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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 2004
--------------
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from
to -------------
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Commission File Number 0-24429
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3728359
- --------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
500 Glenpointe Centre West
Teaneck, New Jersey 07666
(201) 801-0233
---------------------------------------------
(Address, including zip code, and telephone
number (including area code) of registrant's
principal executive office)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes: X No:
----- -----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of April 28, 2004:
Class Number of Shares
- ------------------------------------------------ ----------------
Class A Common Stock, par value $.01 per share 64,818,774
Class B Common Stock, par value $.01 per share 0
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Unaudited)............................................... 1
Condensed Consolidated Statements of Income and
Comprehensive Income (Unaudited) for the Three Months
Ended March 31, 2004 and 2003............................. 2
Condensed Consolidated Statements of Financial
Position (Unaudited) as of March 31, 2004 and
December 31, 2003 ........................................ 3
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Three Months Ended March 31, 2004
and 2003.................................................. 4
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
Item 3. Quantitative and Qualitative Disclosures About
About Market Risk......................................... 20
Item 4. Controls and Procedures................................... 20
PART II. OTHER INFORMATION
Item 5. Other Information......................................... 21
Item 6. Exhibits and Reports on Form 8-K.......................... 21
SIGNATURES........................................................ 22
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Unaudited)
- 1 -
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per share data)
Three Months Ended
March 31,
2004 2003
--------- ---------
Revenues ............................................. $ 119,744 $ 71,941
Revenues - related party ............................. -- 2,575
--------- ---------
Total revenues ..................................... 119,744 74,516
Cost of revenues ..................................... 65,010 40,959
--------- ---------
Gross profit ......................................... 54,734 33,557
Selling, general and administrative expenses ......... 27,182 16,411
Depreciation and amortization expense ................ 3,865 2,622
--------- ---------
Income from operations ............................... 23,687 14,524
--------- ---------
Other income (expense):
Interest income .................................... 840 421
Other income (expense) - net ....................... 301 (197)
Split-off costs (See Note 2) ....................... -- (2,010)
--------- ---------
Total other income (expense) ................. 1,141 (1,786)
--------- ---------
Income before provision for income taxes ............. 24,828 12,738
Provision for income taxes ........................... (5,040) (2,560)
--------- ---------
Net income ........................................... $ 19,788 $ 10,178
========= =========
Basic earnings per share ............................. $ 0.31 $ 0.17
========= =========
Diluted earnings per share ........................... $ 0.28 $ 0.15
========= =========
Weighted average number of common shares outstanding
- Basic ........................................... 64,440 61,319
========= =========
Dilutive effect of shares issuable as of period-end
under stock option plans ....................... 6,386 4,674
========= =========
Weighted average number of common shares outstanding
- Diluted ......................................... 70,826 65,993
========= =========
Comprehensive income:
Net income ......................................... $ 19,788 $ 10,178
Foreign currency translation adjustments ......... 1,522 (10)
--------- ---------
Comprehensive income ............................... $ 21,310 $ 10,168
========= =========
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
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COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(in thousands, except par values)
March 31, December 31,
2004 2003
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents ............................... $161,985 $194,221
Investment in short-term bank deposits .................. 36,874 --
Trade accounts receivable, net of allowance of $1,087 and
$989, respectively .................................... 71,512 52,253
Unbilled accounts receivable ............................ 12,720 9,543
Current tax asset ...................................... 12,374 14,066
Other current assets .................................... 11,576 8,414
-------- --------
Total current assets .............................. 307,041 278,497
Property and equipment, net of accumulated depreciation of
$37,657 and $34,168, respectively ....................... 57,813 58,438
Goodwill .................................................... 5,647 4,477
Other intangible assets, net ................................ 15,696 16,436
Other assets ................................................ 3,153 2,741
-------- --------
Total assets ...................................... $389,350 $360,589
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 8,468 $ 9,423
Accrued and other current liabilities ................... 54,371 53,213
-------- --------
Total current liabilities ............................... 62,839 62,636
Deferred income taxes ....................................... 22,298 23,883
-------- --------
Total liabilities ................................. 85,137 86,519
-------- --------
Commitments and Contingencies (See Note 7)
Stockholders' equity: (See Note 2)
Preferred stock, $.10 par value, 15,000 shares authorized,
none issued ............................................. -- --
Class A common stock, $.01 par value, 100,000 shares
authorized, 64,649 shares and 64,337 shares issued and
outstanding at March 31, 2004 and December 31, 2003,
respectively ............................................ 646 643
Class B common stock, $.01 par value, 25,000 shares
authorized, none outstanding ............................ -- --
Additional paid-in-capital .................................. 127,284 118,454
Retained earnings ........................................... 170,761 150,973
Accumulated other comprehensive income ...................... 5,522 4,000
-------- --------
Total stockholders' equity ....................... 304,213 274,070
-------- --------
Total liabilities and stockholders' equity ....... $389,350 $360,589
======== ========
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
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COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the Three Months Ended
March 31,
2004 2003
--------- ----------
Cash flows from operating activities:
Net income ................................................ $ 19,788 $ 10,178
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................... 3,865 2,622
Split-off costs (See Note 2) ...................... -- 2,010
Provision for doubtful accounts ................... 79 (4)
Deferred income taxes ............................. (1,585) 32
Tax benefit related to option exercises ........... 4,290 1,156
Changes in assets and liabilities:
Trade accounts receivable ......................... (18,850) (3,909)
Other current assets .............................. (4,552) (2,359)
Other assets ...................................... (155) (77)
Accounts payable .................................. (955) (1,305)
Accrued and other liabilities ..................... 834 (1,617)
--------- ----------
Net cash provided by operating activities ................. 2,759 6,727
--------- ----------
Cash flows from investing activities:
Purchases of property and equipment ....................... (2,691) (6,054)
Investment in short-term bank deposits .................... (36,874) --
Acquisition, net of cash acquired ......................... (1,495) --
--------- ----------
Net cash used in investing activities ..................... (41,060) (6,054)
--------- ----------
Cash flows from financing activities:
Proceeds from issued shares ............................... 4,543 2,823
Split-off costs (See Note 2) .............................. -- (3,050)
--------- ----------
Net cash provided by (used in) financing activities ....... 4,543 (227)
--------- ----------
Effect of currency translation ............................ 1,522 (10)
--------- ----------
(Decrease) increase in cash and cash equivalents .......... (32,236) 436
Cash and cash equivalents, beginning of year .............. 194,221 126,211
--------- ----------
Cash and cash equivalents, end of period .................. $ 161,985 $ 126,647
========= ==========
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
- 4 -
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollar amounts in thousands)
NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
included herein have been prepared by Cognizant Technology Solutions Corporation
("Cognizant" or the "Company") in accordance with generally accepted accounting
principles in the United States of America and Article 10 of Regulation S-X
under the Securities and Exchange Act of 1934, as amended, and should be read in
conjunction with the Company's consolidated financial statements (and notes
thereto) included in the Company's 2003 Annual Report on Form 10-K. In the
opinion of the Company's management, all adjustments considered necessary for a
fair presentation of the accompanying unaudited condensed consolidated financial
statements have been included, and all adjustments are of a normal and recurring
nature. Operating results for the interim period are not necessarily indicative
of results that may be expected to occur for the entire year.
