The accompanying notes are an integral part of the consolidated financial statements. COGNIZANT ANNUAL REPORT 2004 Cash flows from operating activities: Net income $100,243 $ 57,365 $ 34,562 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,447 11,936 7,842 Provision for doubtful accounts 527 100 510 Split-off costs (See Note 1) – 2,010 1,680 Deferred income taxes (22,326) (10,977) (2,248) Tax benefit related to stock option exercises 36,799 22,299 12,111 Changes in assets and liabilities: Trade accounts receivable (42,739) (13,442) (14,663) Other current assets (8,293) (8,183) (851) Other assets (3,495) 1,334 (370) Accounts payable 1,546 1,785 3,296 Accrued and other liabilities 48,624 15,635 14,813 Net cash provided by operating activities 127,333 79,862 56,682 Cash flows used in investing activities: Purchases of property and equipment (46,581) (29,991) (22,268) Investment in short-term bank deposits (43,351) – – Proceeds from maturity of short-term bank deposits 23,033 – – Acquisitions, net of cash acquired (1,495) (7,823) (13,196) Net cash used in investing activities (68,394) (37,814) (35,464) Cash flows from financing activities: Proceeds from issued shares 36,768 24,740 20,043 Split-off costs (See Note 1) – (2,963) – Net cash provided by financing activities 36,768 21,777 20,043 Effect of currency translation 3,518 4,185 (27) Increase in cash and cash equivalents 99,225 68,010 41,234 Cash and cash equivalents, at beginning of year 194,221 126,211 84,977 Cash and cash equivalents, at end of year $293,446 $ 194,221 $126,211 Supplemental information: Cash paid for income taxes during the year $ 9,608 $ 3,331 $ 2,896 2004 2003 2002 Year Ended December 31, Consolidated Statements of Cash Flows (in thousands) 31