10-QPeriod: Q3 FY2002

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 14, 2002For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported solid financial performance for the nine months ended September 30, 2002, demonstrating robust revenue growth and improved profitability. Total revenues for the period increased by 20.7% to $162.1 million, driven by strong demand for application management services. Net income rose significantly by 45.1% to $25.4 million, reflecting effective cost management and a lower effective tax rate due to a strategic shift in repatriating Indian subsidiary earnings. The company's balance sheet shows a healthy increase in cash and cash equivalents, reaching $123.1 million, indicating strong operational cash flow generation. Despite increased investments in international expansion and infrastructure, liquidity remains strong. The company also noted a pending Exchange Offer by its majority shareholder, IMS Health, which is expected to occur in early 2003 and is not anticipated to impact the total number of outstanding shares.

Key Highlights

  • 1Total revenues increased by 20.7% to $162.1 million for the nine months ended September 30, 2002, compared to $134.3 million in the prior year.
  • 2Net income for the nine months increased by 45.1% to $25.4 million, up from $17.5 million in the same period of 2001.
  • 3Diluted Earnings Per Share (EPS) grew to $1.21 for the nine months ended September 30, 2002, from $0.86 in the prior year.
  • 4Cash and cash equivalents significantly increased to $123.1 million as of September 30, 2002, from $85.0 million at the end of 2001.
  • 5The effective tax rate decreased significantly due to a change in the repatriation strategy for earnings of the Indian subsidiary.
  • 6The company announced a proposed Exchange Offer by its majority shareholder, IMS Health, to exchange Class B common stock for IMS Health shares, expected in Q1 2003.
  • 7International expansion continues with the acquisition of certain assets from UnitedHealthcare Ireland Limited, marking the initial phase of the strategy.

Frequently Asked Questions

Cognizant is demonstrating strong financial health with significant year-over-year growth in revenues and net income. The company has a robust cash position and is effectively managing its operations and expansion strategies.

The significant decrease in the effective tax rate is due to Cognizant's strategic decision to reinvest earnings from its Indian subsidiary outside the U.S., thus no longer accruing taxes on those specific earnings as per APB 23. This change positively impacted net income.

The Exchange Offer is a proposed transaction where Cognizant's majority shareholder, IMS Health, plans to offer its shares of Cognizant's Class B common stock in exchange for IMS Health common stock. This is expected in the first quarter of 2003 and will not alter the total number of Cognizant shares outstanding.

Cognizant is executing its international expansion strategy, notably through the acquisition of assets from UnitedHealthcare Ireland Limited to establish a presence in Europe. The company is also expanding its development centers in India.