10-KPeriod: FY2005

COGNIZANT TECHNOLOGY SOLUTIONS CORP Annual Report, Year Ended Dec 31, 2005

Filed March 15, 2006For Securities:CTSH

Summary

Cognizant Technology Solutions Corp. (CTSH) reported strong revenue growth for the fiscal year ended December 31, 2005, with total revenues reaching $885.8 million, a significant increase from $586.7 million in 2004. This growth was primarily driven by robust performance in its Financial Services and Healthcare segments, expansion of service offerings, and increased penetration with existing clients. The company's integrated on-site/offshore business model continues to be a key enabler of its success, allowing it to serve Global 2000 companies across North America, Europe, and Asia. Net income also saw a substantial rise to $166.3 million ($1.13 per diluted share) in 2005, up from $100.2 million ($0.70 per diluted share) in 2004. This includes a one-time tax benefit of $12.4 million related to the repatriation of Indian earnings. Excluding this benefit, adjusted net income was $153.9 million ($1.05 per diluted share). The company maintained its operating margin within its target range of 19-20% and highlighted its commitment to reinvesting profits to drive future growth in areas such as talent acquisition, service expansion, and geographic presence. Cognizant ended the year with a strong balance sheet, including $424 million in cash and cash equivalents and no third-party debt.

Key Highlights

  • 1Revenue grew by 51% year-over-year to $885.8 million in 2005, driven by strong performance in Financial Services and Healthcare segments.
  • 2Net income increased significantly to $166.3 million ($1.13/share) in 2005, up from $100.2 million ($0.70/share) in 2004, including a one-time tax benefit.
  • 3The company maintained a consistent operating margin of approximately 20.1% in 2005.
  • 4Cognizant's integrated on-site/offshore business model continues to be a core strength, enabling efficient delivery of services globally.
  • 5Customer retention remains high, with 91% of 2005 revenue coming from customers existing at the end of 2004.
  • 6The company ended the fiscal year with a strong liquidity position, holding $424 million in cash and cash equivalents and no third-party debt.
  • 7Expansion of owned facilities in India is underway, with plans for over 1.7 million square feet of development centers.

Frequently Asked Questions

Cognizant's business is organized into four reportable segments: Financial Services (49.8% of 2005 revenue), Healthcare (19.9%), Manufacturing/Retail/Logistics (17.2%), and Other (13.1%). Financial Services and Healthcare showed particularly strong growth in 2005.

Key risks include dependence on operations in India (regulatory, economic, political uncertainties), intense competition in the IT services market, the need to continuously develop new services, reliance on attracting and retaining skilled IT professionals, potential impact of immigration restrictions, and significant quarterly fluctuations in operating results. Dependence on a few large customers is also noted as a risk, though revenue concentration has been decreasing.

In the fourth quarter of 2005, Cognizant completed the repatriation of $60 million of Indian earnings under the American Jobs Creation Act of 2004. This resulted in a one-time tax benefit of approximately $12.4 million, which is included in the reported net income for 2005.

Cognizant is expanding its domestic and international geographic presence by opening new sales and marketing offices. Concurrently, it is significantly expanding its owned IT development centers in India, with plans to construct over 1.7 million square feet of facilities.