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CognizantTechnologySolutionsCorporation

Address:500GlenpointeCentreWestTeaneck,NewJersey07666U.S.A.

Telephone:(201)801-0233TollFree:888-937-3277Fax:(201)801-0243http://www.cognizant.com

Statistics:PublicCompanyIncorporated:1994asDun&BradstreetSatyamSoftwareEmployees:6,165Sales:$229.1million(2002)StockExchanges:NASDAQTickerSymbol:CTSHNAIC:541511CustomComputerProgrammingServices

CompanyPerspectives:

WeprovideapplicationoutsourcingservicesandenterpriseconsultingsolutionstoFortune500andBlueChipcompaniesintheUSandEurope.Leveragingastreamlinedon-site/offshoredevelopmentmodel,wecanhelpyourorganizationachieveaworld-classleveloftechnicalexcellenceforlessthanhalfthecostofhavingthesameworkdonebyothere-businessandoutsourcingleaders.

KeyDates:1994:ThecompanyisformedasaDun&Bradstreet(D&B)in-houseunit.1996:D&BspinsoffthebusinessaspartofCognizantCorporation.1998:ParentCognizantCorporationrestructures,withCognizantTechnologynowapublicsubsidiaryofnewparentIMSHealthIncorporated.2003:ThecompanygainscompleteindependencefromIMSHealth.suchasCognizant

'sIndiaoperationwereonlyobligatedtopaytaxesiftheybroughtbackprofitstotheUnitedStates.Insteadthecompanyinvestedthemoneytoexpanditsoverseasoperations,initiatinga$40millionprojecttobuildthreedevelopmentcentersinIndia,largeenoughaltogethertoaccommodate6,000employees.FromOctober2001toOctober2002,atatimewhenthestockmarketingeneralfaredpoorly,Cognizantsawthepriceofitsstockincreaseby170percent.Nevertheless,someconcernsbegantocreepin,asinvestorsworriedthatmostofCognizant'sbusinesscamefromahandfulofitspoolof105customersandfearedthatCognizantwouldfacestiffnewcompetitionfrombothIndianservicefirmsincludingInfosysTechnologiesandsuchindustrygiantsasIBMandAccenturewhowereexpandingtheirIndianoperations.Onthepositiveside,Cognizanthadnodebtandmorethan$100millioninthebank.Cognizantpostedrevenuesof$178millionin2001and$229millionin2002.Esti

matesfor2003topped$350million.ThecompanyhadalwaysbeenaccordedagreatdealoflatitudeinhowitconducteditsbusinessbyparentcorporationIMS,whichoptedtoactmoreasashareholderthananowner,andfinallyin2003Cognizantgaineditscompleteindependencefollowingasplit-off.Toensureitslong-termfreedom,Cognizant'sboardimmediatelyinstitutedapoisonpillprovisiontopreventunwantedtakeoverattempts.Prospectsappearedbrightforthecompany,despitethethreatofIBMandAccenture,whichwereclearlyintentonaggressivelychallengingCognizant.Asaresult,Cognizantwasexpectedtomaintainitsbusinessbyloweringthepriceforitsbasicoutsourcingworkbysome5percentoverthenextfewyears.Asacounter,

