exv99w13

Exhibit 99.13

AUDITORS’ REPORT TO THE BOARD OF DIRECTORS ON
THE CONSOLIDATED FINANCIAL STATEMENTS OF
INFOSYS TECHNOLOGIES LIMITED AND ITS SUBSIDIARIES

We have audited the attached consolidated balance sheet of Infosys Technologies Limited (the Company) and its subsidiaries (collectively called ‘the Infosys Group’) as at 31 December 2005, the consolidated profit and loss account for the quarter and nine months ended on that date and the consolidated cash flow statement for the nine months ended on that date, annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

We report that the consolidated financial statements have been prepared by the Company’s management in accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India.

In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India:

	(a)		in the case of the consolidated balance sheet, of the state of affairs of the Infosys Group as at 31 December 2005;

	(b)		in the case of the consolidated profit and loss account, of the profit of the Infosys Group for the quarter and nine months ended on that date; and

	(c)		in the case of the consolidated cash flow statement, of the cash flows of the Infosys Group for the nine months ended on that date.

for BSR & Co.
Chartered Accountants

Subramanian Suresh
Partner
Membership No. 83673

Bangalore
11 January 2006

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES


in Rs. crore
Consolidated Balance Sheet as at	Schedule		December 31, 2005		March 31, 2005


SOURCES OF FUNDS
SHAREHOLDERS’ FUNDS
Share capital		1		137		135
Reserves and surplus		2		7,175		5,090

				7,312		5,225

MINORITY INTEREST				60		—

PREFERENCE SHARES ISSUED BY SUBSIDIARY*		3		—		94

				7,372		5,319


APPLICATION OF FUNDS
FIXED ASSETS		4
Original cost				2,958		2,287
Less: Depreciation and amortization				1,309		1,031

Net book value				1,649		1,256
Add: Capital work-in-progress				447		318

				2,096		1,574

INVESTMENTS		5		2,205		1,211
DEFERRED TAX ASSETS		6		57		45
CURRENT ASSETS, LOANS AND ADVANCES
Sundry debtors		7		1,394		1,322
Cash and bank balances		8		1,694		1,576
Loans and advances		9		1,496		1,023

				4,584		3,921

LESS: CURRENT LIABILITIES AND PROVISIONS
Current liabilities		10		849		656
Provisions		11		721		776

NET CURRENT ASSETS				3,014		2,489


				7,372		5,319


SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS		23

^* refer to note 23.2.16

The schedules referred to above are an integral part of the consolidated balance sheet.

As per our report attached

for BSR & Co.
Chartered Accountants


Subramanian Suresh	N. R. Narayana Murthy	Nandan M. Nilekani	S. Gopalakrishnan	Deepak M. Satwalekar
Partner Membership No. 83673	Chairman and Chief Mentor	Chief Executive Officer, President and Managing Director	Chief Operating Officer and Deputy Managing Director	Director

	Marti G. Subrahmanyam	Omkar Goswami	Larry Pressler	Rama Bijapurkar
	Director	Director	Director	Director

	Claude Smadja	Sridar A. Iyengar	David L. Boyles	K. Dinesh
	Director	Director	Director	Director

	S. D. Shibulal	T. V. Mohandas Pai	Srinath Batni	V. Balakrishnan
Bangalore	Director	Director and	Director	Company Secretary and
January 11, 2006		Chief Financial Officer		Senior Vice President — Finance

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES


in Rs. crore, except per share data
Consolidated Profit and Loss Account for the	Schedule		Quarter ended					Nine months ended
			December 31,					December 31,
			2005			2004		2005		2004


Income from software services, products and business process management				2,532			1,876		6,897		5,142
Software development and business process management expenses		12		1,327			992		3,644		2,723

GROSS PROFIT				1,205			884		3,253		2,419

Selling and marketing expenses		13		158			117		448		344
General and administration expenses		14		186			149		547		407

				344			266		995		751
OPERATING PROFIT BEFORE INTEREST, DEPRECIATION, AMORTIZATION, MINORITY INTEREST				861			618		2,258		1,668
Interest `				—			—		—		—
Depreciation and amortization				117			74		293		187


OPERATING PROFIT BEFORE TAX AND MINORITY INTEREST				744			544		1,965		1,481

Other income		15		(5	)		46		68		92
Provision for investments				—			—		1		—

NET PROFIT BEFORE TAX, MINORITY INTEREST				739			590		2,032		1,573
Provision for taxation		16		83			93		233		240

NET PROFIT AFTER TAX AND BEFORE MINORITY INTEREST				656			497		1,799		1,333
Minority interest				7			—		13		—

NET PROFIT AFTER TAX AND MINORITY INTEREST				649			497		1,786		1,333


Balance Brought Forward				2,350			751		1,415		70
Less: Residual dividend paid				—			—		—		2
Additional dividend tax				—			—		—		2

				2,350			751		1,415		66


AMOUNT AVAILABLE FOR APPROPRIATION				2,999			1,248		3,201		1,399

Dividend
Interim				—			—		177		134
Final				—			—		—		—

Total dividend				—			—		177		134
Dividend tax				—			—		25		17
Balance in profit and loss account				2,999			1,248		2,999		1,248

				2,999			1,248		3,201		1,399


EARNINGS PER SHARE *
Equity shares of par value Rs. 5/- each
Basic				23.68			18.50		65.59		49.77
Diluted				23.02			17.95		63.73		48.69
Number of shares used in computing earnings per share
Basic				27,37,71,476			26,87,73,742		27,22,89,379		26,78,62,078
Diluted				28,16,04,953			27,71,10,460		28,02,43,496		27,37,70,692
SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS		23

^* refer to note 23.2.17

The schedules referred to above are an integral part of the consolidated profit and loss account.

As per our report attached

for BSR & Co.
Chartered Accountants


Subramanian Suresh	N. R. Narayana Murthy	Nandan M. Nilekani	S. Gopalakrishnan	Deepak M. Satwalekar
Partner Membership No. 83673	Chairman and Chief Mentor	Chief Executive Officer, President and Managing Director	Chief Operating Officer and Deputy Managing Director	Director

	Marti G. Subrahmanyam	Omkar Goswami	Larry Pressler	Rama Bijapurkar
	Director	Director	Director	Director

	Claude Smadja	Sridar A. Iyengar	David L. Boyles	K. Dinesh
	Director	Director	Director	Director

	S. D. Shibulal	T. V. Mohandas Pai	Srinath Batni	V. Balakrishnan
Bangalore	Director	Director and	Director	Company Secretary and
January 11, 2006		Chief Financial Officer		Senior Vice President — Finance

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES


in Rs. crore
Consolidated Cash Flow Statement for the	Schedule		Nine months ended
				December 31,
			2005			2004


CASH FLOWS FROM OPERATING ACTIVITIES
Net profit before tax				2,032			1,573
Adjustments to reconcile net profit before tax to cash provided by operating activities (Profit)/ loss on sale of fixed assets				—			—
Depreciation and amortization				293			187
Interest and dividend income				(133	)		(78	)
Provisions for investments				1			—

Effect of exchange differences on translation of foreign currency cash and cash equivalents				(3	)		(9	)

Changes in current assets and liabilities
Sundry debtors				(72	)		(387	)
Loans and advances		17		(59	)		(89	)
Current liabilities and provisions		18		176			81
Income taxes paid during the period		19		(257	)		(193	)


NET CASH GENERATED BY OPERATING ACTIVITIES				1,978			1,085


CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets and change in capital work-in-progress		20		(815	)		(587	)
Proceeds on disposal of fixed assets				—			—
Investments in securities		21		(995	)		(111	)
Interest and dividend income				133			78


NET CASH USED IN INVESTING ACTIVITIES				(1,677	)		(620	)


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of preference share capital				—			—
Proceeds from issuance of share capital on exercise of stock options				453			301
Dividends paid during the period, including dividend tax				(403	)		(1,020	)


NET CASH USED IN FINANCING ACTIVITIES				50			(719	)


Effect of exchange differences on translation of foreign currency cash and cash equivalents				4			8

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS				355			(246	)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD				1,790			1,929

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD		22		2,145			1,683


SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS		23

The schedules referred to above are an integral part of the consolidated cash flow statement.