NOTE 2 - SPLIT-OFF FROM IMS HEALTH AND RELATED PARTY TRANSACTIONS
On February 13, 2003, (the "Split-Off Date") IMS Health Incorporated ("IMS
Health") distributed all of the Cognizant Class B common stock that IMS Health
owned (a total of 33,872,700 shares) in an exchange offer to IMS Health
stockholders (the "Split-Off"). In connection with the Split-Off, Cognizant was
obligated under the provisions of an Intercompany Agreement with IMS Health to
pay certain costs associated with the Split-Off. During the quarter ended March
31, 2003, Cognizant incurred direct and incremental costs of approximately
$2,000 related to the Split-Off. This amount was in addition to the
approximately $1,700, which was recorded in the fourth quarter of 2002. Such
costs included direct legal, accounting, printing and other costs. In addition,
costs incurred in the first quarter of 2003 include a non-cash charge of
approximately $488 calculated in accordance with Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees and Related
Interpretations" ("APB No. 25") related to the retention, acceleration and
extended life of Cognizant common stock options by two former Directors of
Cognizant who resigned on the Split-Off Date as a condition of the Split-Off. As
of the Split-Off Date, such former Directors were Officers of IMS Health.
Cognizant did not receive any proceeds from the IMS Health exchange offer.
As a result of the Split-Off, IMS Health and its affiliates are no longer
related parties of Cognizant as of the Split-Off Date. Only services rendered to
or received from IMS Health and its affiliates during the period from January 1,
2003 to the Split-Off Date are classified as related party transactions. During
the three months ended March 31, 2003, the Company recognized related party
revenue of $2,575 and incurred costs related to services provided by IMS Health
to the Company of $28.
The Company has a strategic relationship with The Trizetto Group Inc.
("Trizetto") that includes helping its healthcare customers integrate Trizetto's
products with their existing information systems and, within Trizetto,
supporting further development of these software
- 5 -
applications. As of the Split-Off Date, IMS Health owned approximately 26.4% of
the outstanding common stock of Trizetto. The Company recorded revenues from
Trizetto of approximately $831 from January 1, 2003 through the Split-Off Date
and recorded expenses related to Trizetto commissions of approximately $9 from
January 1, 2003 through the Split-Off Date.
NOTE 3 - ACQUISITION
On February 27, 2004, the Company acquired Ygyan Consulting Private Ltd.
("Ygyan"), an India-based SAP services provider, for approximately $1,720
(including approximately $62 of estimated direct deal costs). Ygyan was acquired
to increase the Company's SAP service capabilities.
The Company has accounted for the acquisition as a business combination
under the provisions of Statement of Financial Accounting Standards ("SFAS") No.
141, "Business Combinations" and has made a preliminary assessment on the
allocation of the purchase price to the tangible and intangible assets and
liabilities acquired. Based upon that preliminary assessment, the Company
expects that the amortization of such intangible assets will not have a material
effect on the Company's results of operations. The operating results of Ygyan
have been included in the unaudited condensed consolidated financial statements
since the acquisition date. The Ygyan acquisition was not material to the
Company's consolidated results of operations, cash flows or financial condition.
NOTE 4 - INVESTMENT IN SHORT-TERM BANK DEPOSITS
The Company's investments in bank deposits mature in less than one year.
These short-term cash investments are valued at cost, which approximates fair
value.
NOTE 5 - INCOME TAXES
The Company's Indian subsidiary, Cognizant India, is an export-oriented
company, which under the Indian Income Tax Act of 1961, is entitled to claim tax
holidays for a period of ten years with respect to its export profits.
Substantially all of the earnings of Cognizant India are attributable to export
profits and are therefore currently substantially exempt from Indian income tax.
These tax holidays begin to expire in 2004 and under current law will be
completely phased out by March of 2009. The incremental Indian taxes related to
the portion of the Indian tax holiday that expires in 2004 have been
incorporated into the Company's 2004 effective income tax rate. The principal
difference between the effective rates during the 2004 and 2003 periods and the
Company's United States federal statutory rate is the effect of the tax holiday
in India.
