** UNITED STATES SECURITIES AND EXCHANGE COMMISSION **

**FORM 20-F**

*(Mark One)*

**o**Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934****OR**x**Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934****     For the fiscal year ended March 31, 2007**

**OR**

o**Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**OR**

o**Shell Company Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**     For the Transition period from __________ to __________**

 Commission File Number 000-25383 

**INFOSYS TECHNOLOGIES LIMITED***(Exact name of Registrant as specified in its charter)*

Not Applicable*(Translation of Registrant's name into English)*

*   (Jurisdiction of incorporation or organization) *

*    (Address of principal executive offices) *

**Securities registered or to be registered pursuant to Section 12(b) of the Act:**

|   | Title of Each Class                                                                               |   | Name of Each Exchange on Which Registered |   |
|--------|---------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|   | American Depositary Shares each represented        by one Equity Share, par value Rs. 5 per share |   | Nasdaq Global Select Market               |   |

**Securities registered pursuant to Section 12(g) of the Act:**

* (Title of class) *

**Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:**

* (Title of class) *

 Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the Annual Report: 571,209,862 Equity Shares 

 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

 Yes x No o

 If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 

 Yes o No x

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

 Yes x No o

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer"in Rule 12b-2 of the Exchange Act. (Check one): 
|   | Large accelerated filer x | Accelerated filer o | Non- accelerated filer o |   |
|--------|---------------------------|---------------------|--------------------------|--------|

Indicate by check mark which financial statement item the registrant has elected to follow. 

 Item 17 o Item 18 x

 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

 Yes o No x

**Currency of presentation and certain defined terms**

 In this Annual Report on Form 20-F, references to 'US' or 'United States' are to the United States of America, its territories and its possessions. References to 'India' are to the Republic of India. References to '$' or 'dollars' or 'US dollars' are to the legal currency of the United States and references to 'Rs.' or 'rupees' or 'Indian rupees' are to the legal currency of India. Our financial statements are presented in Indian rupees and translated into US dollars and are prepared in accordance with United States Generally Accepted Accounting Principles, or US GAAP. References to 'Indian GAAP' are to Indian Generally Accepted Accounting Principles. References to a particular 'fiscal' year are to our fiscal year ended March 31 of such year. 

 All references to 'we', 'us', 'our', 'Infosys' or the 'Company' shall mean Infosys Technologies Limited, and, unless specifically indicated otherwise or the context indicates otherwise, our consolidated subsidiaries. 'Infosys' is a registered trademark of Infosys Technologies Limited in the United States and India. All other trademarks or trade names used in this Annual Report are the property of their respective owners. 

 Except as otherwise stated in this Annual Report, all translations from Indian rupees to US dollars are based on the noon buying rate in the City of New York on March 30, 2007, for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York, which was Rs. 43.10 per $1.00. March 30, 2007 was the last day of our fiscal year ended March 31, 2007 for which such rates were available. No representation is made that the Indian rupee amounts have been, could have been or could be converted into US dollars at such a rate or any other rate. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. 

**Special Note Regarding Forward Looking Statements**

 This Annual Report contains 'forward-looking statements', as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our current expectations, assumptions, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as 'anticipate', 'believe', 'estimate', 'expect', 'intend', 'will', 'project', 'seek', 'should' and similar expressions. Those statements include, among other things, the discussions of our business strategy and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be materially incorrect. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed elsewhere in this Annual Report. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to update these forward-looking statements to reflect future events or circumstances. 

 This Annual Report includes statistical data about the IT industry that comes from information published by sources including Gartner, Inc., and Forrester, Inc.,  providers of market information and strategic information for the IT industry, the National Association of Software and Service Companies, or NASSCOM, an industry trade group, and Business Today, an Indian business publication. This type of data represents only the estimates of Gartner, Forrester, NASSCOM, and other sources of industry data. In addition, although we believe that data from these companies is generally reliable, this type of data is inherently imprecise. We caution you not to place undue reliance on this data. 

**Table of Contents**
| **Part I**   |
|--------------|
| Item 1.      | Identity of Directors, Senior Management and Advisers |   |
| Item 2.      | Offer Statistics and Expected Timetable |   |
| Item 3.      | Key Information |   |
| Item 4.      | Information on the Company |   |
| Item 4A.     | Unresolved Staff Comments |   |
| Item 5.      | Operating and Financial Review and Prospects |   |
| Item 6.      | Directors, Senior Management and Employees |   |
| Item 7.      | Major Shareholders and Related Party Transactions |   |
| Item 8.      | Financial Information |   |
| Item 9.      | The Offer and Listing |   |
| Item 10.     | Additional Information |   |
| Item 11.     | Quantitative and Qualitative Disclosure About Market Risk |   |
| Item 12.     | Description of Securities Other Than Equity Securities |   |
| **Part II**  |
| Item 13.     | Defaults, Dividend Arrearages and Delinquencies |   |
| Item 14.     | Material Modifications to the Rights of Security Holders and Use of Proceeds |   |
| Item 15.     | Controls and Procedures |   |
| Item 16 A.   | Audit Committee Financial Expert |   |
| Item 16 B.   | Code of Ethics |   |
| Item 16 C.   | Principal Accountant Fees and Services |   |
| Item 16 D.   | Exemptions from the Listing Standards for Audit Committees |   |
| Item 16 E.   | Purchase of Equity Securities by the Issuer and Affiliated Purchasers |   |
| **Part III** |
| Item 17.     | Financial statements |   |
| Item 18.     | Financial statements |   |
| Item 19.     | Exhibits |   |

----

**Part I**

**Item 1. Identity of Directors, Senior Management and Advisers**

 Not applicable. 

**Item 2. Offer Statistics and Expected Timetable**

 Not applicable. 

**Item 3. Key Information**

**SELECTED FINANCIAL DATA**

**Summary of Consolidated Financial Data**

 You should read the summary consolidated financial data below in conjunction with the consolidated financial statements, the related notes and Operating and Financial Review and Prospects, all of which are included elsewhere in this Annual Report. The summary consolidated statements of income for the five years ended March 31, 2007 and the summary consolidated balance sheet data as of March 31, 2003, 2004, 2005, 2006 and 2007 have been prepared and presented in accordance with US GAAP and have been derived from our audited consolidated financial statements and related notes except for cash dividend per equity share data (in $) with respect to fiscal 2003 and 2004 and cash dividend per equity share data  (in Rs.). Historical results are not necessarily indicative of future results. The information presented below reflects our 3:1 bonus issue effected in the form of a stock dividend in July 2004 and 1:1 bonus issue effected in the form of a stock dividend in July 2006 . 

* ($ in millions, except per equity share data)*
|                                             | **Fiscal Year ended March 31,** |
|--------------------------------------------------|---------------------------------|
| **Statements of Income Data**                    | **2003**                        | **2004** | **2005** | **2006** | **2007** |
|                                             |                            | **(1)** | **(1),(2)** | **(1),(2)** | **(1),(2)** |
| Revenues                                         | $754                            | $1,063 | $1,592 | $2,152 | $3,090 |
| Cost of revenues including amortization of       |                            |   |   |   |   |
| stock compensation expense                       | 417                             | 603 | 904 | 1,244 | 1,777 |
| Gross profit                                     | 337                             | 460 | 688 | 908 | 1,313 |
| Operating Expenses:                              |                                 |  |  |  |   |
| Selling and marketing expenses                   | 56                              | 77 | 103 | 136 | 209 |
| General and administrative expenses              | 58                              | 82 | 127 | 173 | 249 |
| Amortization of stock compensation expense       | 2                               | 1 | - | - | - |
| Amortization of intangible assets                | 2                               | 7 | 2 | - | 3 |
| Total operating expenses                         | 118                             | 167 | 232 | 309 | 461 |
| Operating income                                 | 219                             | 293 | 456 | 599 | 852 |
| Gain on sale of long term investment             | -                               | - | 11 | - | 1 |
| Other income, net                                | 18                              | 28 | 24 | 31 | 83 |
| Income before income taxes and minority interest | 237                             | 321 | 491 | 630 | 936 |
| Provision for income taxes                       | 42                              | 51 | 72 | 70 | 84 |
| Income before minority interest                  | 195                             | 270 | 419 | 560 | 852 |
| Minority interest                                | -                               | - | - | 5 | 2 |
| Net income                                       | $195                            | $270 | $419 | $555 | $850 |
| Earnings per Equity Share:                       |                                 |  |  |  |   |
| Basic                                            | $0.37                           | $0.51 | $0.78 | $1.02 | $1.53 |
| Diluted                                          | $0.37                           | $0.50 | $0.77 | $0.99 | $1.50 |
| Weighted Average Equity Shares used in           |                            |   |   |   |   |
| computing earnings per Equity Share:             |                                 |   |  |  |   |
| Basic                                            | 524,568,016                     | 525,560,616 | 533,802,066 | 543,160,222 | 554,018,739 |
| Diluted                                          | 531,832,072                     | 534,332,472 | 547,180,826 | 557,967,786 | 566,110,582 |
| Cash dividend per Equity Share ($)               | 0.07                            | 0.08 | 0.38(**3**) | 0.15 | 0.53(**4**) |
| Cash dividend per Equity Share (Rs.)             | 3.13                            | 3.63 | 16.88(**3**) | 6.50 | 24.25(**4**) |
|                                             | **As of March 31,**             |
| **Balance Sheet Data**                           | **2003**                        | **2004** | **2005** | **2006** | **2007** |
| Cash and cash equivalents                        | $354                            | $445 | $410 | $889 | $1,403 |
| Investments in liquid mutual fund units          | -                               | 218 | 278 | 170 | 6 |
| Total assets                                     | 704                             | 1,132 | 1,454 | 2,066 | 3,073 |
| Preferred stock of subsidiary                    | 10                              | 22 | 21 | - | - |
| Total stockholders' equity                       | $626                            | $953 | $1,253 | $1,837 | $2,717 |

  (1)  Includes the results of operations of Infosys Technologies (Australia) Pty. Limited (Infosys Australia) and Infosys Technologies (China) Co. Limited (Infosys China), both consolidated subsidiaries.  (2)  Includes the results of operations of Infosys Consulting Inc. (Infosys Consulting), a consolidated subsidiary.  (3)  Cash dividend per equity share includes a special one-time dividend of $0.28 (Rs. 12.50) per equity share paid in June 2004  (4)  Cash dividend per equity share includes a silver jubilee special dividend of $0.33 (Rs. 15.00) per equity share paid in June 2006.

**Exchange rates**

 Fluctuations in the exchange rate between the Indian rupee and the US dollar will affect the US dollar equivalent of the Indian rupee price of our equity shares on the Indian stock exchanges and, as a result, will likely affect the market price of our ADSs, and vice versa. Such fluctuations will also affect the US dollar conversion by the Depositary of any cash dividends paid in Indian rupees on our equity shares represented by the ADSs. 

 The following table sets forth, for the fiscal years indicated, information concerning the number of Indian rupees for which one US dollar could be exchanged based on the noon buying rate in the City of New York on business days during the period for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The column titled 'Average' in the table below is the average of the last business day of each month during the year. 
| **Fiscal** | **Period End** | **Average** | **High**  | **Low**   |
|------------|----------------|-------------|-----------|-----------|
| 2007       | Rs. 43.10      | Rs. 45.06   | Rs. 46.83 | Rs. 42.78 |
| 2006       | 44.48          | 44.21       | 46.26     | 43.05     |
| 2005       | 43.62          | 44.87       | 46.45     | 43.27     |
| 2004       | 43.40          | 45.78       | 47.46     | 43.40     |
| 2003       | 47.53          | 48.36       | 49.07     | 47.53     |

 The following table sets forth the high and low exchange rates for the previous six months and is based on the noon buying rate in the City of New York during the period for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York: 
| **Month**     | **High**  | **Low**   |
|---------------|-----------|-----------|
| April 2007    | Rs. 43.05 | Rs. 40.56 |
| March 2007    | 44.43     | 42.78     |
| February 2007 | 44.21     | 43.87     |
| January 2007  | 44.49     | 44.07     |
| December 2006 | 44.70     | 44.11     |
| November 2006 | 45.26     | 44.46     |

On May 1,  2007, the noon buying rate in the City of New York was Rs. 41.00. 

**Risk Factors**

 This Annual Report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Annual Report. 

**Risks Related to Our Company and Our Industry**

***Our revenues and expenses are difficult to predict and can vary significantly from period to period, which could cause our share price to decline.***

 Our revenues and profitability have grown rapidly in recent years and are likely to vary significantly in the future from period to period. Therefore, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as an indication of our future performance. It is possible that in the future some of our results of operations may be below the expectations of market analysts and our investors, which could cause the share price of our equity shares and our ADSs to decline significantly. 

 Factors which affect the fluctuation of our operating results include: 
    -  the size, timing and profitability of significant projects, including large outsourcing deals; 
    -   changes in our pricing policies or the pricing policies of our competitors; 
    -  the proportion of services that we perform at our development centers or at our client sites; 
    -  the effect of wage pressures, seasonal hiring patterns, attrition, and the time required to train and productively utilize new employees, particularly information technology, or IT, professionals; 
    -  the size and timing of facilities expansion and resulting depreciation and amortization costs; 
    -   expenditures in connection with the submission of proposals for larger, more complex client engagements; 
    -   unanticipated cancellations, contract terminations, deferrals of projects or delays in purchases, including those resulting from our clients' efforts to comply with regulatory requirements,  or those occurring as a result of our clients reorganizing their operations; 
    -   utilization of billable employees; and 
    -  unanticipated variations in the duration, size and scope of our projects, as well as changes in the corporate decision-making process of our client base. 

  A significant part of our total operating expenses, particularly expenses related to personnel and facilities, are fixed in advance of any particular period. As a result, unanticipated variations in the number and timing of our projects or employee utilization rates, or the accuracy of our estimates of the resources required to complete ongoing projects, may cause significant variations in our operating results in any particular period. 

There are also a number of factors, other than our performance, that are not within our control that could cause fluctuations in our operating results from period to period. These include: 
    -  the duration of tax holidays or tax exemptions and the availability of other incentives from the Government of India;
    -       changes in regulations and taxation in India or the other countries in which we conduct business; 
    -  currency fluctuations, particularly when the rupee appreciates in value against the US dollar, the United Kingdom Pound Sterling or the Euro, since the majority of our revenues are in these currencies and a significant part of our costs are in rupees; and 
    -  other general economic and political factors, including, in particular, the economic conditions in the United States and Europe. 

 In addition, the availability of visas for working in the United States may vary substantially from quarter to quarter. Visas for working in the United States may be available during one quarter, but not another, or there may be differences in the number of visas available from one quarter to another. As such, the variable availability of visas may require us to incur significantly higher visa-related expenses in certain quarters when compared to others. For example, we incurred $11.0 million in costs for visas in the three months ended June 30, 2006, compared to $3.0 million for the three months ended March 31, 2006. Such fluctuations may affect our operating margins and profitability in certain quarters during a fiscal year. 

***We may not be able to sustain our previous profit margins or levels of profitability.***

Our profitability could be affected by pricing pressures on our services, volatility of the rupee against the dollar and other currencies and increased wage pressures in India and onsite. Since fiscal 2003, we have incurred substantially higher selling and marketing expenses as we have invested to increase brand awareness among target clients and promote client loyalty and repeat business among existing clients. Furthermore, over the past 12 months, the rupee has appreciated substantially relative to the US dollar. The exchange rate for one dollar based on the noon buying rate in the City of New York for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York was Rs. 43.10 as of  March 30, 2007, as against Rs. 44.48 on March 31, 2006. On May 1, 2007, the noon buying rate was Rs. 41.00 per one US dollar. The appreciation of the rupee against the dollar  has adversely impacted our revenues and operating results for fiscal 2007. In the event that the dollar does not appreciate against the rupee, or in the event that the rupee further appreciates against the dollar, the results of our operations may be further adversely affected. 

 We expect increased selling and marketing expenses in the future, which could result in declining profitability. In addition, while our Global Delivery Model allows us to manage costs efficiently, as the proportion of our services delivered at client sites increases, we may not be able to keep our operating costs as low in the future, which would also have an adverse impact on our profit margins. 

***The economic environment, pricing pressure and rising wages in India and overseas could negatively impact our revenues and operating results.***

Spending on technology products and services in most parts of the world has been rising for the past few years after a two-year downward trend due to a challenging global economic environment. Our ability to maintain or increase pricing is restricted as clients often expect that as we do more business with them, they will receive volume discounts or special pricing incentives. Existing and new customers are also increasingly using third-party consultants with broad market knowledge to assist them in negotiating contractual terms. Large multinational companies are establishing larger offshore operations in India, resulting in wage pressures for Indian companies. This wage pressure is exacerbated by competition among Indian companies for qualified employees. Pricing pressures from our clients and wage pressures in India have negatively impacted our operating results. 

If economic growth slows, our utilization and billing rates for our technology professionals could be adversely affected, which may result in lower gross and operating profits. 

***Any inability to manage our growth could disrupt our business and reduce our profitability.***

We have grown significantly in recent periods. Between March 31, 2003 and March 31, 2007 our total employees grew from approximately 15,900 to approximately 72,200. In addition, in the last five years we have undertaken and continue to undertake major expansions of our existing facilities, as well as the construction of new facilities. 

We expect our growth to place significant demands on our management and other resources. Our growth will require us to continuously develop and improve our operational, financial and other internal controls, both in India and elsewhere. In addition, continued growth increases the challenges involved in: 
    -  recruiting, training and retaining sufficient skilled technical, marketing and management personnel; 
    -   adhering to and further improving our high quality and process execution standards; 
    -   preserving our culture, values and entrepreneurial environment; 
    -   successfully expanding the range of services offered to our clients; 
    -   developing and improving our internal administrative infrastructure, particularly our financial, operational, communications and other internal systems; and 
    -   maintaining high levels of client satisfaction. 

 Our growth strategy also relies on the expansion of our operations to other parts of the world, including Europe, Australia and other parts of Asia. In October 2003, we established Infosys China and in January 2004 we acquired Infosys Australia to expand our operations in those countries. In April 2004, we formed Infosys Consulting to focus on consulting services in the United States and announced our intention to hire aggressively in the United States. In addition, we have recently embarked on an expansion of our business in China, and have expended significant resources in this expansion. We recently announced our intent to open a development center in Mexico. The costs involved in entering and establishing ourselves in new markets, and expanding such operations, may be higher than expected and we may face significant competition in these regions. Our inability to manage our expansion and related growth in these regions may have an adverse effect on our business, results of operations and financial condition. 

***We may face difficulties in providing end-to-end business solutions for our clients, which could lead to clients discontinuing their work with us, which in turn could harm our business.***

Over the past several years, we have been expanding the nature and scope of our engagements by extending the breadth of services we offer. The success of some of our newer service offerings, such as operations and business process consulting, IT consulting, business process management, systems integration and infrastructure management, depends, in part, upon continued demand for such services by our existing and new clients and our ability to meet this demand in a cost-competitive and effective manner. Furthermore, our IT consulting business is not yet profitable, and its success in the future will depend on a number of factors. We cannot assure you that this business will become profitable in the future. In addition, our ability to effectively offer a wider breadth of end-to-end business solutions depends on our ability to attract existing or new clients to these service offerings. To obtain engagements for our end-to-end solutions, we  are competing with large, well-established international consulting firms as well as other India-based technology services companies, resulting in increased competition and marketing costs. Accordingly, our new service offerings may not effectively meet client needs and we may be unable to attract existing and new clients to these service offerings. 

The increased breadth of our service offerings may result in larger and more complex client projects. This will require us to establish closer relationships with our clients and potentially with other technology service providers and vendors, and require a more thorough understanding of our clients' operations. Our ability to establish these relationships will depend on a number of factors including the proficiency of our technology professionals and our management personnel. 

Larger projects often involve multiple components, engagements or stages, and a client may choose not to retain us for additional stages or may cancel or delay additional planned engagements. These terminations, cancellations or delays may result from the business or financial condition of our clients or the economy generally, as opposed to factors related to the quality of our services. Cancellations or delays make it difficult to plan for project resource requirements, and resource planning inaccuracies may have a negative impact on our profitability. 

***Intense competition in the market for technology services could affect our cost advantages, which could reduce our share of business from clients and decrease our revenues.***

The technology services market is highly competitive. Our competitors include large consulting firms, captive divisions of large multinational technology firms, infrastructure management services firms, Indian technology services firms, software companies and in-house IT departments of large corporations. 

The technology services industry is experiencing rapid changes that are affecting the competitive landscape, including recent divestitures and acquisitions that have resulted in consolidation within the industry. These changes may result in larger competitors with significant resources. In addition, some of our competitors have added or announced plans to add cost-competitive offshore capabilities to their service offerings. These competitors may be able to offer their services using the offshore and onsite model more efficiently than we can. Many of these competitors are also substantially larger than us and have significant experience with international operations. We may face competition from these competitors in countries where we currently operate, as well as in countries in which we expect to expand our operations. We also expect additional competition from technology services firms with current operations in other countries, such as China and the Philippines. Many of our competitors have significantly greater financial, technical and marketing resources, generate greater revenues, have more extensive existing client relationships and technology partners and have greater brand recognition than we do. We may be unable to compete successfully against these competitors, or may lose clients to these competitors. Additionally, we believe that our ability to compete also depends in part on factors outside our control, such as the price at which our competitors offer comparable services, and the extent of our competitors' responsiveness to their clients' needs. 

***Our revenues are highly dependent upon a small number of clients, and the loss of any one of our major clients could significantly impact our business.***

We have historically earned, and believe that in the future we will continue to earn, a significant portion of our revenues from a limited number of corporate clients. In fiscal 2007, 2006 and 2005, our largest client accounted for 7.0%, 4.4% and 5.5% of our total revenues, and our five largest clients together accounted for 19.4%, 17.8% and 21.0% of our total revenues. The volume of work we perform for specific clients is likely to vary from year to year, particularly since we historically have not been the exclusive external technology services provider for our clients. Thus, a major client in one year may not provide the same level of revenues in a subsequent year. However, in any given year, a limited number of clients tend to contribute a significant portion of our revenues. 

There are a number of factors, other than our performance, that could cause the loss of a client and that may not be predictable. In certain cases, we have significantly reduced the services provided to a client when the client either changed its outsourcing strategy by moving more work in-house or replaced its existing software with packaged software supported by the licensor. Reduced technology spending in response to a challenging economic or competitive environment may also result in our loss of a client. If we lose one of our major clients or one of our major clients significantly reduces its volume of business with us, our revenues and profitability could be reduced. 

***Our revenues are highly dependent on clients primarily located in the United States and Europe, as well as on clients concentrated in certain industries, and economic slowdowns or factors that affect the economic health of the United States, Europe or these industries may affect our business.***

In fiscal 2007, 2006 and 2005, approximately 62.3%, 63.9% and 64.2% of our revenues were derived from the United States. In the same periods, approximately 26.4%, 24.5% and 22.3% of our revenues were derived from Europe. If the United States or European economy weakens, our clients may reduce or postpone their technology spending significantly, which may in turn lower the demand for our services and negatively affect our revenues and profitability. In addition, in fiscal 2007, 2006 and 2005, we earned 37.4%, 36.0% and 34.5% of our revenues from the financial services industry, and 13.5%, 13.9% and 14.5% from the manufacturing industry. Any significant decrease in the growth of the financial services industry, or significant consolidation in that industry or decrease in growth or consolidation in other industry segments on which we focus, may reduce the demand for our services and negatively affect our revenues and profitability. 

***Legislation in certain of the countries in which we operate, including the United States and the United Kingdom, may restrict companies in those countries from outsourcing work overseas.***

Recently, some countries and organizations have expressed concerns about a perceived association between offshore outsourcing and the loss of jobs. In the United States, in particular, the growth of offshore outsourcing has received increasing political and media attention. Any changes to existing laws or the enactment of new legislation restricting offshore outsourcing may adversely impact our ability to do business in the United States, which is the largest market for our services. In the last three years, some US states have proposed legislation restricting government agencies from outsourcing their back office processes and IT solutions work to companies outside the United States or have enacted laws that limit or discourage such outsourcing. Such laws restrict our ability to do business with US government-related entities. It is also possible that US private sector companies working with these governmental entities may be restricted from outsourcing projects related to government contracts or may face disincentives if they outsource certain operations. 

 In the United Kingdom, the Transfer of Undertakings (Protection of Employees) Regulations, or TUPE, including the recent revisions to those regulations, will allow employees who are dismissed as a result of "service provision changes", which may include outsourcing to non-UK companies, to seek compensation either from the company from which they were dismissed or from the company to which the work was transferred. This could deter UK companies from outsourcing work to us and could also result in our being held liable for redundancy payments to such workers. 

 Any of these events could adversely affect our revenues and operating profitability. 

***Our success depends largely upon our highly skilled technology professionals and our ability to hire, attract and retain these personnel.***

Our ability to execute projects, to maintain our client relationships and to obtain new clients depends largely on our ability to attract, train, motivate and retain highly skilled technology professionals, particularly project managers and other mid-level professionals. If we cannot hire and retain additional qualified personnel, our ability to bid for and obtain new projects, and to continue to expand our business will be impaired and our revenues could decline. We believe that there is significant worldwide competition for technology professionals with the skills necessary to perform the services we offer. For example, in India, since 2004, hiring by technology companies has increased significantly. Excluding Infosys BPO and our other subsidiaries, we added approximately 8,800, 12,500 and 15,200 new employees, net of attrition, in fiscal 2005, 2006 and 2007. 

 Increased hiring by technology companies, particularly in India, and increasing worldwide competition for skilled technology professionals may lead to a shortage in the availability of qualified personnel in the markets in which we operate and hire. The NASSCOM-McKinsey Report 2005 estimates that by 2010, employers will require approximately 2.3 million employees in India that provide IT and IT-enabled services, but that the number of qualified professionals that are trained to provide such services will be nearly 500,000 less than the projected requirements. Of this shortfall, approximately 70% will be in the IT-enabled services industry and the balance will be in the IT services industry. A shortage in the availability of qualified IT professionals in the markets in which we operate may affect our ability to hire an adequate number of skilled and experienced technology professionals. Our inability to hire such professionals may have an adverse effect on our business, results of operations and financial condition. 

Changes in policies or laws may also  affect the ability of technology companies to hire, attract and retain personnel. For instance, the Finance Bill, 2007 seeks to impose a fringe benefit tax, or FBT, on companies in respect of specified securities or equity shares allotted or transferred, directly or indirectly, by the company free of cost or at a concessional rate to its employees. The imposition of FBT may discourage technology companies in India from granting stock options  to employees. Any suspension of stock option grants may affect the ability of technology companies to hire skilled and experienced technology professionals.