As per our report attached

for BSR & Co.
Chartered Accountants


Subramanian Suresh	N. R. Narayana Murthy	Nandan M. Nilekani	S. Gopalakrishnan	Deepak M. Satwalekar
Partner Membership No. 83673	Chairman and Chief Mentor	Chief Executive Officer, President and Managing Director	Chief Operating Officer and Deputy Managing Director	Director

	Marti G. Subrahmanyam	Omkar Goswami	Larry Pressler	Rama Bijapurkar
	Director	Director	Director	Director

	Claude Smadja	Sridar A. Iyengar	David L. Boyles	K. Dinesh
	Director	Director	Director	Director

	S. D. Shibulal	T. V. Mohandas Pai	Srinath Batni	V. Balakrishnan
Bangalore	Director	Director and Chief Financial Officer	Director	Company Secretary and
January 11, 2006				Senior Vice President — Finance

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES


in Rs. Crore except per share data
Schedules to the Consolidated Balance Sheet as at	December 31, 2005		March 31, 2005


1 SHARE CAPITAL

Authorized
Equity shares, Rs. 5/- par value 30,00,00,000 (30,00,00,000) equity shares		150		150


Issued, Subscribed and Paid Up
Equity shares, Rs. 5/- par value*		137		135
27,45,25,163 (27,05,70,549) equity shares fully paid up
[Of the above, 25,84,92,302 (25,84,92,302) equity shares fully paid up have been issued as bonus shares by capitalization of the general reserve]

		137		135

Forfeited shares amounted to Rs. 1,500/- (Rs 1,500/-)
* For details of options in respect of equity shares, refer to note 23.2.7
* Refer to note 23.2.17 for details of basic and diluted shares

2 RESERVES AND SURPLUS

Capital reserve		6		6
Capital reserve on consolidation		49		—

Share premium account — As at April 1,		900		461
Add: Receipts on exercise of stock options issued to employees		451		439

		1,351		900


Foreign currency translation adjustment		—		(1	)

General reserve — As at April 1,		2,770		2,680
Less: Capitalized for issue of bonus shares		—		100
Add: Transfer from the Profit and Loss Account		—		190

		2,770		2,770


Balance in Profit and Loss Account		2,999		1,415


		7,175		5,090


3 PREFERENCE SHARES ISSUED BY SUBSIDIARY

Authorized
0.0005% Cumulative convertible preference shares, Rs. 100/- par value
Nil (87,50,000) preference shares		—		88


Issued, Subscribed and Paid Up
0.0005% Cumulative convertible preference shares, Rs. 100/- par value
nil (87,50,000) preference shares fully paid up*		—		88

Premium received on issue of preference shares		—		6

		—		94

^* Refer to note 23.2.16

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

Schedules to the Consolidated Balance Sheet


4 FIXED ASSETS	in Rs. Crore except as otherwise stated
Particulars	Original cost								Depreciation and amortization								Net book value
	As at April 1,				Deletions/		As at December		As at April 1,		For the		Deletions/		As at December		As at		As at
	2005		Additions		Retirement		31, 2005		2005		period		Retirement		31, 2005		December 31, 2005		March 31, 2005

Goodwill		41		—		—		41		—		—		—		—		41		41
Land: free-hold		30		—		—		30		—		—		—		—		30		30
leasehold		90		11		—		101		—		—		—		—		101		90
Buildings		731		264		—		995		119		44		—		163		832		612
Plant and machinery		395		157		—		552		218		66		—		284		268		177
Computer equipment		610		164		7		767		446		126		7		565		202		164
Furniture and fixtures		341		85		8		418		205		55		8		252		166		136
Leasehold improvements		6		4		—		10		1		2		—		3		7		5
Vehicles		1		1		—		2		—		—		—		—		2		1
Intangible assets
Intellectual property rights		42		—		—		42		42		—		—		42		—		—

		2,287		686		15		2,958		1,031		293		15		1,309		1,649		1,256

Previous year		1,634		728		75		2,287		810		288		67		1,031

Note: Buildings include Rs. 250/- being the value of 5 shares of Rs. 50/- each in Mittal Towers Premises Co-operative Society Limited

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES


in Rs. crore
Schedules to the Consolidated Balance Sheet as at	December 31, 2005		March 31, 2005


5 INVESTMENTS

Trade (unquoted) — at cost
Long-term investments		16		16
Less: Provision made for investments		14		14

		2		2

Non-trade (unquoted), current investments, at the lower of cost and fair value
Liquid mutual funds		2,203		1,209

		2,205		1,211

Aggregate amount of unquoted investments		2,205		1,211

6 DEFERRED TAX ASSETS

Fixed assets		47		33
Sundry debtors		1		3

Leave provisions and others		9		9
		57		45


7 SUNDRY DEBTORS
Debts outstanding for a period exceeding six months
Unsecured
considered good		—		—
considered doubtful		9		11

Other debts
Unsecured
considered good*		1,394		1,322
considered doubtful		1		8

		1,404		1,341
Less: Provision for doubtful debts		10		19

		1,394		1,322

* Includes dues from companies where directors are interested		—		—

8 CASH AND BANK BALANCES

Cash on hand		—		—
Balances with scheduled banks
In current accounts *		137		83
In deposit accounts in Indian Rupees		1,279		1,250
Balances with non-scheduled banks
In deposit accounts in foreign currency		—		26
In current accounts in foreign currency		278		217

		1,694		1,576

*includes balance in unclaimed dividend account		4		3

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES


in Rs. crore
Schedules to the Consolidated Balance Sheet as at	December 31, 2005		March 31, 2005


9 LOANS AND ADVANCES

Unsecured, considered good
Advances
prepaid expenses		20		36
for supply of goods and rendering of services		11		2
advance to gratuity trust		27		—
others		3		16

		61		54

Unbilled revenues		158		141
Advance income tax		579		404
Loans and advances to employees *
housing and other loans		49		58
salary advances		51		43
Electricity and other deposits		16		17
Rental deposits		15		15
Deposits with financial institutions and body corporate (refer note 23.2.9)		554		280
Deposits with government authorities		—		—
Mark to Market on options/due on forward contracts		—		10
Other assets		13		1

		1,496		1,023

Unsecured, considered doubtful
Loans and advances to employees		—		—

		1,496		1,023
Less: Provision for doubtful loans and advances to employees		—		—

		1,496		1,023

*includes dues by non-director officers of the company		—		—
Maximum amounts due by non-director officers at any time during the period/ year		—		—

10 CURRENT LIABILITIES

Sundry creditors
capital goods		—		1
goods and services		6		4
accrued salaries and benefits
salaries		6		15
bonus and incentives		186		199
unavailed leave		87		77
for other liabilities accrual for expenses		207		141
retention monies		13		14
withholding and other taxes payable		102		60
for purchase of intellectual property rights		20		19
others		3		5

		630		535
Advances received from clients		13		29
Unearned revenue		190		89
Unclaimed dividend		4		3
Mark to Market on options/due on forward contracts		12		—

		849		656


11 PROVISIONS
Proposed dividend		—		176
Provision for
tax on dividend		—		25
income taxes*		709		546
post-sales client support and warranties		12		29

		721		776

* refer to note 23.2.8.