NOTE 6 - ACCOUNTING FOR STOCK-BASED EMPLOYEE COMPENSATION PLANS
At March 31, 2004, the Company had four stock-based employee compensation
plans. The Company accounts for these plans under the recognition and
measurement principles of APB No. 25. Except as noted below, no stock-based
employee compensation cost is reflected in net income, as all options granted
under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income and earnings per share for the three months ended March
31, 2004 and
- 6 -
2003, if the Company had applied the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee
compensation.
For Three For Three Months
Months Ended Ended March 31,
March 31, 2004 2003
--------------- ----------------
Net income as reported........... $ 19,788 $ 10,178
Add: Stock-based compensation,
net of tax benefit,
included in net income...... -- 488
Deduct: Total stock-based
compensation expense
determined under the fair
value method for all
awards, net of tax related
benefits.................... (3,425) (3,860)
--------- ---------
Pro forma net income............. $ 16,363 $ 6,806
========= =========
Earnings per share:
- -------------------
As reported - basic.............. $ 0.31 $ 0.17
Pro forma - basic................ $ 0.25 $ 0.11
As reported - diluted............ $ 0.28 $ 0.15
Pro forma - diluted ............. $ 0.23 $ 0.10
NOTE 7 - COMMITMENTS AND CONTINGENCIES
On December 22, 2003, the Company announced plans to construct three
additional fully-owned development centers containing over 600,000 square feet
of space in Chennai, Bangalore and Pune. The total expenditure related to this
program is currently estimated to be approximately $42,500, of which $463 has
been spent to date.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the outcome of such
claims and legal actions, if decided adversely, is not expected to have a
material adverse effect on the Company's quarterly or annual operating results,
cash flows, or consolidated financial position. Additionally, many of the
Company's engagements involve projects that are critical to the operations of
its customers' businesses and provide benefits that are difficult to quantify.
Any failure in a customer's computer system could result in a claim for
substantial damages against the Company, regardless of the Company's
responsibility for such failure. Although the Company attempts to contractually
limit its liability for damages arising from negligent acts, errors, mistakes,
or omissions in rendering its software development and maintenance services,
there can be no assurance that the limitations of liability set forth in its
contracts will be enforceable in all instances or will otherwise protect the
Company from liability for damages. Although the Company has general liability
insurance coverage, including coverage for errors or omissions, there can be no
assurance that such coverage will continue to be available on reasonable terms
or will be available in sufficient amounts to cover one or more large claims, or
that the insurer will not disclaim coverage as to any future claim. The
successful assertion of one or more large
- 7 -
claims against the Company that exceed available insurance coverage or changes
in the Company's insurance policies, including premium increases or the
imposition of large deductible or co-insurance requirements, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
In connection with the Split-Off, the Company entered into a Distribution
Agreement, dated January 7, 2003, with IMS Health (the "Distribution
Agreement"), that provides, among other things, that IMS Health and the Company
will comply with, and not take any action during the relevant time period that
is inconsistent with, the representations made to and relied upon by McDermott,
Will & Emery in connection with rendering its opinion regarding the U.S. federal
income tax consequences of the exchange offer. In addition, pursuant to the
Distribution Agreement, the Company indemnified IMS Health for any tax liability
to which they may be subject as a result of the exchange offer but only to the
extent that such tax liability resulted solely from a breach in the
representations the Company made to and were relied upon by McDermott, Will &
Emery in connection with rendering its opinion regarding the U.S. federal income
tax consequences of the exchange offer. If the Company breaches any of its
representations in connection with the Distribution Agreement, the related
indemnification liability could be material to the Company's results of
operations, financial position and cash flows.
NOTE 8 - SEGMENT INFORMATION
The Company, operating globally, provides IT services for medium and
large businesses. North American operations consist primarily of IT services in
the United States and Canada. European operations consist of IT services
principally in the United Kingdom, The Netherlands and Ireland. Asian operations
consist of IT services principally in India, Singapore, Japan and Australia. The
Company is managed on a geographic basis. Accordingly, regional sales managers,
sales managers, account managers, project teams and facilities are segmented
geographically and decisions by the Company's chief operating decision maker
regarding the allocation of assets and assessment of performance are based on
such geographic segmentation. In accordance with SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information", information about the
Company's operations and total assets in North America, Europe and Asia for the
periods ended March 31, 2004 and March 31, 2003 are as follows:
Three Months Ended March 31,
----------------------------
2004 2003
--------- ---------
REVENUES (1)(2)
North America (3)......................... $ 103,970 $ 65,702
Europe.................................... 14,736 8,246
Asia...................................... 1,038 568
--------- ---------
Consolidated.............................. $ 119,744 $ 74,516
========= =========
OPERATING INCOME (1)
North America (3)......................... $ 20,567 $ 12,806
Europe.................................... 2,915 1,607
Asia...................................... 205 111
--------- ---------
Consolidated.............................. $ 23,687 $ 14,524
========= =========
- 8 -
As of March 31, As of December
2004 31, 2003
-------------- --------------
IDENTIFIABLE ASSETS
North America (3)......................... $ 205,430 $ 203,168
Europe.................................... 24,997 26,045
Asia...................................... 158,923 131,376
--------- ---------
Consolidated.............................. $ 389,350 $ 360,589
========= =========
(1) Revenues and resulting operating income in this schedule are attributed to
regions based upon customer location.
(2) Application development and integration services represented approximately
44.3% and 37.8% of revenues during the three months ended March 31, 2004
and 2003, respectively. Application maintenance services represented
approximately 55.7% and 62.2% of revenues during the three months ended
March 31, 2004 and 2003, respectively.
(3) Primarily relates to operations in the United States.
One customer, JPMorgan Chase, accounted for more than 10% of revenues in
the quarter ended March 31, 2004. No customer accounted for more than 10% of
revenues for the three months ended March 31, 2003.
