-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NMHZEX7Pz9Wvjkvh99nhszeERaKtKjrD9O5ko31XyX4kgFHMlvSq5hse6a9HCHq7 RGqhq0ManUwl1xXc58SWMA== 0000903100-04-000200.txt : 20040507 0000903100-04-000200.hdr.sgml : 20040507 20040507162826 ACCESSION NUMBER: 0000903100-04-000200 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COGNIZANT TECHNOLOGY SOLUTIONS CORP CENTRAL INDEX KEY: 0001058290 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 133728359 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24429 FILM NUMBER: 04789527 BUSINESS ADDRESS: STREET 1: 500 GLENPOINTE CENTRE WEST STREET 2: 7TH FLOOR CITY: TEANECK STATE: NJ ZIP: 07666 BUSINESS PHONE: 2018010233 MAIL ADDRESS: STREET 1: 500 GLENPOINTE CENTRE WEST STREET 2: 7TH FLOOR CITY: TEANECK STATE: NJ ZIP: 07666 10-Q 1 form10q_33104.txt COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION 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 ------------- ------------- 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: ----- ----- 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. - 2 -
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. - 3 -
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 - 14 - 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 - EX-10 2 form10q_33104ex101.txt EX. 10.1 COGNIZANT TECHNOLOGY SOLUTIONS CORP EXHIBIT 10.1 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION 2004 EMPLOYEE STOCK PURCHASE PLAN I. DEFINITIONS -------------- ACCOUNT means the Employee Stock Purchase Plan Account established for a Participant under Section IX hereunder. BOARD OF DIRECTORS shall mean the Board of Directors of the Company. CODE shall mean the Internal Revenue Code of 1986, as amended. COMMITTEE shall mean the Compensation Committee appointed and acting in accordance with the terms of the Plan. COMMON STOCK shall mean shares of the Company's Class A Common Stock, par value $.01 per share, and any security into which such stock shall be converted or shall become by reason of changes in its nature such as by way of recapitalization, reclassification, changes in par value, merger, consolidation or similar transaction. COMPANY shall mean Cognizant Technology Solutions Corporation, a Delaware corporation. When used in the Plan with reference to employment, Company shall include Designated Subsidiaries. COMPENSATION shall mean the total cash compensation paid to an Eligible Employee by the Company, as reportable on IRS Form W-2. Notwithstanding the foregoing, Compensation shall exclude severance pay, stay-on bonuses, long term bonuses, retirement income, change-in-control payments, contingent payments, income derived from stock options, stock appreciation rights and other equity-based compensation and other forms of special remuneration. EFFECTIVE DATE shall mean April 1, 2004. ELIGIBLE EMPLOYEES shall mean only those persons who, as of the first day of a Purchase Period, are Employees of the Company or any Subsidiary designated by the Committee from time to time (a "Designated Subsidiary") and who are not, as of the day preceding the first day of the Purchase Period, deemed for purposes of Section 423(b)(3) of the Code to own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company. EMPLOYEES shall mean all persons who are employed by the Company as common-law employees, excluding persons (i) whose customary employment is 20 hours or less per week, or (ii) whose customary employment is for not more than five months in a calendar year. EXCHANGE ACT shall mean the Securities Exchange Act of 1934, as amended. EXERCISE DATE shall mean the last day of a Purchase Period. FAIR MARKET VALUE shall mean as of any date: (i) the average of the closing bid and asked prices on such date of the Common Stock as quoted by Nasdaq; or (ii), as the case may be, the last reported sales price of the Common Stock on such date as reported by the Nasdaq National Market or the principal national securities exchange on which such stock is listed and traded, or in each such case where there is no trading on such date, on the first previous date on which there is such trading. PARTICIPANT shall mean an Eligible Employee who elects to participate in the Plan under Section VII hereunder. PLAN shall mean the Cognizant Technology Solutions Corporation Employee Stock Purchase Plan, as set forth herein and as amended from time to time. PURCHASE PERIOD shall mean (a) for 2004, the purchase periods shall be quarterly commencing on the Effective Date and ending on December 31, 2004; and (b) thereafter, purchase periods shall remain quarterly, unless modified by the Committee not less than 60 days in advance of the commencement of such modified period. A Purchase Period shall begin on the first business day of, and end on the last business day of, each such calendar period. The last Purchase Period under the Plan shall terminate on or before the date of termination of the Plan provided in Section XXIV. SUBSIDIARY shall mean any corporation which is a subsidiary of the Company within the meaning of Section 425(f) of the Code. TERMINATION OF SERVICE shall mean the earliest of the following events with respect to a Participant: his retirement, death, quit, discharge or permanent separation from service with the Company. The masculine gender includes the