Infosys Limited (INFY) 6-K Guidance revised upwards. Revenues expected to grow 34% in fiscal 2006

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 30 September 2005, the consolidated profit and loss account for the quarter and half year ended on that date and the consolidated cash flow statement for the half year 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 30 September 2005;
(b)	in the case of the consolidated profit and loss account, of the profit of the Infosys Group for the quarter and half year 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 half year ended on that dale.

forBSR & Co.
Chartered Accountants

Subramanian Suresh
Partner
Membership No. 83673

Bangalore
11 October 2005

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

in Rs. crore
Consolidated Balance Sheet as at	Schedule		September 30, 2005		March 31, 2005
SOURCES OF FUNDS
SHAREHOLDERS’ FUNDS
Share capital		1		136		135
Reserves and surplus		2		6,323		5,090
				6,459		5,225
MINORITY INTEREST				52		—
PREFERENCE SHARES ISSUED BY SUBSIDIARY*		3		—		94
				6,511		5,319
APPLICATION OF FUNDS
FIXED ASSETS		4
Original cost				2,757		2,287
Less: Depreciation and amortization				1,202		1,031
Net book value				1,555		1,256
Add: Capital work-in-progress				398		318
				1,953		1,574
INVESTMENTS		5		2,329		1,211
DEFERRED TAX ASSETS		6		52		45
CURRENT ASSETS, LOANS AND ADVANCES
Sundry debtors		7		1,334		1,322
Cash and bank balances		8		1,396		1,576
Loans and advances		9		1,050		1,024
				3,780		3,922
LESS: CURRENT LIABILITIES AND PROVISIONS
Current liabilities		10		751		657
Provisions		11		852		776
NET CURRENT ASSETS				2,177		2,489
				6,511		5,319
SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS		23

* refer to note 23.2.16

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

As per our report attached

forBSR&Co.
Chartered Accountants

Subramanian Suresh	N. R. Narayana Murthy	Nandan M. Nilekani	S.Gopalakrishnan	Deepak M. Satwalekar
Partner	Chairman	Chief Executive Officer,	Chief Operating Officer	Director
Membership No. 83673	and Chief Mentor	President and Managing	and Deputy Managing
		Director	Director
	Marti G. Subrahmanyam	Omkar Goswami	Larry Pressler	Rama Bijapurkar
	Director	Director	Director	Director
	Sridar A. Iyengar	David L. Boyles	K. Dinesh	S.D. Shibulal
	Director	Director	Director	Director
	T. V. Mohandas Pai	Srinath Batni	V. Balakrishnan
Bangalore	Director and	Director	Company Secretary and
October 11, 2005	Chief Financial Officer		Senior Vice President — Finance

1

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

in Rs. crore, except per share data
			Quarter ended				Half-year ended
			September 30,				September 30,
Consolidated Profit and Loss Account for the	Schedule		2005		2004		2005		2004
Income from software services, products and business process management				2,294		1,749		4.366		3,267
Software development and business process management expenses		12		1,212		927		2,316		1,732
GROSS PROFIT				1,082		822		2,050		1,535
Selling and marketing expenses		13		149		122		291		228
General and administration expenses		14		199		139		361		257
				348		261		652		485
OPERATING PROFIT BEFORE INTEREST, DEPRECIATION, AMORTIZATION, MINORITY INTEREST				734		561		1,398		1,050
Interest				—		—		—		—
Depreciation and amortization				96		61		176		113
OPERATING PROFIT AFTER INTEREST, DEPRECIATION, AMORTIZATION AND BEFORE MINORITY INTEREST				638		500		1,222		937
Other income		15		44		30		72		45
Provision for investments				1		—		1		—
NET PROFIT BEFORE TAX, MINORITY INTEREST				681		530		1,293		982
Provision for taxation on the above		16		69		83		150		147
NET PROFIT AFTER TAX AND BEFORE MINORITY INTEREST				612		447		1,143		835
Minority interest				6		—		6		—
NET PROFIT AFTER TAX AND MINORITY INTEREST				606		447		1,137		835
Balance Brought Forward				1,946		456		1,415		71
Less: Residual dividend paid				—		—		—		3
Additional dividend tax				—		2		—		2
				1,946		454		1,415		66
AMOUNT AVAILABLE FOR APPROPRIATION				2,552		901		2,552		901
Dividend
Interim				177		134		177		134
Final				—		—		—		—
Total dividend				177		134		177		134
Dividend tax				25		17		25		17
Balance in profit and loss account				2,350		750		2,350		750
				2,552		901		2,552		901
EARNINGS PER SHARE*
Equity shares of par value Rs. 5/- each
Basic				22.26		16.71		41.87		31.25
Diluted				21.63		16.34		40.69		30.64
Number of shares used in computing earnings per share
Basic				27,21,01,219		26,76,76,465		27,15,48,331		26,74,06,246
Diluted				28,00,30,650		27,37,76,678		27,94,45,295		27,27,68,201
SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS		23

