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Cognizant Technology Solutions Annual Report, Year Ended Dec 31, 1999

Filing Date
Filed March 7, 2000
Period End
December 31, 1999
Security
CTSH
In the record · 2016–202610-K1110-Q338-K105

CTSH filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 105 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Feb ’17Feb ’17
  2. FY2018 annual report10-K · Feb ’19Feb ’19
  3. Leadership change8-K · Jun ’21Jun ’21
  4. Leadership change8-K · May ’25May ’25

01—Abstract

Summary

Summary of the 10-K filed March 7, 2000. Cited figures are marked; the original filing is the authoritative source.

Cognizant Technology Solutions (CTSH) reported strong fiscal 1999 results in this 10-K, with total revenues rising 51.7% to $88.9 milliona from $58.6 million in 1998.

Growth was driven by application development, integration, and application management work, which more than offset a sharp decline in Year 2000 compliance revenue (down about 46% to roughly 15.6% of revenue). Profitability improved meaningfully: gross margin expanded to 48.1% from 45.5%, operating margin rose to 18.7% from 15.2%, and net income grew 86% to $11.2 millionb, or $1.16 diluted EPS. The company's revenue base also diversified, with unaffiliated third-party customers rising to 83.3% of revenue from 76.8% in 1998, although IMS Health still held about 61% of the equity and roughly 94% of the voting power and two customers exceeded 10% of revenue each.

The balance sheet is conservative, with $42.6 millionc in cash, no significant third-party debt, and working capital of $43.5 million, following the 1998 IPO. Operating cash flow reached $18.6 million in 1999. Delivery is anchored by about 2,000 technical staff in eight Indian development centers, which underpin the company's cost advantage.

Key risks for investors include customer concentration (top five customers were 57.3%d of revenue), the dominance of IMS Health's voting control, reliance on a shrinking Year 2000 business line, a tight talent market, and exposure to Indian regulatory and tax-holiday changes. The company also announced a 2-for-1 stock split payable March 16, 2000, which the filing says will be reflected in restated per-share amounts going forward.

02—Key points

Key Highlights

  1. Total revenue grew 51.7% to $88.9M in 1999 from $58.6M in 1998, led by application development and application management services.
  2. Net income rose to $11.2M ($1.16 diluted EPS) from $6.0M ($0.73), an increase of about 86%.
  3. Gross margin improved to 48.1% from 45.5%, and operating margin improved to 18.7% from 15.2%, reflecting a shift toward higher-margin third-party customers.
  4. Year 2000 compliance revenue fell to 15.6% of total revenue in 1999 from 44.1% in 1998, showing a successful transition to recurring development and maintenance work.
  5. Balance sheet is strong with $42.6M in cash, no significant third-party debt, and $45.5M in stockholders' equity after the June 1998 IPO.
  6. Customer concentration remains high: top five customers accounted for 57.3% of 1999 revenue, and IMS Health alone accounted for 16.7%.
  7. IMS Health controls about 61% of the equity and roughly 94% of the voting power; Class B shares carry ten votes each, and a 2-for-1 stock split was declared for March 2000.

03—Questions

Frequently Asked Questions

  1. How much revenue growth did Cognizant achieve in 1999, and what drove it?

    Revenue rose 51.7% to $88.9 million. Application development and integration plus application management and other services grew by $42.3 million (129.1%), which more than offset a roughly $12.0 million decline in Year 2000 compliance work.

  2. Is Cognizant's profitability improving?

    Yes. Gross margin increased to 48.1% from 45.5%, operating income reached $16.6 million (18.7% of revenue) versus $8.9 million (15.2%) in 1998, and net income grew to $11.2 million from $6.0 million, reflecting higher third-party revenue and a mix shift toward newer, higher-margin customers.

  3. What are the main risks to investors?

    Key risks include heavy dependence on a few large customers (top five at 57.3% of revenue, top ten at 75.3%), controlling ownership by IMS Health with about 94% of voting power, a declining Year 2000 revenue base, competition for skilled IT professionals in the US and India, and exposure to Indian legal, tax, and currency changes. The filing also notes no material pending litigation.

  4. How strong is the company's financial position?

    Cognizant ended 1999 with $42.6 million in cash, working capital of $43.5 million, and no significant third-party debt. Operating cash flow was $18.6 million, and the company believes its funds are adequate for at least the next 12 months.

  5. What corporate events affect share count and stock trading?

    The board declared a 2-for-1 stock split payable March 16, 2000 to holders of record on March 2, 2000. Class A stock trades on Nasdaq under CTSH, and Class B stock, all held by IMS Health, converts to Class A on transfer. The company has never paid cash dividends and intends to retain earnings for growth.

04—Continue

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