feminine, the singular number includes the plural and the plural number includes the singular unless the context otherwise requires. II. PURPOSE ----------- It is the purpose of this Plan to provide a means whereby Eligible Employees may purchase Common Stock through payroll deductions. It is intended to provide a further incentive for Employees to promote the best interests of the Company and to encourage stock ownership by Employees in order to participate in the Company's economic progress. It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Code and the provisions of the Plan shall be construed in a manner consistent with the Code. III. ADMINISTRATION ------------------- The Plan shall be administered by the Compensation Committee of the Board of Directors. The Committee shall have authority to make rules and regulations for the administration of the Plan, and its interpretations and decisions with regard thereto shall be final and conclusive. The Committee shall have all necessary authority to communicate, from time to time, with Eligible Employees and 2 Participants for purposes of administering the Plan, and shall notify Eligible Employees promptly of its election of the term of each forthcoming Purchase Period, if other than a quarterly, and of its election to utilize the Trust Administration Option referred to in Section IX. IV. SHARES ---------- There shall be 1,500,000 shares of Common Stock reserved for issuance to and purchase by Participants under the Plan, subject to adjustment in accordance with Section XXI hereof. The shares of Common Stock subject to the Plan shall be either shares of authorized but unissued Common Stock or shares of Common Stock reacquired by the Company. Shares of Common Stock involved in any unexercised portion of any terminated option may again be subject to options to purchase granted under the Plan. V. PURCHASE PRICE ----------------- The purchase price per share of the shares of Common Stock sold to Participants under this Plan for any Purchase Period shall be the lesser of (a) 90% of the Fair Market Value of a share of Common Stock on the first day of such Purchase Period, or (b) 90% of the Fair Market Value of a share of Common Stock on the Exercise Date of such Purchase Period. VI. GRANT OF OPTION TO PURCHASE SHARES -------------------------------------- Each Eligible Employee shall be granted an option effective on the first day of each Purchase Period to purchase a number of full shares of Common Stock (subject to adjustment as provided in Section XXI). No Eligible Employee shall be permitted to purchase shares under this Plan (or under any other "employee stock purchase plan" within the meaning of Section 423(b) of the Code, of the Company ) with an aggregate Fair Market Value (as determined as of the first day of the Purchase Period) in excess of $25,000 for any one calendar year within the meaning of Section 423(b)(8) of the Code. For a given Purchase Period, payroll deductions shall commence on the first day of the Purchase Period and shall end on the related Exercise Date, unless sooner altered or terminated as provided in the Plan. Anything herein to the contrary notwithstanding, if, as of the first day of a Purchase Period, any Eligible Employee entitled to purchase shares hereunder would be deemed for the purposes of Section 423(b)(3) of the Code to own stock (including any number of shares which such person would be entitled to purchase hereunder) possessing 5% or more of the total combined voting power or value of all classes of stock of the Company, the maximum number of shares which such person shall be entitled to purchase pursuant to the Plan shall be reduced to that number which when added to the number of shares of stock of the Company which such person is so deemed to own (excluding any number of shares which such person would be entitled to purchase hereunder), is one less than such 5%. 3 VII. ELECTION TO PARTICIPATE ---------------------------- An Eligible Employee may elect to become a Participant in this Plan by completing a "Stock Purchase Agreement" form or otherwise indicating an election via electronic enrollment prior to the first day of the Purchase Period. In the Stock Purchase Agreement, the Eligible Employee shall authorize regular payroll deductions from his Compensation subject to the limitations in Section VIII below. Options granted to Eligible Employees who fail to authorize payroll deductions will automatically lapse. If a Participant's payroll deductions allow him to purchase fewer than the maximum number of shares of Common Stock to which his option entitles him, the option with respect to the shares which he does not purchase will lapse as of the last day of the Purchase Period. The execution and delivery of the Stock Purchase Agreement as between the Participant and the Company shall be conditioned upon the compliance by the Company at such time with Federal (and any applicable state) securities laws. VIII. PAYROLL DEDUCTIONS ------------------------ An Eligible Employee may authorize payroll deductions from his Compensation for each payroll period of a specified percentage of such Compensation, not less than 1% and not more than 15%, in multiples of 1%. The amount of payroll deduction shall be established prior to the