22 COGNIZANT ANNUAL REPORT 2004 Segment Operating Profit. Segment operating profit increased 28.1%, or approximately $4.6 million from approximately $16.4 million in 2002 to approximately $21.0 million in 2003. The increase in segment operating profit was attributable primarily to increased revenues and achieving leverage on prior sales and marketing investments. At December 31, 2004, we had cash and cash equivalents and short-term bank deposits of approximately $314.8 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 December 31, 2004 and 2003, we had no third party debt and had working capital of approxi- mately $338.9 and $220.6 million, respectively. Accordingly, we do not anticipate any near-term liquidity issues. Net cash provided by operating activities was approximately $127.3 million, $79.9 million and $56.7 million for the years ended December 31, 2004, 2003 and 2002, respectively. The increase in 2004 as compared to the prior year is primarily attributed to the increase in our net income. Trade accounts receivable increased from approximately $36.7 million at December 31, 2002 to approximately $52.3 million at December 31, 2003 and to approximately $96.4 million at December 31, 2004. Unbilled accounts receivable increased from approximately $4.3 million at December 31, 2002 to approximately $9.5 million at December 31, 2003 and increased to approximately $14.2 million at December 31, 2004. The increase in trade accounts receivable and unbilled receivables during 2004 was due primarily to increased rev- enue. We monitor turnover, aging and the collection of accounts receivable through the use of management reports that are prepared on a customer basis and evaluated by our finance staff. At December 31, 2004, our days’ sales outstanding, including unbilled receivables, was approximately 59 days as compared to 53 days and 56 days at December 31, 2003 and 2002, respectively. Our investing activities used net cash of approximately $68.4 million, $37.8 million and $35.5 million for the years ended December 31, 2004, 2003 and 2002, respectively. The increase in 2004 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 our increased investment in property and equipment to expand our offshore development structure. The increase in 2003 compared to 2002 primarily reflects our increased investment in property and equipment to expand our offshore development infrastructure, offset, in part, by lower spending for acquisitions in 2003. Our financing activities provided net cash of approximately $36.8 million, $21.8 million, and $20.0 million for the years ended December 31, 2004, 2003 and 2002, respectively. The increase in each year was primarily related to a higher level of cash proceeds from the exercise of stock options and employee purchases of stock, partially offset by payment of 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 r 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 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. During July 2004, we entered into a foreign currency forward contract, with a six-month term and notional amount of $12.5 million, to sell the Indian Rupee for U.S. dollars. We have entered into this forward contract to manage a portion of our foreign currency risk related to Indian Rupee denominated asset balances, primarily cash investments, at our Indian subsidiary, Cognizant India. Movement in the exchange rate for the Indian Rupee results in foreign currency gains or losses upon remeasurement of the Cognizant India’s financial statements into its functional currency, the U.S. dollar. Our objective is to reduce foreign currency exposure to appreciation or depreciation in the value of the Indian Rupee by offsetting a portion of such exposure with gains or losses on the forward contract, referred to above. The forward contract is marked to market and recorded at fair value with unrealized gains and losses reported along with foreign currency gains or losses in the caption “other income (expense), net” on our consolidated statements of operations and comprehensive income. Other than the aforementioned forward contract, we have not engaged 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. Liquidity and Capital Resources  Management’s Discussion and Analysis of Financial Condition and Results of Operations