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES


in Rs. crore
Schedules to Consolidated Profit and Loss Account for the	Quarter ended						Nine months ended
	December 31,						December 31,
	2005			2004			2005			2004


12 SOFTWARE DEVELOPMENT AND BUSINESS PROCESS MANAGEMENT EXPENSES

Salaries and bonus including overseas staff expenses		1,105			815			2,963			2,203
Contribution to provident and other funds		24			21			67			57
Staff welfare		10			8			24			16
Overseas travel expenses		78			56			258			186
Traveling and conveyance		—			3			—			6
Technical sub-contractors		40			34			111			72
Software packages
for own use		35			32			102			82
for service delivery to clients		6			4			25			14
Communication expenses		14			13			46			40
Rent		7			4			19			8
Computer maintenance		7			4			15			12
Consumables		4			3			12			11
Provision for post-sales client support and warranties		(9	)		(6	)		(15	)		13
Miscellaneous expenses		6			1			17			3

		1,327			992			3,644			2,723


13 SELLING AND MARKETING EXPENSES

Salaries and bonus including overseas staff expenses		96			70			271			207
Contribution to provident and other funds		1			1			1			1
Staff welfare		1			—			1			—
Overseas travel expenses		18			14			56			41
Traveling and conveyance		2			4			3			10
Brand building		14			8			37			27
Commission and earnout charges		11			7			28			15
Professional charges		5			5			20			14
Rent		4			3			12			9
Marketing expenses		3			2			9			8
Telephone charges		2			1			4			4
Communication Expenses		—			—			1			—
Printing and stationery		—			—			1			1
Advertisements		—			1			1			2
Sales promotion expenses		—			—			1			1
Office maintenance		—			—			—			1
Insurance charges		—			—			—			—
Consumables		—			—			—			—
Software packages
for own use		—			—			—			—
Computer maintenance		—			—			—			—
Rates and taxes		—			—			—			—
Miscellaneous expenses		1			1			2			3

		158			117			448			344

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES


in Rs. crore
Schedules to Consolidated Profit and Loss Account for the	Quarter ended					Nine months ended
	December 31,					December 31,
	2005			2004		2005			2004

14 GENERAL AND ADMINISTRATION EXPENSES

Salaries and bonus including overseas staff expenses		43			36		122			91
Contribution to provident and other funds		2			2		6			6
Staff welfare		1			—		1			1
Telephone charges		20			12		60			35
Professional charges		27			20		70			51
Power and fuel		17			11		49			31
Office maintenance		20			11		53			30
Traveling and conveyance		17			9		47			27
Overseas travel expenses		5			3		16			8
Insurance charges		6			7		18			23
Printing and stationery		3			3		9			8
Rates and taxes		3			2		9			7
Donations		4			8		13			17
Rent		2			4		8			14
Advertisements		3			3		10			7
Professional membership and seminar participation fees		2			2		7			5
Repairs to building		3			3		11			7
Repairs to plant and machinery		3			2		8			5
Postage and courier		1			1		4			4
Books and periodicals		1			1		3			2
Recruitment and training		2			1		5			2
Provision for bad and doubtful debts		(4	)		6		6			17
Provision for doubtful loans and advances		—			—		—			—
Commission to non-whole time directors		—			—		1			1
Auditor’s remuneration
statutory audit fees		—			—		1			1
certification charges		—			—		—			—
others		—			—		—			—
out-of-pocket expenses		—			—		—			—
Bank charges and commission		1			—		1			1
Freight charges		—			—		1			1
Research grants		1			—		1			—
Software packages
for own use		1			—		1			1
Miscellaneous expenses		2			2		6			4

		186			149		547			407


15 OTHER INCOME

Interest received on deposits with banks and others*		27			16		76			51
Dividend received on investment in liquid mutual funds (non-trade unquoted)		25			9		57			27
Miscellaneous income, net (refer to note 23.2.10)		1			—		3			1
Exchange differences		(58	)		21		(68	)		13

		(5	)		46		68			92

*Tax deducted at source		4			2		14			9

16 PROVISION FOR TAXATION

Income taxes*		81			93		245			245
Deferred taxes		2			—		(12	)		(5	)


		83			93		233			240

* refer to note 23.2.8.

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES


in Rs. crore
Schedules to Consolidated Cashflow Statements for the	Nine months ended
	December 31,
	2005			2004


17 CHANGE IN LOANS AND ADVANCES

As per the Balance Sheet		1,496			946
Less: Deposits with financial institutions and body corporate,
included in cash and cash equivalents		(451	)		(213	)
Advance income taxes separately considered		(579	)		(341	)

		466			392
Less: Opening balance considered		(407	)		(303	)

		59			89


18 CHANGE IN CURRENT LIABILITIES AND PROVISIONS

As per the Balance Sheet		1,570			1,165
Add/ (Less): Provisions separately considered in the cash flow statement
Income taxes		(709	)		(497	)
Dividends		—			—
Dividend tax		—			—

		861			668
Less: Opening balance considered		(685	)		(587	)

		176			81


19 INCOME TAXES PAID

Charge as per the Profit and Loss Account		233			240
Add: Increase in advance income taxes		175			131
Increase / (Decrease) in deferred taxes		12			3
Less: (Increase) / Decrease in income tax provision		(163	)		(181	)

		257			193

20 PURCHASE OF FIXED ASSETS AND CHANGE IN CAPITAL WORK-IN-PROGRESS

As per the schedule 4 to Balance Sheet		686			581
Less: Opening Capital work-in-progress		(318	)		(208	)
Add: Closing Capital work-in-progress		447			214

		815			587


21 INVESTMENTS IN SECURITIES *

As per the Balance Sheet		2,205			1,057
Add: Provisions made on investments		1			—

		2,206			1,057
Less: Opening balance considered		(1,211	)		(946	)

		995			111

* refer to note 23.2.11 for details of investments and redemptions

22 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD

As per the Balance Sheet		1,694			1,470
Add: Deposits with financial institutions, included herein		451			213

		2,145			1,683

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

Schedules to the Consolidated Financial Statements for the quarter ended December 31, 2005

23. Significant accounting policies and notes on accounts

Company overview

Infosys Technologies Limited (“Infosys” or “the company”) along with its majority owned and controlled subsidiary, Progeon Limited, India (“Progeon”), and wholly owned subsidiaries, Infosys Technologies (Australia) Pty. Limited (“Infosys Australia”), Infosys Technologies (Shanghai) Co. Limited (“Infosys China”) and Infosys Consulting, Inc., USA (“Infosys Consulting”) is a leading global technology services organisation. The group of companies (“the Group”) provide end-to-end business solutions that leverage technology thus enabling its clients to enhance business performance. The Group’s operations are to provide solutions that span the entire software life cycle encompassing technical consulting, design, development, re-engineering, maintenance, systems integration and package evaluation and implementation. In addition, the Group offers software products for the banking industry and business process management services.

23. 1 Significant accounting policies

23.1.1 Basis of preparation of financial statements

The financial statements are prepared in accordance with Indian Generally Accepted Accounting Principles (“GAAP”) under the historical cost convention on the accruals basis. GAAP comprises mandatory accounting standards issued by the Institute of Chartered Accountants of India (“ICAI”) and guidelines issued by the Securities and Exchange Board of India. The interim financial statements are prepared to conform to the accounting standard on “Interim Financial Reporting”. Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.

Management evaluates all recently issued or revised accounting standards on an on-going basis.

The financial statements are prepared in accordance with the principles and procedures required for the preparation and presentation of consolidated financial statements as laid down under the accounting standard on Consolidated Financial Statements issued by the ICAI. The financial statements of Infosys — the parent company, Progeon, Infosys China, Infosys Australia and Infosys Consulting have been combined on a line-by-line basis by adding together book values of like items of assets, liabilities, income and expenses after eliminating intra-group balances and transactions and resulting unrealized gain/loss. The consolidated financial statements are prepared by applying uniform accounting policies in use at the Group. Minority interests have been excluded. Minority interests represent that part of the net profit or loss and net assets of subsidiaries that are not, directly or indirectly, owned or controlled by the company.

Goodwill has been recorded to the extent the cost of acquisition, comprising purchase consideration and transaction costs, exceeds the fair value of the net assets in the acquired company and will be tested for impairment on an annual basis. Exchange difference resulting from the difference due to translation of foreign currency assets and liabilities in subsidiaries is disclosed as foreign currency translation adjustment.