* refer to note 23.2.18

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

As per our report attached

forBSR & Co.
Chartered Accountants

Subramanian Suresh	N. R. Narayana Murthy	Nandan M. Nilekani	S. Gopalakrishnan	Deepak M. SatwaleKar
Partner	Chairman	Chief Executive Officer,	Chief Operating Officer	Director
Membership No. 83673	and Chief Mentor	President and Managing	and Deputy Managing
		Director	Director
	Merti G. Subrahmanyam	Omkar Goswami	Larry Pressler	Rama Bijapurkar
	Director	Director	Director	Director
	Sridar A. Iyengar	David L. Boyles	K. Dinesh	S. D. Shibulal
	Director	Director	Director	Director
	T. V. Mohandas Pai	Srinath Batni	V. Balakrishnan
Bangalore	Director and	Director	Company Secretary and
October 11, 2005	Chief Financial Officer		Senior Vice President — Finance

2

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

			in Rs. crore
Consolidated Cash Flow Statement for the	Schedule			Half-year ended
			September 30,
			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit before tax				1,293			982
Adjustments to reconcile net profit before tax to cash provided by operating activities
(Profit)/ loss on sale of fixed assets				—			—
Depreciation and amortization				176			113
Interest and dividend income				(81	)		(52	)
Provisions for investments				1			—
Effect of exchange differences on translation of foreign currency cash and cash equivalents				(12	)		(9	)
Changes in current assets and liabilities
Sundry debtors				(12	)		(275	)
Loans and advances		17		(81	)		(60	)
Current liabilities and provisions		18		87			52
Income taxes paid during the period		19		(164	)		(109	)
NET CASH GENERATED BY OPERATING ACTIVITIES				1,207			642
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets and change in capital work-in-progress		20		(555	)		(330	)
Proceeds on disposal of fixed assets				—			—
Investments in securities		21		(1,119	)		(21	)
Interest and dividend income				81			52
NET CASH USED IN INVESTING ACTIVITIES				(1,593	)		(299	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of preference share capital				—			—
Proceeds from issuance of share capital on exercise of stock options				249			125
Dividends paid during the period, including dividend tax				(201	)		(869	)
NET CASH USED IN FINANCING ACTIVITIES				48			(744	)
Effect of exchange differences on translation of foreign currency cash and cash equivalents				14			10
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS				(324	)		(391	)
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		1,466			1,538
SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS		23

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

As per our report attached
forBSR&Co.
Chartered Accountants
Subramanian Suresh	N. R. Narayana Murthy	Nandan M. Nilekani	S. Gopalakrishnan	Deepak M. Satwalekar
Partner	Chairman	Chief Executive Officer,	Chief Operating Officer	Director
Membership No. 83673	and Chief Mentor	President and Managing	and Deputy Managing
		Director	Director
	Marti G. Subrahmanyam	Omkar Goswami	Larry Pressler	Rama Bijapurkar
	Director	Director	Director	Director
	Sridar A. Iyengar	David L. Boyles	K. Dinesh	S. D. Shibulal
	Director	Director	Director	Director
	T. V. Mohandas Pai	Srinath Batni	V. Balakrishnan
Bangalore	Director and	Director	Company Secretary and
October 11, 2005	Chief Financial Officer		Senior Vice President — Finance

3

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

			in Rs. crore
Schedules to the Consolidated Balance Sheet as at	September 30, 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*		136		135
27,26,59,512 (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]
		136		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 23.2.18 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		248		439
		1,148		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		2,350		1,415
		6,323		5,090
3 PREFERENCE SHARES ISSUED BY SUBSIDIARY
Authorized
0.0005% Cumulative convertible preference shares, Rs. 100/- par value 87,50,000 (87,50,000) preference shares		88		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

4

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

Schedules to the Consolidated Balance Sheet

4 FIXED ASSETS in Rs. crore

Particulars	Original cost								Depreciation and amortization								Net book value
	As at April 1,				Deletions/		As at September		As at April 1,		For the		Deletions/		As at September		As at		As at
	2005		Additions		Retirement		30, 2005		2005		period		Retirement		30, 2005		September 30, 2005		March 31, 2005
Goodwill		41		—		—		41		—		—		—		—		41		41
Land: free-hold		30		—		—		30		—		—		—		—		30		30
leasehold		90		4		—		94		—		—		—		—		94		90
Buildings		731		183		—		914		119		28		—		147		767		612
Plant and machinery		395		110		—		505		218		38		—		256		249		178
Computer equipment		610		116		3		723		446		78		3		521		202		164
Furniture and fixtures		341		61		2		400		205		31		2		234		166		136
Leasehold improvements		6		1		—		7		1		1		—		2		5		5
Vehicles		1		—		—		1		—		—		—		—		1		1
Intangible assets
Intellectual property rights		42		—		—		42		42		—		—		42		—		—
		2,287		475		5		2,757		1,031		176		5		1,202		1,555		1,257
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.