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Cognizantlookedtoencroachonsomeoftheterritoryofitslargerivalsandmoveintohigher-endtechnologyconsulting.Inthisway,Cognizantwouldadvisecustomersabouthowtoimprovetheircomputersystems,whichtheywouldthenmaintain.MahadevatoldtheEconomicTimesinJune2003,"WearelookingatexpandingourdevelopmentcentresoutsideofIndia.WeseestrongdemandforpackageimplementationinareassuchasSAPandPeopleSoftandwearelookingatacquisitionsinthoseareas.WearealsolookingforacquisitionsinEurope."Thecompanyalreadyhadthreeacquisitionsunderitsbelt,allprovidingapositiveeffect.TheJune2002purchaseofUnitedHealthcareIrelandLimitedassetsaddedsome70softwareprofessionalswhileincreasingitsinternationalpresences.Cognizantaddedanother300softwarepersonnelwhenitacquiredtheAmericanExpressTravel-relatedServicesaccountfromSilverlineTechnologies,intheprocessbolsteringitsleadingpositioninthefinancialservicesindustry.ItwasthroughthistransactionthatCognizantpickedupitsPhoenixdevelopmentcenter.In2003CognizantacquiredAcesInternationalInc.,aCRMcompanywithastrongpresenceinhealthcare,financialservices,andtelecommunications.AccordingtotheEconomicTimes,CognizantbelievedthatCRMcapabilitieswouldbethenextwaveofpackagedsoftwareopportunity.Farfromretreating,Cognizantwaschargingintothefuture,hopingtohirenearly1,900professionalsin2003,withperhapsasmanyas400intheUnitedStates.Theglobaloutsourcingbusinesswasbynowa$550billionindustryandhighlyfragmented,withthelargestfivecompaniescontrollinglessthan20percentofthemarket.TherewaseveryreasontobelievethatampleopportunityexistedforCognizanttocontinueitsimpressivepatternofgrowth.

CompanyHistory:CognizantTechnologySolutionsCorporationisaTeaneck,NewJersey-basedcompanythatemploysanonsite/offshoredevelopmentmodeltoprovideapplicationmaintenanceservicesandenterpriseconsultingsolutionstomajorcorporations,primarilyintheUnitedStates.CognizantisoneofthefewcompaniesthathasfoundawaytotakeadvantageofthelargepoolofEnglish-speakingITprofessionalsproducedinIndia,whereapproximately80,000programmersgraduateeachyearfromuniversities.Becausethesesoftwareprofessionalstypicallymakearound$15,000ayear,comparedwith$75,000intheUnitedStates,Cognizantisabletoofferconsiderablesavingstoitscustomers.Theonsite/offshoremodelalsoallowsthecompanytowork24hoursadayonaproject.DuringtheU.S.workday,Cogniza

nt'sonsiteteammeetswiththecustomertoreviewtheworktheirIndiancolleaguescompletedthenightbefore.FeedbackisthenavailablefortheIndianprogrammerswhentheybegintheirday.Afurtheradvantageisthatsystemworkisdoneatatimewhenthereislittlenetworkcongestion.Moreover,culturaldifferencesbetweentheUnitedStatesandIndiaworkinCognizant'sfavor.InIndia,thepositionofsoftwareengineerismoreprestigious,meaningthatscoresoftalentedpeopleenterthefield.IndiansarealsolessindividualisticthantheirAmericancounterpartsandmorewillingtoadheretoaprocess,whichisanimportantfactorinmakingtheonsite/offshoreapproachrunsmoothly.Toprovidesecurity,thecompanyrunsbackgroundchecksonoverseasemployees;topreventtheftofdata,itprovidesonlydisklesspersonalcomputers.Cognizantoperates11softwaredevelopmentcentersinIndia,aswellascentersinLimerick,Ireland,andinPhoenix,Arizona.SalesofficesarelocatedinAtlanta,Chicago,Dallas,Minnea

polis,LosAngeles,SanFrancisco,Toronto,London,andFrankfurt.WithafocusonNorthAmericanandEuropeanFortune1000companiesinthehealthcare,financialservices,andinformationfields,CognizantboastssuchmajorcustomersasACNielsenCorporation,TheDun&BradstreetCorporation,FirstDataCorporation,andMetropolitanLifeInsuranceCompany.