NOTE 9 - SUBSEQUENT EVENT
On April 12, 2004, the Board of Directors declared a conditional
two-for-one stock split to be effected by a 100% stock dividend payable on or
about June 17, 2004 to stockholders of record as of May 27, 2004. The stock
split is subject to stockholder approval at the May 26, 2004 annual meeting of
stockholders of an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized Class A common shares.
- 9 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
OVERVIEW
- --------
We are a leading provider of custom IT services related to IT design,
development, integration and maintenance services primarily for Fortune 1000
companies located in the United States and Europe. Our core competencies include
web-centric applications, data warehousing, component-based development and
legacy and client-server systems. We provide IT services using an integrated
on-site/offshore business model. This seamless on-site/offshore business model
combines technical and account management teams located on-site at the customer
location and offshore at dedicated development centers located in India and
Ireland.
During the three months ended March 31, 2004, our revenue increased to
$119.7 million compared to $74.5 million for the three months ended March 31,
2003. Net income increased to $19.8 million or $0.28 per diluted share during
the three months ended March 31, 2004 compared to $10.2 million or $0.15 per
diluted share during the three months ended March 31, 2003. Our revenue growth
was driven by continued strong demand for our application management, and
application development and integration services. Application management revenue
increased by 44%, or approximately $20.4 million, from approximately $46.3
million during the three months ended March 31, 2003 to approximately $66.7
million during the three months ended March 31, 2004. Application development
and integration services increased by 88.3%, or approximately $24.9 million,
from approximately $28.2 million during the three months ended March 31, 2003 to
approximately $53.1 million during the three months ended March 31, 2004. As of
March 31, 2004, we had 193 active clients compared to 153 at December 31, 2003.
We added 21 clients through our acquisition of Ygyan Consulting Private Ltd., or
Ygyan, during the first quarter of 2004. We anticipate that a significant
portion of our revenue growth in 2004 will come from increased penetration of
existing clients. In 2004, we expect to continue to expand our business in
Northern Europe as we continue to see an increased level of interest for
offshore services in that region. During the three months ended March 31, 2004,
our operating margin increased approximately 30 basis points to 19.8% as
compared to 19.5% for the first quarter of 2003. This was consistent with our
targeted operating margin range of 19 to 20% of total revenues.
At March 31, 2004, we had cash and cash equivalents and short-term bank
deposits of $198.9 million, an increase of $4.7 million compared to December 31,
2003. On December 22, 2003, we announced building plans for three additional
fully-owned development centers containing over 600,000 square feet of space in
Chennai, Bangalore and Pune. Total costs related to this program are currently
estimated to be approximately $42.5 million, which we expect to fund from
current operations. We believe our financial condition will remain strong. In
addition, we will continue to consider acquisitions of companies that can
improve our capabilities in certain market niches or geographic areas.
CRITICAL ACCOUNTING ESTIMATES AND RISKS
- ---------------------------------------
Management's discussion and analysis of our financial condition and
results of operations are based on our unaudited condensed consolidated
financial statements that have
- 10 -
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the amounts reported
for assets and liabilities, including the recoverability of tangible and
intangible assets, disclosure of contingent assets and liabilities as of the
date of the financial statements, and the reported amounts of revenues and
expenses during the reported period. On an on-going basis, we evaluate our
estimates. The most significant estimates relate to the recognition of revenue
and profits based on the percentage of completion method of accounting for
certain fixed-bid contracts, the allowance for doubtful accounts, income taxes,
valuation of goodwill and other long-lived assets, contingencies and litigation.
We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. The actual amounts
will differ from the estimates used in the preparation of the accompanying
unaudited condensed consolidated financial statements. Our significant
accounting policies are described in Note 2 to the consolidated financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 2003.
We believe the following critical accounting policies require higher level
of management judgments and estimates than others in preparing the unaudited
condensed consolidated financial statements:
REVENUE RECOGNITION. Revenues related to our fixed-price contracts are
recognized as the service is performed using the percentage-of-completion method
of accounting, under which the total contract revenue during the term of an
agreement is recognized on the basis of the percentage that each contract's cost
to date bears to the total estimated cost. Estimates of total contract revenues
and costs are continuously monitored during the term of the contract, and
recorded revenues and costs are subject to revision as the contract progresses.
Such revisions may result in increases or decreases to revenues and income and
are reflected in the consolidated financial statements in the periods in which
they are first identified.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. The allowance for doubtful accounts is determined by
evaluating the relative credit-worthiness of each customer based upon market
capitalization and other information, including the aging of the receivables. If
the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
INCOME TAXES. Determining the consolidated provision for income tax
expense, deferred tax assets and liabilities and related valuation allowance, if
any, involves judgment. As a global company, we are required to calculate and
provide for income taxes in each of the jurisdictions where we operate. This
involves estimating current tax exposures in each jurisdiction as well as making
judgments regarding the recoverability of deferred tax assets. Tax exposures can
involve complex issues and may require an extended period to resolve. In the
period of resolution, adjustments may need to be recorded that result in
increases or decreases to income. Changes in the geographic mix or estimated
level of annual pre-tax income can also affect the overall effective income tax
rate.
- 11 -
On an on-going basis, we evaluate whether a valuation allowance is needed
to reduce our deferred tax assets to the amount that is more likely than not to
be realized. While we have considered future taxable income and on-going prudent
and feasible tax planning strategies in assessing the need for the valuation
allowance, in the event we determine that we will be able to realize deferred
tax assets in the future in excess of the net recorded amount, an adjustment to
the deferred tax asset would increase income in the period such determination
was made. Likewise, should we determine that we will not be able to realize all
or part of the net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income or equity (if the deferred tax
asset is related to tax benefits from stock option benefits that have not been
realized) in the period such determination was made.