23.1.2 Use of estimates

The preparation of the financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to contingent assets and liabilities as at the date of the financial statements and reported amounts of income and expenses during the period. Examples of such estimates include provisions for doubtful debts, future obligations under employee retirement benefit plans, income taxes, post-sales customer support and the useful lives of fixed assets and intangible assets.

Management periodically assesses, using external and internal sources, whether there is an indication that an asset may be impaired. An impairment occurs where the carrying value exceeds the present value of future cash flows expected to arise from the continuing use of the asset and its eventual disposal. The impairment loss to be expensed is determined as the excess of the carrying amount over the higher of the asset’s net sales price or present value as determined above. Contingencies are recorded when it is probable that a liability will be incurred, and the amount can be reasonably estimated.Where no reliable estimate can be made, a disclosure is made as contingent liability. Actual results could differ from those estimates.

23.1.3 Revenue recognition

Revenue from software development on fixed-price, fixed-time frame contracts where there is no uncertainty as to measurement or collectability of consideration is recognized as per the percentage of completion method. On time-and-materials contracts, revenue is recognized as the related services are rendered. Cost and earnings in excess of billings are classified as unbilled revenue while billing in excess of cost and earnings is classified as unearned revenue. Provision for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current estimates. Annual Technical Services revenue and revenue from fixed-price maintenance contracts are recognized proportionately over the period in which services are rendered. Revenue from the sale of user licenses for software applications is recognized on transfer of the title in the user license, except in multiple element contracts, where revenue is recognized as per the percentage of completion method.

Profit on sale of investments is recorded on transfer of title from the company and is determined as the difference between the sales price and the then carrying value of the investment. Interest is recognized using the time-proportion method, based on rates implicit in the transaction. Dividend income is recognized when the company’s right to receive dividend is established.

23.1.4 Expenditure

The cost of software purchased for use in software development and services is charged to cost of revenues in the year of acquisition. Charges relating to non-cancelable, long-term operating leases are computed primarily on the basis of the lease rentals, payable as per the relevant lease agreements. Post-sales customer support costs are estimated by management, determined on the basis of past experience. The costs provided for are carried until expiry of the related warranty period. Provisions are made for all known losses and liabilities. Leave encashment liability is determined on the basis of an actuarial valuation.

23.1.5 Fixed assets, intangible assets and capital work-in-progress

Fixed assets are stated at cost, less accumulated depreciation. Direct costs are capitalized until fixed assets are ready for use. Capital work-in-progress comprises outstanding advances paid to acquire fixed assets and the cost of fixed assets that are not yet ready for their intended use at the balance sheet date. Intangible assets are recorded at the consideration paid for acquisition.

23.1.6 Depreciation and amortization

Depreciation on fixed assets is applied on the straight-line method based on useful lives of assets as estimated by the Management. Depreciation for assets purchased/sold during the period is proportionately charged. Individual low cost assets (acquired for less than Rs. 5,000/-) are entirely depreciated in the year of acquisition. Intangible assets are amortized over their respective individual estimated useful lives on a straight-line basis, commencing from the date the asset is available to the company for its use. Management estimates the useful lives for the various fixed assets as follows:


Buildings		15 years
Plant and machinery		5 years
Computer equipment		2-5 years
Furniture and fixtures		5 years
Vehicles		5 years
Intellectual property rights		1-2 years

23.1.7 Retirement benefits to employees

23.1.7.a Gratuity

Infosys provides for gratuity, a defined benefit retirement plan (the “Gratuity Plan”) covering eligible employees at the company and Progeon. In accordance with the Payment of Gratuity Act, 1972, the Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee’s salary and the tenure of employment.

Liabilities with regard to the Gratuity Plan are determined by actuarial valuation as at the balance sheet date and as per gratuity regulations for Infosys and Progeon respectively. Infosys fully contributes all ascertained liabilities to the Infosys Technologies Limited Employees’ Gratuity Fund Trust (the “Trust”). Progeon fully contributed all ascertained liabilities to the Progeon Employees’ Gratuity Fund Trust. Trustees administer contributions made to the Trust and contributions are invested in specific investments, as permitted by law.

23.1.7.b Superannuation

Certain employees of Infosys are also participants in a defined contribution plan. Until March 2005, the company made monthly contributions under the superannuation plan (the Plan) to the Infosys Technologies Limited Employees’ Superannuation Fund Trust based on a specified percentage of each covered employee’s salary. The company had no further obligations to the Plan beyond its monthly contributions. Certain employees of Progeon were also eligible for superannuation benefit. Progeon made monthly provisions under the superannuation plan based on a specified percentage of each covered employee’s salary. Progeon had no further obligations to the superannuation plan beyond its monthly provisions which are periodically contributed to a trust fund, the corpus of which is invested with the Life Insurance Corporation of India. From April 1, 2005, a substantial portion of the monthly contribution amount is paid directly to the employees as an allowance and a nominal amount is contributed to the trust.

23.1.7.c Provident fund

Eligible employees receive benefits from a provident fund, which is a defined contribution plan. Both the employee and the company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee’s salary. The company contributes a part of the contributions to the Infosys Technologies Limited Employees’ Provident Fund Trust. The remaining contributions are made to government administered provident fund. The interest rate payable by the trust to the beneficiaries every year is being administered by the government. The company has an obligation to make good the short fall, if any, between the return from its investments and the administered interest rate.

In respect of Progeon, eligible employees receive benefits from a provident fund, which is a defined contribution plan. Both the employee and Progeon make monthly contributions to this provident fund plan equal to a specified percentage of the covered employee’s salary. Amounts collected under the provident fund plan are deposited in a government administered provident fund. Progeon has no further obligations under the provident fund plan beyond its monthly contributions.

23.1.8 Research and development

Revenue expenditure incurred on research and development is expensed as incurred. Capital expenditure incurred on research and development is depreciated over the estimated useful lives of the related assets.

23.1.9 Foreign currency transactions

Revenue from overseas clients and collections deposited in foreign currency bank accounts are recorded at the exchange rate as of the date of the respective transactions. Expenditure in foreign currency is accounted at the exchange rate prevalent when such expenditure is incurred. Disbursements made out of foreign currency bank accounts are reported at the daily rates. Exchange differences are recorded when the amount actually received on sales or actually paid when expenditure is incurred is converted into Indian Rupees. The exchange differences arising on foreign currency transactions are recognized as income or expense in the period in which they arise.

Fixed assets purchased at overseas offices are recorded at cost, based on the exchange rate as of the date of purchase. The charge for depreciation is determined as per the Group’s accounting policy.

Monetary current assets and monetary current liabilities denominated in foreign currency are translated at the exchange rate prevalent at the date of the balance sheet. The resulting difference is also recorded in the profit and loss account.

23.1.10 Forward contracts in foreign currencies

The company uses foreign exchange forward contracts and options to hedge its exposure to movements in foreign exchange rates. The use of these foreign exchange forward contracts and options reduces the risk or cost to the company and the company does not use the foreign exchange forward contracts or options for trading or speculation purposes.

The company records the gain or loss on effective hedges in the foreign currency fluctuation reserve until the transactions are complete. On completion, the gain or loss is transferred to the profit and loss account of that period. To designate a forward contract and option as an effective hedge, Management objectively evaluates and evidences with appropriate supporting documents at the inception of each contract whether the contract is effective in achieving offsetting cash flows attributable to the hedged risk. In the absence of a designation as effective hedge, a gain or loss is recognized in the profit and loss account.

23.1.11 Income tax

Income taxes are computed using the tax effect accounting method, where taxes are accrued in the same period the related revenue and expenses arise. A provision is made for income tax annually based on the tax liability computed after considering tax allowances and exemptions. Provisions are recorded when it is estimated that a liability due to disallowances or other matters is probable.