5

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

in Rs. crore

	September 30,		March 31,
Schedules to the Consolidated Balance Sheet as at	2005		2005
5 INVESTMENTS
Trade (unquoted) — at cost
Long- term investments		16		16
Less: Provision for investments		14		14
		2		2
Non-trade (unquoted), current investments, at the lower of cost and fair value
Liquid mutual funds		2,327		1,209
		2,329		1,211
Aggregate amount of unquoted investments		2,329		1,211
6 DEFERRED TAX ASSETS
Fixed assets		40		33
Sundry debtors		2		3
Leave provisions and others		10		9
		52		45
7 SUNDRY DEBTORS
Debts outstanding for a period exceeding six months
Unsecured
considered good		—		—
considered doubtful		13		11
Other debts
Unsecured
considered good*		1,334		1,322
considered doubtful		3		8
		1,350		1,341
Less: Provision for doubtful debts		16		19
		1,334		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 *		142		83
In deposit accounts in Indian Rupees		984		1,250
Balances with non-scheduled banks
In deposit accounts in foreign currency		—		26
In current accounts in foreign currency		270		217
		1,396		1,576
* Includes balance in unclaimed dividend account		3		3

6

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

in Rs. crore

Schedules to the Consolidated Balance Sheet as at	September 30, 2005		March 31, 2005
9 LOANS AND ADVANCES
Unsecured considered good
Advances
prepaid expenses		32		36
for supply of goods and rendering of services		6		2
advance to gratuity trust		14		—
others		9		16
		61		54
Unbilled revenues		179		141
Advance income tax		493		404
Loans and advances to employees *
housing and other bans		51		58
salary advances		49		43
Electricity and other deposits		17		17
Rental deposits		14		15
Deposits with financial institutions (refer note 23.2.9)		173		280
Deposits with government authorities		—		—
Mark to Market forward contracts and options		1		11
Other assets		12		1
		1,050		1024
Unsecured, considered doubtful
Loans and advances to employees		—		—
		1,050		1,024
Less: Provision for doubtful loans and advances to employees		—		—
		1,050		1,024
* 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		4		4
accrued salaries and benefits
salaries		9		15
bonus and incentives		145		199
unavailed leave		78		77
for other liabilities
accrual for expenses		191		141
retention monies		17		14
withholding and other taxes payable		80		60
for purchase of intellectual property rights		20		19
others		10		6
		554		536
Advances received from clients		9		29
Unearned revenue		178		89
Unclaimed dividend		3		3
Mark to Market forward contracts and options valuatior		7		—
		751		657
11 PROVISIONS
Proposed dividend		177		176
Provision for
tax on dividend		25		25
income taxes*		628		546
post-sales client support and warranties		22		29
		852		776

* refer to note 23. 2. 8

7

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

in Rs. crore

Schedules to Consolidated Profit and Loss Account for the	Quarter ended					Half-year ended
	September 30,					September 30,
	2005			2004		2005			2004
12 SOFTWARE DEVELOPMENT AND BUSINESS PROCESS MANAGEMENT EXPENSES
Salaries and bonus including overseas staff expenses		978			736		1,858			1,388
Contribution to provident and other funds		22			20		43			36
Staff welfare		7			5		13			8
Overseas travel expenses		99			66		180			130
Traveling and conveyance		—			2		—			4
Technical sub-contractors		35			25		71			39
Software packages
for own use		34			28		67			50
for service delivery to clients		8			6		19			10
Communication expenses		16			14		32			27
Rent		6			2		12			4
Computer maintenance		4			5		8			8
Consumables		4			5		8			8
Provision for post-sales client support and warranties		(7	)		12		(6	)		19
Other miscellaneous expenses		6			1		11			1
		1,212			927		2,316			1,732
13 SELLING AND MARKETING EXPENSES
Salaries and bonus including overseas staff expenses		88			71		174			137
Contribution to provident and other funds		—			—		1			1
Staff welfare		—			—		—			—
Overseas travel expenses		18			13		38			27
Traveling and conveyance		1			5		2			6
Brand building		12			13		22			18
Commission and earnout charges		8			7		18			8
Professional charges		11			6		15			9
Rent		4			3		8			6
Marketing expenses		3			—		6			7
Telephone charges		1			2		3			3
Printing and stationery		1			—		1			1
Advertisements		1			1		1			1
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		1			2
		149			122		291			228