 Increased demand for technology professionals has also led to an increase in attrition rates. We estimate the attrition rate in the Indian technology services industry, which excludes the business process management industry, to be approximately 20% annually. Our comparable attrition rate in fiscal 2007, fiscal 2006 and fiscal 2005 was 13.7%, 11.2% and 9.7%, without accounting for attrition in Infosys BPO or our other subsidiaries. Furthermore, attrition in the business process management industry is generally significantly higher than in the technology services industry. We may not be able to hire and retain enough skilled and experienced technology professionals to replace those who leave. Additionally, we may not be able to redeploy and retrain our technology professionals to keep pace with continuing changes in technology, evolving standards and changing client preferences. Our inability to attract and retain technology professionals may have a material adverse effect on our business, results of operations and financial condition. 

It is possible that the Central Government or other State Governments in India may introduce legislation requiring employers to give preferential hiring treatment to under-represented groups. The quality of our work force is critical to our business. If any such Central or State legislation becomes effective, our ability to hire the most highly qualified technology professionals may be hindered. 

***Our success depends in large part upon our management team and key personnel and our ability to attract and retain them.***

We are highly dependent on the senior members of our management team, including the continued efforts of our Chairman, our Chief Executive Officer, our Chief Operating Officer, our Chief Financial Officer, other executive members of the board and the management council, which consists of executive and other officers. As of June 22, 2007, our current Chief Executive Officer, Nandan M. Nilekani, will step down from his position and will be replaced by S. Gopalakrishnan, our current President and Chief Operating Officer. Furthermore, S.D.Shibulal, our current Group Head - Worldwide Sales and Customer Delivery will become our Chief Operating Officer, effective June 22, 2007. Our future performance will be affected by any disruptions in the continued service of our executives and other officers. We do not maintain key man life insurance for any of the senior members of our management team or other key personnel. Competition for senior management in our industry is intense, and we may not be able to retain such senior management personnel or attract and retain new senior management personnel in the future. The loss of any member of our senior management or other key personnel may have a material adverse effect on our business, results of operations and financial condition. 

***Our failure to complete fixed-price, fixed-timeframe contracts within budget and on time may negatively affect our profitability.***

As an element of our business strategy, we offer a portion of our services on a fixed-price, fixed-timeframe basis, rather than on a time-and-materials basis. In fiscal 2007, fiscal 2006 and fiscal 2005, revenues from fixed-price, fixed-timeframe projects accounted for 26.7%, 28.1% and 30.0% of our total services revenues including revenues from our business process management services. Although we use our software engineering methodologies and processes and past project experience to reduce the risks associated with estimating, planning and performing fixed-price, fixed-timeframe projects, we bear the risk of cost overruns, completion delays and wage inflation in connection with these projects. If we fail to estimate accurately the resources and time required for a project, future wage inflation rates, or currency exchange rates, or if we fail to complete our contractual obligations within the contracted timeframe, our profitability may suffer. 

***Our client contracts can typically be terminated without cause and with little or no notice or penalty, which could negatively impact our revenues and profitability.***

**Our clients typically retain us on a non-exclusive, project-by-project basis. Most of our client contracts, including those that are on a fixed-price, fixed-timeframe basis, can be terminated with or without cause, with between zero and 90 days' notice and without any termination-related penalties. Additionally, our contracts with clients are typically limited to discrete projects without any commitment to a specific volume of business or future work. Our business is dependent on the decisions and actions of our clients, and there are a number of factors relating to our clients that are outside of our control which might lead to termination of a project or the loss of a client, including: 
    - financial difficulties for a client; 
    -  a change in strategic priorities, resulting in a reduced level of technology spending; 
    -  a demand for price reductions; 
    -  a change in outsourcing strategy by moving more work to the client's in-house technology departments or to our competitors;  
    -  the replacement by our clients of existing software with packaged software supported by licensors; 
    - mergers and acquisitions; and  
    - consolidation of technology spending by a client, whether arising out of mergers and acquisitions, or otherwise. 

Our inability to control the termination of client contracts could have a negative impact on our financial condition and results of operations. 

***Our engagements with customers are singular in nature and do not necessarily provide for subsequent engagements*.**

Our clients  generally retain us on a short-term, engagement-by-engagement basis in connection with specific projects, rather than on a recurring basis under long-term contracts. Although a substantial majority of our revenues are generated from repeat business, which we define as revenue from a client who also contributed to our revenue during the prior fiscal year, our engagements with our clients are typically for projects that are singular in nature. Therefore, we must seek out new engagements when our current engagements are successfully completed or are terminated, and we are constantly seeking to expand our business with existing clients and secure new clients for our services. In addition, in order to continue expanding our business, we may need to significantly expand our sales and marketing group, which would increase our expenses and may not necessarily result in a substantial increase in business. If we are unable to generate a substantial number of new engagements for projects on a continual basis, our business and results of operations would likely be adversely affected. 

***Our client contracts are often conditioned upon our performance, which, if unsatisfactory, could result in less revenue than previously anticipated.***

A number of our contracts have incentive-based or other pricing terms that condition some or all of our fees on our ability to meet defined performance goals or service levels. Our failure to meet these goals or a client's expectations in such performance-based contracts may result in a less profitable or an unprofitable engagement. 

***Some of our long-term client contracts contain benchmarking provisions which, if triggered, could result in lower future revenues and profitability under the contract.***

**As the size and duration of our client engagements increase, clients may increasingly require benchmarking provisions. Benchmarking provisions allow a customer in certain circumstances to request a benchmark study prepared by an agreed upon third-party comparing our pricing, performance and efficiency gains for delivered contract services to that of an agreed upon list of other service providers for comparable services. Based on the results of the benchmark study and depending on the reasons for any unfavorable variance, we may be required to reduce the pricing for future services to be performed under the balance of the contract, which could have an adverse impact on our revenues and profitability. 

***Our business will suffer if we fail to anticipate and develop new services and enhance existing services in order to keep pace with rapid changes in technology and the industries on which we focus.***

**The technology services market is characterized by rapid technological change, evolving industry standards, changing client preferences and new product and service introductions. Our future success will depend on our ability to anticipate these advances and develop new product and service offerings to meet client needs. We may fail to anticipate or respond to these advances in a timely basis, or, if we do respond, the services or technologies that we develop may not be successful in the marketplace. Further, products, services or technologies that are developed by our competitors may render our services non-competitive or obsolete. 

***Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance.***

Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations, NASDAQ Global Select Market rules, Securities and Exchange Board of India, or SEBI, rules, and Indian stock market listing regulations are creating uncertainty for companies like ours. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards. 

In particular, continuing compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors' audit of that assessment requires the commitment of significant financial and managerial resources. Our independent auditors may be unable to issue unqualified attestation reports on management's assessment on the operating effectiveness of our internal controls over financial reporting. 

 In connection with our Annual Report on Form 20-F for fiscal 2007, our management assessed our internal controls over financial reporting, and determined that our internal controls were effective as of March 31, 2007, and our auditors have issued an unqualified attestation with respect to our management's assessment. However, we will undertake management assessments of our internal controls over financial reporting in connection with each annual report, and any deficiencies uncovered by these assessments or any inability of our auditors to issue an unqualified attestation could harm our reputation and the price of our equity shares and ADSs. We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In addition, the new laws, regulations and standards regarding corporate governance may make it more difficult for us to obtain director and officer liability insurance. Further, our board members, Chief Executive Officer, and Chief Financial Officer could face an increased risk of personal liability in connection with their performance of duties and our SEC reporting obligations. As a result, we may face difficulties attracting and retaining qualified board members and executive officers, which could harm our business. If we fail to comply with new or changed laws or regulations, our business and reputation may be harmed. 

***Disruptions in telecommunications, system failures, or virus attacks could harm our ability to execute our Global Delivery Model, which could result in client dissatisfaction and a reduction of our revenues.***

A significant element of our distributed project management methodology, which we refer to as our Global Delivery Model, is to continue to leverage and expand our global development centers. We currently have 44 global development centers located in various countries around the world. Our global development centers are linked with a telecommunications network architecture that uses multiple service providers and various satellite and optical links with alternate routing. We may not be able to maintain active voice and data communications between our various global development centers and our clients' sites at all times due to disruptions in these networks, system failures or virus attacks. Any significant failure in our ability to communicate could result in a disruption in business, which could hinder our performance or our ability to complete client projects on time. This, in turn, could lead to client dissatisfaction and a material adverse effect on our business, results of operations and financial condition. 

***We may be liable to our clients for damages caused by disclosure of confidential information, system failures, errors or unsatisfactory performance of services.***

**We are often required to collect and store sensitive or confidential client and customer data. Many of our client agreements do not limit our potential liability for breaches of confidentiality. If any person, including any of our employees, penetrates our network security or misappropriates sensitive data, we could be subject to significant liability from our clients or from our clients' customers for breaching contractual confidentiality provisions or privacy laws. Unauthorized disclosure of sensitive or confidential client and customer data, whether through breach of our computer systems, systems failure or otherwise, could damage our reputation and cause us to lose clients. 

Many of our contracts involve projects that are critical to the operations of our clients' businesses, and provide benefits which may be difficult to quantify. Any failure in a client's system or breaches of security could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Furthermore, any errors by our employees in the performance of services for a client, or poor execution of such services, could result in a client terminating our engagement and seeking damages from us. 

Although we attempt to limit our contractual liability for consequential damages in rendering our services, these limitations on liability may be unenforceable in some cases, or may be insufficient to protect us from liability for damages. We maintain general liability insurance coverage, including coverage for errors or omissions, however, this coverage may not continue to be available on reasonable terms and may be unavailable in sufficient amounts to cover one or more large claims. Also an insurer might disclaim coverage as to any future claim. A successful assertion of one or more large claims against us that exceeds our available insurance coverage or changes in our insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirement, could adversely affect our operating results. 

***We are investing substantial cash assets in new facilities and physical infrastructure, and our profitability could be reduced if our business does not grow proportionately.***

As of March 31, 2007, we had contractual commitments of approximately $158 million for capital expenditures, particularly related to the expansion or construction of facilities. We may encounter cost overruns or project delays in connection with new facilities. These expansions will increase our fixed costs. If we are unable to grow our business and revenues proportionately, our profitability will be reduced. 

***We may be unable to recoup our investment costs to develop our software products.***

In fiscal 2007, fiscal 2006 and fiscal 2005, we earned 3.9%, 3.8% and 3.0% of our total revenue from the sale of software products. The development of our software products requires significant investments. The markets for our primary suite of software products which we call Finacle® are competitive. Our current software products or any new software products that we develop may not be commercially successful and the costs of developing such new software products may not be recouped. Since software product revenues typically occur in periods subsequent to the periods in which the costs are incurred for the development of such software products, delayed revenues may cause periodic fluctuations in our operating results. 

***Our insiders who are significant shareholders may control the election of our board and may have interests which conflict with those of our other shareholders or holders of our ADSs.***

Our executive officers and directors, together with members of their immediate families, beneficially owned, in the aggregate, 16.92% of our issued equity shares as of May 1, 2007. As a result, acting together, this group has the ability to exercise significant control over most matters requiring our shareholders' approval, including the election and removal of directors and significant corporate transactions. 

***We may engage in acquisitions, strategic investments, strategic partnerships or alliances or other ventures that may or may not be successful.***

We may acquire or make strategic investments in complementary businesses, technologies, services or products, or enter into strategic partnerships or alliances with third parties in order to enhance our business. For example, in 2004, we acquired Infosys Australia, and subsequently established Infosys China and Infosys Consulting in the United States. It is possible that we may not identify suitable acquisitions, candidates for strategic investment or strategic partnerships, or if we do identify suitable candidates, we may not complete those transactions on terms commercially acceptable to us, or at all. The inability to identify suitable acquisition targets or investments or the inability to complete such transactions may affect our competitiveness and our growth prospects. 

If we acquire or establish a company, we could have difficulty in assimilating that company's personnel, operations, technology and software. In addition, the key personnel of the acquired or the established company may decide not to work for us. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. 

We have made and may in the future make strategic investments in early-stage technology start-up companies in order to gain experience in or exploit niche technologies. However, our investments may not be successful. For example, in fiscal 2004, we made loss provisions of $2 million related to these investments. The lack of profitability of any of our investments could have a material adverse effect on our operating results. 

***Our earnings have been and will continue to be adversely affected by the change to our accounting policies with respect to the expensing of stock options.***

We  deduct the expense of employee stock option grants from our income based on the fair value method. In December 2004, the Financial Accounting Standards Board issued FASB Statement No. 123 (revised 2004), Share-Based Payment requiring companies to change their accounting policies to record the fair value of stock options issued to employees as an expense. Our stock compensation expense as of March 31, 2007 as determined under the fair value method was approximately $5 million. Pursuant to Securities and Exchange Commission Release No. 33-8568, we adopted SFAS 123R as of April 1, 2006. The change in the standard has adversely affected our operating results and will continue to do so in the event we make any future grants. As an example, had compensation cost for our stock-based compensation plan been determined in a manner consistent with the existing fair value approach described in SFAS No. 123, our net income as reported would have been reduced to the pro forma amounts of approximately $545 million from $555 million in fiscal 2006 and $393 million from $419 million in fiscal 2005. 

***Risks Related to Investments in Indian Companies and International Operations Generally***

***Our net income would decrease if the Government of India reduces or withdraws tax benefits and other incentives it provides to us or when our tax holidays expire or terminate.***

Currently, the Government of India provides tax benefits to companies that export software from specially designated software technology parks in India. These tax benefits include a 10-year tax holiday from Indian corporate income taxes. We benefit from the 10-year tax holiday on Indian corporate income taxes for the operation of most of our Indian facilities, and as a result, our operations have been subject to relatively low tax liabilities. These tax incentives resulted in a decrease in our income tax expense of $224 million, $160 million and $126 million for fiscal 2007, fiscal 2006 and fiscal 2005 compared to the effective tax rates that we estimate would have applied if these incentives had not been available. 

 The Finance Act, 2000 phases out the 10-year tax holiday available to companies that export software from specially designated software technology parks in India, such that it is available only until the earlier of fiscal year 2009 or 10 years after the commencement of a company's undertaking. In the Finance Act, 2005, the Government of India introduced a separate tax holiday scheme for units set up under designated special economic zones, or SEZs, engaged in manufacture of articles or in provision of services. Under this scheme, units in designated SEZs which begin providing services on or after April 1, 2005 will be eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50 percent of such profits or gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions. The expiration, modification or termination of any of our tax benefits or holidays would likely increase our effective tax rates, and have a material and adverse effect on our net income. 

 The Finance Bill, 2007, currently pending before the Indian Parliament, has proposed to include income eligible for deductions under sections 10A and 10B of the Indian Income Tax Act in the computation of book profits for the levy of a Minimum Alternative Tax, or MAT. The rate of MAT, effective April 1, 2007, would be 11.33% (including a surcharge and education cess) on our book profits determined after including income eligible for deductions under Sections 10A and 10B of the Indian Income Tax Act. The Income tax Act  provides that the  MAT paid by us  can be adjusted against our tax liability over the  next five years. Although MAT paid by us can be set off against our future income tax liability, our net income and cash flows  could be adversely affected. 

***In the event that the Government of India or the government of another country changes its tax policies in a manner that is adverse to us, our tax expense may materially increase, reducing our profitability.***

 In the recent years, the Government of India has introduced a tax on various services provided within India including on the maintenance and repair of software. Under this tax, service providers are required to pay a tax of 12% (excluding applicable education cess) on the value of services provided to customers. The Government of India may expand the services covered under the ambit of this tax to include various services provided by us. This tax, if expanded, could increase our expenses, and could adversely affect our operating margins. Although currently there are no material pending or threatened claims against us for service taxes, such claims may be asserted against us in the future. Defending these claims would be expensive and divert our attention and resources from operating our company. 

The Finance Bill, 2007 seeks to impose a fringe benefit tax on companies in respect of specified securities or equity shares allotted or transferred, directly or indirectly, by the company free of cost or at a concessional rate to its employees. The value of the fringe benefit will be the fair market value, or FMV, of the specified security or share on the date of exercise of the option by the employee as reduced by the amount actually paid by, or recovered from the employee in respect of such security or share. As of March 31, 2007, we have approximately 2.08 million options outstanding under our 1998 ADS stock option plan with a weighted average exercise price of $21 and 1.90 million options outstanding under our 1999 equity stock option plan with a weighted average exercise price of $26. As of March 31, 2007, the market price of our ADS was $50.25 and the market price of our equity share was $46.84. 

 The Finance Bill, 2007 is currently pending before Parliament and the rules applicable for the levy of FBT remain to be framed. Currently, there is uncertainty regarding the imposition of FBT, including  the rate of FBT, its applicability to securities allotted to non-residents and the method of determination of FMV. Further, even if the method of determination of FMV is finalised, it will be difficult to estimate the amount of FBT in view of the uncertainties and volatility associated with the market price of our shares. The prevailing uncertainty over the imposition of FBT could adversely affect our business conditions and any FBT levied on us in the future on the exercise of options granted by us could adversely affect  our results of operations. 

***We operate in jurisdictions that impose transfer pricing and other tax-related regulations on us, and any failure to comply could materially and adversely affect our profitability.***

We are required to comply with various transfer pricing regulations in India and other countries. Failure to comply with such regulations may impact our effective tax rates and consequently affect our net margins. Additionally, we operate in several countries and our failure to comply with the local tax regime may result in additional taxes, penalties and enforcement actions from such authorities. In the event that we do not properly comply with transfer pricing and tax-related regulations, our profitability may be adversely affected. 

***Wage pressures in India may prevent us from sustaining our competitive advantage and may reduce our profit margins.***

Wage costs in India have historically been significantly lower than wage costs in the United States and Europe for comparably skilled professionals, which has been one of our competitive strengths. However, wage increases in India may prevent us from sustaining this competitive advantage and may negatively affect our profit margins. Wages in India are increasing at a faster rate than in the United States, which could result in increased costs for companies seeking to employ technology professionals in India, particularly project managers and other mid-level professionals. We may need to increase  our employee compensation more rapidly than in the past to remain competitive with other employers, or seek to recruit in other low labor cost jurisdictions to keep our wage costs low. For example, we recently established a long term retention bonus policy for our senior executives and employees. Under this policy, certain senior executives and employees will be entitled to a yearly cash bonus upon their continued employment with us based upon seniority, their role in the Company and their performance. Compensation increases may result in a material adverse effect on our business, results of operations and financial condition. 

***Terrorist attacks or a war could adversely affect our business, results of operations and financial condition.***

Terrorist attacks, such as the attacks of September 11, 2001 in the United States, the attacks of July 7, 2005 in London, the attacks of July 11, 2006 in Mumbai, and other acts of violence or war, such as the continuing conflict in Iraq, have the potential to have a direct impact on our clients. To the extent that such attacks affect or involve the United States or Europe, our business may be significantly impacted, as the majority of our revenues are derived from clients located in the United States and Europe. In addition, such attacks may make travel more difficult, may make it more difficult to obtain work visas for many of our technology professionals who are required to work in the United States or Europe, and may effectively curtail our ability to deliver our services to our clients. Such obstacles to business may increase our expenses and negatively affect the results of our operations. Furthermore, any attacks in India could cause a disruption in the delivery of our services to our clients, and could have a negative impact on our business, personnel, assets and results of operations, and could cause our clients or potential clients to choose other vendors for the services we provide. Terrorist threats, attacks or war could make travel more difficult, may disrupt our ability to provide services to our clients and could delay, postpone or cancel our clients' decisions to use our services. 

***The markets in which we operate are subject to the risk of earthquakes, floods and other natural disasters.***

Some of the regions that we operate in are prone to earthquakes, flooding and other natural disasters. In the event that any of our business centers are affected by any such disasters, we may sustain damage to our operations and properties, suffer significant financial losses and be unable to complete our client engagements in a timely manner, if at all. Further, in the event of a natural disaster, we may also incur costs in redeploying personnel and property. In addition if there is a major earthquake, flood or other natural disaster in any of the locations in which our significant customers are located, we face the risk that our customers may incur losses, or sustained business interruption and/or loss which may materially impair their ability to continue their purchase of products or services from us. A major earthquake, flood or other natural disaster in the markets in which we operate could have a material adverse effect on our business, financial condition, results of operations and cash flows. 

***Regional conflicts in South Asia could adversely affect the Indian economy, disrupt our operations and cause our business to suffer.***

South Asia has from time to time experienced instances of civil unrest and hostilities among neighboring countries, including between India and Pakistan. In recent years there have been military confrontations between India and Pakistan that have occurred in the region of Kashmir and along the India-Pakistan border. Military activity or terrorist attacks in the future could influence the Indian economy by disrupting communications and making travel more difficult and such political tensions could create a greater perception that investments in Indian companies involve higher degrees of risk. This, in turn, could have a material adverse effect on the market for securities of Indian companies, including our equity shares and our ADSs, and on the market for our services. 

***Restrictions on immigration may affect our ability to compete for and provide services to clients in the United States, which could hamper our growth and cause our revenues to decline.***

**The vast majority of our employees are Indian nationals. Most of our projects require a portion of the work to be completed at the client's location. The ability of our technology professionals to work in the United States, Europe and in other countries depends on the ability to obtain the necessary visas and work permits. 

 As of March 31, 2007, the majority of our technology professionals in the United States held either H-1B visas (approximately 7,100 persons, not including Infosys BPO employees or employees of our wholly owned subsidiaries), allowing the employee to remain in the United States for up to six years during the term of the work permit and work as long as he or she remains an employee of the sponsoring firm, or L-1 visas (approximately 650 persons, not including Infosys BPO employees or employees of our wholly owned subsidiaries), allowing the employee to stay in the United States only temporarily. Although there is no limit to new L-1 visas, there is a limit to the aggregate number of new H-1B visas that the US Citizenship and Immigration Services, or CIS, may approve in any government fiscal year. In 2000, the United States temporarily increased the annual limit for H-1B visas to 195,000 beginning in 2001, however, this increase expired in 2003 and the limit was returned to 65,000 annually. In November 2004, the United States Congress passed a measure that increased the number of available H-1B visas to 85,000 per year. The 20,000 additional visas are only available to skilled workers who possess a Master's or higher degree from institutions of higher education in the United States. Further, in response to the terrorist attacks in the United States, the CIS has increased its level of scrutiny in granting new visas. This may, in the future, also lead to limits on the number of L-1 visas granted. In addition, the granting of L-1 visas precludes companies from obtaining such visas for employees with specialized knowledge: (1) if such employees will be stationed primarily at the worksite of another company in the US and the employee will not be controlled and supervised by his employer, or (2) if such offsite placement is essentially an arrangement to provide labor for hire rather than in connection with the employee's specialized knowledge. Immigration laws in the United States may also require us to meet certain levels of compensation, and to comply with other legal requirements, including labor certifications, as a condition to obtaining or maintaining work visas for our technology professionals working in the United States. 

 The CIS announced on April 3, 2007, the second day that the window was open for receipt of H-1 B visa petitions for fiscal 2008, that it had received enough H-1 B visa petitions to meet the congressionally mandated cap for fiscal 2008. The CIS will use a computer-generated random selection process among approximately 119,000 cap-subject petitions received by April 3, 2007 and will reject all petitions received on those days that are not randomly selected. Any inability to receive sufficient visas for travel to the US during fiscal 2008 could affect our ability to staff projects there and therefore adversely affect our business condition and results of operations. 

 Immigration laws in the United States and in other countries are subject to legislative change, as well as to variations in standards of application and enforcement due to political forces and economic conditions. It is difficult to predict the political and economic events that could affect immigration laws, or the restrictive impact they could have on obtaining or monitoring work visas for our technology professionals. Our reliance on work visas for a significant number of technology professionals makes us particularly vulnerable to such changes and variations as it affects our ability to staff projects with technology professionals who are not citizens of the country where the work is to be performed. As a result, we may not be able to obtain a sufficient number of visas for our technology professionals or may encounter delays or additional costs in obtaining or maintaining the conditions of such visas. Additionally, we may have to apply in advance for visas and this could result in additional expenses during certain quarters of the fiscal year. 

***Changes in the policies of the Government of India or political instability could delay the further liberalization of the Indian economy and adversely affect economic conditions in India generally, which could impact our business and prospects.***

Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the  Central and State governments in the Indian economy as producers, consumers and regulators has remained significant. The current Government of India, formed in May 2004, has announced policies and taken initiatives that support the continued economic liberalization policies pursued by previous governments. However, these liberalization policies may not continue in the future. The rate of economic liberalization could change, and specific laws and policies affecting technology companies, foreign investment, currency exchange and other matters affecting investment in our securities could change as well. A significant change in India's economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally, and our business in particular. 

 For instance, in April 2007, the Government of India announced a number of changes in its policies applicable to Special Economic Zones, or SEZs, to provide for, among other things, a cap on the size of land available for SEZs. The Indian Government has also announced its intent to make further changes in the SEZ policies. Our software development centers located at Chandigarh and Chennai currently operate out of SEZs and many of our proposed development centers are likely to operate out of SEZs. If the Government of India changes its policies affecting SEZs in a manner that is adverse to us, our business, results of operations and financial condition may be adversely affected. 

Political instability could also delay the reform of the Indian economy and could have a material adverse effect on the market for securities of Indian companies, including our equity shares and our ADSs, and on the market for our services. 

***Currency fluctuations may affect the results or our operations or the value of our ADSs.***

Our functional currency is the Indian rupee although we transact a major portion of our business in several currencies and accordingly face foreign currency exposure through our sales in the United States and elsewhere, and purchases from overseas suppliers in various foreign currencies. Historically, we have held a substantial majority of our cash funds in rupees. Accordingly, changes in exchange rates may have a material adverse effect on our revenues, other income, cost of services sold, gross margin and net income, and may have a negative impact on our business, operating results and financial condition. The exchange rate between the rupee and foreign currencies, including the dollar, the United Kingdom Pound Sterling and the Euro, has changed substantially in recent years and may fluctuate substantially in the future. We expect that a majority of our revenues will continue to be generated in foreign currencies, including the dollar, the United Kingdom Pound Sterling and the Euro, for the foreseeable future and that a significant portion of our expenses, including personnel costs, as well as capital and operating expenditures, will continue to be denominated in Indian rupees. Consequently, the results of our operations are adversely affected as the rupee appreciates against the dollar and other foreign currencies. 