beginning of a Purchase Period and may not be altered, except for complete discontinuance under Section XI, XIII or XIV hereunder. IX. EMPLOYEE STOCK PURCHASE ACCOUNT AND TRUST ADMINISTRATION OPTION ----------------------------------- An Employee Stock Purchase Account will be established for each Participant in the Plan. Payroll deductions made under Section VIII will be credited to the individual Accounts. In the event the Committee determines with respect to any Purchase Period, not to utilize the "Trust Administration Option" set forth in the next paragraph, no interest or other earnings will be credited to a Participant's Account. With respect to any one or more Purchase Periods, the Committee may elect to utilize, in addition to the separate accounting for payroll deductions provided in the Plan, the option to administer the funding of the Accounts through a trust established pursuant to a trust agreement between the Company and an institution exercising fiduciary powers (the "Trust Administration Option") as hereinafter set forth in this paragraph. The Company shall provide for the funding of each Account on a regular basis during each Purchase Period reflecting payroll deductions of Participants and shall cause such sums to be deposited within 15 days following such deductions in a trust account at such institution and upon such terms as are established by the Committee. The trust account assets shall be invested in shares of a tax-exempt money-market registered investment company designated in the trust agreement, which designation shall not be changed during the Purchase Period. Assets deposited in the aforesaid trust account shall be commingled, but a separate accounting shall be kept for each Participant's interest therein. Each Participant shall be credited with his allocable share of the earnings of the trust account, which credits shall be reflected in each Participant's Account balance hereunder. At all times, the funds in such trust account shall be considered the property of the respective 4 Participants, and no part of the trust account assets may at any time revert to, or be subject to any lien or claim of, the Company; provided, however, that such trust account assets may be used only for the purchase of shares as provided in Section X hereof or for withdrawal by or return to Participants (or their beneficiaries) as provided in Sections XI, XIII or XXIV hereof. X. PURCHASE OF SHARES --------------------- If, as of any Exercise Date, there is credited to the Account of a Participant an amount at least equal to the purchase price of one share of Common Stock for the current Purchase Period, as determined in Section V, the Participant shall buy and the Company shall sell at such price the largest number of whole shares of Common Stock which can be purchased with the amount in his Account. Any balance remaining in a Participant's Account at the end of a Purchase Period will be carried forward into the Participant's Account for the following Purchase Period. In no event will the balance carried forward be equal to or exceed the purchase price of one share of Common Stock as determined in Section V above. Notwithstanding the foregoing provisions of this paragraph, if as of any Exercise Date the provisions of Section XV are applicable to the Purchase Period ending on such Exercise Date, and the Committee reduces the number of shares which would otherwise be purchased by Participants on such Exercise Date, the entire balance remaining credited to the Account of each Participant after the purchase of the applicable number of shares of Common Stock on such Exercise Date shall be refunded to each such Participant. Except with respect to a Purchase Period for which the Trust Administration Option has been elected, no refund of an Account balance made pursuant to the Plan shall include any amount in respect of interest or other imputed earnings. Anything herein to the contrary notwithstanding, no Participant may, in any calendar year, purchase a number of shares of Common Stock under this Plan which, together with all other shares of stock of the Company and its Subsidiaries which he may be entitled to purchase in such year under all other employee stock purchase plans of the Company and its subsidiaries which meet the requirements of Section 423(b) of the Code, have an aggregate Fair Market Value (measured as of the first day of each applicable Purchase Period) in excess of $25,000. The limitation described in the preceding sentence shall be applied in a manner consistent with Section 423(b)(8) of the Code. XI. WITHDRAWAL -------------- A Participant may withdraw from the Plan at any time prior to the Exercise Date of a Purchase Period by filing a notice of withdrawal. Upon a Participant's withdrawal, the payroll deductions shall cease for the next payroll period and the entire amount credited to his Account shall be refunded to him. Any Participant who withdraws from the Plan may again become a Participant hereunder at the start of the next Purchase Period in accordance with Section VII. XII. ISSUANCE OF STOCK CERTIFICATES ----------------------------------- The shares of Common Stock purchased by a Participant shall, for all purposes, be deemed to have been issued and sold at the close of business