Our Indian subsidiary, Cognizant India, is an export-oriented company,
which, under the Indian Income Tax Act of 1961, is entitled to claim tax
holidays for a period of ten years with respect to Cognizant India's export
profits. Substantially all of the earnings of Cognizant India are attributable
to export profits and are therefore currently entitled to a 100% exemption from
Indian income tax. These tax holidays will begin to expire in 2004 and, under
current law, will be completely phased out by March of 2009. Prior to 2002, it
was management's intent to repatriate all accumulated earnings from India to the
United States; accordingly, we provided for deferred income taxes on all such
undistributed earnings through December 31, 2001. During the first quarter of
2002, we made a strategic decision to pursue an international strategy that
includes expanded infrastructure investments in India and geographic expansion
in Europe and Asia. As a component of this strategy, we intend to use 2002 and
future Indian earnings to expand operations outside of the United States instead
of repatriating these earnings to the United States. Accordingly, effective
January 1, 2002, pursuant to Accounting Principles Board Opinion ("APB") No. 23,
"Accounting for Income Taxes - Special Areas" we no longer accrue incremental
U.S. taxes on all foreign earnings recognized in 2002 and subsequent periods as
these earnings are considered to be indefinitely reinvested outside of the
United States. As of March 31, 2004, the amount of unrepatriated Indian earnings
upon which no incremental U.S. taxes have been recorded is approximately $96.8
million. While we have no plans to do so, if such earnings are repatriated in
the future or are no longer deemed to be indefinitely reinvested, we will accrue
the applicable amount of taxes associated with such earnings and may pay taxes
at a substantially higher rate than the effective rate in 2004. Due to the
various methods by which such earnings could be repatriated in the future, it is
not currently practicable to determine the amount of applicable taxes that would
result from such repatriation or whether the amount of previously accrued
deferred taxes on earnings recognized prior to 2002 will require adjustment.
GOODWILL. We evaluate goodwill for impairment at least annually, or as
circumstances warrant. When determining the fair value of our reporting units,
we utilize various assumptions, including projections of future cash flows. Any
adverse changes in key assumptions about our businesses and their prospects or
an adverse change in market conditions may cause a change in the estimation of
fair value and could result in an impairment charge.
LONG-LIVED ASSETS. In accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", which was adopted in 2002, we review for impairment long-lived assets
and certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
general, we will recognize an impairment loss when the sum of undiscounted
- 12 -
expected future cash flows is less than the carrying amount of such asset. The
measurement for such an impairment loss is then based on the fair value of the
asset. If such assets were determined to be impaired, it could have a material
adverse effect on our business, results of operations and financial condition.
RISKS. Most of our IT development centers, including a substantial
majority of our employees, are located in India. As a result, we may be subject
to certain risks associated with international operations, including risks
associated with foreign currency exchange rate fluctuations and risks associated
with the application and imposition of protective legislation and regulations
relating to import and export or otherwise resulting from foreign policy or the
variability of foreign economic or political conditions. To date, we have not
engaged in any hedging transactions to mitigate our risks relating to exchange
rate fluctuations. Additional risks associated with international operations
include difficulties in enforcing intellectual property rights, the burdens of
complying with a wide variety of foreign laws, potential geo-political and other
risks associated with terrorist activities and local and cross border conflicts,
potentially adverse tax consequences, tariffs, quotas and other barriers. See
Item 1 "Business - Additional Factors That May Affect Future Results" in our
Annual Report on Form 10-K for the year ended December 31, 2003 for discussion
of additional risks that may affect our business, operations or financial
results.
FORWARD LOOKING STATEMENTS
- --------------------------
The statements contained in this Quarterly Report on Form 10-Q that
are not historical facts are forward-looking statements (within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended) that involve
risks and uncertainties. Such forward-looking statements may be identified by,
among other things, the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should" or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. From time to time, we or our
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in various filings made
by us with the Securities and Exchange Commission, or press releases or oral
statements made by or with the approval of one of our authorized executive
officers. These forward-looking statements, such as statements regarding
anticipated future revenues, contract percentage completions, capital
expenditures, and other statements regarding matters that are not historical
facts, involve predictions. Our actual results, performance or achievements
could differ materially from the results expressed in, or implied by, these
forward-looking statements. There are a number of important factors that could
cause our results to differ materially from those indicated by such
forward-looking statements which include general economic conditions and the
factors discussed in our Annual Report on Form 10-K for the year ended December
31, 2003 and other filings with the Securities and Exchange Commission. We
undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
- 13 -
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth, for the periods indicated, certain
financial data expressed for the three months ended March 31:
(Dollars in thousands)
% of % of
2004 Revenues 2003 Revenues Increase % Increase
---- -------- ---- -------- -------- ----------
Revenues.......... $119,744 100.0% $74,516 100.0% $45,228 60.7%
Cost of revenues.. 65,010 54.3 40,959 55.0 24,051 58.7
-------- ------ ------- ------
Gross profit...... 54,734 45.7 33,557 45.0 21,177 63.1
Selling, general
and
administrative.. 27,182 22.7 16,411 22.0 10,771 65.6
Depreciation and
amortization.... 3,865 3.2 2,622 3.5 1,243 47.4
-------- ------ ------- ------
Income from
operations...... 23,687 19.8 14,524 19.5 9,163 63.1
====== ======
Other income
(expense), net.. 1,141 (1,786) 2,927 163.9
Provision for
income taxes.... (5,040) (2,560) 2,480 96.9
-------- -------
Net income........ $ 19,788 16.5 $10,178 13.7 9,610 94.4
======== ====== ======= ======
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
- -------------------------------------------------------------------------------
REVENUE. Revenue increased by 60.7%, or approximately $45.2 million, from
approximately $74.5 million during the three months ended March 31, 2003 to
approximately $119.7 million during the three months ended March 31, 2004. This
increase resulted primarily from increased revenue from existing customers and
revenue from new customers added since March 31, 2003, including acquisitions.