FormingtheCompanyin1994

ThemanbehindthefoundingofCognizantwasWijeyaraj(Kumar)Mahadeva,thecompany'scurrentchairmanandCEO.HewasborninSriLanka,wherehisfatherwas

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theheadofthecountry'scivilservice.Mahadevatraveledabroadforhiseducation,earningamaster'sdegreeinelectricalengineeringfromtheUniversityofCambridgein1973.HethenworkedasaresearcherattheBritishBroadcastingCorporationforthreeyearsbeforecomingtotheUnitedStatestocontinuehiseducationatHarvardBusinessSchool,wherehecaughttheeyeoftheconsultingfirmMcKinsey&Co.HejoinedMcKinseyin1978andoverthenextsevenyearswasinstrumentalinbuildingupthefirm'stechnologypractice.Lookingbackonhisdaysasaconsultant,MahadevatoldInvestor'sBusinessDailyin2002,"IlearnedalotatMcKinsey,withitsfocusonclientrelationshipsandsettinghighstandardsforrecruitmentandstaffdevelopment."AccordingtoMcKinseycolleagueRajatDupta,"Kumarwasanabsolutestarwhocoulddeftlythinkthroughproblemsandarticulatesolutions."In1985MahadevaacceptedapositionwithAT&TCorp.,aclientadjustingtothecourt-orderedbreakupthatresultedinthedivestitureoflocaltelephoneserviceandthecreationoftheseven"BabyBells."AT&T,eagerfornewopportunities,waslookingtotakeonIBMinthecomputerfield.ButMahadevasoongrewdisenchantedwiththecorporatepoliticsthatprevailedatAT&TandafterfouryearslefttotakeajobwithDun&BradstreetCorporation(D&B),tabbedtoheaditsentryintoAsia.AccordingtoInvestor'sBusinessDaily,"Demandwasweakforthebusinessresearchfirm'sserviceintheAsiaPacificregion.Mahadeva,however,usedthetimetheretowatchandlearn.Whatdidhefind?Low-costsoftwarefactoriesinIndia,wheredeveloperswrotecomputercodeatafractionofthecostinAmerica.Herecognizedanopportunity....Thetimingwasideal.ConcernsweremountingatD&BabouthowtosolvethependingY2Kcomputercrisis.Atthesametime,costswerecomingwaydownforsatellitebandwid

th,makingsharedcomputernetworksmorecost-effective."Hewasablein1994toconvinceD&Btoinvest$2millioninajointventurewithSatyam,anIndiansoftwareoutsourcingoperation,whichhelda24percentinterestinthestart-up.ThebusinesswascalledDun&BradstreetSatyamSoftware,Cognizant'sforefather.

CompanyPartof1996Spinoff

Atfirst,theIndiansubsidiaryfocusedonlarge-scalefulllifecyclesoftwareprojectsforsuchD&BbusinessesasACNielsenCo.andIMSHealth.InNovember1996D&BspunofftheunitalongwithErisco,Inc.;IMSInternationalInc.;NielsenMediaResearch;PilotSoftware,Inc.;SalesTechnologies,Inc.;andotherassetstoformacompanynamedCognizantCorporation.Thismovewaspartofamajor

restructuringoftheparentcorporation,whichsplitintothreemajordivisions:Dun&Bradstreet,ACNielsenConsumerProducts,andCognizantCorporation.Threemonthslater,Dun&BradstreetSatyamchangeditsnametoCognizantTechnologySolutionsandbegantofunctionasadivisionofthenewlyformedCognizantCorporation.ItwouldnowlooktoservicecompaniesoutsideoftheD&Bfamily,offeringY2Ksolutionsaswellaswebpagedevelopment.InJuly1997thesubsidiarybecamewhollyownedwhentheparentcorporationboughtSatyam'sminorityinterestfor$3.4million.BecauseCognizantlackedareputationoutsideofD&B,ithadsomedifficultyinattractingclients.MahadevafellbackonhisMcKinseyexperienceandconcentratedoncustomersatisfactionandthebuildingoflong-termrelationships.MajorsigningsforY2KsolutionsincludedNorthwestAirlinesandAetnaLifeInsuranceCo.ofCanada.