on the Exercise Date. Prior to that date, none of the rights or privileges of a stockholder of the Company shall exist with respect to such shares. Stock certificates shall be registered either in the Participant's name or jointly in the names of the Participant 5 and his spouse, as the Participant shall designate in his Stock Purchase Agreement. Such designation may be changed at any time by filing notice thereof. Certificates representing shares of purchased Common Stock shall be delivered promptly to the Participant following issuance. XIII. TERMINATION OF SERVICE ---------------------------- (a) Upon a Participant's Termination of Service for any reason other than death or voluntary termination of employment on or after attaining age 55 ("Retirement"), no payroll deduction may be made from any Compensation due him as of the date of his Termination of Service and the entire balance credited to his Account shall be automatically refunded to him. (b) Upon a Participant's Retirement, no payroll deduction shall be made from any Compensation due him as of the date of his retirement. Such a Participant may, prior to Retirement, elect: (1) to have the entire amount credited to his Account as of the date of his Retirement refunded to him, or (2) to have the entire amount credited to his Account held therein and utilized to purchase shares on the Exercise Date as provided in Section X. (c) Upon the death of a Participant, no payroll deduction shall be made from any Compensation due him at time of death, and the entire balance in the deceased Participant's Account shall be paid to the Participant's designated beneficiary, or otherwise to his estate. XIV. AUTHORIZED LEAVE OF ABSENCE, DISABILITY -------------------------------------------- Payroll deductions shall cease during a period of absence without pay from work due to a Participant's authorized leave of absence, disability or for any other reason. If such Participant shall return to active service prior to the Exercise Date for the current Purchase Period, payroll deductions shall be resumed in accordance with his prior authorization. If the Participant shall not return to active service prior to the Exercise Date for the current Purchase Period, the balance of his Stock Purchase Account will be used to purchase shares on the Exercise Date as provided in Section X, unless the Participant elects to withdraw from the Plan in accordance with Section XI. XV. PROCEDURE IF INSUFFICIENT SHARES AVAILABLE ---------------------------------------------- In the event that on any Exercise Date the aggregate funds available for the purchase of shares of Common Stock pursuant to Section X hereof would result in purchases of shares in excess of the number of shares of Common Stock then available for purchase under the Plan, the Committee shall proportionately reduce the number of shares which would otherwise be purchased by each Participant on the Exercise Date in order to eliminate such excess, and the provisions of the second paragraph of Section X shall apply. 6 XVI. RIGHTS NOT TRANSFERABLE ---------------------------- The right to purchase shares of Common Stock under this Plan is exercisable only by the Participant during his lifetime and is not transferable by him. If a Participant attempts to transfer his right to purchase shares under the Plan, he shall be deemed to have requested withdrawal from the Plan and the provisions of Section XI hereof shall apply with respect to such Participant. XVII. NO OBLIGATION TO EXERCISE OPTION -------------------------------------- Granting of an option under this Plan shall impose no obligation on an Eligible Employee to exercise such option. XVIII. NO GUARANTEE OF CONTINUED EMPLOYMENT ------------------------------------------- Granting of an option under this Plan shall imply no right of continued employment with the Company for any Eligible Employee. XIX. NOTICE ----------- Any notice which an Eligible Employee or Participant files pursuant to this Plan shall be in writing and shall be delivered personally or by mail addressed to the Committee, c/o Chief Executive Officer at 500 Glenpointe Center West, Teaneck, New Jersey 07666 or such other person or location as may be specified by the Committee. XX. REPURCHASE OF STOCK ----------------------- The Company shall not be required to repurchase from any Participant shares of Common Stock acquired under this Plan. XXI. ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC. -------------------------------------------------- The aggregate number of shares of Common Stock which may be purchased pursuant to options granted hereunder, the number of shares of Common Stock covered by each outstanding option, and the purchase price thereof for each such option shall be appropriately adjusted for any increase or decrease in the number of outstanding shares of Common Stock resulting from a stock split or other subdivision or consolidation of shares of Common Stock or for other capital adjustments or payments of stock dividends or distributions or other increases or decreases in the outstanding shares of Common Stock affected without receipt of consideration of the Company. Subject to any required action by the stockholders, if the Company shall be the surviving corporation in any