8

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

in Rs. crore
Schedules to Consolidated Profit and Loss Account for the	Quarter ended					Half-year ended
	September 30,					September 30,
	2005			2004		2005			2004
14   GENERAL AND ADMINISTRATION EXPENSES
Salaries and bonus including overseas staff expenses		39			29		79			55
Contribution to provident and other funds		2			2		4			4
Staff welfare		—			—		—			—
Telephone charges		24			13		41			23
Professional charges		26			18		43			31
Power and fuel		17			10		32			20
Office maintenance		18			11		33			19
Traveling and conveyance		16			10		31			19
Overseas travel expenses		4			3		11			5
Insurance charges		6			8		13			15
Printing and stationery		2			3		5			5
Rates and taxes		3			2		6			5
Donations		5			5		8			9
Rent		3			6		6			10
Advertisements		4			3		7			5
Professional membership and seminar participation fees		2			1		5			3
Repairs to building		5			3		8			4
Repairs to plant and machinery		3			2		4			3
Postage and courier		1			1		3			3
Books and periodicals		1			1		2			1
Recruitment and training		3			—		4			1
Provision for bad and doubtful debts		9			5		9			12
Provision for doubtful loans and advances		—			—		—			—
Commission to non-whole time directors		1			—		1			1
Auditor’s remuneration		—
statutory audit fees		—			—		1			—
certification charges		—			—		—			—
others		—			—		—			—
out-of-pocket expenses		—			—		—			—
Bank charges and commission		1			1		1			1
Freight charges		1			—		—			—
Research grants		—			—		—			—
Software packages for own use		—			—		—			1
Miscellaneous expenses		3			2		4			2
		199			139		361			257
15   OTHER INCOME
Interest received on deposits with banks and others’		24			14		49			35
Dividend received on investment in liquid mutual funds (non-trade unquoted)		18			9		32			18
Miscellaneous income, net (refer to note 23.2.10)		2			—		2			1
Exchange differences		—			6		(11	)		(8	)
		44			29		72			46
		5			2		10			7
*Tax deducted at source
16   PROVISION FOR TAXATION
Income taxes*		72			83		157			151
Deferred taxes		(3	)		—		(7	)		(4	)
		69			83		150			147
* 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	Half-year ended
	September 30,
	2005			2004
17 CHANGE IN LOANS AND ADVANCES
As per the Balance Sheet		1,050			852
Less: Deposits with financial institutions, included in cash and cash equivalents (refer to note 23.2.19.b)		(70	)		(213	)
Advance income taxes separately considered		(493	)		(276	)
		487			363
Less: Opening balance considered		(406	)		(303	)
		81			60
18 CHANGE IN CURRENT LIABILITIES AND PROVISIONS
As per the Balance Sheet		1,603			1,215
Add/ (Less): Provisions separately considered in the cash flow Statement
Income taxes		(628	)		(425	)
Dividends		(177	)		(134	)
Dividend tax		(25	)		(17	)
		773			639
Less: Opening balance considered		(686	)		(587	)
		87			52
19 INCOME TAXES PAID
Charge as per the Profit and Loss Account		150			147
Add: Increase in advance income taxes		89			66
Increase / (Decrease) in deferred taxes		7			5
Less: (Increase) / Decrease in income tax provision		(82	)		(109	)
		164			109
20 PURCHASE OF FIXED ASSETS AND CHANGE IN CAPITAL WORK-IN-PROGRESS
As per the schedule 4 to Balance Sheet		475			284
Less: Opening Capital work-in-progress		(318	)		(208	)
Add: Closing Capital work-in-progress		398			254
		555			330
21 INVESTMENTS IN / (DISPOSAL OF) SECURITIES *
As per the Balance Sheet		2,329			966
Add: Provisions on investments		1			—
		2,330			966
Less: Opening balance considered		(1,211	)		(945	)
		1,119			21
* 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		1,396			1,326
Add: Deposits with financial institutions, included herein*		70			213
		1,466			1,539

* refer to note 23.2.19b

10

CONSOLIDATED FINANCIAL STATEMENTS OF INFOSYS TECHNOLOGIES LIMITED AND SUBSIDIARIES

Schedules to the Consolidated Financial Statements for the quarter ended September 30, 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, Prorgeon 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 firm. The groupof 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 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 Accountant 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. 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-end-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 earrings 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 or 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 bythe 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 assess 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

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23.1.7 Retirement benefits to employees

23.17 a. Gratuity

In accordance with the Payment of Gratuity Act, 1972, Infosys provides for gratuity , a defined benefit retirement plan (the “Gratuity Plan”) covering eligible employees at the companyand Progeon. 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. Till 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 employees 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 or 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 composes 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.

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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 24. All exact amounts are stated with the suffix “/-”. One crore equals 10 million.

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

23.2.1 Aggregate expenses

The aggregate amounts incurred on certain specific expenses:

	Quarter ended					Half-year ended
	September 30,					September 30,
	2005			2004		2005			2004
Salaries and bonus including overseas staff expenses		1,105			837		2,111			1,580
Contribution to provident and other funds		24			22		48			41
Staff welfare		7			5		13			8
Overseas travel expenses		121			82		229			162
Traveling and conveyance		17			17		33			29
Technical sub-contractors		35			25		71			39
Software packages
for own use		34			28		67			51
for service delivery to clients		8			6		19			10
Professional charges		37			24		58			40
Telephone charges		25			15		44			26
Communication expenses		16			14		32			27
Power and fuel		17			10		32			20
Office maintenance		18			11		33			20
Rent		13			11		26			20
Brand building		12			13		22			18
Commission and earnout charges		8			7		18			8
Insurance charges		6			8		13			15
Printing and stationery		3			3		6			6
Computer maintenance		4			5		8			8
Consumables		4			5		8			8
Rates and taxes		3			2		6			5
Advertisements		5			4		8			6
Donations		5			5		8			9
Marketing expenses		3			—		6			7
Professional membership and seminar participation fees		2			1		5			3
Repairs to building		5			3		8			4
Repairs to plant and machinery		3			2		4			3
Postage and courier		1			1		3			3
Provision for post-sales client support and warranties		(7	)		12		(6	)		19
Books and periodicals		1			1		2			1
Recruitments and training		3			—		4			1
Provision for bad and doubtful debts		9			5		9			12
Provision for doubtful loans and advances		—			—		—			—
Commission to non-whole time directors		1			—		1			1
Sales promotion expenses		—			—		1			1
Auditor’s remuneration
statutory audit fees		—			—		1			—
certification charges		—			—		—			—
others		—			—		—			—
out-ot-pocket expenses		—			—		—			—
Bank charges and commission		1			—		1			1
Freight charges		1			—		—			—
Research grants		—			—		—			—
Miscellaneous expenses		10			4		16			5
		1,560			1,188		2,968			2,217

The above expenses for the quarter and half year ended September 30, 2005 include Fringe Benefit Tax (FBT) in India amounting to Rs. 4 and Rs. 7 respectively (for quarter and half year ended September 30, 2004, Rs. nil & Rs. nil) wherever applicable.

13

23.2.2 Capital commitments and contingent liabilities

	As at
	September 30, 2005			March 31, 2005
Estimated amount of unexecuted capital contracts (net of advances and deposits)		198			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		21			16
Claims against the company, net acknowledged as debts		66	*		16
Forward contracts outstanding
In US$	US$	305,000,000		US$	353,317,400
(Equivalent approximate in Rs.)		1,336			1,558
Options Contract Outstanding
Put options purchased	US$	16,539,372			—
(Equivalent approximate in Rs.)		73			—
Call options sold	US$	29,539,372			—
(Equivalent approximate in Rs.)		130			—
Range barrier options in Euro	€	9,000,000			—
(Equivalent approximate in Rs.)		48			—
Range barrier options in GBP	£	9,000,000			—
(Equivalent approximate in Rs.)		70			—

* 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. 50, including interest of Rs. 12, 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 demand raised. 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 half year ended September 30, 2005 and2004and maximum obligations on long-term non-cancelable operating leases payable as per the rentals stated in the respective agreements:-

	Quarter ended				Half-year ended
	September 30,				September 30,
	2005		2004		2005		2004
Lease rentals recognized during the period		13		10		26		19

Lease obligations	As at
	September 30, 2005		March 31, 2005
Within one year of the balance sheet date		29		27
Due in a period between one year and five years		100		83
Due after five years		39		25
		168		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 half year ended September 30, 2005, an amount of Rs. 4 and Rs. 7 (for the quarter and half year ended September 30, 2004 was Rs. 4 and Rs. 8) 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 half year ended September 30, 2005 and September 30, 2004 have been detailed in Schedule 24, since the amounts are less than a crore.

14

23.2.6. Research and development expenditure

	Quarter ended				Half-year ended
	September 30,				September 30,
	2005		2004		2005		2004
Capital		—		—		—		—
Revenue		25		16		51		30
		25		16		51		30

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 representing 58,80,000 equity shares. The 1998 Plan automatically expires in January 2008, unless terminated earlier. All options under the 1998 Plan are exercisable for ADSs representing equity shares. A compensation committee comprising independent members of the board of directors administers the 1998 Plan. All options have been granted at 100% of fair market value.

Number of options granted, exercised and forfeited during the	Quarter ended						Half-year ended
	September 30,						September 30,
	2005			2004			2005			2004
Options outstanding, beginning of period		29,54,468			37,41,476			30,54,290			38,71,010
Granted		—			—			—			—
Less: exercised		(188,248	)		(62,140	)		(273,730	)		(83,768	)
forfeited		(19,488	)		22,714			(33,828	)		(85,192	)
Options outstanding, end of period		27,46,732			37,02,050			27,46,732			37,02,050

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 of 2,64,00,000 equity shares to the employees. The compensation committee administers the 1999 Plan. Options will be issued to employees at an exercise price that is not less than the fair market value.

Number of options granted, exercised and forfeited during the	Quarter ended						Half-year ended
	September 30,						September 30,
	2005			2004			2005			2004
Options outstanding, beginning of period		1,32,31,121			1,71,62,132			1,40,54,937			1,83,62,120
Granted		—			—			—			—
Less: exercised		(1,048,397	)		(326,394	)		(1,815,233	)		(1,212,678	)
forfeited		(58,536	)		(256,841	)		(115,516	)		(570,545	)
Options outstanding, end of period		1,21,24,188			1,65,78,897			1,21,24,188			1,65,78,897

The aggregate options considered for dilution are set out in note 23.2.18

15

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 half year ended September 2005 and 2004:—