In the first quarter of 2004, JPMorgan Chase accounted for sales in excess of
10% of revenues, while in the corresponding period of 2003 no customer accounted
for sales in excess of 10% of revenues.
GROSS PROFIT. Our cost of revenues consists primarily of the cost of
salaries, payroll taxes, benefits, immigration and travel for technical
personnel, and the cost of sales commissions related to revenues. Our cost of
revenues increased by 58.7%, or approximately $24.1 million, from approximately
$41.0 million during the three months ended March 31, 2003 to approximately
$65.0 million during the three months ended March 31, 2004. The increase was due
primarily to costs resulting from an increase in the number of our technical
professionals from approximately 5,900 employees at March 31, 2003 to
approximately 9,700 employees at March 31, 2004. The increased number of our
technical professionals is a direct result of greater demand for our services.
Our gross profit increased by 63.1%, or approximately $21.2 million, from
approximately $33.6 million during the three months ended March 31, 2003 to
approximately $54.7 million during the three months ended March 31, 2004.
Gross profit margin increased from 45.0% of revenues during the three
months ended March 31, 2003 to 45.7% of revenues during the three months ended
March 31, 2004. The increase in gross profit margin was due primarily to an
increase in offshore execution of projects
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which are more profitable than onsite projects where salary costs are greater,
and higher average billing rates in 2004, partially offset by the appreciation
of the Indian Rupee versus the U.S. dollar and the effect of a higher incentive
compensation accrual in 2004 as compared to 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of salaries, employee benefits,
travel, promotion, communications, management, finance, administrative and
occupancy costs as well as depreciation and amortization expense. Selling,
general and administrative expenses, including depreciation and amortization,
increased by 63.1%, or approximately $12.0 million, from approximately $19.0
million during the three months ended March 31, 2003 to approximately $31.0
million during the three months ended March 31, 2004, and increased as a
percentage of revenue from 25.5% to 25.9%. The increase in such expenses was due
primarily to expenses incurred to expand our sales and marketing activities and
increased infrastructure expenses to support our revenue growth.
INCOME FROM OPERATIONS. Income from operations increased 63.1%, or
approximately $9.2 million, from approximately $14.5 million during the three
months ended March 31, 2003 to approximately $23.7 million during the three
months ended March 31, 2004, representing operating margins of 19.5% and 19.8%
of revenues, respectively. The increase in operating margin was due primarily to
the increase in the gross profit margin discussed above.
OTHER INCOME/EXPENSE. Other income/expense consists primarily of interest
income and foreign currency transaction gains or losses and for the three months
ended March 31, 2003, non-recurring split-off costs of $2.0 million. Split-off
costs relate to direct and incremental expenses (e.g., legal and accounting
fees, printing and registration costs) incurred by us directly related to our
split-off from IMS Health Incorporated or ("IMS Health"). (See Note 2 to the
unaudited condensed consolidated financial statements). Interest income
increased from $0.4 million during the three months ended March 31, 2003 to
approximately $0.8 million during the three months ended March 31, 2004. We
recognized a net foreign currency exchange loss of approximately $0.2 million
during three month periods ended March 31, 2003 and a net foreign currency
exchange gain of $0.3 million during the three months ended March 31, 2004, as a
result of the effect of changing exchange rates on our transactions denominated
in currencies other than the functional currency.
PROVISION FOR INCOME TAXES. The provision for income taxes increased from
approximately $2.6 million during the three months ended March 31, 2003 to
approximately $5.0 million during the three months ended March 31, 2004. The
effective tax rate of 20.1% for the three months ended March 31, 2003 increased
marginally to 20.3% for the three months ended March 31, 2004 primarily due to
the expiration of the Indian tax holiday on export profits generated from one of
our software development centers in India. Beginning April 1, 2004, we will be
required to pay Indian taxes on export profits generated from this software
development center.
NET INCOME. Net income increased from approximately $10.2 million for the
three months ended March 31, 2003 to approximately $19.8 million for the three
months ended March 31, 2004, representing 13.7% and 16.5% of revenues,
respectively. The increase in net
- 15 -
income as a percentage of revenues compared to the prior period was primarily
due to the one-time non-recurring split-off costs referred to above.
RESULTS BY BUSINESS SEGMENT
- ---------------------------
We, operating globally, provide IT services for medium and large
businesses. North American operations consist primarily of IT services in the
United States and Canada. European operations consist of IT services principally
in the United Kingdom, The Netherlands and Ireland. Asian operations consist of
IT services principally in India, Singapore, Japan and Australia. We are managed
on a geographic basis. Accordingly, regional sales managers, sales managers,
account managers, project teams and facilities are segmented geographically and
decisions by our chief operating decision maker regarding the allocation of
assets and assessment of performance are based on such geographic segmentation.
In this regard, revenues are allocated to each geographic area based on the
location of the customer.
The following table sets forth, for the periods indicated, operating
results by geographic segment:
(Dollars in thousands)
Three Months Ended
March 31,
---------------------
2004 2003 Increase % Increase
-------- ------- -------- ----------
Revenues
North America....... $103,970 $65,702 $38,268 58.2%
Europe.............. 14,736 8,246 6,490 78.7
Asia................ 1,038 568 470 82.7
-------- -------
Total revenue...... $119,744 $74,516
======== =======
Operating Income
North America....... $ 20,567 $12,806 $7,761 60.6%
Europe.............. 2,915 1,607 1,308 81.4
Asia................ 205 111 94 84.7
-------- -------
Total operating
income........... $ 23,687 $14,524
======== =======
North American Segment
- ----------------------
REVENUE. Revenue increased by 58.2%, or approximately $38.3 million, from
approximately $65.7 million during the first quarter of 2003 to approximately
$104.0 million during the first quarter of 2004. The increase in revenue was
attributable primarily to greater acceptance of the on-site/offshore consulting
services delivery model as a means of reducing a customer's internal IT costs,
as well as sales and marketing activities directed at the U.S. market for our
services.