merger, reorganization or other business combination, any option granted hereunder shall cover the securities or other property to which a holder of the number of shares of Common Stock would have been entitled pursuant to the terms of the merger. A dissolution or liquidation of the 7 Company or a merger or consolidation in which the Company is not the surviving entity shall cause every option outstanding hereunder to terminate. The foregoing adjustments and the manner of application of the foregoing provisions shall be determined by the Committee in its sole discretion. Any such adjustment shall provide for the elimination of any fractional share which might otherwise become subject to an option. XXII. AMENDMENT OF THE PLAN --------------------------- The Board of Directors may, without the consent of the Participants, amend the Plan at any time, provided that no such action shall adversely affect options theretofore granted hereunder, and provided that no such action by the Board of Directors, without approval of the Company's stockholders, may: (a) increase the total number of shares of Common Stock which may be purchased by all Participants, except as contemplated in Section XXI; (b) change the class of Employees eligible to receive options under the Plan; (c) decrease the minimum purchase price under Section V; (d) extend a Purchase Period hereunder; or (e) extend the term of the Plan. XXIII. INTERNATIONAL PARTICIPANTS --------------------------------- With respect to Eligible Employees who reside or work outside the United States of America, the Committee may, in its sole discretion, amend the terms of the Plan with respect to such Eligible Employees in order to conform such terms with the requirements of local law. XXIV. TERM OF THE PLAN ---------------------- This Plan shall become effective as of the Effective Date upon its adoption by the Board of Directors, provided that it is approved at a duly-held meeting of stockholders of the Company, by an affirmative majority of the total votes present and voting thereat, within 12 months after the earlier of the Effective Date or the date of adoption by the Board of Directors. If the Plan is not so approved, no Common Stock shall be purchased under the Plan and the balance of each Participant's Account shall be promptly returned to the Participant. The Plan shall continue in effect until all shares reserved for issuance pursuant to Article IV have been granted to Participants, unless terminated prior thereto pursuant to Section XV or XXI hereof, or pursuant to the next succeeding sentence. The Board of Directors shall have the right to terminate the Plan at any time, effective as of the next succeeding Exercise Date. In the event of the termination of the Plan, outstanding options shall not be affected, except to the extent provided in Section XV and any remaining balance credited to the Account of each Participant as of the applicable Exercise Date shall be refunded to each such Participant. 8 EX-31 3 form10q_33104ex311.txt EX. 31.1 COGNIZANT TECHNOLOGY SOLUTIONS CORP EXHIBIT 31.1 CERTIFICATION ------------- I, Lakshmi Narayanan, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Cognizant Technology Solutions Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: May 7, 2004 /s/ Lakshmi Narayanan -------------------------------------- Lakshmi Narayanan President, Chief Executive Officer and Director (Principal Executive Officer) EX-31 4 form10q_33104ex312.txt EX. 31.2 COGNIZANT TECHNOLOGY SOLUTIONS CORP EXHIBIT 31.2 CERTIFICATION ------------- I, Gordon Coburn, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Cognizant Technology Solutions Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: May 7, 2004 /s/ Gordon Coburn -------------------------------------- Gordon Coburn Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) EX-32 5 form10q_33104ex322.txt EX. 32.2 COGNIZANT TECHNOLOGY SOLUTIONS CORP EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Form 10-Q of Cognizant Technology Solutions Corporation (the "Company") for the period ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Gordon Coburn, Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 7, 2004 /s/ Gordon Coburn -------------------------------------- Gordon Coburn Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) * A signed original of this written statement required by Section 906 has been provided to Cognizant Technology Solutions Corporation and will be retained by Cognizant Technology Solutions Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 6 form10q_33104ex321.txt EX. 32.1 COGNIZANT TECHNOLOGY SOLUTIONS CORP EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Form 10-Q of Cognizant Technology Solutions Corporation (the "Company") for the period ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Lakshmi Narayanan, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 7, 2004 /s/ Lakshmi Narayanan -------------------------------------- Lakshmi Narayanan President, Chief Executive Officer and Director (Principal Executive Officer) * A signed original of this written statement required by Section 906 has been provided to Cognizant Technology Solutions Corporation and will be retained by Cognizant Technology Solutions Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----