Number of options granted, exercised and forfeited	Quarter ended						Half-year ended
	September 30,						September 30,
	2005			2004			2005			2004
Options outstanding, beginning of period		37,62,775			32,47,075			31,16,518			31,24,625
Granted		1,05,000			66,800			8,08,300			2,71,400
Less: exercised		(358,762	)		(3,625	)		(365,512	)		(6,325	)
forfeited		(240,913	)		(134,457	)		(291,206	)		(208,907	)
Options outstanding, end of period		32,68,100			31,75,793			32,68,100			31,80,793

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				Half-year ended
	September 30,				September 30,
	2005		2004		2005		2004
Net Profit
As Reported		606		447		1,137		835
Less: Stock-based employee compensation expense		1		—		2		—
Adjusted Proforma		605		447		1,135		835
Basic Earnings per share as reported		22.26		16.71		41.87		31.25
Proforma Basic Earnings per share		22.22		16.71		41.73		31.25
Diluted Earnings per share as reported		21.63		16.34		40.69		30.64
Proforma Earnings per share as reported		21.59		16.34		40.54		30.64

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	6.90%
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 ina 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 quarter ended September 30, 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. The tax provision for the quarter is net of the write-back.

23.2.9. Loans and advances

Deposits with financial institutions comprise:—

	As at
	September 30, 2005		March 31, 2005
Housing Development Finance Corporation Limited (“HDFC”)		70		214
Life Insurance Corporation of India		103		66
		173		280
Interest accrued but not due (included above)		1		2

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

Deposit with Life Insurance Corporation of India represents amount deposited to settle employee benefit/leave obligations as and when they arise during the normal course of business. This amount is considered as restricted cash flows.

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23.2.10. Fixed assets

Profit / loss on disposal of fixed assets

	Quarter ended				Half-year ended
	September 30,				September 30,
	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		—		—		—		—

refer to note 24

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 99% 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 September 30, 2005.

23.2.11. Details of Investments

Details of investments in and disposal of securities during the quarter and half year ended September 30, 2005 and 2004:-

	Quarter ended				Half-year ended
	September 30,				September 30,
	2005		2004		2005		2004
Investment in securities
Liquid Mutual funds		1,341		125		1,621		154
		1,341		125		1,621		154
Redemption / Disposal of Investment in securities
Liquid Mutual funds		347		13		502		133
		347		13		502		133
Net movement in investment		994		112		1,119		21

23.2.12. Holding of lnfosys in its subsidiaries

	Country of	Holding as at
Name of the subsidiary	incorporation	September 30, 2005			March 31, 2005
Progeon Limited	India		72.64	%		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		72.64	%		99.54	%

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 September 30, 2005 the company has provided for doubtful debts of Rs. 3 (as at March 31, 2005 Rs. 8) 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.

17

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 September 30, 2005 and2004

	Financial
	services		Manufacturing		Telecom		Retail		Others		Total
Revenues		819		309		383		241		542		2,294
		617		258		323		167		385		1,750
Identifiable operating expenses		343		135		140		96		222		936
		263		108		128		68		162		729
Allocated expenses		221		81		95		69		158		624
		166		61		81		39		113		460
Segmental operating income		255		93		148		76		162		734
		188		88		115		60		110		561
Unallocable expenses												96
												61
Operating income												638
												500
Other income (expense), net												43
												30
Net profit before taxes												681
												530
Income taxes												69
												83
Net profit after taxes												612
												447

Half-year ended September 30, 2005 and2004

	Financial
	services		Manufacturing		Telecom		Retail		Others		Total
Revenues		1,571		585		739		439		1,032		4,366
		1,133		485		594		341		714		3,267
Identifiable operating expenses		661		262		279		183		417		1,802
		487		213		255		129		299		1,383
Allocated expenses		416		149		181		118		302		1,166
		298		113		146		80		190		827
Segmental operating income		494		174		279		138		313		1,398
		348		160		193		131		225		1,057
Unallocable expenses												176
												120
Operating income												1,222
												937
Other income (expense), net												71
												45
Net profit before taxes												1,293
												982
Income taxes												150
												146
Net profit after taxes												1,143
												836

18

Geographic segments

Quarter ended September 30, 2005 and2004

							Rest of the
	North America		Europe		India		World		Total
Revenues		1,501		542		34		217		2,294
		1,141		374		30		204		1,749
Identifiable operating expenses		618		220		17		81		936
		483		155		9		81		728
Allocated expenses		398		134		8		84		624
		282		90		7		81		460
Segmental operating income		485		188		9		52		734
		375		129		14		43		561
Unallocable expenses										96
										61
Operating income										638
										500
Other income (expense), net										43
										30
Net profit before taxes										681
										530
Income taxes										69
										83
Net profit after taxes										612
										447

