Indian income taxes - an amount we believe includes all the applicable taxes owed for this transaction under Indian law. In March 2018, the ITD asserted that it is owed an additional 33 billion Indian rupees ($344 million at the September 30, 2026 exchange rate) on the 2016 transaction. We deposited 5 billion Indian rupees, representing 15% of the disputed tax amount related to the 2016 transaction, with the ITD. Additionally, certain time deposits of CTS India were placed under lien in favor of the ITD, representing the remainder of the disputed tax amount.

In April 2020, we received a formal assessment from the ITD on the 2016 transaction, which is consistent with the ITD's previous assertions. Our appeal was ruled on unfavorably by the CITA in March 2022 and by the ITAT in September 2023. We filed an appeal against the order of the ITAT with the High Court. On January 8, 2024, the SCI ruled that, in order to proceed with the appeal, we must deposit 30 billion Indian rupees, representing the time deposits of CTS India under lien, on the condition that, if CTS India prevails at the High Court, the amount deposited will be returned to CTS India, along with interest accrued, within four weeks of the judgment. We made the required deposit in January 2024 and the case is pending before the High Court.

As of September 30, 2026 and December 31, 2025, the deposit with the ITD was $360 million and $384 million, respectively, presented in "Other noncurrent assets."

The dispute in relation to the 2013 share repurchase transaction is also in litigation. At this time, the ITD has not made specific demands with regards to the 2013 transaction.

We continue to believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions and we continue to defend our positions with respect to both matters. Accordingly, we have not recorded any reserves for these matters as of September 30, 2026.

Note 8 — Derivative Financial Instruments

In the normal course of business, we use foreign exchange forward contracts to manage foreign currency exchange rate risk. Derivatives may give rise to credit risk from the possible non-performance by counterparties. Credit risk is limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by limi ting the amount of credit exposure with any one financial institution and conducting ongoing evaluation of the creditworthiness of the financial institutions with which we do business. In addition, all the assets and liabilities related to the foreign exchange derivative contracts set forth in the table below are subject to master netting arrangements, such as the International Swaps and Derivatives Association Master Agreement, with each individual counterparty. These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event. We have presented all the assets and liabilities related to the foreign exchange derivative contracts, as applicable, on a gross basis, with no offsets, in our unaudited consolidated statements of financial position. There is no financial collateral (including cash collateral) posted or received by us related to the foreign exchange derivative contracts.

The following table provides information on the location and fair values of derivative financial instruments included in our unaudited consolidated statements of financial position as of:

Cash Flow Hedges

We have entered and continue to enter into a series of foreign exchange derivative contracts that are designated as cash flow hedges of Indian rupee denominated payments in India. These contracts are intended to partially offset the impact of movement of the Indian rupee against the U.S. dollar on future operating costs and are scheduled to mature each month during the remainder of 2026, 2027 and the first nine months of 2028. The changes in fair value of these contracts are initially reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position and are subsequently reclassified to earnings within "Cost of revenues" and "Selling, general and administrative expenses" in our unaudited consolidated statements of operations in the same period that the forecasted Indian rupee denominated payments are recorded in earnings. As of September 30, 2026, we estimate that $74 million, net of tax, of net losses related to derivatives designated as cash flow hedges reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position is expected to be reclassified into earnings within the next 12 months.

The notional value of the outstanding contracts by year of maturity was as follows:

The activity related to the change in net unrealized gains and losses on the cash flow hedges included in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of stockholders' equity is presented in Note 10.

Other Derivatives

We use foreign exchange forward contracts to provide an economic hedge against balance sheet exposures to certain monetary assets and liabilities denominated in currencies other than the functional currency of our foreign subsidiaries. We entered into foreign exchange forward contracts that are scheduled to mature in the fourth quarter of 2026 and the third quarter of 2027. Realized gains or losses and changes in the estimated fair value of these derivative financial instruments are recorded in the caption "Foreign currency exchange gains (losses), net" in our unaudited consolidated statements of operations.

Additional information related to the outstanding foreign exchange forward contracts not designated as hedging instruments was as follows:

The following table provides information on the location and amounts of realized and unrealized pre-tax gains and losses on the other derivative financial instruments for the three and nine months ended September 30:

The related cash flow impacts of all the derivative activities are reflected as cash flows from operating activities.

Note 9 — Fair Value Measurements

We measure our cash equivalents, certain investments, contingent consideration liabilities and foreign exchange forward contracts at fair value. Fair value is the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.

The fair value hierarchy consists of the following three levels:

•Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.

•Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

•Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following table summarizes the financial assets and (liabilities) measured at fair value on a recurring basis as of September 30, 2026:

The following table summarizes the financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2025:

We measure the fair value of money market funds based on quoted prices in active markets for identical assets and measure the fair value of our equity investment security based on the published daily net asset value at which investors can freely subscribe to or redeem from the fund. The carrying value of the time deposits approximated fair value as of September 30, 2026 and December 31, 2025.

We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign exchange forward contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor.

We estimate the fair value of contingent consideration liabilities associated with acquisitions using a variation of the income approach, which utilizes one or more significant inputs that are unobservable. This approach calculates the fair value of such liabilities based on the probability-weighted expected performance of the acquired entity against the target performance metric, discounted to present value when appropriate.

During the nine months ended September 30, 2026 and the year ended December 31, 2025, there were no transfers among Level 1, Level 2 or Level 3 financial assets and liabilities.