MahadevaalsoprovedtobeadeptatkeepingCognizantaheadoftrends.Earlyin1998,atatimewhentheY2Kbusinessaccountedforalmosthalfofthecompany'srevenues,hebegantopullbackCognizant'sexposuretothepracticesothatbythefirstquarterof1999Y2Kworkrepresentedjust26percentofrevenues.Accordingtoa1999Forbesprofile,"Sensingthatanotherconsultingobsessionwasabouttopeak,Mahadevakeptclearofthe$16.6billionenterpriseresourceplanning(ERP)softwarebusiness--installingmonolithicsoftwarepackagesthatmanagecompanies'backofficefunctions.Whileotherconsultantswererakinginfatfees,MahadevasteeredCognizanttowardthemorepedestrianchoresofmaintainingcorporatesoftwaresystems--fixingkinksinthecodeorextendingthelifeofex

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istingapplicationsbyaddingnewfunctions."Moreover,applicationsmanagementwasabusinessthatwould"bearoundforaslongascompaniesusecomputers."

Theparentcompany,CognizantCorporation,underwentsomestructuralchangesinearly1998,dividingintotwoseparatepubliccompaniesasawaytohelpeachunitmaximizegrowth.Certainassets,includingCognizantTechnologySolutions,werespunofftoformIMSHealthIncorporated.CognizantCorporationanditsremainingentitieswererenamedNielsenMediaResearch.Severalmonthslater,inJune1998,IMSpartiallyspunoffCognizantTechnologySolutionsandconductedaninitialpublicoffering(IPO)ofstock.Thetimingprovedtobelessthanideal,asmarketconditionswerepoorforIPOs.Asaresult,Cognizantwasonlyabletosellsharesat$10,insteadofthe$11to$13thecompanyanditsunderwritershadhopeditwouldfetch.ThemoneywasearmarkedtopayoffdebtandfinancetheupgradingofofficesinIndia,butintheendmostofitwassimplybanked.

MahadevawasnamedCognizant'schairmanandCEOinMarch1998.Hecontinuedtodisplayacreativeandforward-lookingmindset.AccordingtoaprofileintheEconomicTimes,"Anotherbusinessmodelinnovationthecompanycameupwithasearlyas1998,whenpeersalignedthemselvesalonggeographiesortechnologies,Cognizantaligneditselfalongverticals.TheresultsofearlyverticalisationisseenintherobustgrowthineachoftheverticalsthatCognizantfocuseson--financialservices,banking,insurance,healthcare,retail,manufacturingandlogistics,andmediaandpublishing....Thefinaldistinctioninstrategyisinitslistingdestination.Whileitspeersgotlistedinthegeographytheysourcedfro

m--thatisIndia,Cognizantgotlistedinthegeographytheyserviced,namelytheUS."

In2000Cognizantlookedtobecomeinvolvedine-business,introducingasuiteofservicesandofferingtohelpcustomersbuildITsystemsthatitcouldthenmaintainonanoutsourcingbasis.ThecompanyalsoexpressedinterestinfundingInternetstart-upsinboththeUnitedStatesandIndia.WhentheInternetbubbleburstandthetechsectoringeneralsufferedfromtheeffectsofarecession,Cognizantwasnimbleenoughtostayafloatandactuallymaintainitsgrowth.ThecostsavingsthatCognizantcouldprovideitscustomersthroughoffshorecentersmadethecompany'sservicesmoreattractiveduringleaneconomictimes.EvenfollowingtheterroristattacksofSeptember11,2001,corporationsremainedwillingtohavetheirITserviceshandledoffshorebyCognizantandothers.India'sl

argepoolofinexpensiveITtalentwasnolongerasecret,butCognizantwasoneofthefewcompaniesabletomakethecomplicatedonsite/offshoremodelrunsmoothly.TensionsbetweenIndiaandPakistanovertheKashmirregionthatmightleadtoamilitaryconflictbetweenthetwonuclearpowersdampenedinvestorenthusiasmandadverselyimpactedthepriceofthecompany'sstock,butcustomersstilldidnotpullback.

RisingStockPricesin2002

Becauseofitsonsite/offshorearrangement,Cognizantwasabletorealizesignificanttaxsavingsthatalsohelpedtoimproveprofitsduringleantimes.Whollyownedsubsidiaries