We use derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in foreign exchange rates on accounts receivable and forecasted cash flows denominated in certain foreign currencies. As of March 31, 2007, we held foreign exchange forward contracts of $170 million, Euro 2 million and United Kingdom Pound Sterling 6 million. The foreign exchange forward contracts mature in between 1 to 12 months. As of March 31, 2007, we held range barrier options of $207 million and United Kingdom Pound Sterling 8 million, Euro Accelerator options of Euro 24 million and Target Redemption Structure options of United Kingdom Pound Sterling 16 million. The increase in our use of derivative instruments is primarily attributable to our decision to actively hedge our foreign currency exposure given the recent volatility of the Indian rupee against foreign currencies, including the US dollar, the United Kingdom Pound Sterling and the Euro. We may not purchase derivative instruments adequate to insulate ourselves from foreign currency exchange risks. Additionally, the policies of the Reserve Bank of India may change from time to time which may limit our ability to hedge our foreign currency exposures adequately. 

In addition, a high-level committee appointed by the Reserve Bank of India recently recommended that India move to increased capital account convertibility over the next five years, and proposed a framework for such increased convertibility. Full or increased capital account convertibility, if introduced, could result in increased volatility in the fluctuations of exchange rates between the rupee and foreign currencies. 

Fluctuations in the exchange rate between the rupee and the dollar will also affect the dollar conversion by Deutsche Bank Trust Company Americas, the Depositary, of any cash dividends paid in rupees on the equity shares represented by the ADSs. In addition, these fluctuations will affect the dollar equivalent of the rupee price of equity shares on the Indian stock exchanges and, as a result, the prices of our ADSs in the United States, as well as the dollar value of the proceeds a holder would receive upon the sale in India of any equity shares withdrawn from the Depositary under the Depositary Agreement. Holders may not be able to convert rupee proceeds into dollars or any other currency, and there is no guarantee of the rate at which any such conversion will occur, if at all. 

***Our international expansion plans subject us to risks inherent in doing business internationally.***

Currently, we have global development centers in nine countries around the world, with our largest development centers located in India. We have recently established or intend to establish new development facilities, potentially in Southeast Asia, Africa, Latin America and Europe. In October 2003, we established Infosys China and in January 2004 we acquired Infosys Australia to expand our operations in those countries. In April 2004, we formed Infosys Consulting to focus on consulting services in the United States. We also have a very large workforce spread across our various offices worldwide. As of March 31, 2007, we employed approximately 72,200 employees worldwide, and approximately 15,100 of those employees were located outside of India. Because of our limited experience with facilities outside of India, we are subject to additional risks related to our international expansion strategy, including risks related to compliance with a wide variety of treaties, national and local laws, including multiple and possibly overlapping tax regimes, privacy laws and laws dealing with data protection, export control laws, restrictions on the import and export of certain technologies and national and local labor laws dealing with immigration, employee health and safety, and wages and benefits, applicable to our employees located in our various international offices and facilities. We may from time to time be subject to litigation or administrative actions resulting from claims against us by current or former employees, individually or as part of a class action, including for claims of wrongful termination, discrimination, misclassification, payment of redundancy payments under TUPE-type legislation, or other violations of labor laws, or other alleged conduct. If such litigation or actions are successful, it could result in our being held liable for unpaid compensation, redundancy payments, statutory penalties, and other damages, which could adversely affect our revenues and operating profitability. 

 In addition, we may face competition in other countries from companies that may have more experience with operations in such countries or with international operations generally. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture. As an international company, our offshore and onsite operations may also be impacted by disease,  epidemics and local political instability. Our international expansion plans may not be successful and we may not be able to compete effectively in other countries. Any of these events could adversely affect our revenues and operating profitability. 

***It may be difficult for holders of our ADSs to enforce any judgment obtained in the United States against us or our affiliates.***

We are incorporated under the laws of India and many of our directors and executive officers reside outside the United States.  Virtually all of our assets are located outside the United States. As a result, holders of our ADSs may be unable to effect service of process upon us outside the United States. In addition, holders of our ADSs may be unable to enforce judgments against us  if such judgments are obtained in courts of the United States, including judgments predicated solely upon the federal securities laws of the United States. 

The United States and India do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States on the basis of civil liability, whether or not predicated solely upon the federal securities laws of the United States, would not be enforceable in India. However, the party in whose favor such final judgment is rendered may bring a new suit in a competent court in India based on a final judgment that has been obtained in the United States. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice. A party seeking to enforce a foreign judgment in India is required to obtain approval from the Reserve Bank of India under the Foreign Exchange Management Act, 1999, to repatriate any amount recovered pursuant to the execution of such a judgment. 

***The laws of India do not protect intellectual property rights to the same extent as those of the United States, and we may be unsuccessful in protecting our intellectual property rights. We may also be subject to third party claims of intellectual property infringement.***

We rely on a combination of patent, copyright, trademark and design laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property. However, the laws of India do not protect proprietary rights to the same extent as laws in the United States. Therefore, our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. 

The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. We may need to litigate to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time consuming and costly.   As the number of patents, copyrights and other intellectual property rights in our industry increases, and as the coverage of these rights increase, we believe that companies in our industry will face more frequent infringement claims. Defense against these claims, even if such claims are not meritorious, could be expensive and divert our attention and resources from operating our company. 

 Although there are currently no material pending or threatened intellectual property claims against us, infringement claims may be asserted against us in the future. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and be forced to develop non-infringing technology, obtain a license or cease selling the applications or products that contain the infringing technology. We may be unable to develop non-infringing technology or to obtain a license on commercially reasonable terms, or at all. 

***Our ability to acquire companies organized outside India depends on the approval of the Government of India and/or the Reserve Bank of India, and failure to obtain this approval could negatively impact our business.***

Generally, the Reserve Bank of India must approve any acquisition by us of any company organized outside of India. The Reserve Bank of India permits acquisitions of companies organized outside of India by an Indian party without approval in the following circumstances: 
    -   if the transaction consideration is paid in cash, the transaction value does not exceed 200% of the net worth of the acquiring company as on the date of the latest audited balance sheet, or unless the acquisition is funded with cash from the acquiring company's existing foreign currency accounts or with cash proceeds from the issue of ADRs/GDRs; or 
    -   if the transaction consideration is paid in stock (i.e., by issue of ADRs/GDRs), the transaction value does not exceed ten times the acquiring company's previous fiscal year's export earnings. 

In its annual policy statement for 2007-08 announced on April 24, 2007, the Reserve Bank of India has proposed to enhance the overseas investment limit for an Indian acquirer from the existing limit of 200 per cent of their net worth to 300 per cent of their net worth as per the last audited balance sheet.

It is possible that any required approval from the Reserve Bank of India and the Ministry of Finance of the Government of India or any other government agency may not be obtained. Our failure to obtain approvals for acquisitions of companies organized outside India may restrict our international growth, which could negatively affect our business and prospects. 

***Indian laws limit our ability to raise capital outside India and may limit the ability of others to acquire us, which could prevent us from operating our business or entering into a transaction that is in the best interests of our shareholders.***

Indian law relating to foreign exchange management constrains our ability to raise capital outside India through the issuance of equity or convertible debt securities. Generally, any foreign investment in, or acquisition of, an Indian company, subject to certain exceptions, requires approval from relevant government authorities in India, including the Reserve Bank of India. There are, however, certain exceptions to this approval requirement for technology companies on which we are able to rely. Changes to such policies may create restrictions on our capital raising abilities. For example, a limit on the foreign equity ownership of Indian technology companies or pricing restrictions on the issue of ADRs/GDRs may constrain our ability to seek and obtain additional equity investment by foreign investors. In addition, these restrictions, if applied to us, may prevent us from entering into certain transactions, such as an acquisition by a non-Indian company, which might otherwise be beneficial for us and the holders of our equity shares and ADSs. 

 Additionally, under current Indian law, the sale of a technology services company can result in the loss of the tax benefits for specially designed software technology parks in India. The potential loss of this tax benefit may discourage others from acquiring us or entering into a transaction with us that is in the best interest of our shareholders. 

******Risks Related to the ADSs**

***Historically, our ADSs have traded at a significant premium to the trading prices of our underlying equity shares, and may not continue to do so in the future.***

** Historically, our ADSs have traded on NASDAQ at a  premium to the trading prices of our underlying equity shares on the Indian stock exchanges. Please see the section entitled "Price History" for the underlying data. We believe that this price premium has resulted from the relatively small portion of our market capitalization previously represented by ADSs, restrictions imposed by Indian law on the conversion of equity shares into ADSs, and an apparent preference of some investors to trade dollar-denominated securities. We have already completed three secondary ADS offerings and the completion of any additional secondary ADS offering will significantly increase the number of our outstanding ADSs. Also, over time, some of the restrictions on the issuance of ADSs imposed by Indian law have been relaxed and we expect that other restrictions may be relaxed in the future. As a result, the historical premium enjoyed by ADSs as compared to equity shares may be reduced or eliminated upon the completion of  any additional secondary offering of our ADSs or similar transactions in the future, a change in Indian law permitting further conversion of equity shares into ADSs or changes in investor preferences. 

***Sales of our equity shares may adversely affect the prices of our equity shares and the ADSs.***

Sales of substantial amounts of our equity shares, including sales by our insiders, in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of our equity shares or the ADSs or our ability to raise capital through an offering of our securities. In the future, we may also sponsor the sale of shares currently held by some of our shareholders as we have done in the past,  or issue new shares. We can make no prediction as to the timing of any such sales or the effect, if any, that future sales of our equity shares, or the availability of our equity shares for future sale, will have on the market price of our equity shares or ADSs prevailing from time to time. 

***Indian law imposes certain restrictions that limit a holder's ability to transfer the equity shares obtained upon conversion of ADSs and repatriate the proceeds of such transfer which may cause our ADSs to trade at a premium or discount to the market price of our equity shares.***

Under certain circumstances, the Reserve Bank of India must approve the sale of equity shares underlying ADSs by a non-resident of India to a resident of India. The Reserve Bank of India has given general permission to effect sales of existing shares or convertible debentures of an Indian company by a resident to a non-resident, subject to certain conditions, including the price at which the shares may be sold. Additionally, except under certain limited circumstances, if an investor seeks to convert the rupee proceeds from a sale of equity shares in India into foreign currency and then repatriate that foreign currency from India, he or she will have to obtain Reserve Bank of India approval for each such transaction. Required approval from the Reserve Bank of India or any other government agency may not be obtained on terms favorable to a non-resident investor or at all. 

***An investor in our ADSs may not be able to exercise preemptive rights for additional shares and may thereby suffer dilution of his or her equity interest in us.***

Under the Companies Act, 1956, or the Indian Companies Act, a company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless such preemptive rights have been waived by three-fourths of the shares voting on the resolution to waive such rights. Holders of ADSs may be unable to exercise preemptive rights for equity shares underlying ADSs unless a registration statement under the US Securities Act of 1933, as amended, or the Securities Act, is effective with respect to such rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to prepare and file such a registration statement and our decision to do so will depend on the costs and potential liabilities associated with any such registration statement, as well as the perceived benefits of enabling the holders of ADSs to exercise their preemptive rights, and any other factors we consider appropriate at the time. No assurance can be given that we would file a registration statement under these circumstances. If we issue any such securities in the future, such securities may be issued to the Depositary, which may sell such securities for the benefit of the holders of the ADSs. There can be no assurance as to the value, if any, the Depositary would receive upon the sale of such securities. To the extent that holders of ADSs are unable to exercise preemptive rights granted in respect of the equity shares represented by their ADSs, their proportional interests in us would be reduced. 

***ADS holders may be restricted in their ability to exercise voting rights.***

At our request, the Depositary will mail to holders of our ADSs any notice of shareholders' meeting received from us together with information explaining how to instruct the Depositary to exercise the voting rights of the securities represented by ADSs. If the Depositary receives voting instructions from a holder of our ADSs in time, relating to matters that have been forwarded to such holder, it will endeavor to vote the securities represented by such holder's ADSs in accordance with such voting instructions. However, the ability of the Depositary to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure that holders of our ADSs will receive voting materials in time to enable such holders to return voting instructions to the Depositary in a timely manner. Securities for which no voting instructions have been received will not be voted. There may be other communications, notices or offerings that we only make to holders of our equity shares, which will not be forwarded to holders of ADSs. Accordingly, holders of our ADSs may not be able to participate in all offerings, transactions or votes that are made available to holders of our equity shares. 

**Item 4. Information on the Company**

**COMPANY OVERVIEW**

 Infosys defines, designs and delivers IT-enabled business solutions to its clients. These solutions provide our clients with strategic differentiation and operational efficiency. 

 We provide comprehensive end-to-end business solutions that leverage technology for our clients, including technical consulting, design, development, software re-engineering, maintenance, systems integration, package evaluation and test and implementation and infrastructure management services. We also provide software products to the banking industry. Through Infosys BPO, we provide business process management services such as offsite customer relationship management, finance and accounting, and administration and sales order processing. Our clients rely on our solutions to enhance their business performance. 

 Our professionals deliver high quality solutions through our Global Delivery Model. Using our Global Delivery Model, we divide projects into components that we execute simultaneously at client sites and at our development centers in India and around the world. We optimize our cost structure by maintaining the flexibility to execute project components where it is most cost effective. Our Global Delivery Model, with its easily scalable infrastructure and ability to execute project components around the clock and across time zones, enables us to reduce project delivery times. 

 We have organized our sales, marketing and business development teams to focus on specific geographies and industries, thus enabling us to customize our service offerings to our clients' needs. Our primary geographic markets are North America, Europe and the Asia-Pacific region. We serve clients in financial services, manufacturing, telecommunications, retail, utilities, logistics and other industries. 

 Our revenues grew from $754 million in fiscal 2003 to $3,090 million in fiscal 2007, representing a compound annual growth rate of 42.3%. Our net income grew from $195 million to $850 million during the same period, representing a compound annual growth rate of 44.5%. Between March 31, 2003 and March 31, 2007, our total employees grew from approximately 15,900 to approximately 72,200, representing a compound annual growth rate of 46.0%. 

 We believe we have among the best talent in the Indian technology services industry, and we are committed to remaining among the industry's leading employers. In 2006, we were ranked as the best company to work for in India by the TNS-Mercer survey in Business Today. 

 We were incorporated on July 2, 1981 in Maharashtra, India as Infosys Consultants Private Limited, a private limited company under the Indian Companies Act, 1956. We changed our name to Infosys Technologies Private Limited in April 1992 and to Infosys Technologies Limited in June 1992, when we became a public limited company. We completed our initial public offering of equity shares in India in 1993 and our initial public offering of ADSs in the United States in 1999. In August 2003, June 2005 and November 2006 we completed sponsored secondary offerings of ADSs in the United States on behalf of our shareholders.  Our 2005 and 2006 offerings also included a public offering without listing in Japan, or POWL. In December 2006, we became the first Indian company to be added to the NASDAQ - 100 index and with this, we became the only Indian company to be part of any of the major global indices. 

 Infosys BPO is our majority-owned subsidiary. Infosys Australia, Infosys China and Infosys Consulting are our wholly-owned subsidiaries. 

 The address of our registered office is Electronics City, Hosur Road, Bangalore-560 100, Karnataka, India. The telephone number of our registered office is +91 80 2852 0261. Our agent for service of process in the United States is CT Corporation System, 1350 Treat Boulevard, Suite 100, Walnut Creek, CA 94597-2152. Our website address is www.infosys.com and does not constitute a part of this Annual Report. 

**Principal Capital Expenditures and Divestitures**

 In fiscal 2007, 2006 and 2005 we spent $336, $246 and $186 million on capital expenditure. As of March 31, 2007, we had contractual commitments of approximately $158 million for capital expenditure. These commitments included approximately $137 million in domestic purchases and $21 million in imports and overseas commitments for hardware, supplies and services. All our capital expenditures are financed out of cash generated from operations. 

 In fiscal 2005, the Company sold its investment in Yantra Corporation. The carrying value of the investment in Yantra Corporation was completely written down in fiscal 1999. Consideration received from the sale resulted in a gain of $11 million during fiscal 2005. Further consideration of $1 million was received during the year ended March 31, 2007 resulting in a gain of $1 million 

 In June 2006, we acquired 8,750,000 equity shares in Infosys BPO ("Infosys BPO Shares") held by Citicorp International Finance Corporation pursuant to conversion of preference shares, granted in accordance with the terms of a share subscription agreement entered into on June 30, 2002, for a consideration of approximately $116 million. In December 2006, Infosys BPO also repurchased 1,139,469 Infosys BPO Shares from its minority shareholders, held as a result of exercise of vested options to purchase Infosys BPO Shares granted pursuant to a stock option plan introduced by Infosys BPO in 2002 ("Infosys BPO Options"), for a consideration of approximately $16 million. In January 2007, we initiated the purchase of all outstanding Infosys BPO Shares by providing a choice to Infosys BPO shareholders to sell their Infosys BPO Shares, arising out of exercise of vested Infosys BPO Options, at fair market value either (a) through immediate cash settlement; or (b) by entering into a non-cancellable deferred purchase agreement to transfer their Infosys BPO Shares to us by February 2008 at a pre-determined fair market value. As a result, we paid an aggregate amount of $3 million for the purchase of 211,909 Infosys BPO Shares and recorded a liability of $5 million for the committed purchase of 360,417 Infosys BPO Shares which will be transferred by February 2008. In fiscal 2007, we further provided holders of vested and unvested Infosys BPO Options with the choice to sell their Infosys BPO Options and/or swap their Infosys BPO Options for options granted by Infosys pursuant to a stock option plan introduced by Infosys in 1999 ("Infosys Options") at a swap ratio based on the fair market value of the respective options on the date of the swap. We paid $13 million for 1,218,732 Infosys BPO Options bought by us and granted 151,933 Infosys Options in lieu of Infosys BPO Options surrendered. 

**INDUSTRY OVERVIEW**

 Changing economic and business conditions, rapid technological innovation, proliferation of the internet and globalization are creating an increasingly competitive market environment that is driving corporations to transform the manner in which they operate. 

 Customers are increasingly demanding improved products and services with accelerated delivery times and at lower prices. To adequately address these needs, corporations are focusing on their core competencies and are using outsourced technology service providers to help improve productivity, develop new products, conduct research and development activities, reduce business risk, and manage operations more effectively. 

 The role of technology has evolved from supporting corporations to transforming them. The ability to design, develop, implement, and maintain advanced technology platforms and solutions to address business and customer needs has become a competitive advantage and a priority for corporations worldwide. Concurrently, the prevalence of multiple technology platforms and a greater emphasis on network security and redundancy have increased the complexity and cost of IT systems, and have resulted in greater technology-related risks. The need for more dynamic technology solutions and the increased complexity, cost and risk associated with these technology platforms has created a growing need for specialists with experience in leveraging technology to help drive business strategy. 

 There is an increasing need for highly skilled technology professionals in the markets in which we operate. At the same time, corporations are reluctant to expand their internal IT departments and increase costs. These factors have increased corporations' reliance on their outsourced technology service providers and are expected to continue to drive future growth for outsourced technology services. In April 2007, the Forrester US IT Spending Update: Q1 2007  indicated that the growth in spending on IT outsourcing and IT consulting and integration services in the United States will be 6% and 10%, respectively, in 2008 as compared to 2007. 

**Increasing Trend Towards Offshore Technology Services**

 Outsourcing the development, management and ongoing maintenance of technology platforms and solutions has become increasingly important. Corporations are increasingly turning to offshore technology service providers to meet their need for high quality, cost competitive technology solutions. As a result, offshore technology service providers have become mainstream in the industry and continue to grow in recognition and sophistication. The effective use of offshore technology services offers a variety of benefits, including lower total cost of ownership of IT infrastructure, lower labor costs, improved quality and innovation, faster delivery of technology solutions and more flexibility in scheduling. According to Gartner's Forecast: IT Outsourcing, Worldwide 2004-2009 Update - Worldwide IT, outsourcing spending will rise from $193 billion in 2004 to $260 billion by 2009. The Gartner Dataquest report, 2006 indicates that the Business Process Outsourcing market is expected to grow from $111 billion to $172 billion during the same period. In addition, technology companies are also recognizing the benefits of offshore technology service providers in software research and development, and related support functions and are outsourcing a greater portion of these activities. 

**The India Advantage**

 India is recognized as the premier destination for offshore technology services. According to the Strategic Review 2007 published by NASSCOM, the total combined Indian IT services and IT-enabled services export market in fiscal 2006 was nearly $24 billion and is estimated to be approximately $31 billion in fiscal 2007. A report published by NASSCOM-KPMG in 2004 indicated that the total Indian IT services and IT-enabled services export market is projected to grow to $49 billion by 2009. 

There are several key factors contributing to the growth of IT and IT-enabled services. 

***High Quality Delivery.*** According to NASSCOM, as of December 2006, over 440 Indian companies had acquired quality certifications with 90 companies certified at SEI CMM Level 5 - higher than any other country in the world. SEI-CMM is the Carnegie Mellon Software Engineering Institute's Capability Maturity Model, which assesses the quality of organizations' management system processes and methodologies. Level 5 is the highest level of the CMM assessment. 

***Significant Cost Benefits.*** The NASSCOM Strategic Review 2007 suggests that India has a strong track record of delivering a significant cost advantage, with clients reporting savings of up to 25-50 percent over the original cost base. 

***Abundant Skilled Resources.*** India has a large and highly skilled English-speaking labor pool. According to the NASSCOM Strategic Review 2007, India produces approximately 3.1 million university and college graduates, including approximately 500,000 engineering degree and diploma holders from its educational institutions annually. 

 NASSCOM Strategic Review 2007 suggests that the large and growing pool of skilled professionals has been a key driver of the rapid growth in the Indian IT-ITES sector. According to NASSCOM, India has the single-largest pool of suitable offshore talent - accounting for 28 percent of the total suitable pool available across all offshore destinations and outpacing the share of the next closest destination by a factor of at least 2.5. 

 The factors listed above also make India the premier destination for other services such as IT-enabled services, which we refer to as business process management. Industry analysts have observed that business process management services of leading offshore technology service providers have strong prospects for growth given the providers' experience, proven track record and breadth of client relationships. According to  NASSCOM Strategic Review 2007, the total Indian IT-enabled services export market in fiscal 2006 was $6.3 billion. The 2004 NASSCOM-KPMG report estimates that the Indian IT-enabled services export market will grow to approximately $21 billion by 2009. 

 While these advantages apply to many companies with offshore capabilities in India, we believe that there are additional factors critical to a successful, sustainable and scalable technology services business. These factors include the ability to: 
    -  effectively integrate onsite and offshore execution capabilities to deliver seamless, scalable services; 
    -  increase depth and breadth of service offerings to provide a one-stop solution in an environment where corporations are increasingly reducing the number of technology services vendors they are using; 
    -  develop and maintain knowledge of a broad range of existing and emerging technologies; 
    -  demonstrate significant domain knowledge to understand business processes and requirements; 
    -  leverage in-house industry expertise to customize business solutions for clients; 
    -  attract and retain high quality technology professionals; and 
    -  make strategic investments in human resources and physical infrastructure (or facilities) throughout the business cycle. 

**Evolution of Technology Outsourcing**

 The nature of technology outsourcing is changing. Historically, corporations either outsourced their technology requirements entirely or on a standalone project-by-project basis. In an environment of rapid technological change, globalization and regulatory changes, the complete outsourcing model is often perceived to limit a corporation's operational flexibility and not fully deliver potential cost savings and efficiency benefits. Similarly, project-by-project outsourcing is also perceived to result in increased operational risk and coordination costs, and as failing to fully leverage technology service providers' full ranges of capabilities. To address these issues, corporations are developing a more systematic approach to outsourcing that necessitates their technology service providers to develop specialized systems, processes and solutions along with cost-effective delivery capabilities. 

**OUR COMPETITIVE STRENGTHS**

 We believe our competitive strengths include: 

***Innovation and Leadership.*** We are a pioneer in the technology services industry. We were one of the first Indian companies to achieve a number of significant milestones which has enhanced our reputation in the marketplace. For example, we were one of the first companies to develop and deploy a global delivery model and attain SEI-CMMI Level 5 certification for both our offshore and onsite operations. More recently, we established a business consulting practice in the United States which leverages our Global Delivery Model. In addition, we were the first Indian company to list on a US stock exchange. We were also the first Indian company to do a POWL in Japan. In December 2006, we became the first Indian company to be added to the NASDAQ - 100 index and with this, we are the only Indian company to be part of any of the major global indices. 

***Proven Global Delivery Model.*** We believe our highly evolved Global Delivery Model represents a key competitive advantage. Over the past decade, we have developed our onsite and offshore execution capabilities to deliver high quality and scalable services. In doing so, we have made substantial investments in our processes, infrastructure and systems, and have refined our Global Delivery Model to effectively integrate onsite and offshore technology services. Our Global Delivery Model provides clients with seamless, high quality solutions in reduced timeframes enabling our clients to achieve operating efficiencies. To address changing industry dynamics, we continue to refine our Global Delivery Model. Through our Modular Global Sourcing framework, we assist clients in segmenting their internal business processes and applications, including IT processes, and outsourcing these segments selectively on a modular basis to reduce risk and cost and increase operational flexibility. We believe that this approach and other ongoing refinements to our Global Delivery Model help us retain our industry leadership position. Gartner has  positioned us in the leader quadrant in its 2006 Magic Quadrant report for 30 leading offshore application services providers. 

***Comprehensive and Sophisticated End-to-End Solutions.*** Our suite of comprehensive, end-to-end technology-based solutions enables us to extend our network of relationships, broaden our dialogue with key decision makers within each client, increase the points of sale for new clients and diversify our service-mix. As a result, we are able to capture a greater share of our clients' technology budgets. Our suite of solutions encompasses consulting, design, development, software re-engineering, maintenance, systems integration and package evaluation and implementation, and through Infosys BPO, business process management services. Through our domain competency group and software engineering and technology lab, we research and engineer new solutions tailored for our clients and their respective industries. More recently, through the creation of Infosys Consulting, we have enhanced our ability to provide strategic and competitive analysis and complex operational consulting services. We have a well-defined methodology to update and extend our service offerings to meet the evolving needs of the global marketplace. 