The differences that result between the profit offered for income taxes and the profit as per the financial statements are identified and thereafter a deferred tax asset or deferred tax liability is recorded for timing differences, namely the differences that originate in one accounting period and reverse in another, based on the tax effect of the aggregate amount being considered. The tax effect is calculated on the accumulated timing differences at the end of an accounting period based on prevailing enacted or substantially enacted regulations. Deferred tax assets are recognized only if there is reasonable certainty that they will be realized and are reviewed for the appropriateness of their respective carrying values at each balance sheet date. The income tax provision for the interim period is made based on the best estimate of the annual average tax rate expected to be applicable for the full fiscal year for each of the consolidated entities.

23.1.12 Earnings per share

In determining earnings per share, the Group considers the net profit after tax and includes the post-tax effect of any extra-ordinary/exceptional item. The number of shares used in computing basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average shares considered for deriving basic earnings per share, and also the weighted average number of equity shares that could have been issued on the conversion of all dilutive potential equity shares. The diluted potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). Dilutive potential equity shares are deemed converted as of the beginning of the period, unless issued at a later date. The number of shares and potentially dilutive equity shares are adjusted for any stock splits and bonus shares issues effected prior to the approval of the financial statements by the Board of Directors.

23.1.13 Investments

Trade investments are the investments made to enhance the Group’s business interests. Investments are either classified as current or long-term based on Management’s intention at the time of purchase. Current investments are carried at the lower of cost and fair value. Cost for overseas investments comprises the Indian Rupee value of the consideration paid for the investment. Long-term investments are carried at cost and provisions recorded to recognize any decline, other than temporary, in the carrying value of each investment.

23.1.14 Cash flow statement

Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular revenue generating, investing and financing activities of the Group are segregated.

23.2 Notes on accounts

Amounts in the financial statements are presented in Rupees crore, except for per share data and as otherwise stated. Certain amounts do not appear due to rounding off, and are detailed in note 23.3. All exact amounts are stated with the suffix “/-”. One crore equals 10 million.

The previous period/ year figures have been regrouped / reclassified, wherever necessary to conform to the current presentation.

23.2.1 Aggregate expenses

The aggregate amounts incurred on certain specific expenses:


in Rs. crore
	Quarter ended						Nine months ended
	December 31,						December 31,
	2005			2004			2005			2004


Salaries and bonus including overseas staff expenses		1,244			921			3,356			2,501
Contribution to provident and other funds		27			24			74			64
Staff welfare		12			8			26			17
Overseas travel expenses		101			73			330			235
Traveling and conveyance		19			16			50			43
Technical sub-contractors		40			34			111			72
Software packages
for own use		36			32			103			83
for service delivery to clients		6			4			25			14
Professional charges		32			25			90			65
Telephone charges		22			13			64			39
Communication expenses		14			13			47			40
Power and fuel		17			11			49			31
Office maintenance		20			11			53			31
Rent		13			11			39			31
Brand building		14			8			37			27
Commission and earnout charges		11			7			28			15
Insurance charges		6			7			18			23
Printing and stationery		3			3			10			9
Computer maintenance		7			4			15			12
Consumables		4			3			12			11
Rates and taxes		3			2			9			7
Advertisements		3			4			11			9
Donations		4			8			13			17
Marketing expenses		3			2			9			8
Professional membership and seminar participation fees		2			2			7			5
Repairs to building		3			3			11			7
Repairs to plant and machinery		3			2			8			5
Postage and courier		1			1			4			4
Provision for post-sales client support and warranties		(9	)		(6	)		(15	)		13
Books and periodicals		1			1			3			2
Recruitment and training		2			1			5			2
Provision for bad and doubtful debts		(4	)		6			6			17
Provision for doubtful loans and advances		—			—			—			—
Commission to non-whole time directors		—			—			1			1
Sales promotion expenses		—			—			1			1
Auditor’s remuneration
statutory audit fees		—			—			1			1
certification charges		—			—			—			—
others		—			—			—			—
out-of-pocket expenses		—			—			—			—
Bank charges and commission		1			—			1			1
Freight charges		—			—			1			1
Research grants		1			—			1			—
Miscellaneous expenses		9			4			25			10


		1,671			1,258			4,639			3,474

The above expenses for the quarter and nine months ended December 31, 2005 include Fringe Benefit Tax (FBT) in India amounting to Rs. 4 crore and Rs. 11 crore respectively (for quarter and nine months ended December 31, 2004, Rs. nil & Rs. nil) wherever applicable.

23.2.2 Capital commitments and contingent liabilities


in Rs. crore
	As at
	December 31, 2005			March 31, 2005

Estimated amount of unexecuted capital contracts

(net of advances and deposits)		221			275

Outstanding guarantees and counter guarantees to various banks, in respect of the guarantees given by those banks in favor of various government authorities and others		28			16

Claims against the company, not acknowledged as debts		74	*		16
(Amount paid to statutory authorities totals Rs. 57 crore on account of claims not acknowledged as debts)

Forward contracts outstanding
In US$	US $	15,000,000		US $	353,317,400
(Equivalent approximate in Rs. crore)		67			1,558

Options Contract Outstanding
Put options purchased	US $	8,500,000			—
(Equivalent approximate in Rs. crore)		38			—
Call options sold	US $	17,000,000			—
(Equivalent approximate in Rs. crore)		76
Range barrier options in US $	US $	237,500,000
(Equivalent approximate in Rs. crore)		1,068			—
Range barrier options in Euro	€	6,000,000			—
(Equivalent approximate in Rs. crore)		32			—
Range barrier options in GBP	£	6,000,000			—
(Equivalent approximate in Rs. crore)		47			—

* Claims against the Company not acknowledged as debts include a demand (received on April 15, 2005) from the Indian tax authorities for payment of additional tax of Rs. 53 crore, including interest of Rs. 16 crore, upon completion of their tax review for fiscal 2002. The tax demand is mainly on account of disallowance of a portion of the deduction to its taxable income under Indian law claimed by the company under Section 10A of the Income-tax Act. Deduction under Section 10A of the Income-tax Act is determined by the ratio of “Export Turnover” to “Total Turnover”. The disallowance arose from certain expenses incurred in foreign currency being reduced from Export Turnover but not reduced from Total Turnover.

The company is contesting the demand and management, including its tax advisers, believe that its position will likely be upheld in the appellate process. No tax expense has been accrued in the financial statements for the tax demanded. Management believes that the ultimate outcome of this proceeding will not have a material adverse effect on the company’s financial position and results of operations.

23.2.3 Obligations on long-term, non-cancelable operating leases

The lease rentals charged during the quarter and nine months ended December 31, 2005 and 2004 and maximum obligations on long-term non-cancelable operating leases payable as per the rentals stated in the respective agreements:-


in Rs. crore
	Quarter ended				Nine months ended
	December 31,				December 31,
	2005		2004		2005		2004


Lease rentals recognized during the period		13		11		39		31



Lease obligations	As at
	December 31, 2005		March 31, 2005


Within one year of the balance sheet date		22		27
Due in a period between one year and five years		87		83
Due after five years		28		25

		137		135

The operating lease arrangements extend upto a maximum of ten years from their respective dates of inception and relates to rented overseas premises and car rentals. Some of these lease agreements have price escalation clause.

23.2.4 Related party transactions

During the quarter and nine months ended December 31, 2005, an amount of Rs. 2 crore and Rs. 9 crore (for the quarter and nine months ended December 31, 2004 was Rs. 3 crore and Rs. 11 crore) has been donated to Infosys Foundation, a not-for-profit foundation, in which certain directors of the company are trustees.

23.2.5 Transactions with key management personnel

Particulars of remuneration and other benefits paid to key management personnel during the quarter and nine months ended December 31, 2005 and December 31, 2004 have been detailed in Schedule 23.3, since the amounts are less than a crore.