Half-year ended September 30, 2005 and2004

							Rest of the
	North America		Europe		India		World		Total
Revenues		2,818		1,037		83		428		4,366
		2,129		772		54		372		3,267
Identifiable operating expenses		1,187		421		36		158		1,802
		909		287		14		173		1,383
Allocated expenses		730		252		20		164		1,166
		516		169		12		136		833
Segmental operating income		901		364		27		106		1,398
		704		256		28		63		1,051
Unallocable expenses										176
										114
Operating income										1,222
										937
Other income (expense), net										71
										45
Net profit before taxes										1,293
										982
Income taxes										150
										147
Net profit after taxes										1,143
										835

19

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:-

Particulars	Number of shares to		Quarter ended				Half-year ended
	which the dividends		September 30,				September 30,
	relate		2005		2004		2005		2004
Final and one-time special dividend for fiscal 2004		52,92,612	NA			—	NA			61
Final dividend for fiscal 2005		3,77,58,680		—		—		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 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 to Rs. 33 and the share premium increased by Rs. 79 to Rs. 85 as of September 30, 2005. Infosys’ equity holding in Progeon as of September 30, 2005 was 72.64%.

23.2.17. Provisions for investments

The Company evaluates all investments for any diminution in their carrying values that is other than temporary. The company made a provision of Rs. nil and Rs. nil during the quarter and half year ended September 30, 2005 (for the quarter and half year ended September 30, 2004 Rs. nil and Rs. nil) on trade investments. The company provided Rs. 1 and Rs. 1 during the quarter and half year ended September 30, 2005 (for the quarter and half year ended September 30, 2004 Rs. 0 and Rs. 0 respectively) on revision of the carrying amount of non-trade current investments to fair value.

23.2.18. 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				Half-year ended
	September 30,				September 30,
	2005		2004		2005		2004
Number of shares considered as basic weighted average shares outstanding		27,21,01,219		26,76,76,465		27,15,48,331		26,74,06,246
Add: Effect of dilutive issues of shares/stock options		79,29,431		61,00,213		78,96,964		53,61,955
Number of shares considered as weighted average shares and potential shares outstanding		28,00,30,650		27,37,76,678		27,94,45,296		27,27,68,201

23.2.19. Cash flow statement

23.2.19.a

The balance of cash and cash equivalents includes Rs. 3 as at September 30, 2005 (for the year ended March 31, 2005 Rs. 3) set aside for payment of dividends.

23.2.19.b Restricted cash

Deposits with financial institutions as at September 30, 2005 include an amount of Rs. 103 (as at March 31, 2005 Rs. 66) with Life Insurance Corporation of India, considered as restricted cash and is hence not included under “Cash and cash equivalents”.

20

24 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

			As at
Schedule		Description	September 30, 2005		March 31, 2005
Balance Sheet Minority Interest				51.63		0.14
	2	Capital reserve on consolidation		48.63		0.10
	4	Fixed assets
		Purchases
		Vehicles		0.31		0.35
		Land free-hold		0.01		9.59
		Disposal
		Plant and machinery		0.06		—
		Depreciation
		Vehicles		0.08		0.04
	8	Cash on hand		0.07		0.02
	9	Deposits with government authorities		—		0.05
		Unsecured, considered doubtful
		Loans and advances to employees		0.34		0.23
		Provision for doubtful loans and advances to employees		0.34		0.23
	21	Provision for investments		0.57		0.10

Profit & Loss Items

			Quarter ended						Half-year ended
			September 30,						September 30,
Schedule		Description	2005			2004			2005			2004
	13	Selling and Marketing expenses
		Marketing expenses		2.80			0.27			5.53			6.57
		Contribution to provident and other funds		0.42			0.37			0.57			0.76
		Advertisements		0.43			0.66			0.92			3.87
		Printing&Stationery		0.47			0.35			1.03			0.65
		Sales promotion expenses		0.38			0.34			0.64			0.58
		Office maintenance		0.05			0.28			0.29			0.71
		Insurance charges		0.11			0.15			0.22			0.24
		Computer maintenance		0.00			0.01			0.00			0.12
		Staff welfare		0.33			0.11			0.44			0.28
		Cost of Software Packages for Own Use		0.01			—			0.07			0.01
		Communication Expenses		0.29			—			0.42			—
		Consumables		0.06			0.08			0.13			0.21
	14	General and Administrative expenses
		Staff welfare		—			0.17			—			0.31
		Provision for doubtful loans and advances		0.08			0.09			0.15			0.11
		Commission to non-whole time directors		0.38			0.39			0.78			0.78
		Auditor’s remuneration
		Statutory audit fees		0.27			0.22			0.53			0.42
		Out-of-pocket expenses		0.01			0.01			0.01			0.01
		Freight charges		0.23			0.14			0.41			0.37
		Research grants		0.12			0.09			0.21			0.19
		Software packages for own use		0.30			0.49			0.30			0.91
		Recruitment and training		3.10			0.28			3.74			0.85
		Bank charges and commission		0.46			0.36			0.65			0.62
		Rates and taxes		—			—			—			0.03
	15	Other Income
		Miscellaneous Income		1.64			0.25			1.53			0.51
		Exchange differences		(0.23	)		6.43			(10.45	)		(7.48	)
	16	Provision for Taxaton
		Prior Period		(19.80	)		—			(19.74	)		—
	21	Provision for investments		0.51			0.07			0.57			0.06
	23.2.1	Aggregate expenses
		Marketing expenses		2.80			0.27			5.63			6.57
		Recruitment and training		3.10			0.28			3.74			0.75
		Provision for doubtful loans and advances		0.08			0.09			0.15			0.11
		Commission to non-whole time directors		0.38			0.39			0.69			0.78
		Sales promotion expenses
		Auditor’s remuneration
		statutory audit fees		0.27			0.22			0.53			0.42
		out-of-pocket expenses		0.01			0.01			0.02			0.01
		Bank charges and commission		0.46			0.36			0.65			0.62
		Freight charges		0.23			0.14			0.41			0.37
		Research grants		0.12			0.09			0.21			0.19
	23.2.10	Profit on disposal of fixed assets, included in miscellaneous income		0.18			0.09			0.23			0.16
		Loss on disposal of fixed assets, included in miscellaneous expenses		(0.03	)		(0.04	)		(0.03	)		(0.04	)
		Profit/(loss) on disposal of fixed assets, net		0.15			0.05			0.20			0.12