***Commitment to Superior Quality and Process Execution.*** We have developed a sophisticated project management methodology to ensure timely, consistent and accurate delivery of superior quality solutions to maintain a high level of client satisfaction. We constantly benchmark our services and processes against globally recognized quality standards. Certifications we have received include SEI-CMMI Level 5, CMM Level 5, PCMM Level 5, TL 9000 and ISO 9001-2000. In February 2007, Infosys BPO was certified for eSCM level 4.0, the eSourcing Capability Model for Service Providers developed by a consortium led by Carnegie Mellon University's Information Technology Services Qualification Center. 

***Long-Standing Client Relationships.*** We have long-standing relationships with large multi-national corporations built on successful prior engagements with them. Our track record of delivering high quality solutions across the entire software life cycle and our strong domain expertise helps us to solidify these relationships and gain increased business from our existing clients. As a result, we have a history of client retention and derive a significant proportion of revenues from repeat clients.

***Status as an Employer of Choice.*** We believe we have among the best talent in the Indian technology services industry and we are committed to remaining among the industry's leading employers. We have a presence in 13 cities in India, allowing us to recruit technology professionals with specific geographic preferences. Our diverse workforce includes employees of 65 nationalities. Our training programs ensure that new hires enhance their skills in alignment with our requirements and are readily deployable upon completion of their training programs. Our lean organizational structure and strong unifying culture facilitate the sharing of knowledge and best practices among our employees. 

***Ability to Scale.*** We have successfully managed our growth by investing in infrastructure and by rapidly recruiting, training and deploying new professionals. We currently have 44 global development centers, the majority of which are located in India. We also have development centers in Australia, Canada, China, Japan, Mauritius and at multiple locations in the United States and Europe. Our financial position allows us to make the investments in infrastructure and personnel required to continue growing our business. We can rapidly deploy resources and execute new projects through the scalable network of our global delivery centers. Between March 31, 2003 and March 31, 2007, our total number of employees grew from approximately 15,900 to approximately 72,200. 

**OUR STRATEGY**

 We seek to further strengthen our position as a leading global technology services company by successfully differentiating our service offerings and increasing the scale of our operations. To achieve these goals, we seek to: 

***Increase Business from Existing and New Clients.*** Our goal is to build enduring relationships with both existing and new clients. With existing clients, we aim to expand the nature and scope of our engagements by increasing the size and number of projects and extending the breadth of our service offerings. For new clients, we seek to provide value-added solutions by leveraging our in-depth industry expertise and expanding the breadth of services offered to them beyond those in the initial engagement. We manage first-time engagements by educating clients about the offshore model, taking on smaller projects to minimize client risk and demonstrating our  execution capabilities. We also plan to increase our recurring business with clients by providing software re-engineering, maintenance, infrastructure management and business process management services which are long-term in nature and require frequent client contact. Our Strategic Global Sourcing Group is comprised of senior professionals and has been established to identify, secure and manage new, large, and long-term client engagements. 

***Expand Geographically.*** We seek to selectively expand our global presence to enhance our ability to service clients. We plan to accomplish this by establishing new sales and marketing offices, representative offices and global development centers to expand our geographical reach. We intend to increase our presence in China through Infosys China, in the Czech Republic and Eastern Europe directly and through Infosys BPO, and in Australia through Infosys Australia. We intend to use our operations in these regions to eventually support clients in the local market as well as our global clients. 

***Continue to Invest in Infrastructure and Employees.*** We intend to continue to invest in physical and technological infrastructure to support our growing worldwide development and sales operations and to increase our productivity. To enhance our ability to hire and successfully deploy increasingly greater numbers of technology professionals, we intend to continue investing in recruiting, training and maintaining a challenging and rewarding work environment. During fiscal 2007, we screened over 1,302,300 employment applications, tested over 225,400 applicants, interviewed over 91,200 applicants and made approximately 36,700 offers of employment. These statistics do not include Infosys BPO or our other subsidiaries. We have also completed the construction of an employee training facility in Mysore, India to further enhance our employee training capabilities. The Mysore facility is able to house 4,500 trainees at any one time, and is able to provide the facilities required for the training of approximately 15,200 employees annually. 

***Continue to Enhance our Solution Set.*** We seek to continually enhance our portfolio of solutions as a means of developing and growing our business. To differentiate our services, we focus on emerging trends, new technologies, specific industries and pervasive business issues that confront our clients. In recent years, we have added new service offerings, such as consulting, business process management, systems integration and infrastructure management, which are major contributors to our growth. We also established Infosys Consulting to add additional operational and business consulting capabilities to our Global Delivery Model. Furthermore, our Modular Global Sourcing framework and other refinements to our Global Delivery Model enhance our ability to service our customers. 

***Continue to Develop Deep Industry Knowledge.*** We continue to build specialized industry expertise in the financial services, manufacturing, telecommunications, retail, transportation and logistics industries. We combine deep industry knowledge with an understanding of our clients' needs and technologies to provide high value, quality services. Our industry expertise can be leveraged to assist other clients in the same industry, thereby improving quality and reducing the cost of services to our clients. We will continue to build on our extensive industry expertise and enter into new industries. 

***Enhance Brand Visibility.*** We continue to invest in the development of our premium brand identity in the marketplace. Our branding efforts include participating in media and industry analyst events, sponsorship of and participation in targeted industry conferences, trade shows, recruiting efforts, community outreach programs and investor relations. We have instituted the Wharton Infosys Business Transformation Award, offered jointly with the Wharton School at the University of Pennsylvania to recognize visionaries and Global 2000 organizations that use technology innovatively to transform their industries. We believe that a strong and recognizable Infosys brand will continue to facilitate the new-business lead generation process and enhance our ability to attract talented personnel globally. 

***Pursue Alliances and Strategic Acquisitions.*** We intend to continue to develop alliances that complement our core competencies. Our alliance strategy is targeted at partnering with leading technology providers, which allows us to take advantage of emerging technologies in a mutually beneficial and cost-competitive manner. We also intend to selectively pursue acquisitions that augment our existing skill sets, industry expertise, client base or geographical presence. In January 2004, we acquired Infosys Australia primarily due to its market position in Australia, skilled employees, management strength, expertise in the telecommunications industry and potential to serve as a platform for enhancing business opportunities in Australia. 

**OUR GLOBAL DELIVERY MODEL**

 Our Global Delivery Model allows us to produce where it is most cost effective and sell services where it is most profitable. The Global Delivery Model enables us to derive maximum benefit from: 
    -  access to our large pool of highly skilled technology professionals; 
    -  24-hour execution capabilities across multiple time zones; 
    -  the ability to accelerate delivery times of large projects by simultaneously processing project components; 
    -  physical and operational separation of client projects to provide enhanced security; 
    -  cost competitiveness across geographic regions; 
    -  built-in redundancy to ensure uninterrupted services; and 
    -  a knowledge management system that enables us to re-use solutions where appropriate. 

 In a typical offshore development project, we assign a team of technology professionals to visit a client's site to determine the scope and requirements of the project. Once the initial specifications of the project have been established, our project managers return to the relevant global development center to supervise a larger team of technology professionals dedicated to the development or implementation of the solution. Typically, a small team remains at the client's site to manage project coordination and address changes in requirements as the project progresses. Teams return to the client's site when necessary to ensure seamless integration. To the extent required, a dedicated team provides ongoing maintenance from our global development centers. The client's systems are linked to our facilities enabling simultaneous processing in our global development centers. Our model ensures that project managers remain in control of execution throughout the life of the project regardless of location. 

 For the past 16 years, we have successfully executed projects at our global development centers. We have 44 global development centers, of which 24 are located in India, 9 are in North America (including 1 in Toronto, Canada), 7 are in the Asia-Pacific region and 4 are in Europe. Our largest development centers are located in India. Approximately 71.6% of the total billed person-months for our services rendered during fiscal 2007 originated from our global development centers in India, with the balance of the work being performed at client sites and our global development centers located outside India. 

 Our quality control processes and programs are designed to minimize defects and ensure adherence to pre-determined project parameters. Additionally, software quality advisors help individual teams establish appropriate processes for projects and adhere to multi-level testing plans. The project manager is responsible for tracking metrics, including actual effort spent versus initial estimates, project budgeting and estimating the remainder of efforts required on a project. 

 Our Global Delivery Model mitigates risks associated with providing offshore technology services to our clients. For our communications needs, we use multiple service providers and a mix of satellite, terrestrial and optical fiber links with alternate routing. In India, we rely on two telecommunications carriers to provide high-speed links inter-connecting our global development centers. Internationally, we rely on multiple satellite links to connect our Indian global development centers with network hubs in other parts of the world. Our significant investment in redundant infrastructure enables us to provide uninterrupted service to our clients. Our business continuity center in Mauritius enables us to transfer the execution of a portion of our business activities rapidly from our Indian global development centers to Mauritius and is an example of our investment in redundant infrastructure. 

**MODULAR GLOBAL SOURCING**

 The nature of technology outsourcing is changing. Historically, corporations either outsourced their technology requirements entirely or on a standalone project-by-project basis. The complete outsourcing model is perceived to be deficient as a result of: 
    -   the increased pace of technological change; 
    -  continuous change in the business environment due to globalization and deregulation; 
    -  the need to better manage risk in an evolving regulatory environment, such as ensuring compliance with the requirements of the Sarbanes-Oxley Act; 
    -  the failure to deliver promised cost savings and expected benefits; and 
    -  the changing role of technology from merely improving operational efficiency to becoming an integral part of a corporation's strategy. 

 Similarly, project-by-project outsourcing is also perceived to have its deficiencies, resulting in increased operational risk and coordination costs, as well as the failure to fully leverage service providers' full range of capabilities. 

 We have developed our Modular Global Sourcing framework to address these issues and assist clients in evaluating and defining, on both a modular and an enterprise-wide basis, the client's business processes and applications that can be outsourced, and the capabilities required to effectively deliver those processes and applications to the organization. We then assist the client in assessing whether a particular process, application or infrastructure is best retained within the organization or is suitable for outsourcing based on various factors including third-party capabilities, potential cost savings, risks to the organization and importance of the function. Thereafter, we assist in sourcing decisions, the related risk assessments, transitioning, and program management and execution. 

 Our systematic approach to evaluating an enterprise's IT systems and business processes under the Modular Global Sourcing framework allows us to better align our clients' business, operations and IT platforms with our solutions. As a result, our clients are able to benefit from our Global Delivery Model and potentially realize cost savings, enhanced efficiencies and lasting competitive advantages, while retaining control and flexibility. Modular Global Sourcing also positions us to offer the broadest range of services to the greatest number of clients and to capture a greater share of our clients' technology budgets. 

**OUR END-TO-END SOLUTIONS**

 We provide comprehensive end-to-end business solutions that leverage technology. Our service offerings include custom application development, maintenance and production support, software re-engineering, package evaluation and implementation, IT consulting, and other solutions, including independent validation solutions, operations and business process consulting, engineering services, business process management, systems integration and infrastructure management services. We also provide software products for the banking industry. 

 We complement our industry expertise with specialist support for our clients using our domain competency group, which has expertise in areas such as securities, insurance, telecommunication, banking and cash management, supply chain management, manufacturing, retail and distribution, energy and utilities, healthcare, and travel and tourism. We also use our software engineering group and technology lab to create customized solutions for our clients. In addition, we continually evaluate and train our professionals in new technologies and methodologies. Finally, we ensure the integrity of our service delivery by utilizing a scalable, redundant and secure infrastructure. 

 We generally assume full project management responsibility in each of our solution offerings. We strictly adhere to our SEI-CMMI Level 5 internal quality and project management processes. We have a knowledge management system to enable us to leverage existing solutions across our company, where appropriate, and have developed in-house tools for project management and software life cycle support. These processes, methodologies, knowledge management systems and tools reduce the overall cost to the client and enhance the quality and speed of delivery. 

 Our engagements generally include more than one of the solutions listed below. Revenues attributable to custom application development, maintenance and production support, software re-engineering, package evaluation and implementation and IT consulting services represented a majority of our total revenues in fiscal 2007. 

**Custom Application Development**

 We provide customized software solutions for our clients. We create new applications and enhance the functionality of our clients' existing software applications. Our projects vary in size and duration. Each project typically involves all aspects of the software development process, including defining requirements, designing, prototyping, programming, module integration and installation of the custom application. We perform system design and software coding and run pilots primarily at our global development centers, while transition planning, user training and deployment activities are performed at the client's site. Our application development services span the entire range of mainframe, client server and Internet technologies. An increasing proportion of our applications development engagements are related to emerging platforms such as Microsoft's .NET or open platforms such as J2EE and Linux. 

 As an example, we have built for several of our financial services clients a solution for functional test automation that enables rapid deployment of software applications in the dynamic environment in which they operate. Regulatory requirements, rapid emergence of new products and services, technology rationalization, frequent mergers and acquisitions, and demanding customers force financial services firms to constantly modify or upgrade their mission critical applications. To illustrate, a client wanted to upgrade its existing investment management platform by rolling out a third party investment management product which in turn required upgrading of several of the client's other systems. Working over an 18 month period and with a peak team size of 50 professionals, we built an integrated solution which included a scalable and robust testing mechanism using our functional test automation solution. This integrated solution minimized dependence on interfacing applications, created a centralized repository for test cases, and eliminated manual test case generation. This not only improved testing efficiency for the client but significantly improved the time to market for the product roll out. 

 As another example, one of our global financial services clients with operations in several countries across the Americas, Europe and Asia, needed help in migrating its risk analysis, disbursement and loan portfolio management functions from a manual, worksheet based labor-intensive process to an automated and integrated system. Our team of approximately 11 subject market experts and consultants worked closely with the client to build and implement a new system that addressed all aspects of the loan lifecycle; from identifying a deal up to loan closure. The client is in a position to leverage the advantages of a web-based IT solution with its new automated system. 

**Maintenance and Production Support**

 We provide maintenance services for our clients' large software systems that cover a wide range of technologies and businesses, and are typically critical to a client's business. Our consultants take a proactive approach to software maintenance, by focusing on long-term functionality, stability and preventive maintenance to avoid problems that typically arise from incomplete or short-term solutions. This approach, coupled with our quality processes, allows our clients to reduce recurring maintenance costs. 

 While we perform most of the maintenance work at our global development centers using secure and redundant communication links to our client's systems, we also maintain a team at the client's facility to coordinate certain key interface and support functions. 

 As an example, a leading diversified healthcare benefits company in the US offering a broad range of traditional and consumer-directed health insurance products and related services and  with over $25 billion in annual revenues, wanted to reduce costs of IT maintenance and application support, as well as improve its processes. It expected this initiative to free up its budgets and personnel to drive strategic business initiatives. We worked with the client on a range of business areas including claims processing and utilization, provider services, plan sponsor and financial systems, sales, member services, group insurance and underwriting, and delivered a variety of services including maintenance and application support and quality assurance. Through our involvement, we helped the client develop strong processes, methodologies and practices in its systems, while also reducing the total cost of ownership of the client's applications. 

**Software Re-engineering**

 Our software re-engineering services assist our clients in converting their existing IT systems to newer technologies and platforms developed by third-party vendors. Our re-engineering services include web-enabling of our clients' existing legacy systems, database migration, implementing product upgrades, and platform migrations, such as mainframe to client-server and client-server to Internet platforms. 

 As an example, a client in the communications industry wanted to replace its existing legacy system with a modern enterprise resource planning (ERP) solution in order to reduce its IT costs and support its internal business demands for improved system functionality. We helped the client replace its legacy system with a modern ERP solution thereby fully integrating and automating its order and financial management processes into an end-to-end, order-to-cash and procure-to-pay business system. By effectively leveraging our Global Delivery Model and deep knowledge of the consumer electronics industry, our team of approximately 50 consultants designed complex interface architecture to integrate the ERP solution developed by us with the client's existing applications and successfully deployed the solution across four of the client's divisions, all while meeting the client's strict budgetary requirements and tight deadlines. As a result of our involvement, the client was able to go-live with the new solution in less than 18 months and has since met its goal of having 95% of its business units use the ERP functionality. 

**Package Evaluation and Implementation**

 We assist our clients in the evaluation and implementations of software packages developed by third-party vendors and provide training and support services in the course of their implementation. We specialize in: enterprise resource planning packages developed by vendors including Oracle, PeopleSoft, Retek and SAP; supply chain management packages developed by vendors including i2, Manugistics and Oracle; customer relationship management packages developed by vendors including PeopleSoft (Vantive) and Siebel; business intelligence packages developed by vendors such as Business Objects and Cognos; and enterprise application integration packages developed by vendors like IBM and TIBCO. Our engagements cover a broad range of industries such as automotive, beverages, financial services, food, healthcare, manufacturing, pharmaceuticals, retail, technology and telecommunications. 

 As an example, a client, a leading global automotive original equipment manufacturer, needed to deploy a robust and unified human resources management system as part of its workforce integration program. We successfully implemented Oracle's PeopleSoft 8.8 at five locations spanning across the United States, Canada and Mexico.  This new platform streamlined human capital management processes across 25,000 client employees, enhanced the client's reporting capabilities and improved its overall productivity and global decision making ability. 

**IT Consulting**

 Our IT consulting professionals assist our clients by providing technical advice in developing and recommending appropriate IT architecture, hardware and software specifications to deliver IT solutions designed to meet specific business and computing objectives. Our IT consulting professionals often work closely with technology professionals from our industry and services focused groups in delivering these solutions. We offer IT consulting in the following areas: 
    -  migration planning, institution-wide implementation and overall project management involving multiple vendors under a common architecture; 
    -  IT infrastructure assessment, which includes assessing our clients' IT capabilities against current and future business requirements and recommending appropriate technology infrastructure; and 
    -  technology roadmap development, which allows clients to evaluate emerging technologies and develop the standards and methodologies for applying those emerging technologies. 

 As an example, a client in mortgage services needed technical assistance in restructuring its IT systems for loan origination and servicing operations. A core team of our IT consultants worked with the client's business team to analyze technology driven process improvement opportunities. Our consultants made several recommendations and redesigned the client's core systems architecture for these operations. An implementation roadmap was also recommended. Because we had developed a clear understanding of the client's systems architecture from this project, we were further engaged to develop the custom IT application for the client's next generation post-mortgage funding system. 

 To complement and expand our IT consulting practice, we have established Infosys Consulting to deliver our operations and business process consulting services which we discuss below. 

**Other Solutions**

 We have been expanding the nature and scope of our engagements by extending the breadth of services we offer. We added new service offerings including testing services, engineering services, business process management, systems integration, infrastructure management and operational and business process consulting. These services are expected to represent a growing percentage of our total revenues, but currently represent a less significant percentage of our total revenues. We cannot be certain that these service offerings will effectively meet client needs or that these services will grow as a percentage of our revenues.
***Testing Services.*** We offer end-to-end validation solutions and services including enterprise test management, package assurance, performance benchmarking, test automation and product certification. These services are designed to evaluate the efficiency of our clients' technology systems against criteria specified by our clients. For each particular client, we focus on developing a framework for ongoing testing in order to seek continuous improvement in the predictability of our client's internal systems. Our service professionals are trained in leading test management tools from developers such as Mercury Interactive, IBM-Rational and Segue. 

 As an example, a client in the telecommunications services industry was faced with a business critical situation where they had to ensure compliance with certain regulatory procedures. This required testing of a complex program involving multiple vendors, multiple locations and a large number of business applications within extremely tight deadlines. Our team of approximately 50 validation experts prepared a coherent validation strategy and performed  end to end testing of this program, and also managed the huge integration effort between different component development vendors spread across the globe. This testing solution was delivered to the client within a period of 8 months, enabling the client to meet its deadline and comply with the required regulatory procedures. 

***Engineering Services.*** We offer product lifecycle and engineering solutions to our clients across diverse vertical industries including the automotive, aerospace, heavy engineering, energy and process manufacturing industries. We focus on key engineering processes like product development and manufacturing, which have a direct impact on our clients' business metrics. Our service offerings include product design and development for mechanical, electronics, embedded software systems, certification services and product lifecycle management solutions. 

 For example, one of our clients an original equipment manufacturer in the automotive industry, wanted to optimize its product designs by reducing the weight of  a particular assembly of the product and reducing product costs. By leveraging our automotive industry experience, our engineering team created innovative design concepts using advanced computer aided design (CAD) tools. We also used advanced mathematical techniques such as finite element (FE) analysis, thermal analysis and digital prototyping to validate that these concepts met the client's functional, regulatory and manufacturing requirements. The use of these techniques enabled us to  reduce significantly our product development time and costs by  reducing significantly prototype development and testing. As a result of our efforts, we developed an optimized design for the client in just four months that achieved its aims. 
***Business Process Management.***We offer business process management services and analysis through Infosys BPO.
 Infosys BPO enables clients to outsource several process-intensive functions related to customer relationship management, finance and accounting, human resources, the order to cash cycle, direct and indirect procurement, customer services, administration and analytics, and sales order processing. Industry specific service offerings include the following: 
-  for the banking industry - payment services, transaction management services, check processing, mortgage and loan account servicing, collections, customer account management and treasury operations management; 
-  for the insurance and health care industries - policy owner services, claims processing, transaction and reinsurance accounting, statutory and regulatory reporting, annuities processing and benefits administration; 
-  for the securities and brokerage industry - client account and data management services, reconciliation services, knowledge-based services such as fixed income research and analytics, corporate support and other back office services; and 
-  across all industries - customer relationship management, sales order processing, and finance and account services. 

 As an example, we consolidated the Finance and Accounting (F&A) processes for one of our clients, a leading European manufacturer with operations in more than 50 countries. By implementing our 3 key differentiators - domain knowledge, operational excellence and focused technology interventions, our team of 50 consultants provided back end processing for the consolidation and integration of the client's F&A processes. This involved process control, analysis and  management of client's business objectives.

***Systems Integration.*** We develop and deliver solutions that enhance the compatibility between various components of our clients' IT infrastructure. Our services are designed to efficiently integrate technology solutions and software systems by leveraging products from multiple partners, operating platforms and vendors in order to efficiently meet our clients' business needs. 

 As an example, a client, one of Australia's largest financial institutions,  wanted to migrate over 10,000 desktops and 350 applications to a standardized operating environment in order to reduce costs, improve performance and enhance security. Using our Global Delivery Model and desktop migration solution, we successfully migrated over 100 desktops a day across 277 locations, including user's accounts, data, applications and print queues. As a result of our efforts, the client obtained reduced IT support costs through the standardization of the operating environment and implementation of remote management on the desktops.

***Infrastructure Management Services.*** Through this service offering, we manage the operations of our clients' IT infrastructure. Our service offerings include data center management, technical support services, application management services and process implementation/enhancement services. These services are delivered primarily through our global network and data operations centers in Bangalore and Pune, India, and several development centers in the United States. 

 For example, we delivered infrastructure management services for a large Europe-based telecommunication service provider. Our client was facing multiple challenges - lack of scalability, complexity of multiple support centers, coordination issues and consistency of service/SLA in managing the network infrastructure for their enterprise customers. We partnered with our client by assisting it in establishing  a large dedicated and secure Network Operation center and implementing a service and process architecture that met the business needs of cost control and consistent service delivery. We maintained and improved service levels through services in network infrastructure management including 24x7 monitoring, helpdesk, troubleshooting, fault diagnosis and ongoing management of network devices.  We now maintain over 16,000 routers and over 8,000 switches across APAC, the UK and the US providing network services to more than 300 end enterprise customers of our client. 

***Operations and Business Process Consulting.*** Through Infosys Consulting, we offer operations and business process consulting services that leverage our business, domain and technology expertise utilizing our Global Delivery Model. Our consulting services include strategic and competitive analysis to help our clients improve their business operations and create competitive advantages. We also assist clients in implementing operational changes to their businesses. We offer consulting services in the areas of: 
-   customer operations, customer service, sales and pricing, marketing analytics and customer relationship management; 
-  product operations, which includes research and development for new products, supply chain transformation, and working capital efficiency; and 
-  corporate operations, which includes technology strategy, finance, legal and human resources operations. 

 Our team includes professionals with significant functional and industry expertise and several years of experience with leading global consulting firms. 

 As an example, our client, a global transportation company with a presence in over 80 countries, considered alternative strategies to structurally reorganize its business in conjunction with its proposed transformation to become an end-to-end logistics and supply chain management company. We were given the primary responsibility for designing a transformation management office that would utilize world class processes, templates and tools. In addition, we recommended strategic IT organizational alternatives to help the client with the transition of its IT organization. This overall transformation program was intended to enable our client to align its systems and processes with its new business model and enhance customer service levels in areas such as pricing, collection, delivery time, tracking of shipments, payment systems and inquiry handling. 

**Banking Software Products**

 We also develop, market and license proprietary banking solutions for the banking industry. Our principal banking products and solutions are the Finacle ® suite of universal banking solution products and professional services. 

***Finacle ® suite of products.*** Our suite of software products include Finacle ® Core Banking, Finacle ® eChannels, Finacle ® eCorporate, Finacle ® CRM and Finacle ® Treasury. The Finacle ® suite is a comprehensive, flexible, scalable and fully web-enabled solution that addresses banks' core banking, treasury, wealth management, consumer and corporate e-banking, mobile banking and web-based cash management requirements. 

***Professional Services.*** Our services complement our product suite and include implementation, customization, support, consulting, training and documentation. 

**OUR CLIENTS**

 We market our services to large corporations in North America, Europe and the APAC Region. We have a strong market presence in North America and a growing presence in Europe. 

 Our revenues for the last three fiscal years by geographic area are as follows: 

  

**Fiscal**

**2005**

**2006**

**2007**

 North America 

 65.2 % 

 64.8% 

 63.3% 

 Europe 

 22.3 % 

 24.5% 

 26.4% 

 India 

 1.9 % 

 1.8% 

 1.6% 

 Rest of the World 

 10.6 % 

 8.9% 

 8.7% 

 Total 

 100.0 % 

 100.0% 

 100.0% 

 We have in-depth expertise in the financial services, manufacturing, telecommunications and retail industries, as well as, to a lesser extent, the utilities and logistics industries. Our revenues for the last three fiscal years by market segment are as follows: 

  

**Fiscal**

**2005**

**2006**

**2007**

 Financial Services 

 34.5 % 

 36.0% 

 37.4% 

 Manufacturing 

 14.5 % 

 13.9% 

 13.5% 

 Telecommunications 

 18.5 % 

 16.4% 

 19.3% 

 Retail 

 9.7 % 

 10.2% 

 10.1% 

 Others (primarily utilities, 

  

  

  

 logistics and services) 

 22.8 % 

 23.5% 

 19.7% 

 Total 

 100.0 % 

 100.0 % 

 100.0 % 

For fiscal 2005, 2006 and 2007 our largest client contributed 5.5%, 4.4% and 7.0% of our total revenues.

