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Cognizant Technology Solutions Annual Report, Year Ended Dec 31, 2001

Filing Date
Filed March 11, 2002
Period End
December 31, 2001
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 11, 2002. Cited figures are marked; the original filing is the authoritative source.

Cognizant Technology Solutions (CTSH) reported strong fiscal 2001 results, with total revenue rising 29.7% to $177.8 milliona from $137.0 million, and net income climbing 25.3% to $22.2 million from $17.7 million.

Growth was driven primarily by application management (up 42.9%) and application development and integration (up 18.8%). Gross margin improved modestly to 48.9% from 48.6%, helped by a shift toward higher-margin fixed-bid contracts and a lower incentive compensation accrual. Operating income rose 36.3% to $35.6 millionb, with operating margin expanding to 20.0% from 19.1%.

Diluted EPS was $1.09c, up from $0.87. The balance sheet is conservative. Cash and equivalents reached $85.0 million, the company reports no significant third-party debt, and working capital stood at $95.6 million.

Operating cash flow was $32.1 milliond, while capital expenditures of $15.0 million went largely to expanding offshore development centers in India. Management plans roughly $35.6 million of total India center spending, funded internally. Investors should weigh several risks.

IMS Health owns 58.3% of the economic interest and about 93.3% of the voting power through Class B shares, which limits minority shareholder influence. Customer concentration is significant, with the top ten customers at 53.0% of revenue, though this declined from 59.1% in 2000.

Fixed-bid contracts, which carry cost-overrun risk, rose to 23.9% of revenue. The company also took a $2.0 million impairment on its Questra investment, and the September 11 attacks affected travel-industry customers, about 5% of revenue.

02—Key points

Key Highlights

  1. Revenue grew 29.7% to $177.8 million in 2001, with application management up 42.9% and application development up 18.8%.
  2. Net income rose 25.3% to $22.2 million; diluted EPS increased to $1.09 from $0.87, though results include a $1.2 million after-tax Questra impairment.
  3. Operating income increased 36.3% to $35.6 million, with operating margin expanding to 20.0% from 19.1%.
  4. Strong balance sheet with $85.0 million in cash, no significant third-party debt, and $95.6 million in working capital.
  5. Headcount grew to roughly 3,470 technical professionals, with 2,960 in India, supported by eleven offshore development centers.
  6. IMS Health controls 58.3% of economic ownership and 93.3% of voting power, limiting minority shareholder influence.
  7. Customer concentration remains meaningful: top five customers were 34.7% of revenue and top ten were 53.0%, both down from 2000.

03—Questions

Frequently Asked Questions

  1. What drove Cognizant's revenue growth in 2001?

    Revenue rose $40.7 million to $177.8 million. Application management services, up $27.7 million (42.9%), were the largest contributor, followed by application development and integration, up $13.5 million (18.8%). Year 2000 compliance work, now negligible, declined.

  2. Is Cognizant's margin improving?

    Modestly. Gross margin rose to 48.9% from 48.6%, and operating margin rose to 20.0% from 19.1%. Management attributed the gains to a shift toward higher-margin fixed-bid contracts and a lower incentive compensation accrual. Fixed-bid contracts are riskier because the company bears cost overruns.

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

    Strong. Cash and equivalents were $85.0 million, up from $62.0 million, with no significant third-party debt. Operating cash flow was $32.1 million, and management believes available funds are sufficient for at least the next 12 months.

  4. What are the main risks for shareholders?

    Key risks include IMS Health's controlling stake, which gives it 93.3% of voting power; customer concentration; reliance on India-based operations with currency and regulatory exposure, and no hedging; wage inflation for skilled professionals; and potential loss of Indian tax holiday benefits after March 2004. The company also faces intense competition from larger firms and has no patents.

  5. Has Cognizant paid dividends or faced major legal exposure?

    The company has never paid cash dividends and intends to retain earnings for growth. Management does not expect routine legal claims to have a material adverse effect, though the company notes that failures in customer systems could generate large damage claims despite contractual liability limits.

04—Continue

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