10-KPeriod: FY2011

COGNIZANT TECHNOLOGY SOLUTIONS CORP Annual Report, Year Ended Dec 31, 2011

Filed February 27, 2012For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) filed its 2011 10-K on February 27, 2012. The company reported strong revenue growth of 33.3% to $6.12 billion for the fiscal year ended December 31, 2011, up from $4.59 billion in 2010. This growth was driven by increased customer spending, expansion of service offerings, and continued demand for global IT and business process outsourcing services across all business segments, particularly Financial Services and Healthcare. Net income also saw a significant increase, rising to $883.6 million ($2.85 per diluted share) from $733.5 million ($2.37 per diluted share) in the prior year. Despite a slight decrease in operating margin to 18.6% (or 20.0% excluding stock-based compensation), the company highlighted its strategy of reinvesting profits back into the business to fuel future growth, including investments in talent, new service offerings, and geographic expansion. The company maintained a strong financial position with substantial cash reserves and no third-party debt, supporting its growth initiatives and a continued stock repurchase program.

Financial Highlights

45 data points
Beta

Revenue

$6.12B

Net Income

$883.62M

14.4% Net Margin

EPS (Diluted)

$1.43

Total Assets

$5.51B

Cash & Equivalents

$1.31B

Free Cash Flow

$586.93M

Financial Statements
Beta
Revenue$6.12B
SG&A Expenses$1.33B
Operating Income$1.14B
Net Income$883.62M
EPS (Basic)$1.46
EPS (Diluted)$1.43
Shares Outstanding (Basic)606.55M
Shares Outstanding (Diluted)620.70M

Key Highlights

  • 1Revenue grew 33.3% year-over-year to $6.12 billion in fiscal year 2011, driven by strong performance across all business segments.
  • 2Net income increased by 20.4% to $883.6 million, with diluted EPS rising to $2.85.
  • 3The company continued its strategy of reinvesting profits into the business, focusing on talent, new service offerings, and geographic expansion.
  • 4Financial Services and Healthcare remained the largest segments, contributing significantly to overall revenue growth.
  • 5Cognizant ended 2011 with approximately 137,700 employees, an increase of 33,700 from the previous year, reflecting continued hiring to support growth.
  • 6The company maintained a strong balance sheet with $2.43 billion in cash, cash equivalents, and short-term investments, and no third-party debt.
  • 7A stock repurchase program was active, with an authorization of $600 million, reflecting a commitment to returning value to shareholders.

Frequently Asked Questions

Cognizant's revenue growth in 2011 was driven by several factors including strong performance across all business segments (Financial Services, Healthcare, Manufacturing/Retail/Logistics, and Other), increased customer spending on discretionary IT projects, expansion of service offerings allowing for cross-selling, deeper penetration with existing customers (including strategic clients), and the overall growing market demand for global IT and business process outsourcing services.

Cognizant reported an operating margin of 18.6% for 2011, a slight decrease from 18.8% in 2010. Excluding stock-based compensation expense, the operating margin was 20.0% in both years. The company's strategy is to invest profits above the 19-20% non-GAAP operating margin range back into the business to foster growth. Increases in compensation and benefit costs, including stock-based compensation, and investments in sales and marketing were primary factors affecting the margin, partially offset by foreign currency fluctuations.

Cognizant leverages a global delivery model with a significant portion of its workforce and development centers located in India. The company continues to expand its facilities in India, investing in company-owned centers, often in tax-incentivized zones like Special Economic Zones (SEZs). While benefiting from lower costs, the company also faces risks related to wage inflation in India and geopolitical uncertainties, which are managed through various strategies including hedging and a focus on retaining skilled personnel.

While the majority of Cognizant's revenue comes from North America, a significant portion of its costs are incurred in Indian Rupees. To manage this foreign currency risk, the company uses foreign exchange forward contracts, some designated as cash flow hedges for specific Indian Rupee-denominated payments, and others used to hedge balance sheet exposure. These strategies aim to mitigate the volatility caused by fluctuations between the U.S. dollar and the Indian Rupee.