 The volume of work we perform for specific clients is likely to vary from year to year, particularly since we are not the exclusive external IT services provider for our clients. Thus, a major client in one year may not provide the same level of revenues in a subsequent year. However, in any given year, a limited number of clients tend to contribute a significant portion of our revenues. 

**SALES AND MARKETING**

 Our sales and marketing strategy is formulated to increase awareness and gain new business from target clients and promote client loyalty and repeat business among existing clients. Members of our executive management team are actively involved in business development and in managing key client relationships through targeted interaction with our clients' senior management. We have also established a Strategic Global Sourcing Group consisting of senior professionals to focus on identifying and securing large, long-term engagements from both new and existing clients. 

***New Business Development.*** We use a cross-functional, integrated sales approach in which our account managers, sales personnel and project managers analyze potential projects and collaboratively develop strategies to sell our solutions to potential clients. This approach allows for a smooth transition to execution once the sale is completed. Through Infosys Consulting, we are seeking to develop stronger strategic relationships with the senior management of our clients, which we will then seek to leverage to provide other service offerings. 

 Our sales professionals located throughout the world proactively contact potential clients. For larger projects, we typically bid against other technology services providers in response to requests for proposals. Clients often cite our Global Delivery Model, comprehensive end-to-end solutions, ability to scale, superior quality and process execution, industry expertise, experienced management team, talented professionals, track record and competitive pricing as reasons for awarding us contracts. In addition, client references and endorsements provide objective validation of our competitive strengths. 

***Promoting Client Loyalty.*** We constantly seek to expand the nature and scope of our engagements with existing clients by extending the breadth and volume of services offered, with a focus on increasing our clients' competitiveness through our proven and reliable Global Delivery Model. For existing clients, our onsite project and account managers proactively identify client needs and work with our sales team to structure solutions to address those needs. During fiscal 2007 and 2006, 95.3% and 95.0% of our revenue came as repeat business from existing clients. We promote client loyalty through a sales and marketing program that includes media and industry analyst events, sponsorship of and participation in targeted industry conferences, trade shows, recruiting efforts, community outreach and investor relations. 

***Sales and Marketing Organization.*** We sell and market our services from 43 sales and marketing offices located in 23 countries. With our global sales operations spread across different parts of the world and our corporate marketing group in Bangalore, India, we target our efforts towards the world's largest corporations. Our sales efforts are complemented by our marketing team, which assists in brand building and other corporate level marketing efforts. As of March 31, 2007, we had 458 sales and marketing employees outside of India and 79 in India. 

**COMPETITION**

 We operate in a highly competitive and rapidly changing market and compete with: 
-   consulting firms such as Accenture, Atos Origin, Bearing Point, Cap Gemini and Deloitte Consulting; 
-  divisions of large multinational technology firms such as HP and IBM; 
-  IT outsourcing firms such as Computer Sciences Corporation, EDS, Keane, Logica CMG, and Perot Systems; 
-  offshore technology services firms such as Cognizant Technologies, Satyam Computer Services, Tata Consultancy Services and Wipro; 
-  software firms such as Oracle and SAP; and 
-  in-house IT departments of large corporations. 

 In the future we expect competition from firms establishing and building their offshore presence and firms in countries with lower personnel costs than those prevailing in India. However, we recognize that price alone cannot constitute sustainable competitive advantage. We believe that the principal competitive factors in our business include the ability to: 
-  effectively integrate onsite and offshore execution capabilities to deliver seamless, scalable, cost-effective services; 
-  increase scale and breadth of service offerings to provide one-stop solutions; 
-  provide industry expertise to clients' business solutions; 
-  attract and retain high quality technology professionals; and 
-  maintain financial strength to make strategic investments in human resources and physical infrastructure through business cycles. 

 We believe we compete favorably with respect to these factors. 

**HUMAN CAPITAL**

 Our professionals are our most important assets. We believe that the quality and level of service that our professionals deliver are among the highest in the global technology services industry. We are committed to remaining among the industry's leading employers. In 2006, we were ranked as the best company to work for in India by the TNS-Mercer survey in Business Today. 

 As of March 31, 2007, we employed approximately 72,200 employees, of which approximately 68,200 are technology professionals. During fiscal 2007, we recorded approximately 19,500 new hires, net of attrition. Our culture and reputation as a leader in the technology services industry enables us to recruit and retain the best available talent in India. The key elements that define our culture include: 

**Recruitment**

 We have built our global talent pool by recruiting new students from premier universities, colleges and institutes in India and through need-based hiring of project leaders and middle managers. We typically recruit only the top 20% of students in India who have consistently shown high levels of achievement. We have also begun selective recruitment at campuses in the United States, the United Kingdom, Australia and China. We rely on a rigorous selection process involving a series of aptitude tests and interviews to identify the best applicants. This selection process is continually assessed and refined based on performance tracking of past recruits. 

 Our reputation as a premier employer enables us to select from a large pool of qualified applicants. For example, in fiscal 2007, we received over 1,302,300 applications, tested over 225,400 applicants, interviewed over 91,200 applicants  and extended job offers to approximately 36,700 applicants. In fiscal 2007, we added approximately 15,200 new employees, net of attrition. These statistics do not include Infosys BPO, which recruited approximately 4,200 new hires, net of attrition, during fiscal 2007, or our wholly owned subsidiaries. 

**Training and Development**

 Our training, continuing education and career development programs are designed to ensure our technology professionals enhance their skill-sets in alignment with their respective roles. Most new student hires complete approximately 14 weeks of integrated on-the-job training prior to becoming billable to our clients. We continually provide our technology professionals with challenging assignments and exposure to new skills, technologies and global opportunities. 

 As of March 31, 2007, we employed 261 faculty members in our training division, including 151 with doctorate or masters degrees. Our faculty conducts integrated training for our new employees. We also have our employees undergo certification programs for 10 to 15 days each year to develop the skills relevant for their roles.  Some of the highly specialized programs are outsourced to institutions of high repute on a selective basis.

 Leadership development is a core part of our training program. We established the Infosys Leadership Institute on a 336 acre campus in Mysore, India to enhance leadership skills that are required to manage the complexities of the rapidly changing marketplace and to further instill our culture through leadership training. We have also built an employee training facility in Mysore, India which is able to house 4,500 trainees at any one time and is able to provide training facilities for approximately 15,200 employees annually. We provide a challenging, entrepreneurial and empowering work environment that rewards dedication and a strong work ethic. 

**Compensation**

 Our technology professionals receive competitive salaries and benefits and are eligible to participate in our stock option plans. We have also adopted a performance-linked compensation program that links compensation to individual performance, as well as our performance. 

**Intellectual Property**

 Our intellectual property rights are critical to our business. We rely on a combination of patent, copyright, trademark and design laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property. We currently have no issued patents. 15 of our patent applications are pending in the US Patent and Trademark Office and 66 are pending in the Indian Patent Office. We have 4 registered trademarks and several unregistered trademarks in India. We require employees, independent contractors and, whenever possible, vendors to enter into confidentiality agreements upon the commencement of their relationships with us. These agreements generally provide that any confidential or proprietary information developed by us or on our behalf be kept confidential. These agreements also provide that any confidential or proprietary information disclosed to third parties in the course of our business be kept confidential by such third parties. However, our clients usually own the intellectual property in the software we develop for them. 

 Our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products and/or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. In addition, the laws of India do not protect intellectual property rights to the same extent as laws in the United States. In the future, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time-consuming and expensive. 

 We could be subject to intellectual property infringement claims as the number of our competitors grows and our product or service offerings overlap with competitive offerings. In addition, we may become subject to such claims since we may not always be able to verify the intellectual property rights of third parties from whom we license a variety of technologies. Defending against these claims, even if they are not meritorious, could be expensive and divert our attention from operating our company. If we become liable to third parties for infringing upon their intellectual property rights, we could be required to pay substantial damage awards and be forced to develop non-infringing technology, obtain licenses or cease selling the applications that contain the infringing technology. The loss of some of our existing licenses could delay the introduction of software enhancements, interactive tools and other new products and services until equivalent technology could be licensed or developed. We may be unable to develop non-infringing technology or obtain licenses on commercially reasonable terms, if at all. 

 We regard our trade name, trademarks, service marks and domain names as important to our success. We rely on the law to protect our proprietary rights to them, and we have taken steps to enhance our rights by filing trademark applications where appropriate. We have obtained registration of our key brand 'INFOSYS' as a trademark in both India and in the United States. We also aggressively protect these names and marks from infringement by others. 

**Research and Development**

 Our research and development efforts focus on developing and refining our methodologies, tools and techniques, improving estimation processes and adopting new technologies. We have several groups engaged in our research and development activities. These groups are listed below. 

***Education and Research Group.*** This group conducts short-term and long-term research in the areas of knowledge management, performance testing, e-commerce, and education and training methodologies. 

***Software Engineering and Technology Labs.*** This group monitors advances in technologies that could impact the business of our clients such as knowledge management, collaborative technologies, convergence technologies and web services. They also develop new methodologies and software tools that assist us in our execution of IT services projects. 

***Domain Competency Group.*** This group monitors emerging business trends in particular domains that are relevant to our client base and seeks to understand and develop solutions that are highly specific to an individual industry. 

 We have also established concept centers for several advanced technologies and have a performance-testing center to develop solutions for a number of our development projects. 

 Our research and development expenses for fiscal 2007, 2006 and 2005 were $37, $23 and $17 million. 

**EFFECT OF GOVERNMENT REGULATION ON OUR BUSINESS**

 Regulation of our business by the Indian government affects our business in several ways. We benefit from certain tax incentives promulgated by the Government of India, including a ten-year tax holiday from Indian corporate income taxes for the operation of most of our Indian facilities. As a result of these incentives, our operations have been subject to relatively insignificant Indian tax liabilities. We have also benefited from the liberalization and deregulation of the Indian economy by the successive Indian governments since 1991, including the current Indian government. Further, there are restrictive Indian laws and regulations that affect our business, including regulations that require us to obtain approval from the Reserve Bank of India and/or the Ministry of Finance of the Government of India to acquire companies organized outside India, and regulations that require us, subject to some exceptions, to obtain approval from relevant government authorities in India in order to raise capital outside India. The conversion of our equity shares into ADSs is governed by guidelines issued by the Reserve Bank of India. 

**LEGAL PROCEEDINGS**

 In the ordinary course of business, we may from time to time become involved in certain legal proceedings. As of the date of this Annual Report, we are not a party to any pending material legal proceedings. 

**ORGANIZATIONAL STRUCTURE**

 We hold a majority interest in the following company: 

***Infosys BPO.*** Infosys established Infosys BPO (formerly Progeon) in April 2002, under the laws of India.Infosys has entered into non-cancellable deferred purchase agreements with Infosys BPO shareholders in respect of 360,417 Infosys BPO Shares for which we have recorded a liability of $5 million. These shares will be transferred to Infosys by February, 2008.  Under US GAAP, we have accounted for the above transaction as financing of our purchase of Infosys BPO's  minority interest using the guidance in EITF Issue 00-04, Majority Owner's Accounting for a Transaction in the Shares of a Consolidated Subsidiary and a Derivative Indexed to the Minority Interest in that Subsidiary. As a result, Infosys effectively holds 99.98% of the equity share capital of Infosys BPO as of March 31, 2007.
As of March 31, 2007, our voting power in Infosys BPO is 98.92%.

 Infosys is the sole shareholder of the following companies: 

***Infosys Australia.*** In January 2004, we acquired, for cash, 100% of the equity in Expert Information Services Pty. Limited, Australia for $14 million.  The acquired company was renamed as 'Infosys Technologies ( Australia) Pty. Limited'. 

***Infosys China.*** In October 2003, we established a wholly-owned subsidiary, Infosys China in Shanghai, China, to expand our business operations in China.  We have invested $10 million in Infosys China as of March 31, 2007. During fiscal 2007 we made an unsecured loan of $2 million to Infosys China. 

***Infosys Consulting.*** In April 2004, we established a wholly-owned subsidiary, Infosys Consulting, incorporated in the State of Texas to add high-end consulting capabilities to our Global Delivery Model.  We have invested $20 million in Infosys Consulting as of March 31, 2007. There is a further consideration payable to the Managing Directors subject to their continued employment and the achievement of defined financial and non-financial performance goals.

**PROPERTY, PLANTS AND EQUIPMENT**

 Our principal campus, "Infosys City" is located at Electronics City, Bangalore, India. Infosys City consists of approximately 3.55 million square feet of land and 3.5 million square feet of operational facilities. The campus features: 
-  1,200,000 square feet of landscaped area; 
-  453 conference rooms; 
-  An Education and Research unit consisting of 115,000 square feet of facilities space, including a library, 6 class rooms, 12 laboratories, computer-based learning and audio-visual aids, and 60 faculty rooms; 
-  A Management Development Center consisting of 75,500 square feet of facilities space, with 16 class rooms, 6 rooms with workstations and 24 faculty rooms; 
-  A world-class conference room with the capacity to simultaneously video-conference 24 locations across the globe; 
-  Redundant power supply through captive generators; 
-  Leisure facilities, including tennis courts, a miniature golf course, a basketball court, a swimming pool, health club and a bookstore; 
-  A multi-level parking lot with a capacity to park 1,200 cars and 800 two wheelers; 
-  A multi-cuisine restaurant, five food courts and accommodation facilities; and 
-  A store selling Infosys branded merchandise. 

 Our capital expenditure on property, plant and equipment for fiscal years 2007, 2006 and 2005 were $336 million, $246 million and $186 million. As of March 31, 2007 we had contractual  commitments for capital expenditure of $158 million. All our capital expenditures are financed out of cash generated from operations. We will construct, expand and improve our facilities through the course of fiscal 2008. 

 Our software development facilities are equipped with a world-class technology infrastructure that includes networked workstations, servers, data communication links and video-conferencing. 

 We have fourteen sales and marketing offices in the United States, five in India, three in Germany, two in Australia and Switzerland, and one each in Belgium, Canada, China, the Czech Republic, Denmark, Finland, France, Hong Kong, Ireland, Italy, Japan, the Netherlands, Norway, Spain, Sweden,  the UAE and the UK. We believe our facilities are optimally utilized. Appropriate expansion plans are being planned and undertaken to meet our future growth. 

 Our most significant leased and owned properties are listed in the table below. We have only listed our leased and owned properties that are in excess of 100,000 square feet.

**Location**

**Building**

**Land**

 

**Approx. Sq. ft.**

**Approx Sq. ft.**

**Ownership**

**Software Development Facilities**
   
 Bangalore (Infosys City), Karnataka 

 3,310,025 

 172,063 

 Leased 

 Bangalore (Infosys City), Karnataka 

 - 

 3,375,707 

 Owned 

 Bangalore (Center Point), Karnataka 

 115,000 

 - 

 Leased 

 Bhubaneswar (Chandaka Industrial Park), Orissa 

 544,400 

 1,999,455 

 Leased 

 Chandigarh 

 767,914 

 1,316,388 

 Leased 

 Chennai (Sholinganallur), Tamil Nadu 

 496,317 

 577,608 

 Leased 

 Chennai (Maraimalai Nagar), Tamil Nadu 

 473,089 

 3,754,887 

 Leased 

 Hyderabad (Manikonda Village), Andhra Pradesh 

 1,489,210 

 2,194,997 

 Owned 

 Mangalore (Kottara), Karnataka 

 198,000 

 119,790 

 Owned 

 Mangalore (Pajeeru and Kairangala Village), Karnataka 

 - 

 13,311,117 

 Leased 

 Mysore (Hebbal Electronic City), Karnataka 

 3,043,720 

 10,727,563 

 Owned 

 Mysore (Hebbal Electronic City), Karnataka 

 - 

 3,898,858 

 Leased 

 Pune (Hinjewadi), Maharashtra 

 589,647 

 1,089,004 

 Leased 

 Pune (Hinjewadi Phase II), Maharashtra 

 766,979 

 4,965,005 

 Leased 

 Thiruvananthapuram (Technopark), Kerala 

 - 

 2,178,009 

 Leased 

**TOTAL**

11,794,301 

49,680,451 
 
**Proposed Software Development Facilities**
   
 Bangalore (Infosys City), Karnataka 

 310,000 

 - 

 Leased 

 Chandigarh 

 223,026 

  

 Leased 

 Chennai (Maraimalai Nagar), Tamil Nadu 

 1,454,000 

 - 

 Leased 

 Hyderabad (Manikonda Village), Andhra Pradesh 

 333,313 

 - 

 Owned 

 Bhubaneshwar (Chandaka Industrial Area), Orissa 

 329,230 

 - 

 Leased 

 Mangalore, Karnataka 

 434,000 

  

 Leased 

 Mysore (Hebbal Electronic City), Karnataka 

 4,415,760 

 - 

 Leased 

 Pune (Hinjewadi Phase II), Maharashtra 

 2,762,710 

 - 

 Leased 

**TOTAL**

10,262,039 

- 
 
**Item 4A. Unresolved Staff Comments**

****None 

**Item 5. Operating  and Financial Review and Prospects**

**OPERATING RESULTS**  This information is set  forth under the caption 'Management's discussion and analysis of financial  condition and results of operations' below and such information is incorporated  herein by reference 

**LIQUIDITY AND CAPITAL RESOURCES**    This information is set  forth under the caption 'Management's discussion and analysis of financial  condition and results of operations' below and such information is incorporated  herein by reference. 

**RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES,  ETC.**    We have committed and  expect to continue to commit in the future, a material portion of our resources  to research and development. Efforts towards research and development are  focused on refinement of methodologies, tools and techniques, implementation of  metrics, improvement in estimation process and the adoption of new  technologies.     Our  research and development expenses for the fiscal years ended March 31, 2007, 2006  and 2005, were $37 million, $23 million and $17 million. **TREND INFORMATION**    This information is set  forth under the caption 'Management's Discussion and Analysis of Financial  Condition and Results of Operations' below.**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 Investors  are cautioned that this discussion contains forward-looking statements that  involve risks and uncertainties. When used in this discussion, the words  'anticipate', 'believe', 'estimate', 'expect', 'intend', 'project', 'seek',  'should', 'will' and other similar expressions as they relate to us or our  business are intended to identify such forward-looking statements. Actual  results, performances or achievements could differ materially from those  expressed or implied in such forward-looking statements. Factors that could  cause or contribute to such differences include, but are not limited to, those described under the  heading 'Risk Factors' and elsewhere in this Annual Report. Readers are cautioned not to place  undue reliance on these forward-looking statements, as they speak only as of  the date of this Annual Report. The following discussion and analysis should be  read in conjunction with our  financial statements included herein and the notes  thereto. We undertake no obligation to publicly update or revise any  forward-looking statements, whether as a result of new information, future  events or otherwise. 

**Overview**    We are a leading global  technology services company founded in 1981, and headquartered in Bangalore, India.  We provide comprehensive end-to-end business solutions that leverage technology  for our clients, including technical consulting, design, development, software  re-engineering, maintenance, systems integration, package evaluation and  implementation,  testing and infrastructure management services. We also provide software  products to the banking industry. Through Infosys BPO, we provide business  process management services such as offsite customer relationship management,  finance and accounting, and administration and sales order processing. Our  clients rely on our solutions to enhance their business performance. Progeon Limited, our  business process outsourcing subsidiary, was renamed Infosys BPO Limited  effective August 29, 2006. Infosys Technologies (Shanghai)  Co. Limited was renamed Infosys Technologies (China) Co. Limited during the year  ended March 31, 2007.

    We completed our initial public offering of equity  shares in India in 1993 and  our initial public offering of ADSs in the United States in 1999. We completed  three sponsored secondary ADS offering in the United States in August 2003, June  2005 and November 2006. We did not receive any of the proceeds from any of our  sponsored secondary offerings.     On December 18, 2006 we became the first Indian company to be added to the NASDAQ-100 Index and with this, we became the only Indian company to be a part of any of the major global indices.

    During  the year we increased our share-holding in Infosys BPO by:
- acquiring 8,750,000 equity shares, representing 25.52% equity interest of Infosys BPO from Citicorp International  Finance Corporation (CIFC) on June 30, 2006;
- repurchasing 1,139,469 equity shares, representing 3.31% equity interest of Infosys BPO from minority  shareholders through Infosys BPO on December 29, 2006;
- acquiring 211,909 shares, representing 0.63% equity interest of Infosys BPO in January 2007 and a committed purchase of 360,417 shares, representing 1.06% equity interest of Infosys BPO to be transferred by February 2008, from the minority share-holders;
- acquiring 1,737,092 options from the option holders of  Infosys BPO in March 2007.

An aggregate  consideration of $148 million was paid and 151,933 Infosys options were granted  to the minority share-holders and options holders for consummating the above  transactions. Further, an amount of $5 million was accounted as a liability on our balance sheet in connection with the committed purchase of Infosys BPO shares entered into in January 2007. As of  March 31, 2007, we effectively held 99.98% of the  outstanding equity shares of Infosys BPO.

At our Annual General Meeting held  on June 10, 2006, our shareholders approved a final dividend of  approximately $0.09 per equity share and a Silver Jubilee special dividend of  approximately $0.33 per equity share, which resulted in a cash outflow of  approximately $265 million, including corporate dividend tax. In October 2006,  an interim dividend of approximately $0.11 per equity share for fiscal 2007 was  approved by our Board of Directors, which resulted in a cash outflow of approximately $71 million  including corporate dividend taxes. Further, our Board of Directors, in their  meeting held on April 13, 2007, have proposed a final dividend of approximately  $0.15 per equity share. The proposal is subject to the approval of the members at  the Annual General Meeting to be held on June 22, 2007 and, if approved, would  result in a cash outflow of approximately $101 million (including corporate  dividend tax of $15 million).

The Finance Bill, 2007  which is currently pending before Parliament also proposes to consider any specified security or sweat equity shares  allotted or transferred, directly or indirectly, by the company free of cost or  at concessional rate to its employees for the purposes of a Fringe Benefits  Tax, or FBT. The value of fringe benefit will be the fair market value, or FMV,  of the specified security or share on the date of exercise of the option by the  employee as reduced by the amount actually paid by, or recovered from the  employee in respect of such security or share. This would be applicable for  options exercised on or after April 1, 2007. As of March 31, 2007, we have approximately 2.08 million options outstanding under our 1998 ADS stock option plan with a weighted average exercise price of $21 and 1.90 million options outstanding under our 1999 equity stock option plan with a weighted average exercise price of $26. As of March 31, 2007, the market price of our ADS was $50.25 and the market price of our equity share was $46.84. 

Senior Management Changes

    Mr. Nandan M. Nilekani will be retiring from his position as Chief Executive Officer and Managing Director on June 21, 2007 and will assume the position of the  Co-Chairman of the Board effective June 22, 2007. Mr. S. Gopalakrishnan will assume the role of the Chief Executive Officer and Managing Director effective June 22, 2007. Mr. S.D. Shibulal will assume the role of Chief Operating Officer of the Company effective June 22, 2007.
  The  following table sets forth our growth in revenues, net income and number of  employees from fiscal 2003 to fiscal 2007:  
**(Dollars in millions)**

 

**Fiscal 2003**

**Fiscal 2007**

**Compound Annual Growth Rate %**

Revenues 

$754 

$3,090

42.3%

Net income 

$195 

$ 850

44.5%

Approximate number of employees at the end of the fiscal year 

15,900 

72,200

46.0%
    The  following table sets forth our growth in revenues and net income for fiscal 2006 and  fiscal 2007:      
*(Dollars in millions)*

 

**2006**

**2007**

**Percentage Change**

Revenues 

$2,152 

$3,090

43.6%

Net    income 

$555 

$850

53.2%

Our  revenue growth is attributable to a number of factors including an increase in  the size and number of projects executed for existing and new clients, as well  as an expansion in the solutions that we provide to our clients. For fiscal  2006 and fiscal 2007, 95.0% and 95.3% of our revenue came from repeat business,  which we define as revenue from a client who also contributed to our revenue  during the prior fiscal year. 

We are able to seamlessly deliver our onsite and offshore capabilities using a distributed project management methodology that we refer to as our Global Delivery Model. We divide projects into components that we execute simultaneously at client sites and at our geographically dispersed development centers in India and around the world. Our Global Delivery Model allows us to provide clients with high quality solutions in reduced time-frames enabling them to achieve operational efficiencies.
    The  following table sets forth our revenues by geographic segments for fiscal 2006 and 2007:     
**Geographic Segments**
**Fiscal 2006 (Percentage of Revenues)**
**Fiscal    2007 (Percentage    of Revenues)**

North America 
64.8%
63.3%

Europe 
24.5%
26.4%

India 
1.8%
1.6%

Rest of the World 
8.9%
8.7%

**Revenues**

    Our revenues are  generated principally from technology services provided on either a  time-and-materials or a fixed-price, fixed-timeframe basis. Revenues from  services provided on a time-and-materials basis are recognized as the related  services are performed. Revenues from services provided on a fixed-price,  fixed-timeframe basis are recognized pursuant to the percentage of completion  method. Most of our client contracts, including those that are on a  fixed-price, fixed-timeframe basis can be terminated by clients with or without  cause, without penalties and with short notice periods of between zero and 90  days. Since we collect revenues on contracts as portions of the contracts are  completed, terminated contracts are only subject to collection for portions of  the contract completed through the time of termination. Our contracts do not  contain specific termination-related penalty provisions. In order to manage and  anticipate the risk of early or abrupt contract terminations,    we monitor the  progress on all contracts  and change orders according to their characteristics and the circumstances in  which they occur. This includes a focused review of our ability and our  client's ability to perform on the contract, a review of extraordinary  conditions that may lead to a contract termination, as well as historical  client performance considerations. Since we also bear the risk of cost overruns  and inflation with respect to fixed-price, fixed-timeframe projects, our  operating results could be adversely affected by inaccurate estimates of  contract completion costs and dates, including wage inflation rates and  currency exchange rates that may affect cost projections. Losses on contracts,  if any, are provided for in full in the period when determined. Although we  revise our project completion estimates from time to time, such revisions have  not, to date, had a material adverse effect on our operating results or  financial condition. We also generate    revenue from software application  products, including banking software. Such software products represented 3.8%  of our total revenues for fiscal 2006 and 3.9% of our total revenues for fiscal  2007.

    We experience from time to time, pricing pressure from our  clients. For example, clients often expect that as we do more business with  them, they will receive volume discounts. Additionally, clients may ask for  fixed-price arrangements or reduced rates. We attempt to use fixed-price  arrangements for work where the specifications are complete, so individual  rates are not negotiated. We are also adding new services at higher price  points and where more value is added for our clients. 

