10-KPeriod: FY2016

COGNIZANT TECHNOLOGY SOLUTIONS CORP Annual Report, Year Ended Dec 31, 2016

Filed March 1, 2017For Securities:CTSH

Summary

Cognizant Technology Solutions Corp. (CTSH) filed its 2016 10-K on March 1, 2017. The company highlighted its ongoing strategic shift towards digital services, aligning its offerings into three key practice areas: Digital Business, Digital Operations, and Digital Systems & Technology. This strategic focus aims to help clients transform their business models in the digital era, with investments being made in scaling these digital capabilities through organic growth and strategic acquisitions. The company also emphasized its continued commitment to developing its core business, which serves as a foundation for digital transformation. Financially, CTSH reported revenues of $13.5 billion for 2016, an 8.6% increase year-over-year. However, net income saw a slight decrease of 4.4% to $1.55 billion. A significant event during the year was an internal investigation into potential Foreign Corrupt Practices Act (FCPA) violations in India, which resulted in approximately $6 million in potentially improper payments identified. This investigation, along with related class-action lawsuits and a material weakness in internal controls over financial reporting, represent key areas of concern for investors. The company also announced a capital return plan including stock repurchases and the initiation of a quarterly dividend in 2017.

Financial Highlights

49 data points
Beta

Revenue

$13.49B

Net Income

$1.55B

11.5% Net Margin

EPS (Diluted)

$2.55

Total Assets

$14.26B

Cash & Equivalents

$2.03B

Free Cash Flow

$1.34B

Financial Statements
Beta
Revenue$13.49B
SG&A Expenses$2.73B
Operating Income$2.29B
Interest Expense$19.00M
Net Income$1.55B
EPS (Basic)$2.56
EPS (Diluted)$2.55
Shares Outstanding (Basic)607.00M
Shares Outstanding (Diluted)610.00M

Key Highlights

  • 1Revenue growth of 8.6% to $13.49 billion in 2016, driven by digital services and core business expansion.
  • 2Strategic focus on three digital practice areas: Digital Business, Digital Operations, and Digital Systems & Technology.
  • 3Acquisitions in 2016, including KBACE Technologies, Idea Couture, Mirabeau BV, and Adaptra, to strengthen digital capabilities.
  • 4Initiation of a capital return plan including $1.5 billion accelerated stock repurchase in Q1 2017 and a new $0.15 quarterly dividend starting Q2 2017.
  • 5Ongoing internal investigation into potential FCPA violations in India, leading to approximately $6 million in identified improper payments and associated legal proceedings.
  • 6Identification of a material weakness in internal controls over financial reporting as of December 31, 2016.
  • 7Employee base grew to approximately 260,200 by the end of 2016.

Frequently Asked Questions

Cognizant's primary strategic focus is on transforming its clients' business, operating, and technology models for the digital era. This involves aligning its services into three digital practice areas: Digital Business, Digital Operations, and Digital Systems & Technology, and investing to scale these capabilities.

For the year ended December 31, 2016, Cognizant reported revenues of $13.49 billion, an 8.6% increase from the prior year. However, net income decreased by 4.4% to $1.55 billion. The company's operating margin was 17.0%.

Key risks and challenges include intense competition, potential liabilities and reputational damage from security breaches, reliance on a few large customers, the need to keep pace with rapid technological advancements, and an ongoing internal investigation into potential FCPA violations in India. The company also identified a material weakness in its internal controls over financial reporting.

Cognizant announced a plan to return $3.4 billion to stockholders over two years through a combination of stock repurchases and cash dividends. This includes a $1.5 billion accelerated stock repurchase program in Q1 2017, the initiation of a quarterly cash dividend of $0.15 per share in Q2 2017, and an additional $1.2 billion in stock repurchases during 2017-2018.