Management’s Discussion and Analysis of Financial Condition and Results of Operations 17 benefit, was approximately $1.2 million, or $0.02 per diluted share. (See Note 4 to the Consolidated Financial Statements). The Company recog- nized split-off costs of approximately $1.7 million, or $0.03 per diluted share, in the fourth quarter of 2002 related to the exchange offer and expects total charges aggregating approximately $3.5 million in relation to one-time costs associated with the exchange offer. Such charges prima- rily relate to direct and incremental legal, accounting, printing and other costs. In addition, total estimated charges include approximately $0.5 mil- lion of costs related to the retention and acceleration of Cognizant stock options by two former Directors of Cognizant who resigned on February 13, 2003 as a result of the split-off. (See Note 13 to the Consolidated Financial Statements.) Provision for Income Taxes.  The provision for income taxes decreased from approximately $13.2 million in 2001 to approximately $10.5 million in 2002, with an effective tax rate of 37.4% in 2001 and 23.4% in 2002. The lower effective tax rate reflects Cognizant’s change in its intention regard- ing the repatriation of 2002 and future earnings from its subsidiary in India, as well as a change in the manner in which repatriated earnings are taxed in India. (See Note 6 to the Consolidated Financial Statements.) Net Income.  Net income increased from approximately $22.2 million in 2001 to approximately $34.6 million in 2002, representing approximately 12.5% and 15.1% as a percentage of revenues, respectively. The higher percentage in 2002 primarily reflects the decrease in the effective tax rate discussed above. RESULTS BY BUSINESS SEGMENT  The Company, operating globally, provides software services for medium and large businesses. North American operations consist primarily of soft- ware services in the United States and Canada. European operations con- sist of software services principally in the United Kingdom. Asian opera- tions consist of software services principally in India. The Company is man- aged 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 this regard, revenues are allocated to each geographic area based on the location of the customer. Revenue.  Revenue increased by 31.4%, or approximately $47.7 million, from approximately $151.9 million during 2001 to approximately $199.6 million in 2002. The increase in revenue was attributable primarily to increased market awareness and acceptance of the onsite/offshore soft- ware delivery model, as well as sales and marketing activities directed at the U.S. market for the Company’s services. Income from Operations. Income from operations increased 29.4%, or approximately $8.9 million, from approximately $30.4 million during 2001 to approximately $39.4 million during 2002. The increase in operating income was attributable primarily to increased revenues and achieving leverage on prior sales and marketing investments. North American Segment European Segment Asian Segment Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 Revenue.  Revenue increased by 15.1%, or approximately $3.7 million, from approximately $24.2 million during 2001 to approximately $27.9 mil- lion in 2002. The increase in revenue was attributable to the Company’s sales and marketing activities in the United Kingdom, partially offset by weak demand for the Company’s services elsewhere in Europe. Income from Operations. Income from operations increased 13.2%, or approximately $0.6 million, from approximately $4.9 million during 2001 to approximately $5.5 million during 2002. The increase in operating income was attributable primarily to increased revenues and achieving leverage on prior sales and marketing investments. Revenue.  Revenue was essentially constant from 2001 to 2002 at approxi- mately $1.6 million in each year. Income from Operations.  Income from operations was essentially constant from 2001 to 2002 at approximately $0.3 million in each year. Revenue.  Revenue increased by 29.7%, or approximately $40.7 million, from approximately $137.0 million during 2000 to approximately $177.8 million in 2001. This increase resulted primarily from approximately a $27.7 million (42.9%) increase in application management and approxi- mately a $13.5 million (18.8%) increase in application development and integration, partially offset by an approximately $0.5 million (100.0%) decrease in Year 2000 compliance services. The Company provides services through T&M and fixed-bid contracts. Over the course of the last three years fixed-bid contracts have increased as a percent of revenues from 15.0% in 1999 to 15.1% in 2000 to 23.9% in 2001. Sales to related parties on a year-over-year basis were relatively stable at 10.6% in 2001 compared to 10.4% in 2000. For statement of operations purposes, revenues from related parties only include revenues recognized during the period in which the related party was affiliated with the Company. During 2001 and 2000, no third party accounted for greater than 10% of revenues. Gross profit. The Company’s 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. The Company’s cost of revenues increased by 29.0%, or approximately $20.4 million, from approximately $70.4 million during 2000 to approximately $90.8 million in 2001. The increase was due primarily to the increased cost resulting from the increase in the number of the Company’s technical pro- fessionals from approximately 2,800 employees at December 31, 2000 to approximately 3,470 employees at December 31, 2001. The increased num- ber of technical professionals is a direct result of greater demand for the Company’s services. The Company’s gross profit increased by 30.5%, or approximately $20.3 million, from approximately $66.6 million during 2000 to approximately $86.9 during 2001. Gross profit margin increased