**Cost of Revenues**

    Cost of revenues represented  57.5% of total revenues for fiscal 2007. Our cost of revenues  primarily consists of salary and other compensation expenses, depreciation,  overseas travel expenses, cost of software purchased for internal use, cost of  technical subcontractors, data communications expenses and computer  maintenance. We depreciate our personal computers and servers over two years  and mainframe computers over periods of up to three years. Third party software  is expensed of over the estimated useful life. Cost of revenues also includes  stock compensation expenses. Beginning April 1, 2006, we adopted SFAS No.123  (revised 2004), Share-Based Payment using the modified prospective approach. We  recorded stock-based compensation expense of $3 million during the year ended March  31, 2007, using the fair value recognition provisions contained in SFAS No. 123(R). 

    We  typically assume full project management responsibility for each project that  we undertake. Approximately 72.3% and 71.6% of the total billed person-months for our  services during fiscal 2006 and 2007 were performed at our global development centers in  India, and the balance of  the work was performed at client sites and global development centers located  outside India.  The proportion of work performed at our facilities and at client sites varies  from quarter to quarter. We charge higher rates and incur higher compensation  and other expenses for work performed at client sites and global development  centers located outside India.  Services performed at a client site or global development centers located  outside India typically  generate higher revenues per-capita at a lower gross margin than the same  services performed at our facilities in India. As a result, our total  revenues, cost of revenues and gross profit in absolute terms and as a  percentage of revenues fluctuate from quarter  to quarter based on the  proportion of work performed outside India. Additionally, any increase  in work performed at client sites or global development centers located outside  India  can decrease our gross profits. We hire subcontractors on a limited basis from  time to time for our own technology development needs, and we generally do not  perform subcontracted work for other technology service providers. For fiscal  2006 and 2007, approximately 3.0% and 3.6 % of our cost of revenues was attributable to cost of  technical subcontractors. We do not anticipate that our subcontracting needs  will increase significantly as we expand our business. 

    Revenues  and gross profits are also affected by employee utilization rates. We define  employee utilization as the proportion of total billed person months to total  available person months excluding support personnel. We manage utilization by  monitoring project requirements and timetables. The number of consultants  assigned to a project will vary according to size, complexity, duration, and  demands of the project. An unanticipated termination of a significant project  could also cause us to experience lower utilization of technology  professionals, resulting in a higher than expected number of unassigned technology  professionals. In addition, we do not utilize our technology professionals when  they are enrolled in training programs, particularly during our 14-week  training course for new employees. 

**Selling and Marketing Expenses**

    Selling and marketing  expenses represented 6.8% of total revenues for fiscal 2007. Our  selling and marketing expenses primarily consist of expenses relating to  salaries of sales and marketing personnel, travel, brand building, rental for  sales and marketing offices and telecommunications. We  recorded stock-based compensation expense of $1 million during the year ended March  31, 2007, using the fair value recognition provisions contained in SFAS No. 123(R). We may  increase  our selling and marketing expenses to increase brand awareness among target  clients, and promote client loyalty and repeat business among existing clients. 

**General and Administrative Expenses**

    General and  administrative expenses represented 8.0% of  total revenues for fiscal 2007. Our general and administrative expenses are  comprised of expenses relating to salaries of senior management and other  support personnel, travel expenses, legal and other professional fees,  telecommunications, utilities, other miscellaneous administrative costs and  provisions for doubtful accounts receivable. The factors which affect the  fluctuations in our provisions for bad debts and write offs of uncollectible  accounts include the financial health of our clients and  the economic  environment in which they operate. We  recorded stock-based compensation expense of $1 million during the year ended March  31, 2007, using the fair value recognition provisions contained in SFAS No. 123(R).

**Amortization of Intangible Assets**

    Our amortization of  intangible assets relates to identified intangibles arising from  purchase price allocations for business combinations. We amortize intangible  assets over their estimated useful lives. We recorded an amortization  expense of $3 million during the year ended March 31, 2007. 

**Gain on Sale of Long Term  Investment**

In fiscal 2005, we sold our investment in Yantra Corporation and the consideration received from the sale resulted in a gain of $11 million during fiscal 2005. The carrying value of the investment in Yantra Corporation was completely written down in fiscal 1999. Further consideration of $1 million was received during the year ended March 31, 2007 resulting in a gain of $1 million for the year.

**Other Income, net**

    Other income/(expense),  net includes interest income, income from liquid mutual fund investments,  foreign currency exchange gains/losses including marked to market gain/losses  on foreign exchange forward and option contracts, and provisions for losses on  investments. 

**Functional Currency and Foreign Exchange**

    The functional currency  of Infosys and Infosys BPO is the Indian rupee. The functional currency for Infosys Australia, Infosys China and Infosys Consulting is the  respective local currency. The financial statements included in this Annual  Report are reported in US dollars. The translation of rupees to dollars is performed  for the balance sheet accounts using the exchange rate in effect at the balance  sheet date, and for revenue and expense accounts using a monthly average  exchange rate for the respective periods. The gains or losses resulting from  such translation are reported as other comprehensive income/loss. 

    Generally,  Indian law requires residents of India  to repatriate any foreign currency earnings to India to control the exchange of  foreign currency. More specifically, Section 8 of the Foreign Exchange Management  Act, or FEMA, requires an Indian company to take all reasonable steps to  realize and repatriate into India all foreign exchange earned by the company  outside India, within such time periods and in the manner  specified by the  Reserve Bank of India, or RBI. The RBI has promulgated guidelines that require  the company to repatriate any realized foreign exchange back to India,  and either:
- sell it to an authorized dealer for rupees within seven days  from the date of receipt of the foreign exchange;
- retain it in a foreign currency account such as an Exchange  Earners Foreign Currency, or EEFC, account with an authorized dealer; or
- use it for discharge of debt or liabilities denominated in  foreign exchange.

    We  typically collect our earnings and pay expenses denominated in foreign  currencies using a dedicated foreign currency account located in the local  country of operation. In order to do this, we are required to, and have  obtained, special approval from the RBI to maintain a foreign currency account  in overseas countries like the United    States. However, the RBI approval is subject  to limitations, including a requirement that we repatriate all foreign currency  in the account back to India  within a reasonable time, except an amount equal to our local monthly  operational cost of our overseas branch and personnel. We currently pay such  expenses and repatriate the remainder of the foreign currency to India  on a regular basis. We have the option to retain those in an EEFC account  (foreign currency denominated) or an Indian-rupee-denominated account. We  convert substantially all of our foreign currency to rupees to fund operations  and expansion activities in India. 

    Our  failure to comply with these regulations could result in RBI enforcement  actions against us. 

**Income Taxes**

    Our net income earned  from providing software development and other services outside India  is subject to tax in the country where we perform the work. Most of our tax  paid in countries other than India  can be applied as a credit against our Indian tax liability to the extent that  the same income is subject to tax in India. 

    Currently,  we benefit from the tax holidays the Government of India gives to the export of  software from specially designated software technology parks in India  and for facilities set up under the Special Economic Zones Act, 2005. As a  result of these incentives, our operations have been subject to relatively low  tax liabilities. These tax incentives include a 10-year tax holiday from Indian  corporate income taxes for the operation of most of our Indian facilities. As a  result of these tax exemptions, a substantial portion of our pre-tax income has  not been subject to significant tax in recent years. These tax incentives  resulted in a decrease in our income tax expense of $160 and $224 million for fiscal  2006 and 2007 compared to the effective tax amounts that we estimate we would have been required to pay if these incentives had not been available. 

    The  Finance Act, 2000 phases out the ten-year tax holiday over a ten-year period  from fiscal 2000 through fiscal 2009. Accordingly, facilities set up in India  on or before March 31, 2000 have a ten-year tax holiday, new facilities set up  on or before March 31, 2001 have a nine-year tax holiday and so forth until  March 31, 2009. After March 31, 2009, the tax holiday will no longer be  available to new facilities. Our current tax holidays expire in stages by 2009.  Some of our new facilities are being set up under the Special Economic Zones  Act, 2005. Under this scheme, units in designated special economic zones which  begin providing services on or after April 1, 2005 will be eligible for a  deduction of 100 percent of profits or gains derived from the export of  services for the first five years from commencement of provision of services  and 50 percent of such profits or gains for a further five years. Certain tax  benefits are also available for a further five years subject  to the unit  meeting defined conditions. When our tax holidays expire or terminate, our tax  expense will materially increase, reducing our profitability. As a result of  such tax incentives, and a credit of $29 million being liability no longer required for taxes payable in foreign jurisdictions  consequent to expiry of  the limitation period and completion of assessment by taxation authorities, our  effective tax rate for fiscal 2007 was 9.0% which would have been 12.1%   without considering the credit of $29 million. Our Indian statutory tax rate  for the same period was 33.66%. 

The Finance Bill, 2007, currently pending before the Indian Parliament, has proposed to include income eligible for deductions under sections 10A and 10B of the Indian Income Tax Act in the computation of book profits for the levy of a Minimum Alternative Tax, or MAT. The rate of MAT, effective April 1, 2007, would be 11.33% (including a surcharge and education cess) on our book profits determined after including income eligible for deductions under Sections 10A and 10B of the Indian Income Tax Act. The Income tax Act  provides that the  MAT paid by us  can be adjusted against our tax liability over the  next five years. Although MAT paid by us can be set off against our future income tax liability over the next five years, our tax  expense may increase, reducing our profitability. 

**Minority interest**

    Minority interest  represents the share of minority shareholders in the profits of Infosys BPO, our majority owned and consolidated subsidiary. 

**Results of Operations**

    The following table sets  forth certain financial information as a percentage of revenues: 
 
 

**Fiscal**

 

**2005**

**2006**

**2007**

Revenues 

100.0% 

100.0 % 

100.0%

Cost of revenues

56.8% 

57.8% 

57.5%

Gross profit 

43.2% 

42.2% 

42.5%

Operating Expenses: 

 

 

 

Selling and marketing

 

 

 

expenses 

6.5% 

6.3% 

6.8%

General and administrative

 

 

 

expenses 

8.0% 

8.0% 

8.0%

Amortization of

 

 

 

intangible assets 

0.1% 

-

0.1%

Total operating expenses 

14.6% 

14.3% 

14.9%

Operating income 

28.6% 

27.9% 

27.6%

Gain on sale of long term

 

 

 

 investment 

0.7% 

-

-

Other income, net 

1.5% 

1.4% 

2.7%

Income before income taxes

30.8% 

29.3% 

30.3%

Provision for income taxes

4.5% 

3.3% 

2.7%

Income before

 

 

 

 minority interest 

26.3% 

26.0% 

27.6%

Minority interest 

-

0.2% 

0.1%

Net income 

26.3% 

25.8% 

27.5%

**Results for Fiscal 2007 compared to Fiscal 2006**

**Revenues**
      The following table sets  forth the growth in our revenues from fiscal 2006 to fiscal 2007:  
*(Dollars in millions)*

 

**Fiscal 2006**

**Fiscal 2007**

**Change**

**Percentage Change**

Revenues

$2,152

$3,090

$938

43.6%

Revenues  increased in most segments of our services except for a  decrease in transportation  services. The increase in revenues was attributable to an increase in business  from both existing clients and from new clients, particularly in industries  such as financial services and telecommunications.
      The  following table sets forth our revenues by industry segments for fiscal 2006  and fiscal 2007:   
 

**Percentage of Revenues**

**Industry Segments**

**Fiscal 2006**

**Fiscal 2007**

Financial services 

36.0% 

37.4%

Manufacturing 

13.9% 

13.5%

Telecommunication 

16.4% 

19.3%

Retail 

10.2% 

10.1%

Others including utilities,

 

 

logistics and services

23.5%

19.7%

Revenues  from services represented 96.1% of total revenues for fiscal 2007 as compared  to 96.2% for fiscal 2006. We also generate revenue from software application  products, including banking software. Such software products represented 3.9% of our total revenues for fiscal  2007 and 3.8%  of our total revenues for fiscal 2006. 
    The  following table sets forth the revenues from fixed-price, fixed-timeframe  contracts and time-and-materials contracts as a percentage of total services  revenues for fiscal 2006 and fiscal 2007:   
 

**Percentage of total services revenues**

 

**Fiscal 2006**

**Fiscal 2007**

Fixed-price, fixed-timeframe

 

 

contracts 

28.1% 

26.7%

Time-and-materials    contracts 

71.9%

73.3%
  The  following table sets forth our revenues by geographic segments for fiscal 2006  and fiscal 2007:   
 

**Percentage of Revenues**

**Geographic    Segments**

**Fiscal 2006**

**Fiscal 2007**

North America 

64.8% 

63.3%

Europe 

24.5% 

26.4%

India 

1.8% 

1.6%

Rest of the World 

8.9%

8.7%

During fiscal 2007 the total billed person-months for our services other than business  process management grew by 35.6% compared to fiscal 2006. The onsite and offshore billed person-months growth for our services other than business  process management were 40.9% and 33.1% during fiscal 2007 compared to fiscal 2006.  We have recently experienced an  increase in pricing on engagements with some of  our customers. During fiscal 2007 there was 4.4% increase in onsite rates and a  2.7% increase in offshore rates compared to fiscal 2006 for our services other than business  process management. 

**Cost of revenues**
    The following table sets  forth our cost of revenues for fiscal 2006 and fiscal 2007:      
*(Dollars in millions)*

 

**Fiscal 2006**

**Fiscal 2007**

**Change**

**Percentage Change**

Cost of revenues

$1,244 

$1,777 

$533 

42.8%

As a percentage

 

 

 

 

of revenues 

57.8% 

57.5%

 

 

The  increase in our cost of revenues is mainly attributable to increases of  approximately $433 million in personnel costs due to new hires and a  compensation review effected in April 2006, $28 million in cost of technical sub-contractors,  $24 million in overseas travel expenses, $16 million in depreciation  expenses, $14 million in cost of software  purchased for our own use,  $6  million in provision for post sales client support and $5 million in travelling expenses. 

**Gross profit**
    The following table sets  forth our gross profit for fiscal 2006 and fiscal 2007:      
*(Dollars in millions)*

 

**Fiscal 2006**

**Fiscal 2007**

**Change**

**Percentage Change**

Gross profit 

$908 

$1,313 

$405 

44.6%

As a percentage

 

 

 

 

of revenues

42.2% 

42.5%

 

 

The increase  in gross profit as a percentage of revenues from fiscal 2006 to fiscal 2007 is  attributable to a 43.6% increase in revenues for fiscal 2007 substantially offset by a 42.8% increase  in cost of revenues in the same period compared to fiscal 2006. 
**Selling and marketing expenses**  The following table sets  forth our selling and marketing expenses for fiscal 2006 and fiscal 2007:  
*(Dollars in millions)*

 

**Fiscal 2006**

**Fiscal 2007**

**Change**

**Percentage Change**

Selling and

 

 

 

 

marketing expenses 

$136 

$209 

$73 

53.7%

As a percentage

 

 

 

 

of revenues 

6.3% 

6.8%

 

 

The  number of our sales and marketing personnel increased from 444 as of March 31,  2006 to 537 as of March 31, 2007. The increase in selling and marketing  expenses is mainly attributable to increases of approximately $41 million in  personnel costs of selling and marketing employees related to new hires and  the compensation review effected in April 2006, $16 million in commission charges, $6 million in  overseas travel expenses, $5 million in brand building expenses and $3 million  in marketing expenses. 

**General and administrative expenses**
      The following table sets  forth our general and administrative expenses for fiscal 2006 and fiscal 2007:  
*(Dollars in millions)*

 

**Fiscal 2006**

**Fiscal 2007**

**Change**

**Percentage Change**

General and

 

 

 

 

Administrative

 

 

 

 

expenses 

$173 

$249 

$76 

43.9%

As a percentage

 

 

 

 

of revenues

8.0% 

8.0%

 

 

The  increase in general and administrative expenses was primarily attributable to  increases of approximately $23 million for personnel costs on account of new  hires and the compensation review effected in April 2006, $10 million in professional charges, $7 million  each in telecommunication charges and office maintenance charges, $6 million  each in travel expenses and power and fuel charges, $4 million in provision for  bad and doubtful debts, $3 million each in rates and taxes and research grants  and $2 million in repairs to building. The factors which affect the  fluctuations in our provisions for bad debts and write offs of uncollectible  accounts include the financial health of our clients and economic environment in which they operate.  We specifically identify the credit loss and then make the provision. No one  client has contributed significantly to a loss, and we have had no significant  changes in our collection policies or payment terms. 

**Amortization of intangible assets**

The amortization of intangible  assets for fiscal 2007 represents $3 million  of amortization of the identified customer contract intangibles arising on the  allocation of purchase price of Infosys BPO. There was no amortization of  intangible assets for fiscal 2006. 

**Operating income**
      The following table sets  forth our operating income for fiscal 2006 and fiscal 2007:  
*(Dollars in millions)*

 

**Fiscal 2006**

**Fiscal 2007**

**Change**

**Percentage Change**

Operating income

$599

$852 

$253 

42.2%

As a percentage of

 

 

 

 

revenues 

27.9%

27.6%

* *

* *

**Gain on sale of long term investment**

    We had no gain on sale of long term investment in fiscal 2006. In fiscal 2005, we sold our  investment in Yantra Corporation and the consideration received from the sale  resulted in a gain of $11 million.  The carrying value of  the investment in Yantra Corporation was completely written down in fiscal  1999. Further consideration of $1 million was received during the year  ended March 31, 2007, resulting in a gain of $1 million for the year. 

**Other income, net**
      The following table sets  forth our other income, net for fiscal 2006 and fiscal 2007:  
*(Dollars in millions)*

 

**Fiscal 2006**

**Fiscal 2007**

**Change**

**Percentage Change**

Other income, net 

$31 

$83 

$52 

167.7%

Other  income, net, consists mainly of interest and income from investment in liquid mutual fund units,  foreign exchange gains/(losses) and provision for investments. Interest income and income from investment in liquid mutual fund units was approximately $48 million and $71 million during fiscal  2006 and 2007. 

    We  recorded foreign exchange losses of $18 million in fiscal 2006 compared to an $8 million  gain in fiscal 2007. Foreign exchange gains and losses arise from the  appreciation and depreciation of the rupee against other currencies in which we  transact business and from foreign exchange forward and option contracts. 
  The  following table sets forth the currency in which our revenues for fiscal 2006  and 2007 are denominated:   
 

**Percentage of Revenues**

**Currency**

**Fiscal 2006**

**Fiscal 2007**

US dollar

77.4% 

72.9%

United Kingdom Pound Sterling 

8.6% 

12.5%

Euro 

4.5% 

4.8%

Others

9.5% 

9.8%

    The  following table sets forth information on the foreign exchange rates in rupees  per US dollar, United Kingdom Pound Sterling and Euro for fiscal 2006 and  fiscal 2007:  

  

**Fiscal 2006 (Rs.)**

**Fiscal 2007 (Rs.)**

**Appreciation / (Depreciation) in percentage**

 Average exchange rate during the period 

  

  

  

 US dollar 

 44.21 

 45.06 

 (1.9)% 

 United Kingdom Pound Sterling 

 78.63 

 86.00 

 (9.4)% 

 Euro 

 53.72 

 58.29 

 (8.5)% 

  

**Fiscal 2006 (Rs.)**

**Fiscal 2007 (Rs.)**

 Exchange rate at the beginning of the period 

  

  

 US dollar 

 43.62 

 44.48 

 United Kingdom Pound Sterling 

 82.18 

 77.36 

 Euro 

 56.52 

 53.99 

 Exchange rate at the end of the period 

  

 US dollar 

 44.48 

 43.10 

 United Kingdom Pound Sterling 

 77.36 

 84.84 

 Euro 

 53.99 

 57.64 

 Appreciation / (Depreciation) during the period in percentage 

  

  

 US dollar 

 (2.0)% 

 3.1% 

 United Kingdom Pound Sterling 

 5.9% 

 (9.7)% 

 Euro 

 4.5% 

 (6.8)% 

We used  derivative financial instruments such as foreign exchange forward and option  contracts to mitigate the risk of changes in foreign exchange rates on accounts  receivable and forecasted cash flows denominated in certain foreign currencies.  The counterparty for these contracts is generally a bank. We held foreign exchange forward  contracts of $119 million as of March 31, 2006 and $170 million, Euro 2 million  and United Kingdom  Pound Sterling 6 million of forward exchange contracts as of March 31, 2007.  The foreign exchange forward contracts mature in between 1 to 12 months. As of  March 31, 2006, we held put options of $4 million, call options of $8  million and range barrier options of $210 million, Euro 3 million and United  Kingdom Pound Sterling 3 million. As of March 31, 2007, we held range  barrier options of $207 million and United Kingdom Pound Sterling 8 million,  Euro accelerator options of Euro 24 million and target redemption structure options of  United Kingdom Pound Sterling 16 million. 

We had recorded losses of $15 million on account of foreign exchange forward contracts for fiscal 2006  while we have recorded a gain of $14 million for fiscal 2007, which are  included in total foreign currency exchange gains/losses. Our accounting policy  requires us to mark to market and recognize the effect in earnings immediately  of any derivative that is either not designated a hedge, or is so designated  but is ineffective as per SFAS 133. 

**Provision for income taxes**
      The following table sets  forth our provision for income taxes and effective tax rate for fiscal 2006 and  fiscal 2007:  
*(Dollars in millions)*

 

**Fiscal 2006**

**Fiscal 2007**

**Change**

**Percentage Change**

Provision    for

 

 

 

 

income taxes

$70

$84 

$14 

20.0%

Effective    tax rate

11.1%

9.0%

 

 

The  provision for tax for fiscal 2007 included a credit of $29 million for liability no longer required for taxes payable in foreign  jurisdictions consequent to expiry of a limitation period and completion of  assessment by taxation authorities. Due to the tax credit the effective tax rate for fiscal 2007 has decreased to a reported rate of 9.0% as against a rate of 12.1% computed without considering the tax credit. The increase in the effective tax rate to 12.1% without considering the tax credit included in provision for taxes for fiscal 2007 from 11.1% is mainly due to higher onsite profitability and expiry of tax holiday in certain STP units. 

**Minority Interest**

    Minority interest of $2 million for fiscal 2007 represents the  share of minority shareholders in the profits of Infosys BPO, our  majority owned and consolidated subsidiary. 

**Net income**
      The following table sets  forth our net income for fiscal 2006 and fiscal 2007:  
*(Dollars    in millions)*

 

**Fiscal    2006**

**Fiscal    2007**

**Change**

**Percentage Change**

Net income 

$555

$850 

$295 

53.2%

As a percentage

 

 

 

 

of    revenues

25.8%

27.5%

 

 

The  increase in net income as a percentage of revenues from fiscal 2006 to fiscal  2007 is attributable to a 44.6% increase in gross profit  for fiscal 2007  compared to fiscal  2006. Further, there has been an increase in selling and marketing expenses,   general and administrative expenses and provision for income taxes of 53.7%, 43.9% and 20.0% respectively offset by  an increase of 167.7% in other income and a decrease of 60.0% in minority interest. 

**Results for Fiscal 2006 compared to Fiscal 2005**

**Revenues**
      The following table sets  forth the growth in our revenues from fiscal 2005 to fiscal 2006:  
*(Dollars in millions)*

 

**Fiscal 2005**

**Fiscal 2006**

**Change**

**Percentage Change**

Revenues

$1,592 

$2,152 

$560 

35.2%

  Revenues  increased in most segments of our services. The increase in revenues was  attributable to an increase in business from both existing clients and from new  clients, particularly in industries such as financial services, retail and  energy and utilities services.

    The  following table sets forth our revenues by industry segments for fiscal 2005  and fiscal 2006: 
 
 

**Percentage of Revenues**

**Industry    Segments**

**Fiscal 2005**

**Fiscal 2006**

Financial    services 

34.5% 

36.0% 

Manufacturing 

14.5% 

13.9% 

Telecommunication 

18.5% 

16.4% 

Retail 

9.7% 

10.2% 

Others including utilities,

 

 

logistics and services

22.8% 

23.5%

  Revenues  from services represented 97.0% of total revenues for fiscal 2005 as compared  to 96.2% for fiscal 2006. Sale  of our software products represented 3.0% of our total revenues for fiscal 2005  as compared to 3.8% for fiscal 2006. 
    The  following table sets forth the revenues from fixed-price, fixed-timeframe  contracts and time-and-materials contracts as a percentage of total services  revenues for fiscal 2005 and fiscal 2006:       
 

**Percentage of total services revenues**

 

**Fiscal 2005**

**Fiscal 2006**

Fixed-price, fixed-timeframe

 

 

contracts 

30.0% 

28.1% 

Time-and-materials contracts 

70.0% 

71.9%
The  following table sets forth our revenues by geographic segments for fiscal 2005  and fiscal 2006: 
 

**Percentage of Revenues**

**Geographic    Segments**

**Fiscal 2005**

**Fiscal 2006**

North America 

65.2% 

64.8% 

Europe 

22.3% 

24.5% 

India 

1.9% 

1.8% 

Rest of the World 

10.6% 

8.9%

During fiscal 2006 the total billed person-months for our services other than business  process management grew by 31.3% compared to fiscal 2005.The onsite and  offshore volume growth were 32.1% and 30.9% during fiscal 2006 compared to  fiscal 2005. We had seen a slight increase in pricing on engagements with some  of our customers. During fiscal 2006 there was 0.3% increase in onsite rates  and a 0.8% increase in offshore rates compared to fiscal 2005. 

**Cost of revenues**
      The following table sets  forth our cost of revenues for fiscal 2005 and fiscal 2006:  
*(Dollars in millions)*

 

**Fiscal 2005**

**Fiscal 2006**

**Change**

**Percentage Change**

Cost of revenues

$904 

$1,244 

$340 

37.6% 

As a percentage

 

 

 

 

of revenues 

56.8% 

57.8% 

 

 

The  increase in our cost of revenues is mainly attributable to increases of  approximately $262 million in personnel costs due to new hires and a  compensation review effected in April 2005, $22 million in overseas travel  expenses, $34 million in depreciation expenses, $6 million in amortization of  software purchased for our own use and $12 million in cost of technical  subcontractors, partially offset by a reduction of $10 million in accruals for  post sales client support. 

