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Cognizant Technology Solutions Annual Report, Year Ended Dec 31, 2009

Filing Date
Filed February 25, 2010
Period End
December 31, 2009
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 February 25, 2010. Cited figures are marked; the original filing is the authoritative source.

Cognizant Technology Solutions (CTSH) closed fiscal 2009 with revenue of $3,278.7 milliona, up 16.4% from $2,816.3 million in 2008, and net income of $535.0 million, or $1.78 per diluted share, versus $1.44 a year earlier.

Income from operations rose 19.7% to $618.5 millionb, and the operating margin widened to 18.9% from 18.3%. Excluding stock-based compensation and Indian fringe benefit tax, the margin was 20.3%, slightly above the company's historical 19% to 20% target range. Management attributed much of the margin gain to a depreciation of the Indian rupee against the U.S. dollar, which added roughly 255 basis points, along with revenue growth outpacing headcount growth.

Growth was broad-based across the four vertical segments. Healthcare and Manufacturing/Retail/Logistics each grew 25%c or more, while Financial Services, the largest segment at 42.9% of revenue, grew 9.5% as the financial services crisis constrained demand. North American revenue grew 16.4%, European revenue grew 12.1%, and Asia revenue grew 65.9%, although North America still generated about 79% of total revenue.

The company ended the year with roughly 589 active clients, 78,400 employees, and no third-party debt. Cash and short-term investments totaled $1,399.3 milliond, and working capital was $1,661.0 million. Key risks for investors include the company's heavy reliance on India, where most of its technical staff are located, and the scheduled expiration of Indian software tax holidays on March 31, 2011, after which management expects its effective tax rate to rise significantly.

Other concerns include potential U.S. anti-outsourcing legislation, H-1B and L-1 visa restrictions, and about $151 million of auction-rate securities that remain illiquid. Those holdings are partly backstopped by a UBS put right exercisable from June 2010 to July 2012. Management expects 2010 capital expenditures of about $180 million and plans to keep reinvesting profits above its historical margin target.

02—Key points

Key Highlights

  1. Revenue rose 16.4% to $3,278.7 million in 2009, with Healthcare (+25.0%) and Manufacturing/Retail/Logistics (+27.5%) leading growth and Financial Services up 9.5%.
  2. Diluted EPS increased to $1.78 from $1.44, and net income grew 24.2% to $535.0 million.
  3. Operating margin improved to 18.9% from 18.3%; the non-GAAP margin excluding stock-based compensation and Indian fringe benefit tax was 20.3%, above the 19% to 20% target range.
  4. The depreciating Indian rupee added about 255 basis points to operating margin, a tailwind management does not expect to repeat indefinitely.
  5. The company had $1,399.3 million in cash and short-term investments, no third-party debt, and a $1,661.0 million working capital position.
  6. About $151.1 million of auction-rate securities remain illiquid, partly supported by a $22.0 million UBS Right exercisable from June 30, 2010 to July 2, 2012.
  7. Indian tax holidays expire March 31, 2011; without an extension, the effective tax rate is expected to rise significantly beginning in 2011.

03—One dollar

04—Financials

Financial Highlights

Figures from 10-KFY2009filed February 25, 2010
Revenue$3.28BNet Income$534.96M16.3% Net MarginEPS (Diluted)$0.89Total Assets$3.34BCash & Equivalents$1.10BFree Cash Flow$595.69M

Financial Statements

FY2009 against FY2008

Line itemFY2009FY2008Change
Revenue$3.28B$2.82B+16.4%
SG&A Expenses$721.36M$652.02M+10.6%
Operating Income$618.49M$516.67M+19.7%
Net Income$534.96M$430.85M+24.2%
EPS (Basic)$0.91$0.74+22.1%
EPS (Diluted)$0.89$0.72+23.6%
Shares Outstanding (Basic)586.61M580.24M+1.1%
Shares Outstanding (Diluted)602.23M597.88M+0.7%

05—Questions

Frequently Asked Questions

  1. How did Cognizant perform financially in 2009?

    Revenue grew 16.4% to $3.28 billion and net income grew 24.2% to $535.0 million, or $1.78 per diluted share. Operating margin expanded to 18.9%, helped by rupee depreciation and revenue growth outpacing headcount growth.

  2. Which business segments drove growth?

    Healthcare grew 25.0% to $860.4 million and Manufacturing/Retail/Logistics grew 27.5% to $564.9 million. Financial Services, the largest segment at 42.9% of revenue, grew 9.5% to $1.41 billion, held back by the financial services crisis. Other segments grew 11.4%.

  3. What are the main risks to future earnings?

    Key risks include wage inflation in India, currency fluctuations (especially the Indian rupee), the expiration of Indian tax holidays after March 2011, potential U.S. anti-outsourcing and visa restrictions, and heavy client concentration in the U.S. and financial services. Most contracts are short-term and can be terminated on short notice.

  4. Is the company financially strong enough to fund its growth?

    Yes. Cash and short-term investments were $1.4 billion, with no third-party debt and operating cash flow of $672.3 million in 2009. Planned 2010 capital expenditures of about $180 million are well covered, although the auction-rate securities holdings are not fully liquid.

  5. What is the outlook for 2010?

    Management expects to keep investing above its historical 19% to 20% operating margin target to fund growth in Europe, Asia Pacific, BPO, and infrastructure management. The company is cautious about the economy, noting that the environment remains fragile and that customer IT budgets are normalizing.

06—Continue

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