23.2.6 Research and development expenditure


in Rs. crore
	Quarter ended				Nine months ended
	December 31,				December 31,
	2005		2004		2005		2004


Capital		—		—		—		—
Revenue		25		19		77		49

		25		19		77		49

23.2.7 Stock option plans

The company has two stock option plans that are currently operational.

1998 Stock Option Plan (“the 1998 Plan”)
The 1998 Plan was approved by the board of directors in December 1997 and by the shareholders in January 1998, and is for issue of 58,80,000 ADSs


in Rs. crore
Number of options granted, exercised and forfeited during the	Quarter ended						Nine months ended
	December 31,						December 31,
	2005			2004			2005			2004


Options outstanding, beginning of period		27,46,732			37,02,050			30,54,290			38,71,010
Granted		—			—			—			—
Less: exercised		(273,648	)		(287,879	)		(547,378	)		(371,647	)
forfeited		(25,420	)		(93,724	)		(59,248	)		(178,916	)

Options outstanding, end of period		24,47,664			33,20,447			24,47,664			33,20,447

1999 Stock Option Plan (“the 1999 Plan”)
In fiscal 2000, the company instituted the 1999 Plan. The shareholders and the board of directors approved the plan in June 1999, which provides for the issue


in Rs. crore
Number of options granted, exercised and forfeited during the	Quarter ended						Nine months ended
	December 31,						December 31,
	2005			2004			2005			2004


Options outstanding, beginning of period		1,21,24,188			1,65,78,897			1,40,54,937			1,83,62,120
Granted		—			—			—			—
Less: exercised		(1,592,003	)		(1,307,755	)		(3,407,236	)		(2,520,433	)
forfeited		(31,590	)		(209,672	)		(147,106	)		(780,217	)

Options outstanding, end of period		1,05,00,595			1,50,61,470			1,05,00,595			1,50,61,470

The aggregate options considered for dilution are set out in note 23.2.17

Progeon’s 2002 Plan

Progeon’s 2002 Plan provides for the grant of stock options to employees of Progeon and was approved by the board of directors and stockholders in June 2002. All options under the 2002 Plan are exercisable for equity shares. The 2002 Plan is administered by a Compensation Committee comprising three members, all of whom are directors of Progeon. The 2002 Plan provides for the issue of 52,50,000 equity shares to employees, at an exercise price, which shall not be less than the Fair Market Value (“FMV”) on the date of grant. Options may also be issued to employees at exercise prices that are less than FMV only if specifically approved by the members of the company in general meeting. The options issued under the 2002 Plan vest in periods ranging between one through six years, although accelerated vesting based on performance conditions is provided in certain instances.

The activity in Progeon’s 2002 Plan during the quarter and nine months ended December 2005 and 2004:-



Number of options granted, exercised and forfeited	Quarter ended						Nine months ended
	December 31,						December 31,
	2005			2004			2005			2004


Options outstanding, beginning of period		32,68,100			31,80,793			31,16,518			31,24,625

Granted		1,85,820			54,100			9,94,120			3,25,500

Less: exercised		(85,773	)		(1,700	)		(640,975	)		(8,025	)
forfeited		(275,463	)		(61,593	)		(376,979	)		(270,500	)

Options outstanding, end of period		30,92,684			31,71,600			30,92,684			31,71,600

Proforma Accounting for Progeon Stock Option Plan

Guidance note on “Accounting for employee share based payments” issued by Institute of Chartered Accountants of India establishes financial accounting and reporting principles for employee share based payment plans. The guidance note applies to employee share based payment plans, the grant date in respect of which falls on or after April 1, 2005.

As allowed by guidance note, Progeon has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of guidance note “Accounting of employee share based premiums”. Had the compensation cost for Progeon’s stock-based compensation plan been determined in a manner consistent with the fair value approach described in guidance note, the Company’s net Income and basic and diluted earnings per share as reported would have reduced to the proforma amounts as indicated:-



	Quarter ended				Nine months ended
	December 31,				December 31,
	2005		2004		2005		2004


Net Profit:
As Reported		649		497		1,786		1,333
Less: Stock-based employee compensation expense		1		—		3		—

Adjusted Proforma		648		497		1,783		1,333


Basic Earnings per share as reported		23.68		18.50		65.59		49.77
Proforma Basic Earnings per share		23.64		18.50		65.48		49.77
Diluted Earnings per share as reported		23.02		17.95		63.73		48.69
Proforma Earnings per share as reported		22.99		17.95		63.63		48.69

The Fair value of each option is estimated on the date of grant using the Black-Scholes model with the following assumptions:




Dividend yield %		0.00%
Expected life	1 through 6 years
Risk free interest rate		7.13%
Volatility		50.00%

23.2.8 Income taxes

The provision for taxation includes tax liabilities in India on the company’s global income as reduced by exempt incomes and any tax liabilities arising overseas on income sourced from those countries.

Most of the company’s and all of Progeon’s operations are conducted through Software Technology Parks (“STPs”). Income from STPs are tax exempt for the earlier of 10 years commencing from the fiscal year in which the unit commences software development, or March 31, 2009.

Infosys now also has operations in a Special Economic Zone. Income from SEZs are fully tax exempt for the first 5 years, 50% exempt for the next 5 years and 50% exempt for another 5 years subject to fulfilling certain conditions.

During the nine months ended December 31, 2005, the tax authorities in an overseas tax jurisdiction completed the assessment of income upto fiscal year 2004. Based on the assessment order, management has re-estimated its tax liabilities and written back an amount of Rs.20 crore. The tax provision for the nine months is net of the write-back.

23.2.9 Loans and advances

Deposits with financial institutions and body corporate comprise:-


in Rs. crore
	As at
	December 31, 2005		March 31, 2005


Housing Development Finance Corporation Limited (“HDFC”)		216		214
GE Capital Services India Limited		235		—
Life Insurance Corporation of India (“LIC”)		103		66

		554		280

Interest accrued but not due (included above)		2		2

Mr. Deepak M. Satwalekar, Director, is also a Director of HDFC. Except as director in this financial institution, he has no direct interest in any transactions.

Deposit with LIC represents amount deposited solely to settle employee benefit/ leave obligations as and when they arise during the normal course of business.

23.2.10 Fixed assets

Profit / loss on disposal of fixed assets


in Rs. crore
	Quarter ended				Nine months ended
	December 31,				December 31,
	2005		2004		2005		2004

Profit on disposal of fixed assets, included in miscellaneous income		—		—		—		—
Loss on disposal of fixed assets, included in miscellaneous expenses		—		—		—		—

Profit/(loss) on disposal of fixed assets, net		—		—		—		—

The company has entered into lease-cum-sale agreements to acquire certain properties. In accordance with the terms of these agreements, the company has the option to purchase the properties on expiry of the lease period. The company has already paid 100% of the value of the properties at the time of entering into the lease-cum-sale agreements. These amounts are disclosed as “Land — leasehold” under “Fixed assets” in the financial statements. Additionally, certain land has been purchased for which the company has possession certificate for which sale deeds are yet to be executed as at December 31, 2005.

23.2.11 Details of Investments

Details of investments in and disposal of securities during the quarter and nine months ended December 31, 2005 and 2004:-


in Rs. crore
	Quarter ended					Nine months ended
	December 31,					December 31,
	2005			2004		2005		2004

Investment in securities
Liquid Mutual funds		228			101		1,850		255

		228			101		1,850		255

Redemption / Disposal of Investment in securities
Liquid Mutual funds		352			10		855		144

		352			10		855		144

Net movement in investment		(124	)		91		995		111

23.2.12 Holding of Infosys in its subsidiaries



Name of the subsidiary	Country of	Holding as at
	incorporation	December 31, 2005			March 31, 2005


Progeon Limited	India		72.05	%		99.54	%
Infosys Technologies (Australia) Pty Ltd.	Australia		100	%		100	%
Infosys Technologies (Shanghai) Co. Ltd.	China		100	%		100	%
Infosys Consulting Inc.	USA		100	%		100	%
Progeon s.r.o. *	Czech Republic		72.05	%		99.54	%


*		Progeon s.r.o is a wholly owned subsidiary of Progeon Limited.