**Gross profit**
      The following table sets  forth our gross profit for fiscal 2005 and fiscal 2006:  
*(Dollars in millions)*

 

**Fiscal 2005**

**Fiscal 2006**

**Change**

**Percentage Change**

Gross profit 

$688 

$908 

$220 

32.0% 

As a percentage

 

 

 

 

of revenues

43.2% 

42.2% 

 

 

The  decrease in gross profit as a percentage of revenues from fiscal 2005 to fiscal  2006 is attributable to a 35.2% increase in revenues for fiscal 2006 offset by  a 37.6% increase in cost of revenues in the same period compared to fiscal  2005. 

**Selling and marketing expenses**
      The following table sets  forth our selling and marketing expenses for fiscal 2005 and fiscal 2006:  
*(Dollars in millions)*

 

**Fiscal 2005**

**Fiscal 2006**

**Change**

**Percentage Change**

Selling and

 

 

 

 

marketing expenses 

$103 

$136 

$33 

32.0% 

As a percentage

 

 

 

 

of revenues 

6.5% 

6.3% 

 

 

The  number of our sales and marketing personnel increased from 348 as of March 31,  2005 to 444 as of March 31, 2006. The increase in selling and marketing  expenses is mainly attributable to increases of approximately $22 million in  personnel costs of selling and marketing employees on account of new hires and  the compensation review, $5 million in overseas travel expenses, $3 million in  brand building expenses and $2 million in professional charges. 

**General and administrative expenses**
      The following table sets  forth our general and administrative expenses for fiscal 2005 and fiscal 2006:  
*(Dollars in millions)*

 

**Fiscal 2005**

**Fiscal 2006**

**Change**

**Percentage Change**

General and

 

 

 

 

administrative

 

 

 

 

expenses 

$127 

$173 

$46 

36.2% 

As a percentage

 

 

 

 

of revenues

8.0% 

8.0% 

 

 

The  increase in general and administrative expenses was primarily attributable to  increases of approximately $11 million for personnel costs on account of new  hires and the compensation review, $8 million in professional charges, $7  million in telecommunication charges, $6 million each in office maintenance  charges, travel expenses and power and fuel charges, and $1 million each in  foreign travel expenses, printing and stationary, advertisements and taxes,  other than income taxes, partially offset by a decrease of $3 million in the  provision for bad and doubtful debts. The factors which affect the fluctuations  in our provisions for bad debts and write offs of uncollectible accounts  include the financial health and economic environment of our clients. We  specifically identify the credit loss and then make the provision. No one  client has contributed significantly to a loss, and we have had no significant  changes in our collection policies or payment terms. 

**Amortization of intangible assets**

    There was no  amortization of intangible assets for fiscal 2006. The amortization of  intangible assets for fiscal 2005 represents $2 million of amortization of the  identified customer contract intangibles arising on the allocation of purchase  price of Infosys Australia. 

**Operating income**
      The following table sets  forth our operating income for fiscal 2005 and fiscal 2006:  
*(Dollars in millions)*

 

**Fiscal 2005**

**Fiscal 2006**

**Change**

**Percentage Change**

Operating income

$456

$599

$143

31.4%

As a percentage of

 

 

 

 

revenues 

28.6%

27.9%

 

* *

**Gain on sale of long term investment**

    We had no gains on sales  of long term investments in fiscal 2006. In fiscal 2005, we sold our investment  in Yantra Corporation. The carrying value of the investment in Yantra  Corporation was completely written down in fiscal 1999. Consideration received  from the sale resulted in a gain of $11 million. There is a further  consideration of $1 million, subject to contractual contingencies, receivable  in fiscal 2007. No gain has been recognized on the contingent portion. 

**Other income, net**
      The following table sets  forth our other income, net for fiscal 2005 and fiscal 2006:  
*(Dollars in millions)*

 

**Fiscal 2005**

**Fiscal 2006**

**Change**

**Percentage Change**

Other    income, net 

$24 

$31 

$7 

29.2%

Other  income, net, consists mainly of interest and dividend income, foreign exchange  losses and provision for investments. Interest income and income from mutual  fund investments was approximately $26 million and $48 million during fiscal  2005 and 2006. 

    We  recorded foreign exchange losses of $2 million in fiscal 2005 compared to $18  million in fiscal 2006. Foreign exchange gains and losses arise from the  appreciation and depreciation of the Rupee against other currencies in which we  transact. 
  The  following table sets forth the currency in which our revenues for fiscal 2005  and 2006 are denominated:   
 

**Percentage of Revenues**

**Currency    wise revenues**

**Fiscal 2005**

**Fiscal 2006**

US dollar

79.4% 

77.4% 

United Kingdom Pound Sterling 

6.5% 

8.6% 

Euro 

4.9% 

4.5% 

Others

9.2%

9.5%
The  following table sets forth information on the foreign exchange rates in rupees  per US dollar, United Kingdom Pound Sterling and Euro for fiscal 2005 and  fiscal 2006: 
**Exchange rate**

**Fiscal 2005**

**Fiscal 2006**

**Appreciation/(Depreciation)**

 

**(Rs.)**

**(Rs.)**

**in percentage**

Rate at the beginning of the fiscal year 

 

 

  

US dollar

43.40

43.62 

(0.5)%

United Kingdom Pound Sterling 

80.52

82.18 

(2.1)%

Euro 

53.77

56.52 

(5.1)%

Rate at the end of the fiscal year 

 

 

  

US dollar

43.62 

44.48 

(2.0)% 

United Kingdom Pound Sterling 

82.18 

77.36 

5.9% 

Euro 

56.52 

53.99 

4.5% 

Average rate during the fiscal year 

 

 

  

US dollar

44.87 

44.21 

1.5% 

United Kingdom Pound Sterling 

83.13 

78.63 

5.4% 

Euro 

56.76 

53.72 

5.4% 

We used  derivative financial instruments such as foreign exchange forward and option  contracts to mitigate the risk of changes in foreign exchange rates on accounts  receivable and forecasted cash flows denominated in certain foreign currencies.  The counterparty for these contracts is generally a bank. Infosys held foreign  exchange forward contracts of $353 million and $119 million as of March 31,  2005 and 2006, respectively. The foreign exchange forward contracts mature  in between 1 to 12 months. As of March 31, 2006, we held put options of $4  million, call options of $8 million and range barrier options of $210 million,  Euro 3 million and United Kingdom Pound Sterling 3 million. We had recorded  losses of $1 million on account of foreign exchange forward contracts for  fiscal 2005 while we have recorded losses of $15 million for fiscal 2006, which  are included in total foreign currency exchange gains/losses. Our accounting  policy requires us to mark to market and recognize  the effect in earnings  immediately of any derivative that is either not designated a hedge, or is so  designated but is ineffective as per SFAS 133. 

**Provision for income taxes**
      The following table sets  forth our provision for income taxes and effective tax rate for fiscal 2005 and  fiscal 2006:  
*(Dollars in millions)*

 

**Fiscal 2005**

**Fiscal 2006**

**Change**

**Percentage Change**

Provision for

 

 

 

 

income taxes

$72

$70

$(2)

(2.8)%

Effective tax rate

14.7%

11.1%

 

 

The  decrease in the effective tax rate is mainly due to higher offshore  profitability, increase in income from mutual fund investments and a credit of  $5 million during fiscal 2006 being the effect of a change in the estimate of  taxes payable in a foreign jurisdiction. The decrease in the estimate arose on  completion of assessment proceedings by taxation authorities. Income from  mutual fund investments increased from $9 million in fiscal 2005 to $17 million  in fiscal 2006. 

**Minority Interest**

    Minority interest of $5  million for fiscal 2006 represents the share of minority shareholders in the  profits of Infosys BPO, our majority owned  and consolidated subsidiary. 

**Net income**
      The following table sets  forth our net income for fiscal 2005 and fiscal 2006:  
*(Dollars in millions)*

 

**Fiscal    2005**

**Fiscal    2006**

**Change**

**Percentage Change**

Net income 

$419

$555

$136

32.5%

As a percentage

 

 

 

 

of revenues

26.3%

25.8%

 

 

The  increase in net income as a percentage of revenues from fiscal 2005 to fiscal  2006 is attributable to a 32.0% increase in the gross profit for fiscal 2006  compared to fiscal 2005.  Further, there has been an increase in selling and marketing expenses,   general and administrative expenses and minority interest of 32.0%, 36.2% and 100.0% respectively offset by  an increase of 29.2% in other income and decrease in provision for income taxes of 2.8%. 

**Liquidity and Capital Resources**

    Our growth has been  financed largely by cash generated from operations and, to a lesser extent,  from the proceeds from the sale of equity. In 1993, we raised approximately  $4.4 million in gross aggregate proceeds from our initial public offering of  equity shares in India.  In 1994, we raised an additional $7.7 million through private placements of our  equity shares with foreign institutional investors, mutual funds, Indian  domestic financial institutions and corporations. On March 11, 1999, we raised  $70.4 million in gross aggregate proceeds from our initial public offering of  ADSs in the United States. 

    As of  March 31, 2007, we had $1,743 million in working capital, including $1,403  million in cash and cash equivalents and $6 million invested in liquid mutual  fund units, and no outstanding bank borrowings. We believe that our current working capital is sufficient to meet our present requirements. We believe that a sustained  reduction in IT spending, a longer sales cycle, and a continued economic  downturn in any of the various industry segments, in which we operate, could  result in a decline in our revenue and negatively impact our liquidity and cash  resources. 

    Net  cash provided by operating activities was $599 million and $862 million for  fiscal 2006 and 2007. Net cash provided by operations consisted primarily of  net income adjusted for depreciation and amortization, minority interest, stock compensation expenses,  deferred taxes and increases in accounts payable, unearned revenue, other accrued liabilities,  offset in part by increase in accounts receivable, prepaid expenses and other current assets, unbilled revenue and income taxes payable.

 Trade  accounts receivable increased by $65 million during fiscal 2006, compared to an  increase of $184 million during fiscal 2007. Accounts receivable as a  percentage of last 12 months revenues represented 16.8% and 18.3% as of March  31, 2006 and 2007. Other accrued liabilities increased by $39 million during  fiscal 2006, compared to an increase of $95 million during fiscal 2007. There  has been an increase in unbilled revenues of $16 million during fiscal 2006,  compared to an increase of $24 million during fiscal 2007. Unbilled revenues  represent revenues that are recognized but not yet invoiced. Client deposits  decreased by $5 million during fiscal 2006, compared to the decrease of $1  million during fiscal 2007. Unearned revenues increased by $24 million during  fiscal 2006, compared to an increase of $26 million during fiscal 2007.  Unearned revenue resulted primarily from advance client billings on  fixed-price, fixed-timeframe contracts for which related efforts have  not been  expended. Revenues from fixed-price, fixed-timeframe contracts and from  time-and-materials contracts represented 28.1% and 71.9% of total services  revenues for the fiscal 2006, as compared to 26.7% and 73.3% in fiscal 2007. The changes in individual line items impacting cash flows is consistent with the growth in our revenues and volume of operations. 

    Net  cash used in investing activities was $148 million and $334 million in fiscal  2006 and 2007. Net cash used in investing activities, relating to our  acquisition of additional property, plant and equipment for fiscal 2006 and  2007 was $246 million and $336 million. During fiscal 2006, we invested $419  million in liquid mutual funds, $11 million in non-current deposits with  corporations, and redeemed mutual fund investments of $523 million. During  fiscal 2007, we invested $1,002 million in liquid mutual funds, $14 million in  non-current deposits with corporations, and redeemed mutual fund investments of  $1,163 million. The proceeds realized from the redemption of mutual fund investments were  largely  invested in bank deposits.

During  the year we increased our share-holding in Infosys BPO by:
- acquiring 8,750,000 equity shares, representing 25.52% equity interest of Infosys BPO from Citicorp International  Finance Corporation (CIFC) on June 30, 2006;
- repurchasing 1,139,469 equity shares, representing 3.31% equity interest of Infosys BPO from minority  shareholders through Infosys BPO on December 29, 2006;
- acquiring 211,909 shares, representing 0.63% equity interest of Infosys BPO in January 2007 and a committed purchase of 360,417 shares, representing 1.06% equity interest of Infosys BPO to be transferred by February 2008, from the minority share-holders;
- acquiring 1,737,092 options from the option holders of  Infosys BPO in March 2007.

An aggregate  consideration of $148 million was paid and 151,933 Infosys options were granted  to the minority share-holders and options holders for consummating the above  transactions. Further, an amount of $5 million was accounted as a liability. As of  March 31, 2007 we effectively held 99.98% of the  outstanding equity shares of Infosys BPO

Prior  to the current fiscal year, we used to provide various loans to employees  including car loans, home loans, personal computer loans, telephone loans,  medical loans, marriage loans, personal loans, salary advances, education loans  and loans for rental deposits. These loans were provided primarily to employees  in India  who were not executive officers or directors. Housing and car loans were  available only to middle level managers, senior managers and non-executive  officers. These loans were generally collateralized against the assets of the  loan and the terms of the loans ranged from 1 to 100 months. 

    We have  discontinued fresh disbursements under all of these loan schemes except for  personal loans and salary advances which we continue to provide primarily to  employees in India  who are not executive officers or directors. We also provide allowances for  purchase of cars and houses for our middle level managers. 

    The  annual rates of interest for these loans vary between 0% and 4%. Loans  aggregating $28 million and $28 million were outstanding as of March 31, 2007  and 2006. 

Net  cash provided by financing activities for fiscal 2006 was $37 million. This  primarily comprised of $128 million of cash raised by issuance of equity shares  on exercise of stock options by employees, partially offset by dividend  payments of $91 million. Net cash used in financing activities for fiscal 2007  was $55 million. This primarily comprised of dividend payments of $336 million  partially offset by $277 million of cash raised by issuance of equity shares on  exercise of stock options by employees. Our employees exercised approximately 1.37 million  options and 8.60 million options  under our 1998 ADS stock option plan and 1999 equity stock option plan respectively during fiscal 2006 as against  2.29 million  options and 17.81 million options  under our 1998 ADS stock option plan and 1999 equity stock option plan respectively during fiscal 2007. 

Our  Board of Directors, in their meeting on April 13, 2007, have proposed a final  dividend of approximately $0.15 per equity share. The proposal is subject to  the approval of members at the Annual General Meeting to be held on June 22,  2007 and, if approved, would result in a cash outflow of approximately $101  million including corporate dividend tax of $15 million.

 As of March 31, 2006, we had contractual  commitments for capital expenditure of $117 million, compared to $158 million  as of March 31, 2007. These commitments include approximately $106 million in commitments for domestic purchases as of March 31, 2006, compared to $137 million as of March  31, 2007, and $11 million in commitments for imports of  hardware,  supplies and services to support our operations generally as of March 31, 2006,  compared to $21 million as of March 31, 2007,    which we expect to be significantly  completed by September 2007.

 We have  provided information to the public regarding forward-looking guidance on our  business operations. 

**Reconciliation between Indian and US GAAP**

    All financial  information in this Annual Report is presented in accordance with US GAAP,  although we also report for Indian statutory purposes under Indian GAAP. The  material differences that affect us are primarily attributable to US GAAP  requirements for the:
- accounting for stock-based compensation under SFAS 123R and;
- amortization of intangible assets.
**Reconciliation of Net Income**
*(Dollars in million)*

 

**Fiscal**

 

**2005**

**2006**

**2007**

Net profit as per Indian GAAP 

$423 

$555 

$858

Stock compensation expense (SFAS 123R)

-

-

(5)

Forward contracts

 

 

 

 - marked    to market 

(4) 

-

-

Amortization of intangible assets 

(2) 

-

(3)

Deferred taxes arising due

 

 

 

to GAAP differences 

2 

-

-

Net income as per US GAAP 

$419 

$555

$850

**Quantitative and Qualitative Disclosures about  Market Risk**

**General**

    Market risk is  attributable to all market sensitive financial instruments including foreign  currency receivables and payables. The value of a financial instrument may  change as a result of changes in the interest rates, foreign currency exchange  rates, commodity prices, equity prices and other market changes that affect  market risk sensitive instruments. 

    Our  exposure to market risk is a function of our revenue generating activities and  any future borrowing activities in foreign currency. The objective of market  risk management is to avoid excessive exposure of our earnings and equity to  loss. Most of our exposure to market risk arises out of our foreign currency  accounts receivable. 

**Risk Management Procedures**

    We manage market risk  through treasury operations. Our treasury operations' objectives and policies  are approved by senior management and our audit committee. The activities of  treasury operations include management of cash resources, implementing hedging  strategies for foreign currency exposures, borrowing strategies, if any, and  ensuring compliance with market risk limits and policies. 

**Components of Market Risk**

*Exchange  rate risk.*Our exposure to  market risk arises principally from exchange rate risk. Even though our  functional currency is the Indian rupee, we transact a major portion of our  business in foreign currencies, particularly the US dollar, the United Kingdom Pound Sterling and the Euro. The exchange rate  between the rupee and the dollar has changed substantially in recent years and  may fluctuate substantially in the future. Consequently, the results of our  operations are adversely affected as the rupee appreciates against dollar. For  fiscal 2006 and 2007, US dollar denominated revenues represented 77.4% and 72.9%  of total revenues. For the same periods, revenues denominated in United Kingdom  Pound Sterling represented 8.6% and 12.5% of total revenues while revenues  denominated in the Euro represented 4.5% and 4.8% of total revenues. Our  exchange rate risk primarily arises from our foreign currency revenues,  receivables and payables. We have sought to reduce the effect of exchange rate  fluctuations on our    operating results by purchasing derivative instruments such  as foreign  exchange forward contracts and options contracts to cover a portion of  outstanding accounts receivable. As of March 31, 2006 and 2007, we had  outstanding forward contracts in the amount of $119 million and $170 million, Euro 2 million and United Kingdom  Pound Sterling 6 million. As  of March 31, 2007, we held range barrier options of $207 million and  United Kingdom Pound Sterling 8 million, Euro Accelerator options of Euro 24 million  and Target Redemption Structure options of United Kingdom Pound Sterling 16 million. As of March 31, 2006, we  held put options of $4 million, call options of $8 million and range barrier  options of $210 million, Euro 3 million and United Kingdom Pound Sterling 3  million. These contracts typically mature within one to twelve months, must be  settled on the day of maturity and may be cancelled subject to the payment of  any gains or losses in    the difference between the contract exchange rate and  the market exchange rate on the date of cancellation. We use these derivative  instruments only as a hedging mechanism and not for speculative purposes. We  may not purchase adequate instruments to insulate ourselves from foreign  exchange currency risks. The policies of the Reserve Bank of India may change from time to time  which may limit our ability to hedge our foreign currency exposures adequately.  In addition, any such instruments may not perform adequately as a hedging  mechanism. We may, in the future, adopt more active hedging policies, and have  done so in the past. 

*Fair  value.*The fair value of  our market rate risk sensitive instruments approximates their carrying value. 

**Recent Accounting Pronouncements**

    In July 2006, the FASB issued  Interpretation ("FIN") No. 48, Uncertainty in Income Taxes. FIN  48 applies to all tax positions within the scope of Statement 109 and clarifies  when and how to recognize tax benefits in the financial statements with a  two-step approach of recognition and measurement. FIN 48 is effective for  fiscal years beginning after December 15, 2006. FIN 48 also requires the  enterprise to make explicit disclosures about uncertainties in their income tax  positions, including a detailed roll forward of tax benefits taken that do not  qualify for financial statement recognition. Differences between the amounts  recognized in the statements of financial position prior to the adoption of FIN  48 and the amounts reported after adoption should be accounted for as a  cumulative-effect adjustment recorded to the beginning balance of retained  earnings. We have  evaluated the impact of this pronouncement and does  not believe that adoption of	FIN 48 on April 1, 2007 will have a material  effect on the financial position, cash flows or results of our operations. 

    In September 2006, the  Financial Accounting Standard Board (FASB) issued SFAS No.157, Fair Value  Measurements (SFAS 157). SFAS 157 defines "fair value" as the price that would  be received to sell an asset or paid to transfer a liability in an orderly  transaction between market participants at the measurement date. SFAS 157  provides guidance on determination of fair value, and lays down the fair value  hierarchy to classify the source of information used in fair value  measurements. We will be required to adopt this new standard for the fiscal year beginning April 1, 2008. We are currently evaluating the  requirements of SFAS 157 and has not yet determined the impact on the  consolidated financial statements. 

    In February 2007, the Financial  Accounting Standards Board released FASB 159, "The Fair Value Option for  Financial Assets and Financial Liabilities". This Statement permits entities to  choose to measure many financial instruments and certain other items at fair  value. The objective is to improve financial reporting by providing entities  with the opportunity to mitigate volatility in reported earnings caused by  measuring related assets and liabilities differently without having to apply  complex hedge accounting provisions. We will be required to adopt this  new standard for the fiscal year beginning April 1, 2008. We are currently  evaluating the requirements of SFAS 159 and has not yet determined the  impact on the consolidated financial statements. 

**Recently Adopted Accounting Pronouncements**

**Stock  compensation expense**

We adopted FASB Statement No.123 (revised 2004) (SFAS 123R), Share-Based Payment, effective April 1, 2006. This statement requires compensation expense relating to share-based payments to be recognized in net income using a fair-value measurement method. Under the fair value method, the estimated fair value of awards is charged to income on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. We elected the modified prospective method as prescribed in SFAS 123R and therefore, prior periods were not restated. Under the modified prospective method, this statement was applied to new awards granted after the time of adoption, as well as to the unvested portion of previously granted equity-based awards for which the requisite service had not been rendered as of April 1, 2006. In addition, we previously accounted for forfeitures when they occurred. Commencing at the date of adoption, we included a forfeiture estimate in the amount of compensation expense being recognized. The adoption of SFAS 123R, has resulted in the recognition of stock compensation expense of $5 million for fiscal 2007.

 Prior to April 1, 2006 we  followed the intrinsic value-based accounting method for stock-based employee  compensation plans for our fixed stock option plans based on Accounting  Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to  Employees, and related interpretations including FASB Interpretation  No. 44, Accounting for Certain Transactions involving Stock Compensation. SFAS 123, Accounting for Stock-Based  Compensation, established accounting and disclosure requirements using a fair  value-based method of accounting for stock-based employee compensation plans,  however, as allowed by SFAS 123, we elected to continue to apply the  intrinsic value-based method of accounting and adopted disclosure requirements  of SFAS 148, Accounting for Stock-Based Compensation - Transition and  Disclosure.

**Gratuity**

    We  adopted Statement of Financial Accounting Standards ("SFAS") No. 158,  Employers' Accounting for Defined Benefit Pension and Other Postretirement  Plans - An Amendment of FASB Statements No. 87, 88, 106, and 132R effective  March 31, 2007. Pursuant to the adoption, funded status of the defined benefit  plan is recognized in the statement of financial position as an asset if the  plan is over-funded or as a liability if the plan is under-funded. Changes in  the funded status of a plan are required to be recognized in the year in which  the changes occur, and reported in comprehensive income as a separate component  of stockholders' equity. Further, certain gains and losses that were not  previously recognized in the financial statements are required to be reported  in comprehensive income, and certain disclosure requirements were changed.  Incremental impact of adopting SFAS No. 158 on individual line items have been disclosed in the  financial statements.

**Critical Accounting Policies**

    We consider the policies  discussed below to be critical to an understanding of our financial statements  as their application places the most significant demands on management's  judgment, with financial reporting results relying on estimation about the  effect of matters that are inherently uncertain. Specific risks for these  critical accounting policies are described in the following paragraphs. For all  of these policies, future events rarely develop exactly as forecast, and the  best estimates routinely require adjustment. 

**Estimates**

    We prepare financial  statements in conformity with US GAAP, which requires us to make estimates  and assumptions that affect the reported amounts of assets and liabilities,  disclosure of contingent assets and liabilities on the date of the financial  statements and the reported amounts of revenues and expenses during the  financial reporting period. We primarily make estimates related to contract costs  expected to be incurred to complete development of software, allowances for  doubtful accounts receivable, our future obligations under employee retirement  and benefit plans, useful lives of property, plant and equipment, future income  tax liabilities and contingencies and litigation. 

    We  continually evaluate these estimates and assumptions based on the most recently  available information, our own historical experience and on various other  assumptions that are believed to be reasonable under the circumstances, the  results of which form the basis for making judgments about the carrying values  of assets and liabilities that are not readily apparent from other sources.  Since the use of estimates is an integral component of the financial reporting  process, actual results could differ from those estimates. 

**Revenue Recognition**

    We derive our revenues  primarily from software development and related services, licensing of software  products and from business process management services. We make and use  significant management judgments and estimates in connection with the revenue  that we recognize in any accounting period. Material differences might result in  the amount and timing of our revenue for any period, if we made different  judgments or utilized different estimates. 

    Arrangements  with customers for software development and related services are either on a  fixed-price, fixed-timeframe or on a time-and-material basis. Revenue on  time-and-material contracts is recognized as the related services are rendered.  Revenue from the end of the last billing to the balance sheet date is  recognized as unbilled revenues. Maintenance revenues are recognized ratably  over the term of the underlying maintenance arrangement. When the company  receives advances for services and products, such amounts are reported as  client deposits until all conditions for revenue recognition are met. 

    Revenue  from our fixed-price arrangements for software development and related services  that involves significant production, modification or customization of the  software, is accounted for in conformity with ARB No. 45, using the guidance in  Statement of Position (SOP) 81-1, and the Accounting Standards Executive  Committee's conclusion in paragraph 95 of SOP 97-2. Fixed-price arrangements,  which are similar to 'contracts to design, develop, manufacture, or modify  complex aerospace or electronic equipment to a buyer's specification or to  provide services related to the performance of such contracts' and 'contracts  for services performed by architects, engineers, or architectural or  engineering design firms', as laid out in Paragraph 13 of SOP 81-1, are also  accounted for in conformity with SOP 81-1. 

    In the  above mentioned fixed price arrangements, revenue has been recognized using the  percentage-of-completion method. Costs and earnings in excess of billings are  classified as unbilled revenue while billings in excess of costs and earnings  are classified as unearned revenue. In measuring progress towards completion,  we have selected a method that we believe is reliable and best approximates the  progress to completion. The input (efforts expended) method has been used to  measure progress towards completion as there is a direct relationship between  hourly labor input and productivity and the method indicates the most reliable  measure of progress. However, we evaluate each contract and apply judgment to  ensure the existence of a relationship between hourly labor input and  productivity. 