INCOME FROM OPERATIONS. Income from operations increased 60.6%, or
approximately $7.8 million, from approximately $12.8 million during the first
quarter of 2003 to approximately $20.6 million during the first quarter of 2004.
The increase in operating income was attributable primarily to increased
revenues and achieving leverage on prior sales and marketing investments.
- 16 -
European Segment
- ----------------
REVENUE. Revenue increased by 78.7%, or approximately $6.5 million, from
approximately $8.2 million during the first quarter of 2003 to approximately
$14.7 million during the first quarter of 2004. The increase in revenue was
attributable to the increased acceptance of our services, particularly in the
United Kingdom and additional revenues related to the acquisition of Infopulse
Nederland B.V.
INCOME FROM OPERATIONS. Income from operations increased 81.4%, or
approximately $1.3 million, from approximately $1.6 million during the first
quarter of 2003 as compared to approximately $2.9 million during the first
quarter of 2004. The increase in operating income was attributable primarily to
increased revenues and achieving leverage on prior sales and marketing
investments.
Asian Segment
- -------------
REVENUE. Revenue increased by 82.7%, or approximately $0.5 million, from
approximately $0.6 million during the first quarter of 2003 to approximately
$1.0 million during the first quarter of 2004. The increase in revenue was
attributable to the increased acceptance of our services, particularly in Japan
and Singapore, and the acquisition of Ygyan.
INCOME FROM OPERATIONS. Income from operations increased 84.7%, or
approximately $0.1 million, from approximately $0.1 million during the first
quarter of 2003 as compared to approximately $0.2 million during the first
quarter of 2004. The increase in operating income was attributable primarily to
increased revenues and achieving leverage on prior sales and marketing
investments.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 2004, we had cash and cash equivalents and short-term bank
deposits of approximately $198.9 million. We have used, and plan to use, such
cash for (i) expansion of existing operations, including our offshore software
development centers; (ii) continued development of new service lines; (iii)
possible acquisitions of related businesses; (iv) formation of joint ventures;
and (v) general corporate purposes, including working capital. As of March 31,
2004, we had no significant third party debt and our working capital increased
to $244.2 million compared to $215.9 million as of December 31, 2003.
Accordingly, we do not anticipate any near-term liquidity issues.
During 2004, the Indian income tax holiday related to one of our software
development centers will expire. Accordingly, in 2004, we will begin to pay
Indian income taxes on export profits generated by this one software development
center. Such income taxes are expected to be less than $10 million for 2004.
Net cash provided by operating activities was approximately $2.8 million
during the three months ended March 31, 2004 as compared to net cash provided by
operating activities of approximately $6.7 million during the three months ended
March 31, 2003. This decrease is primarily attributed to the increase in the
trade accounts receivable as of March 31, 2004, partially offset by a higher
level of net income during 2004 as compared to 2003. Trade accounts
- 17 -
receivable, net of allowance, increased from $52.3 million at December 31, 2003
to $71.5 million at March 31, 2004. The increase in trade accounts receivable
during the first quarter of 2004 was due primarily to increased revenue and the
timing of billings during the quarter. We monitor turnover, aging and the
collection of accounts receivable through the use of management reports which
are prepared on a customer basis and evaluated by our finance staff. At March
31, 2004, our days' sales outstanding, including unbilled receivables, were
approximately 64 days compared to approximately 53 days at December 31, 2003.
Our investing activities used net cash of approximately $41.1 million for
the three months ended March 31, 2004 as compared to net cash used of
approximately $6.1 million for the same period in 2003. The increase in 2004 as
compared to 2003 relates to the investment of a portion of our cash balances in
short-term bank deposits to achieve a higher return on invested balances and the
acquisition of Ygyan, partially offset by lower spending on property and
equipment.
Our financing activities generated net cash of approximately $4.5 million
for the three months ended March 31, 2004 as compared to net cash used by
financing activities of approximately $0.2 million for the same period in 2003.
The increase in net cash provided by financing activities was primarily related
to increased cash proceeds from the exercise of stock options as compared to the
prior year and the payment of non-recurring split-off costs in 2003.
We believe that our available funds and the cash flows expected to be
generated from operations will be adequate to satisfy our current and planned
operations and needs for at least the next 12 months. Our ability to expand and
grow our business in accordance with current plans, to make acquisitions and
form joint ventures and to meet our long-term capital requirements beyond this
12-month period will depend on many factors, including the rate, if any, at
which our cash flow increases, our ability and willingness to accomplish
acquisitions and joint ventures with capital stock, our continued intent not to
repatriate earnings from India, our ability not to breach the Distribution
Agreement, as defined below, between IMS Health and us, especially as it relates
to our tax indemnities, and the availability of public and private debt and
equity financing. We cannot be certain that additional financing, if required,
will be available on terms favorable to us, if at all.
We do not engage in hedging activities nor have we entered into
off-balance sheet transactions, arrangements or other relationships with
unconsolidated entities or other persons that are likely to affect liquidity or
the availability of or requirements for capital resources.
COMMITMENTS AND CONTINGENCIES
- -----------------------------
On December 22, 2003, we announced building plans for three additional
fully-owned development centers containing over 600,000 square feet of space in
Chennai, Bangalore and Pune, India. As of March 31, 2004, we had entered into
fixed capital commitments related to this program of approximately $0.5 million,
of which approximately $0.5 million had been spent. Total costs related to this
program are expected to be approximately $42.5 million, which we expect to fund
internally.