22.2.13 Provision for doubtful debts

Periodically, the company evaluates all customer dues to the company for collectibility. The need for provisions is assessed based on various factors including collectibility of specific dues, risk perceptions of the industry in which the customer operates, general economic factors, which could effect the customer’s ability to settle. The company normally provides for debtor dues outstanding for 180 days or longer as at the balance sheet date. As at December 31, 2005 the company has provided for doubtful debts of Rs. 1 crore (as at March 31, 2005 Rs. 8 crore) on dues from certain customers although the outstanding amounts were less than 180 days old, since the amounts were considered doubtful of recovery. The company pursues the recovery of the dues, in part or full.

23.2.14 Segment reporting

The Group’s operations predominantly relate to providing IT services and Business Process Management, delivered to customers globally operating in various industry segments. Accordingly, revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is performed on the basis of the geographical location of customers.

The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income and expenditure in individual segments. These are as set out in the note on significant accounting policies.

Industry segments at the Group are primarily financial services comprising customers providing banking, finance and insurance services; manufacturing companies; companies in the telecommunications and the retail industries; and others such as utilities, transportation and logistics companies.

Income and direct expenses in relation to segments is categorized based on items that are individually identifiable to that segment, while the remainder of the costs are categorized in relation to the associated turnover of the segment. Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying services are used interchangeably. The Group believes that it is not practical to provide segment disclosures relating to those costs and expenses, and accordingly these expenses are separately disclosed as “unallocated” and directly charged against total income.

Fixed assets used in the business or liabilities contracted have not been identified to any of the reportable segments, as the fixed assets and services are used interchangeably between segments. Accordingly, no disclosure relating to total segment assets and liabilities are made.

Customer relationships are driven based on the location of the respective client. North America comprises the United States of America, Canada and Mexico; Europe includes continental Europe (both the east and the west), Ireland and the United Kingdom; and the Rest of the World comprising all other places except, those mentioned above and India.

Geographical revenues are segregated based on the location of the customer who is invoiced or in relation to which the revenue is otherwise recognized.

Industry segments

Quarter ended December 31, 2005 and 2004


in Rs. crore
	Financial
	services		Manufacturing		Telecom		Retail		Others		Total

Revenues		911		357		400		262		602		2,532
		661		270		341		176		428		1,876
Identifiable operating expenses		384		156		150		103		231		1,024
		269		116		138		72		170		765
Allocated expenses		226		89		93		73		166		647
		173		68		84		43		125		493

Segmental operating income		301		112		157		86		205		861
		219		86		119		61		133		618
Unallocable expenses												117
												74

Operating income												744
												544
Other income (expense), net												(5	)
												46

Net profit before taxes												739
												590
Income taxes												83
												93

Net profit after taxes												656
												497

Nine months ended December 31, 2005 and 2004

in Rs. crore

Financial

services

Manufacturing

Telecom

Retail

Others

Total

Revenues

2,481

942

1,139

701

1,634

6,897

1,794

755

934

517

1,142

5,142

Identifiable operating expenses

1,045

418

429

286

648

2,826

756

329

392

201

469

2,147

Allocated expenses

642

238

274

191

468

1,813

472

180

230

123

316

1,321

Segmental operating income

794

286

436

224

518

2,258

566

246

312

193

357

1,674

Unallocable expenses

293

193

Operating income

1,965

1,481

Other income (expense), net

Net profit before taxes

2,032

1,573

Income taxes

233

240

Net profit after taxes

1,799

1,333

Geographic segments

Quarter ended December 31, 2005 and 2004


in Rs. crore
							Rest of the
	North America		Europe		India		World		Total

Revenues		1,645		630		35		222		2,532
		1,248		414		40		174		1,876
Identifiable operating expenses		684		243		17		80		1,024
		503		167		11		84		765
Allocated expenses		413		147		8		79		647
		313		101		9		70		493

Segmental operating income		548		240		10		63		861
		432		146		20		20		618
Unallocable expenses										117
										74

Operating income										744
										544
Other income (expense), net										(5	)
										46

Net profit before taxes										739
										590
Income taxes										83
										93

Net profit after taxes										656
										497

Nine months ended December 31, 2005 and 2004


in Rs. crore
							Rest of the
	North America		Europe		India		World		Total

Revenues		4,462		1,667		118		650		6,897
		3,377		1,126		94		545		5,142
Identifiable operating expenses		1,871		664		53		238		2,826
		1,412		454		25		256		2,147
Allocated expenses		1,143		399		28		243		1,813
		829		270		22		206		1,327

Segmental operating income		1,448		604		37		169		2,258
		1,136		402		47		83		1,668
Unallocable expenses										293
										187

Operating income										1,965
										1,481
Other income (expense), net										67
										92

Net profit before taxes										2,032
										1,573
Income taxes										233
										240

Net profit after taxes										1,799
										1,333

23.2.15 Dividends remitted in foreign currencies
Infosys does not make any direct remittances of dividends in foreign currency. The company remits the equivalent of the dividends payable to the holders of ADS (“ADS holders”) in Indian Rupees to the depositary bank, which is the registered shareholder on record for all owners of the company’s ADSs. The depositary bank purchases the foreign currencies and remits dividends to the ADS holders.

Particulars of dividends remitted:-


in Rs. crore
Particulars	Number of shares to		Quarter ended				Nine months ended
	which the dividends		December 31,				December 31,
	relate		2005		2004		2005		2004

Final and one-time special dividend for fiscal 2004		52,92,612		—		—		—		61
Interim dividend for fiscal 2006		3,80,51,211		25		—		—		—
Final dividend for fiscal 2005		3,77,66,327		—		—		25		—

23.2.16 Conversion of cumulative preference shares in Progeon

Progeon had issued an aggregate of 87,50,000 0.005% Cumulative Convertible Preference shares of par value Rs. 100 each to Citicorp International Finance Corporation (“CIFC”) for an aggregate consideration of Rs. 93.80 crore per the shareholder’s agreement as of March 31, 2005. Each preference share was convertible to one equity share of par value Rs. 10/-.

On June 30, 2005 CIFC exercised its rights under the shareholder’s agreement and converted the preference shares to equity shares. Pursuant to the conversion, the equity share capital of Progeon increased by Rs. 9 crore to Rs. 33 crore and the share premium increased by Rs. 79 crore to Rs. 85 crore. Infosys’ equity holding in Progeon as of December 31, 2005 was 72.05%.

23.2.17 Reconciliation of basic and diluted shares used in computing earnings per share

At the annual general meeting held on June 12, 2004, the shareholders approved the issue of bonus shares in the ratio of three bonus shares for each share. The record date for the bonus issue was July 2, 2004 and the shares were allotted on July 3, 2004. All basic and diluted shares used in determining earnings per share are after considering the effect of bonus issue.



	Quarter ended				Nine months ended
	December 31,				December 31,
	2005		2004		2005		2004

Number of shares considered as basic weighted average shares outstanding		27,37,71,476		26,87,73,742		27,22,89,379		26,78,62,078
Add: Effect of dilutive issues of shares/stock options		78,33,477		83,36,718		79,54,117		59,08,614

Number of shares considered as weighted average shares and potential shares outstanding		28,16,04,953		27,71,10,460		28,02,43,496		27,37,70,692

23.2.18 Cash flow statement

The balance of cash and cash equivalents includes Rs. 4 crore as at December 31, 2005 (for the year ended March 31, 2005 Rs. 3 crore) set aside for payment of dividends.

23.3 Details of rounded off amounts

The financial statements are represented in Rs. crore as per the approval received from Department of Company Affairs “DCA” earlier. Those items which were not represented in the financial statement due to rounding off to the nearest Rs. crore are given below.