Cash Flow Statement Items

		For the Half year ended
		September 30,
Schedule	Description	2005		2004
Cash Flow	(Profit)/ loss on sale of fixed assets		0.20		(0.12	)
Statement	Provisions for investments		0.57		0.06
	Proceeds on disposal of fixed assets		0.25		0.21
	Proceeds from the issue of preference share capital		—		(0.05	)

21

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 half year ended September 30, 2005 and2004are as follows:

			Contributions
			to provident and		Perquisites		Total
Name	Salary		other funds		and incentives		Remuneration
Chairman and Chief Mentor
N. R. Narayana Murthy		0.03		0.01		0.05		0.09
		0.03		0.01		0.03		0.07
		0.06		0.02		0.11		0.19
		0.06		0.02		0.07		0.15
Chief Executive Officer, President and Managing Director
Nandan M. Nilekani		0.03		0.01		0.05		0.09
		0.03		0.01		0.03		0.07
		0.05		0.02		0.11		0.19
		0.06		0.02		0.07		0.15
Chief Operating Officer and Deputy Managing Director
S. Gopalakrishnan		0.03		0.01		0.05		0.09
		0.03		0.02		0.02		0.07
		0.06		0.02		0.12		0.20
		0.06		0.03		0.06		0.15
Whole-time Directors
K. Dinesh		0.03		0 01		0.05		0.09
		0.03		0.01		0.02		0.06
		0.06		0.02		0.10		0.18
		0.06		0.02		0.06		0.14
S. D. Shibulal		0.23		—		0.14		0.37
		0.22		—		—		0.22
		0.45		—		0.14		0.59
		0.41		—		0.11		0.52
T. V. Mohandas Pai		0.05		0.02		0.11		0.18
Chief Financial Officer		0.05		0.01		0.05		0.11
		0.10		0.04		0.22		0.36
		0.09		0.03		0.14		0.26
Srinath Batni		0.04		0.02		0.10		0.16
		0.04		0.01		0.04		0.09
		0.08		0.03		0.19		0.30
		0.08		0.03		0.12		0.23
Other Senior Management Personnel
V. Balakrishnan		0.03		0.01		0.08		0.12
Company Secretary		0.03		0 01		0.07		0.11
		0.06		0.02		0.22		0.30
		0.06		0.02		0.18		0.26

					Reimbursement of
Name	Commission		Sitting fees		expenses		Total remuneration
Non-Whole time Directors
Deepak M. Satwalekar		0.05		—		—		0.05
		0.04		—		—		0.04
		0.09		0.01		—		0.10
		0.09		—		0.01		0.10
Marti G. Subrahmanyam		0.04		—		0.02		0.06
		0.05		—		0.01		0.06
		0.08		—		0.07		0.15
		0.10		—		0.04		0.14
Philip Yeo		—		—		—		—
		0.05		—		—		0.05
		0.03		—		—		0.03
		0.10		—		—		0.10
Omkar Goswami		0.04		0.01		0.01		0.06
		0.05		—		—		0.05
		0.08		0.01		0.02		0.11
		0.10		—		0.01		0.11
Larry Pressler		0.04		—		—		0.04
		0.05		—		—		0.05
		0.08		—		—		0.08
		0.10		—		—		0.10
Rama Bijapurkar		0.04		—		—		0.04
		0.05		—		—		0.05
		0.08		—		—		0.08
		0.09		0.01		—		0.10
Claude Smadja		0.04		—		0.05		0.09
		0.05		0.01		0.05		0.11
		0.08		—		0.08		0.16
		0.10		0.01		0.07		0.18
Sridar A. Iyengar		0.07		—		0.04		0.11
		0.05		—		—		0.05
		0.14		—		0.11		0.25
		0.10		—		0.04		0.14
David Boyles		0.03		—		—		0.03
		—		—		—		—
		0.03		—		—		0.03
		—		—		—		—

22