2002 COGNIZANT FINANCIAL REVIEW Foreign Currency Translation The assets and liabilities of the Company’s Canadian and European sub- sidiaries are translated into U.S. dollars at current exchange rates and revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded in a separate compo- nent of stockholders’ equity. For the Company’s Indian subsidiary, the functional currency is the U.S. dollar since its sales are made primarily in the United States, the sales price is predominantly in U.S. dollars; and there is a high volume of intercompany transactions denominated in U.S. dollars between the Indian subsidiary and the Company’s U.S. affiliates. Non-monetary assets and liabilities are translated at historical exchange rates, while monetary assets and liabilities are translated at current exchange rates. A portion of the Company’s costs in India are denominat- ed in local currency and subject to exchange fluctuations, which has not had any material effect on the Company’s results of operations. The Company’s most significant costs are the salaries and related benefits for its programming staff and other professionals. Competition in India, the United States and Europe for professionals with advanced technical skills necessary to perform the services offered by the Company have caused wages to increase at a rate greater than the general rate of infla- tion. As with other IT service providers, the Company must adequately anticipate wage increases, particularly on its fixed-price contracts. There can be no assurance that the Company will be able to recover cost increas- es through increases in the prices that it charges for its services in the United States and elsewhere. During 2002 and 2001, various accounting pronouncements were issued which may impact the Company’s financial statements. (See Note 2 to the Consolidated Financial Statements.) The statements contained in this Annual Report 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 nega- tive thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From time to time, the Company or its 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 the Company with the Securities and Exchange Commission, or press releases or oral statements made by or with the approval of an authorized executive officer of the Company. These forward-looking statements, such as statements regarding anticipated future revenues, contract percentage completions, capital expenditures, and other statements regarding matters that are not histori- cal facts, involve predictions. The Company’s actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Potential risks and uncer- tainties that could affect the Company’s future operating results include, but are not limited to the significant fluctuations of Cognizant’s quarterly operating results caused by a variety of factors, many of which are not within Cognizant’s control, including, but not limited to: (i) the significant fluctuations of Cognizant’s quarterly operating results caused by a variety of factors, many of which are not within Cognizant’s control, including (a) the number, timing, scope and contractual terms of application design, development and maintenance projects, (b) delays in the performance of projects, (c) the accuracy of estimates of costs, resources and time to complete projects, (d) seasonal patterns of Cognizant’s services required by customers, (e) levels of market acceptance for Cognizant’s services, (f) potential adverse impacts of new tax legislation, and (g) the hiring of additional staff; (ii) changes in Cognizant’s billing and employee utiliza- tion rates; (iii) Cognizant’s ability to manage its growth effectively, which will require Cognizant (a) to increase the number of its personnel, particu- larly skilled technical, marketing and management personnel, (b) to find suitable acquisition candidates to support geographic expansion, and (c) to continue to develop and improve its operational, financial, communica- tions and other internal systems, in the United States, India and Europe; (iv) Cognizant’s limited operating history with unaffiliated customers; (v) Cognizant’s reliance on key customers and large projects; (vi) the highly competitive nature of the markets for Cognizant’s services; (vii) Cognizant’s ability to successfully address the continuing changes in infor- mation technology, evolving industry standards and changing customer objectives and preferences; (viii) Cognizant’s reliance on the continued services of its key executive officers and leading technical personnel; (ix) Cognizant’s ability to attract and retain a sufficient number of highly skilled employees in the future; (x) Cognizant’s ability to protect its intel- lectual property rights; (xi) the concentration of Cognizant's operations in India and the related geo-political risks of local and cross-border conflicts; (xii) terrorist activity, the threat of terrorist activity, and responses to and results of terrorist activity and threats, including, but not limited to, effects, domestically and/or internationally, on Cognizant, its personnel and facilities, its customers and suppliers, financial markets and general economic conditions; (xiii) the effects, domestically and/or international- ly, on Cognizant, its personnel and facilities, its customers and suppliers, financial markets and general economic conditions arising from hostilities involving the United States in Iraq or elsewhere; (xiv) a breach of the Distribution agreement entered into between the Company and IMS Health; (xv) a change in the Company’s intent to repatriate undistributed earnings and (xvi) general economic conditions. Such forward-looking statements include risks and uncertainties; consequently, actual transac- tions and results may differ materially from those expressed or implied thereby.  Effects of Inflation Recent Accounting Pronouncements Forward Looking Statements 22 Management’s Discussion and Analysis of Financial Condition and Results of Operations