10-KPeriod: FY2004

COGNIZANT TECHNOLOGY SOLUTIONS CORP Annual Report, Year Ended Dec 31, 2004

Filed March 16, 2005For Securities:CTSH

Summary

Cognizant Technology Solutions Corp. (CTSH) demonstrated robust financial performance in the fiscal year 2004, highlighted by significant revenue and net income growth. Total revenues surged by 59.3% to $586.7 million, driven by strong demand for application development and integration services, particularly from existing clients. Net income also saw a substantial increase of 74.7% to $100.2 million, translating to diluted earnings per share of $0.70. The company's operational efficiency remained strong, with operating margins holding steady around 20.0%. Cognizant continues to leverage its integrated on-site/offshore business model, with a strategic focus on expanding its presence in Northern Europe and deepening penetration within its existing client base. The company maintained a strong liquidity position with over $314 million in cash and cash equivalents and no third-party debt, indicating a healthy financial foundation for future growth and investments in its offshore development infrastructure.

Key Highlights

  • 1Revenue increased by 59.3% to $586.7 million in 2004, up from $368.2 million in 2003, reflecting strong market demand for IT services.
  • 2Net income grew substantially by 74.7% to $100.2 million in 2004, compared to $57.4 million in 2003.
  • 3Diluted earnings per share rose to $0.70 in 2004 from $0.42 in 2003.
  • 4Operating margin remained strong, at 20.0% in 2004, consistent with the company's target range.
  • 5The company ended 2004 with 233 active clients, a significant increase from 153 in 2003.
  • 6Cognizant maintained a debt-free balance sheet and ended 2004 with $314.8 million in cash and cash equivalents, signaling strong liquidity.
  • 7Significant investments are planned for expanding offshore development centers in India, with over 900,000 square feet of new space planned.

Frequently Asked Questions

Cognizant's revenue growth in 2004 was primarily driven by continued strong demand for its application management and application development and integration services. This growth was fueled by both increased revenue from existing clients and revenue from new clients acquired during the year, as well as strategic acquisitions.

Cognizant has never declared or paid cash dividends on its Class A common stock. The company currently intends to retain future earnings to finance business growth and does not anticipate paying any cash dividends in the foreseeable future.

Cognizant primarily utilizes an integrated on-site/offshore business model, with a significant portion of its operations and employees based in India. The company is actively expanding its development and training centers in India, with plans for over 900,000 square feet of new space across multiple cities, funded primarily from current operations.

Cognizant is exposed to foreign currency exchange rate risk, particularly with the Indian Rupee. To manage this risk, the company periodically evaluates hedging strategies. In July 2004, they entered into a foreign currency forward contract to mitigate exposure related to Indian Rupee denominated asset balances.