Balance Sheet Items


in Rs. crore
		As at
Schedule	Description
		December 31, 2005	March 31, 2005

Balance Sheet	Minority Interest	7.37	0.14

2	Capital reserve on consolidation	0.69	0.10

4	Fixed assets
	Purchases
	Vehicles	0.59	0.35
	Land: free-hold	0.01	9.59

	Disposal
	Plant and machinery	0.15	—

	Depreciation
	Vehicles	0.13	0.04

8	Cash on hand	0.04	0.02

9	Deposits with government authorities	0.01	0.05
	Unsecured, considered doubtful
	Loans and advances to employees	0.40	0.23

	Provision for doubtful loans and advances to employees	0.40	0.23

21	Provision for investments	0.27	0.10



Profit & Loss Items
in Rs. crore
		Quarter ended		Nine months ended
Schedule	Description	December 31,		December 31,
		2005	2004	2005	2004


13	Selling and Marketing expenses
	Marketing expenses	3.14	—	8.77	—
	Contribution to provident and other funds	0.50	—	1.07	—
	Advertisements	0.30	—	0.80	—
	Printing & Stationery	0.31	0.36	0.86	—
	Sales promotion expenses	0.32	0.35	0.59	—
	Office maintenance	0.04	0.05	0.28	—
	Insurance charges	0.23	0.18	0.33	0.42
	Computer maintenance	—	—	0.00	0.12
	Communication Expenses	0.32	—	0.45	—
	Staff welfare	0.54	0.11	0.97	0.40
	Cost of Software Packages for Own Use	—	0.01	0.06	0.01
	Consumables	0.06	0.03	0.12	0.24
	Rates & Taxes	0.00	—	0.00	0.03

14	General and Administrative expenses
	Staff welfare	0.57	0.37	0.57	—
	Provision for doubtful loans and advances	0.26	0.04	0.33	0.15
	Commission to non-whole time directors	0.37	0.39	0.68	—
	Auditor’s remuneration :
	Statutory audit fees	0.35	0.30	0.60	—
	Certification charges	0.01	0.07	0.01	0.07
	Out-of-pocket expenses	0.01	0.01	0.02	0.02
	Freight charges	0.18	0.20	0.36	—
	Research grants	0.35	0.24	0.44	0.43
	Software packages for own use	0.42	0.37	0.42	—
	Recruitment and training	1.76	—	5.50	—
	Bank charges and commission	0.35	0.31	0.54	—
	Rates and taxes	2.73	—	8.81	—

15	Other Income
	Miscellaneous Income	1.21	(0.01)	2.74	0.49
	Exchange differences	(57.60)	—	(68.05)	—

16	Provision for Taxaton
	Prior Period	—	—	0.06	—
	Deferred taxes	1.91	(0.45)	(1.84)	—

21	Provision for investments	(0.27)	(0.39)	0.29	(0.33)

23.2.1	Aggregate expenses
	Marketing expenses	3.14	—	8.77	—
	Recruitment and training	—	—	—	—
	Provision for doubtful loans and advances	0.26	0.04	0.41	0.15
	Commission to non-whole time directors	0.38	0.39	1.06	—
	Sales promotion expenses	0.32	0.35	0.97	—
	Auditor’s remuneration
	statutory audit fees	0.35	0.30	0.88	—
	Certification charges	0.01	0.07	0.01	0.07
	Others	—	—	—	—
	out-of-pocket expenses	0.01	0.01	0.02	0.02
	Bank charges and commission	0.35	0.31	1.00	—
	Freight charges	0.18	0.20	0.58	—
	Research grants	0.36	0.24	0.57	0.43

23.2.10	Profit on disposal of fixed assets, included in miscellaneous income	0.11	0.01	0.34	0.17
	Loss on disposal of fixed assets, included in miscellaneous expenses	(0.25)	(0.01)	(0.28)	(0.05)

	Profit/(loss) on disposal of fixed assets, net	(0.14)	—	0.06	0.12

Cash Flow Statement Items


in Rs. Crore
Schedule	Description	For the Nine months ended
		December 31,
		2005	2004


Cash Flow	(Profit)/ loss on sale of fixed assets	0.06	(0.12)
Statement	Provisions for investments	0.29	(0.33)
	Proceeds on disposal of fixed assets	0.25	0.32
	Proceeds from the issue of preference share capital	—	(0.05)

Transactions with key management personnel
Key management personnel comprise our directors and statutory officers.

Particulars of remuneration and other benefits provided to key management personnel during the quarter and nine months ended December 31, 2005 and 2004 are as follows:


in Rs. crore
Name	Salary		Contributions		Perquisites		Total
			to provident and		and incentives		Remuneration
			other funds

Chairman and Chief Mentor
N R Narayana Murthy		0.03		0.01		0.06		0.10
		0.03		0.01		0.06		0.10
		0.09		0.03		0.17		0.29
		0.09		0.03		0.13		0.25

Chief Executive Officer, President and Managing Director
Nandan M Nilekani		0.03		0.01		0.06		0.10
		0.03		0.01		0.06		0.10
		0.09		0.03		0.16		0.28
		0.09		0.03		0.13		0.25

Chief Operating Officer and Deputy Managing Director
S Gopalakrishnan		0.03		0.01		0.06		0.10
		0.03		0.01		0.06		0.10
		0.09		0.03		0.17		0.29
		0.09		0.04		0.12		0.25

Whole-time Directors
K Dinesh		0.03		0.01		0.06		0.10
		0.03		0.01		0.06		0.10
		0.09		0.03		0.15		0.27
		0.09		0.03		0.12		0.24

S D Shibulal		0.23		—		0.07		0.30
		0.21		—		0.14		0.35
		0.68		—		0.21		0.89
		0.62		—		0.25		0.87

T V Mohandas Pai		0.05		0.02		0.11		0.18
Chief Financial Officer		0.04		0.01		0.14		0.19
		0.15		0.06		0.34		0.55
		0.13		0.04		0.28		0.45

Srinath Batni		0.04		0.02		0.11		0.17
		0.04		0.01		0.13		0.18
		0.13		0.05		0.30		0.48
		0.12		0.04		0.25		0.41

Other Senior Management Personnel
V Balakrishnan		0.03		0.01		0.09		0.13
Company Secretary		0.03		0.01		0.13		0.17
		0.09		0.03		0.31		0.43
		0.09		0.03		0.31		0.43



Name	Commission		Sitting fees		Reimbursement of		Total remuneration
					expenses

Non-Whole time Directors
Deepak M Satwalekar		0.05		—		—		0.05
		0.05		—		—		0.05
		0.14		0.01		—		0.15
		0.14		—		0.01		0.15

Marti G Subrahmanyam		0.04		—		0.02		0.06
		0.05		0.01		0.01		0.07
		0.12		—		0.09		0.21
		0.15		—		0.05		0.20

Philip Yeo		—		—		—		—
		0.05		—		—		0.05
		0.03		—		—		0.03
		0.15		—		—		0.15

Omkar Goswami		0.04		—		—		0.04
		0.05		—		—		0.05
		0.13		0.02		0.02		0.17
		0.15		—		0.01		0.16

Larry Pressler		0.04		—		—		0.04
		0.05		—		—		0.05
		0.12		—		—		0.12
		0.15		—		—		0.15

Rama Bijapurkar		0.04		—		—		0.04
		0.05		—		—		0.05
		0.12		—		—		0.12
		0.14		0.01		—		0.15

Claude Smadja		0.04		—		—		0.04
		0.05		—		0.03		0.08
		0.12		—		0.08		0.20
		0.15		0.01		0.10		0.26

Sridar A Iyengar		0.04		0.03		—		0.07
		0.05		—		0.02		0.07
		0.18		0.03		0.11		0.32
		0.15		—		0.06		0.21

David L Boyles		0.03		—		—		0.03
		—		—		—		—
		0.06		—		—		0.06
		—		—		—		—