We are involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the outcome of such
claims and legal actions, if decided
- 18 -
adversely, is not expected to have a material adverse effect on our quarterly or
annual operating results, cash flows, or consolidated financial position.
Additionally, many of our engagements involve projects that are critical to the
operations of our customers' business and provide benefits that are difficult to
quantify. Any failure in a customer's computer system could result in a claim
for substantial damages against us, regardless of our responsibility for such
failure. Although we attempt to contractually limit our liability for damages
arising from negligent acts, errors, mistakes, or omissions in rendering our
application design, development and maintenance services, there can be no
assurance that the limitations of liability set forth in our contracts will be
enforceable in all instances or will otherwise protect us from liability for
damages. Although we have general liability insurance coverage, including
coverage for errors or omissions, there can be no assurance that such coverage
will continue to be available on reasonable terms or will be available in
sufficient amounts to cover one or more large claims, or that the insurer will
not disclaim coverage as to any future claim. The successful assertion of one or
more large claims against us that exceed available insurance coverage or changes
in our insurance policies, including premium increases or the imposition of
large deductible or co-insurance requirements, could have a material adverse
effect on our business, results of operations and financial condition.
In connection with the split-off from IMS Health, we entered into a
Distribution Agreement, dated January 7, 2003, with IMS Health, referred to as
the Distribution Agreement. The Distribution Agreement provides, among other
things, that IMS Health and we will comply with, and not take any action during
the relevant time period that is inconsistent with, the representations made to
and relied upon by McDermott, Will & Emery in connection with rendering its
opinion regarding the U.S. federal income tax consequences of the exchange
offer. In addition, pursuant to the Distribution Agreement, we indemnified IMS
Health for any tax liability to which they may be subject as a result of the
exchange offer but only to the extent that such tax liability resulted solely
from a breach in the representations we made to and were relied upon by
McDermott, Will & Emery in connection with rendering its opinion regarding the
U.S. federal income tax consequences of the exchange offer. If we breach any of
our representations in connection with the Distribution Agreement, the related
indemnification liability could be material to our quarterly and annual
operating results, financial position and cash flows.
RELATED PARTY TRANSACTIONS
- --------------------------
As described in Note 2 to the unaudited condensed consolidated financial
statements, on February 13, 2003, referred to as the Split-Off Date, IMS Health
distributed all of the Cognizant Class B common stock that IMS Health owned in
an exchange offer to IMS Health stockholders, referred to as the Split-Off. As a
result of the Split-Off, IMS Health is no longer a related party as of the
Split-Off Date. Accordingly, our revenues from IMS Health subsequent to the
Split-Off Date are classified as third party revenues. During the three months
ended March 31, 2003, we recognized related party revenues from IMS Health
totaling approximately $2.6 million and incurred costs of $.02 million related
to services provided to us by IMS Health.
FOREIGN CURRENCY TRANSLATION
- ----------------------------
A portion of our costs in India are denominated in local currency and
subject to exchange fluctuations, which has not had any material effect on our
results of operations.
- 19 -
EFFECTS OF INFLATION
- --------------------
Our most significant costs are the salaries and related benefits for our
programming staff and other professionals. Competition in India, the United
States and Europe for professionals with advanced technical skills necessary to
perform our services offered have caused wages to increase at a rate greater
than the general rate of inflation. As with other IT service providers, we must
adequately anticipate wage increases, particularly on our fixed-price contracts.
There can be no assurance that we will be able to recover cost increases through
increases in the prices that we charge for our services in the United States and
elsewhere.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe that we do not have operations subject to material risks of
foreign currency fluctuations, nor do we use derivative financial instruments in
our operations or investment portfolio. Nonetheless, we periodically evaluate
the need for hedging strategies to mitigate the effect of foreign currency
fluctuations. We believe that we do not have exposure to material market risks
associated with changes in interest rates, as we have no variable interest rate
debt outstanding. We do not believe that we have any other material exposure to
market risks associated with interest rates.
ITEM 4. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on their
evaluation of our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date
within 90 days of the filing date of this Quarterly Report on Form 10-Q, our
chief executive officer and chief financial officer have concluded that our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms and are operating in an effective manner.
CHANGES IN INTERNAL CONTROLS. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their most recent evaluation.
- 20 -
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On February 27, 2004, we consummated our acquisition of Ygyan, an
India-based SAP services provider. We acquired Ygyan to increase our SAP service
capabilities. In connection with the acquisition, we paid approximately $1.7
million to Ygyan, including approximately $.06 million of estimated deal costs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description
----------- ----------------------------------------------------
10.1* 2004 Employee Stock Purchase Plan.
31.1 Certification of principal executive officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of principal financial and accounting
officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification of principal executive officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. 1350.
32.2 Certification of principal financial and accounting
officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. 1350.
* A management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 6(a) of
Form 10-Q.
(b) Reports on Form 8-K.
On February 20, 2004, we furnished a current report on Form 8-K
under Item 9, including a copy of our press release announcing our
intent to acquire Ygyan.
On February 10, 2004, we furnished a current report on Form 8-K
under Item 12, including a copy of our earnings release for the
fourth quarter and year ended December 31, 2003 (including financial
statements).
- 21 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cognizant Technology Solutions Corporation
Date: May 7, 2004 By: /s/ Lakshmi Narayanan
--------------------------------------
Lakshmi Narayanan,
President, Chief Executive Officer and
Director (Principal Executive Officer)
Date: May 7, 2004 By: /s/ Gordon Coburn
--------------------------------------
Gordon Coburn,
Executive Vice President, Chief
Financial Officer, Treasurer and Secretary
(Principal Financial and
Accounting Officer)
- 22 -