  At the  end of every reporting period, we evaluate each project for estimated revenue  and estimated efforts. Any revisions or updates to existing estimates are made  wherever required by obtaining approvals from officers having the requisite  authority. Management regularly reviews and evaluates the status of each  contract in progress to estimate the profit or loss. As part of the review,  detailed actual efforts and a realistic estimate of efforts to complete all  phases of the project is compared with the details of the original estimate and  the total contract price. To date, we have not had any fixed-price,  fixed-timeframe contracts that resulted in a material loss. However, our policy  is to establish a provision for losses on a contract as soon as losses become  evident. We evaluate change orders according to their characteristics and the  circumstances in which they occur. If such change orders are considered by the  parties to be a normal element within the original scope of the	    contract, no  change in the contract price is made. Otherwise, the adjustment to the contract  price may be routinely negotiated. Contract revenue and costs are adjusted to  reflect change orders approved by the client and us, regarding both scope and  price. Changes are reflected in revenue recognition only after the change order  has been approved by both parties. The same principle is also followed for  escalation clauses. Costs that are incurred for a specific anticipated contract  that will result in no future benefits unless the contract is obtained are not  included in contract costs or deferred costs before the signing of the  contract. Such costs are deferred only if the costs can be directly associated  with a specific anticipated contract and if their recoverability from that  contract is determined to be probable. 

    We  provide our clients with a fixed-period warranty for corrections of errors and  telephone support on all fixed-price, fixed-timeframe contracts. Costs  associated with such support services are accrued at the time related revenues  are recorded and included in cost of revenues. We estimate such costs based on  historical experience, and review estimates on a periodic basis for any  material changes in assumptions and likelihood of occurrence. 

    In  arrangements with respect to software development and related services and maintenance  services, we have specifically applied the guidance in paragraph 9 of EITF  Issue 00-21 to determine whether the software development and related services  can be considered a separate unit of accounting. Our arrangements  generally meet the criteria for software development and related services to be  considered a separate unit of accounting. We use the relative fair value  method to allocate revenue to maintenance services and  software development  and related services. In cases where we are unable to establish objective  and reliable evidence of fair value for the software development and related  services, we have used the residual method to allocate the arrangement  consideration. Maintenance revenues are recognized ratably over the term  of the underlying maintenance arrangement while software development and  related services revenues are recognized using the  percentage-of-completion  method.

    In  accordance with SOP 97-2, Software Revenue Recognition, license fee revenues  are recognized when persuasive evidence of an arrangement exists, delivery has  occurred, the license fee is fixed and determinable, and the collection of the  fee is probable. Arrangements to deliver our software product generally have  three elements: license, implementation and Annual Technical Services, or ATS.  We have applied the principles in SOP 97-2 to account for revenue from these  multiple element arrangements. Vendor Specific Objective Evidence of fair value  or VSOE has been established for ATS. VSOE is the price charged when the  element is sold separately. When other services are provided in conjunction  with the licensing arrangement, the revenue from such contracts are allocated  to each component of the contract using the residual method, whereby revenue is  deferred for the undelivered services and the residual amounts are recognized  as revenue for delivered elements. In the absence of  an established VSOE for  implementation, the entire arrangement fee for license and implementation is  recognized as the implementation is performed. Revenue from client training,  support and other services arising due to the sale of software products is  recognized as the services are performed. ATS revenue is recognized ratably  over the period in which the services are rendered. 

    Revenues  from business process management and other services are recognized on both the  time-and-material and fixed-price, fixed-timeframe bases. Revenue on  time-and-material contracts is recognized as the related services are rendered.  Revenue from fixed-price, fixed-timeframe contracts is recognized as per the proportional  performance method using an output measure of performance. 

    We  recognize revenue only on collectability being probable and hence credit losses  do not have an impact on our revenue recognition policy. Fluctuations in our  provisions for bad debts and write offs of uncollectible accounts depend on the  financial health and economic environment governing our clients. Our provisions  are based on specific identification of the credit loss. No one client has  contributed significantly to credit losses. We have had no significant changes  in our collection policies or payment terms. 

    We account for volume discounts and pricing incentives to customers using  the guidance in EITF Issue 01-09, Accounting for Consideration Given by a  Vendor to a Customer (Including a Reseller of the Vendor's Products). The  discount terms in our arrangements with customers generally entitle  the customer to discounts if the customer completes a specified cumulative  level of revenue transactions. In some arrangements, the level of discount  varies with increases in the levels of revenue transactions. The discounts are  passed on to the customer either as check payments or as a reduction of  payments due from the customer. We recognize discount obligations as  a reduction of revenue based on the ratable allocation of the discount to each  of the underlying revenue transactions that result in progress by the customer  toward earning the discount. We recognize the liability based on its  estimate of the customer's future purchases. Also, when the  level of discount  varies with increases in levels of revenue transactions, we recognize  the liability based on its estimate of the customer's future purchases. If we cannot reasonably estimate the customer's future purchases, then the  liability is recorded based on the maximum potential level of discount. We recognize changes in the estimated amount of obligations for discounts  using a cumulative catch-up adjustment. Furthermore, we do not  recognize any revenue up front for breakages immediately on the inception of an  arrangement.

**Income Tax**

   As part of our financial  reporting process, we are required to estimate our liability for income taxes  in each of the tax jurisdictions in which we operate. This process requires us  to estimate our actual current tax exposure together with an assessment of  temporary differences resulting from differing treatment of items, such as  depreciation on property, plant and equipment, for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are  included within our balance sheet. 

    We face  challenges from domestic and foreign tax authorities regarding the amount of  current taxes due. These challenges include questions regarding the timing and  amount of deductions and the allocation of income among various tax  jurisdictions. Based on our evaluation of our tax position and the information  presently available to us, we believe we have adequately accrued for probable  exposures as of March 31, 2007. To the extent we are able to prevail in matters  for which accruals have been established or are required to pay amounts in  excess of our reserves, our effective tax rate in a given financial statement  period may be materially impacted. 

    Our  deferred tax liabilities mainly arise from taxable basis differences in  intangible assets and investments in liquid mutual funds. Our deferred tax  assets comprise assets arising from basis differences in depreciation on  property, plant and equipment, investments for which the ultimate realization  of the tax asset may be dependent on the availability of future capital gains,  and provisions for doubtful accounts receivable. We assess the likelihood that  our deferred tax assets will be recovered from future taxable income. This  assessment takes into consideration tax planning strategies, including levels  of historical taxable income and assumptions regarding the availability and  character of future taxable income over the periods in which the deferred tax  assets are deductible. We believe it is more likely than not that we will  realize the benefits of those deductible differences, net of the existing valuation  allowance at March 31, 2007. The ultimate amount of deferred tax  assets  realized may be materially different from those recorded, as influenced by  potential changes in income tax laws in the tax jurisdictions where we operate. 

    To the  extent we believe that realization of a deferred tax asset is not likely, we  establish a valuation allowance or increase this allowance in an accounting  period and include an expense within the tax provision in our statements of  income. As of March 31, 2007 and March 31, 2006, we recorded valuation  allowance of $15 million and $1 million due to uncertainties related to our  ability to utilize some of our deferred tax assets comprising provisions for doubtful  accounts receivable, investments and losses in subsidiary. In the event that  actual results differ from these estimates of valuation allowance or if we adjust  these estimates in future periods, we may need to establish an additional  valuation allowance, which could materially impact our financial position and  results of operations. 

**Business Combinations, Goodwill and Intangible  Assets**

    We account for business  combinations in accordance with SFAS No. 141, Business Combinations. Cash and  amounts of consideration that are determinable at the date of acquisition are  included in determining the cost of the acquired business. The accounting for  contingent consideration based on earnings or other performance measures is a  matter of judgment that depends on the relevant facts and circumstances. If the  substance of the contingent consideration is to provide compensation for  services, use of property, or profit sharing, we account for the additional  consideration as an expense of the appropriate period. Otherwise, the  additional consideration paid is recorded as an additional cost of the acquired  business. 

    Goodwill  represents the cost of the acquired businesses in excess of the fair value of  identifiable tangible and intangible net assets purchased. We generally seek  the assistance of independent valuation experts in determining the fair value  of the identifiable tangible and intangible net assets of the acquired business.  

    We test  goodwill for impairment on an annual basis. In this process, we rely on a  number of factors including operating results, business plans and future cash  flows. Recoverability of goodwill is evaluated using a two-step process. The  first step involves a comparison of the fair value of a reporting unit with its  carrying value. If the carrying amount of the reporting unit exceeds its fair  value, the second step of the process involves a comparison of the fair value  and carrying value of the goodwill of that reporting unit. If the carrying  value of the goodwill of a reporting unit exceeds the fair value of that  goodwill, an impairment loss is recognized in an amount equal to the excess.  Goodwill of a reporting unit will be tested for impairment between annual tests  if an event occurs or circumstances change that would more likely than not  reduce the fair value of the reporting unit below its carrying amount. 

    We  amortize intangible assets over their respective individual estimated useful  lives on a straight-line basis. Our estimates of the useful lives of identified  intangible assets are based on a number of factors including the effects of  obsolescence, demand, competition, and other economic factors (such as the  stability of the industry, and known technological advances), and the level of  maintenance expenditures required to obtain the expected future cash flows from  the asset. 

    We  evaluate intangible assets for recoverability whenever events or changes in  circumstances indicate that their carrying amounts may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the  carrying amount of an asset to future undiscounted net cash flows expected to  be generated by the asset. If such assets are considered to be impaired, the  impairment to be recognized is measured by the amount by which the carrying  value of the assets exceeds the fair value of the assets. 

    In  evaluating goodwill and intangible assets for impairment, we may seek the  assistance of independent valuation experts, perform internal valuation  analyses and consider other information that is publicly available. The results  of our evaluation may be dependent on a number of factors including estimates  of future market growth and trends, forecasted revenue and costs, discount  rates and other variables. While we use assumptions which we believe are fair  and reasonable, actual future results may differ from the estimates arrived at  using the assumptions. 

**OFF-BALANCE SHEET ARRANGEMENTS**

None 

**CONTRACTUAL OBLIGATIONS**
    Set forth below are our  outstanding contractual obligations as of March 31, 2007.   
**Contractual    obligations ($ in millions)**

**Total**

**Less than 1 year**

**1-3 years**

**3-5 years**

**More than 5 years**

Operating    lease obligations 

$47

$11

$15

$11

$10

Purchase    obligations 

$161

$160

$1

-

-

Other    long term liabilities 

$1

-

-

-

$1

Post    employment benefits obligations 

$55

$4

$9

$13

$29

Total 

$264

$175

$25

$24

$40

Purchase Obligation  means an agreement to purchase goods or services that is enforceable and  legally binding on the Company that specifies all significant terms, including  fixed or minimum quantities to be purchased; fixed, minimum or variable price  provisions; and the approximate timing of the transaction.

    Post employment benefits  obligations are the benefit payments, which reflect and are expected to be paid  under our gratuity plans.

**Item 6. Directors, Senior Management and Employees**

**DIRECTORS AND EXECUTIVE OFFICERS**

Set forth below are the respective ages and positions of our directors and executive officers as of the date of this Annual Report. 

**Name**

**Age**

**Position**

 N. R. Narayana Murthy 

 60 

 Chairman of the Board and Chief Mentor 

 Nandan M. Nilekani (7) 

 51 

 Director, Chief Executive Officer and Managing Director 

 S. Gopalakrishnan (8) 

 52 

 President, Chief Operating Officer and Joint Managing Director and Head - Customer Service and Technology 

 Deepak M. Satwalekar (1)(2)(3)(4) 

 58 

 Lead Independent Director 

 Marti G. Subrahmanyam (1)(2)(3)(6) 

 60 

 Director 

 Omkar Goswami (1)(2)(4)(5) 

 50 

 Director 

 Rama Bijapurkar (1)(2)(5) 

 50 

 Director 

 Claude Smadja (1)(4)(5)(6) 

 61 

 Director 

 Sridar A. Iyengar (1)(2)(3)(6) 

 59 

 Director 

 David L. Boyles (1)(2)(4)(6) 

 58 

 Director 

 Jeffrey Sean Lehman (1)(3)(4)(5) 

 51

 Director 

 K. Dinesh 

 52 

 Director and Head - Information Systems, 

  

  

 Quality and Productivity, and Communication Design Group 

 S. D. Shibulal (9) 

 52 

 Director and Group Head - Worldwide Sales and Customer Delivery 

 T. V. Mohandas Pai 

 48 

 Director and Head -Administration, Human Resources, Education and Research 

 Srinath Batni 

 52 

 Director and Group Co Head -World-wide Customer Delivery 

 V. Balakrishnan 

 42 

 Chief Financial Officer 

(1) Independent Director     (2) Member of the Audit Committee     (3) Member of the Compensation Committee     (4) Member of the Nominations Committee     (5) Member of the Investors' Grievance Committee     (6) Member of the Risk Management Committee     (7) Mr. Nandan M Nilekani will be retiring from his position as Chief Executive Officer and Managing Director on June 21, 2007 and will become the Co-Chairman of the Board of Directors effective June 22, 2007.     (8) Mr. S. Gopalakrishnan will become our Chief Executive Officer and Managing Director effective June 22, 2007.     (9) Mr. S. D. Shibulal will become our Chief Operating Officer effective June 22, 2007.  

**N. R. Narayana Murthy**co-founded Infosys in 1981 and since August 2006 he has been our Non-executive Chairman and Chief Mentor. Mr. Murthy served as our  CEO for 20 years between 1981 and 2002. Under his leadership, Infosys was listed on NASDAQ in 1999. He retired from the position of CEO in 2002 and served as the Executive Chairman of the Board and Chief Mentor until August 2006. He retired from employment in August 2006. He also serves as a director of Infosys China and Infosys Consulting. 

Mr. Murthy serves as an independent director on the board of the DBS Bank, Singapore, DBS Group Holdings. and New Delhi Television Limited, India. He serves as a member of the Prime Minister's Council on Trade and Industry, as a member of the Board of Directors of the United Nations Foundation and  as a member of the Board of Trustees of The Indus Entrepreneurs, or Tie, Inc. 

Mr. Murthy is the chairman of the governing body of the Indian Institute of Information Technology, Bangalore. He is a member of the Board of Overseers of the University of Pennsylvania's Wharton School, Cornell University Board of Trustees, Singapore Management University Board of Trustees, INSEAD's Board of Directors and the Asian Institute of Management's Board of Governors. He is also a member of the Advisory Boards and Councils of various well-known universities - such as the Stanford Graduate School of Business and the University of Tokyo. 

In August 2004, TIME magazine's "Global Tech Influentials" list named Mr. Murthy as one of the ten leaders who are helping shape the future of technology. In 2005, the Economist ranked him 8th among the 15 most admired global leaders and the Financial Times ranked him 28th among the world's most-respected business leaders. He topped the Economic Times Corporate Dossier list of India's most powerful CEOs for two consecutive years - 2004 and 2005. In 2006, TIME magazine voted him as one of the Asian heroes who have brought about revolutionary changes in Asia in the last 60 years. 

Mr. Murthy holds a B.E. from the University of Mysore and an M. Tech. from the Indian Institute of Technology, or IIT, Kanpur. 

**Nandan M. Nilekani** is one of our co-founders and has served as one of our directors since July 1981. He is currently our Chief Executive Officer and Managing Director. Prior to this, Mr. Nilekani served in various capacities with us, including as our Chief Operating Officer and Head - Banking Business Unit. On June 21, 2007, Mr. Nilekani will retire from his position as Chief Executive Officer and Managing Director and will become our Co-Chairman effective June 22, 2007. 

Mr. Nilekani also serves as an independent director on the board of Reuters Group plc. Mr. Nilekani is a co-founder of NASSCOM and the Bangalore chapter of Tie, Inc. He also serves on the London Business School's Asia Pacific Regional Advisory Board and is a member of the Board of Trustees of the Conference Board, an international research and business membership organization. Mr. Nilekani served as a member of the sub-committee of the Securities and Exchange Board of India that dealt with issues related to insider trading and as a member of the Reserve Bank of India's Advisory Group on Corporate Governance. 

Mr. Nilekani received a Bachelor of Technology, or B. Tech., in Electrical Engineering from IIT Bombay. 

**S. Gopalakrishnan** is a co-founder of Infosys and has served as one of our directors since 1981. He is currently President, Chief Operating Officer, Joint-Managing Director and Head - Customer Service and Technology. He also serves as the Chairman of Infosys Consulting. From 1996 to 1998, he was the head of Client Delivery and Technology, and from 1994 to present he has been the head of Technical Support Services for Infosys. From 1987 to 1994, he was Technical Vice President and managed all projects at the US-based KSA/Infosys, a former joint venture between the company and Kurt Salmon Associates. Prior to that, he was Technical Director of Infosys. Effective June 22, 2007, Mr. Gopalakrishnan will become our Chief Executive Officer and Managing Director. Mr. Gopalakrishnan received an M. Sc. in Physics and an M.Tech. in Computer Science from IIT, Chennai. 

**Deepak M. Satwalekar** has served as one of our directors since October 1997. He is currently the Lead Independent Director on our board. He has been the Managing Director and CEO of HDFC Standard Life Insurance Co. Ltd since 2000. He also serves on the board of several other companies including Housing Development Finance Corporation Limited, Asian Paints Limited, Nicholas Piramal India Limited, Arvind Mills Limited and Entertainment Network (India) Limited. He is the Chairman of the compensation committee of Entertainment Network (India) Limited and also serves as a member of the compensation committees of Arvind Mills Limited and Asian Paints Limited. He has been a consultant to the World Bank, the Asian Development Bank, the United States Agency for International Development (USAID) and the United Nations center for Human Settlements (HABITAT). He is actively involved in the Confederation of Indian Industries (CII). He obtained a Bachelors Degree in Technology from IIT, Bombay and a Masters Degree in Business Administration from The American University, Washington, D.C. 

**Marti G. Subrahmanyam**has served as one of our directors since April 1998. He also sits on the boards of several other companies, including ICICI Bank Limited, and Nomura Asset Management (USA) Inc. He also serves as member of the Board Governance and Remuneration committee of ICICI Bank Limited. He is the Charles E. Merrill Professor of Finance and Economics in the Stern School of Business at New York University. Professor Subrahmanyam has published numerous articles and books in the areas of corporate finance, capital markets and international finance. He has been a visiting professor at leading academic institutions around the world including, most recently, the University of Melbourne in Australia. Professor Subrahmanyam currently serves on the editorial boards of many academic journals and is the co-editor of the Review of Derivatives Research. He has won many teaching awards including New York University's Distinguished Teaching Medal. He serves as a consultant to several corporations, industrial groups, and financial institutions around the world, such as Merrill Lynch and the State Street Bank. He serves as an advisor to international and government organizations, including the Securities and Exchange Board of India. Professor Subrahmanyam holds degrees from  IIT, Madras, the Indian Institute of Management, or IIM, Ahmedabad, and the Massachusetts Institute of Technology. 

**Omkar Goswami** has served as one of our directors since November 2000. In April 2004, he set up CERG Advisory, a company specializing in corporate consulting and economic advisory services, of which he is the Founder-Chairman. Before that, he was the Chief Economist to the CII from August 1998 to March 2004. Between 1997 and 1998, Dr. Goswami was the Editor of Business India magazine. Between 1981 and 1997, he taught at Oxford University, Delhi School of Economics, Harvard University, Tufts University, Jawaharlal Nehru University, Rutgers University, and the Indian Statistical Institute, New Delhi. Dr. Goswami also serves on the boards of several other companies including Dr. Reddy's Laboratories Limited, Infrastructure Development and Finance Company Limited, or IDFC, Crompton Greaves Limited, Sona Koyo Steering Systems Limited, SRF Limited, Gujarat Ambuja Cements Limited and Cairn India Limited. He serves as the Chairman of the audit committee of Dr. Reddy's Laboratories Limited and as a member of the audit committee of IDFC, Crompton Greaves Limited, Sona Koyo Steering Systems Limited and Cairn India Limited. He serves as Chairman of the compensation committee of IDFC and member of the compensation committee of Dr. Reddy's Laboratories Limited, SRF Limited and Cairn India Limited. He is also  a member of the nominations committee of Dr. Reddy's Laboratories Limited. Dr. Goswami has served on several Government committees and has also been a consultant to the World Bank, the International Monetary Fund, the Asian Development Bank and the Organization for Economic Co-operation and Development. Dr. Goswami received his Masters of Economics from the Delhi School of Economics and his Ph.D. (D.Phil) in Economics from Oxford University. 

**Rama Bijapurkar**has served as one of our directors since March 2001. She also serves on the boards of several other companies including Godrej Consumer Products Limited, CRISIL Limited, UTI Bank Limited and Entertainment Network (India) Limited. She serves as a member of the audit committee and Chairperson of the nominations committee of Godrej Consumer Products Limited. She also serves as a member of the compensation committee of CRISIL Limited. She is an independent management consultant specializing in the area of market strategy. She has her own consulting practice and works across a wide range of sectors and organization types. In addition, she is a visiting faculty member at the IIM, Ahmedabad. Prior to setting up her consulting practice in 1997, she worked for 20 years in market research and market strategy consulting with various organizations, the last two being with McKinsey and Company, India and Marg Marketing and Research Group. Ms. Bijapurkar has a Post Graduate Diploma in Management (recognized in India as equivalent to a Masters in Business Administration) from IIM, Ahmedabad and holds a B.Sc (Honors) degree in Physics from the Delhi University. 

**Claude Smadja** has served as one of our directors since October 2001. He is currently the President of Smadja & Associates, a firm advising global corporations and governments on strategic issues. Between 1996 and 2001, he served as the Managing Director of the World Economic Forum. Prior to that, Mr. Smadja served as the director for the News and Current Affairs Department of the Swiss Broadcasting Corporation. Mr. Smadja serves on the boards of several private corporations. He is also a member of the International Board of Overseers at the Illinois Institute of Technology. Mr. Smadja received a B.A. in Political Science from the University of Lausanne. 

**Sridar A. Iyengar** has served as one of our directors since April 2003. He serves on the boards of several other companies, including ICICI Bank Limited, OnMobile Asia Pacific Private Limited and Infosys BPO. Previously he was the Partner-in-Charge of KPMG's Emerging Business Practice. Mr. Iyengar has held a number of leadership roles within KPMG's global organization particularly in setting up and growing new practices. He has the unique distinction of having worked as a partner in all three of KPMG's regions - Europe, America and Asia Pacific - as well as in all four of KPMG's functional disciplines - assurance, tax, consulting and financial advisory services. He was Chairman and CEO of KPMG's India operations between 1997 and 2000 and during that period was a member of the Executive Board of KPMG's Asia Pacific practice. Prior to that, he headed the International Services practice on the west coast of United States. On his return from India in 2000, he was asked to lead a major effort of KPMG focused on delivering audit and advisory services to early stage companies. He served as a member of the Audit Strategy group of KPMG LLP. He was with KPMG from 1968 until his retirement in March 2002. Mr. Iyengar is  Fellow of the Institute of Chartered Accountants in England and Wales, holds a Bachelor Degree in Commerce (Honors) from the University of Kolkata and has attended the Executive Education course at Stanford. 

**David Boyles** has served as one of our directors since July 2005. He is currently an independent management consultant specialising in IT governance and business/technology alignment. He is also an Adjunct Professor in the School of Computing of the University of Tasmania. Before entering the consulting field, Mr. Boyles held a series of senior leadership positions at large multinational corporations. In December 2003, he retired from the position of Chief Operations Officer at ANZ Banking Group ("ANZ"). Mr. Boyles had joined ANZ as Chief Information Officer in 1998. Prior to ANZ, Mr. Boyles was Senior Vice President, eCommerce, at American Express. In this role, he was responsible for state-of-the-art online services and emerging technologies, including smart cards. Mr. Boyles has also held executive leadership positions at Downey Financial (Executive Vice President & Chief Operating Officer) and Bank of America (Senior Vice President, Consumer Markets). Mr. Boyles holds an MBA from Washington State University and an MA and BA (summa cum laude) in Psychology from the University of Northern Colorado.

**Jeffrey Sean Lehman** has served as one of our directors since April 2006. He is Professor of Law and Former President at Cornell University and is a Senior Scholar at the Woodrow Wilson International Center for Scholars in Washington, D.C. and the President of the Joint Center for China-US Law and Policy Studies at Peking University and Beijing Foreign Studies University. Prior to entering academia, Mr. Lehman practiced tax law in Washington, D.C., with the firm of Caplin and Drysdale. Mr. Lehman taught law and public policy at the University of Michigan, specializing in the law and policy of the American welfare state, before becoming dean of the law school. During the last two years of his tenure as Dean, Mr. Lehman also served as President of the American Law Deans Association. In 2004, Mr. Lehman was named an honorary professor at China Agricultural University. In 2005, Peking University awarded Mr. Lehman an honorary doctorate degree in recognition of his service as a bridge between scholars in the United States and China. In 2006, Mr. Lehman was named an honorary professor at Xiamen University. Mr. Lehman is a member of the governing boards of Internet2 and Leadership Enterprise for a Diverse America. Mr. Lehman earned an A.B. in mathematics from Cornell University, and M.P.P. and J.D. degrees from the University of Michigan. 

**K. Dinesh** is a co-founder of Infosys and has served as Director since 1985. He is currently Head - Information Systems, Quality and Productivity, and Communication Design Group. Mr. Dinesh also serves as the Chairperson of Infosys Australia. He has served as Head-Quality and Productivity and Information Systems (IS) since 1996. From 1991 to 1996, Mr. Dinesh served in various project management capacities and was responsible for worldwide software development efforts for Infosys. From 1981 to 1990, he managed projects for Infosys in the United States. He received a Masters degree in Mathematics from the Bangalore University. 

**S. D. Shibulal** is one of our co-founders and served as one of our directors from 1984 to 1991, and since 1997. Mr. Shibulal also serves as a director of Infosys BPO Limited, Infosys Consulting and as Chairperson of Infosys China. He is currently our Head - Worldwide Customer Sales and Delivery. From 1998 to 1999, he was our Head - Manufacturing, Distribution and Year 2000 Business Unit, as well as Head - Internet and Intranet Business Unit. Effective June 22, 2007, Mr. Shibulal will become our Chief Operating Officer. Mr. Shibulal received an M.S. in Physics from the University of Kerala and an M.S. in Computer Science from Boston University. 

**T. V. Mohandas Pai** is member of the Board and Director-Human Resources, Education and Research and Administration. He is also the Chairperson of Infosys BPO and serves as a director of Infosys China. Mr. Pai joined Infosys in 1994 and has served as a Member of the Board since May 2000. He served as the Chief Financial Officer from 1994 to 2006. In 2006, he voluntarily retired from the position of Chief Financial Officer to lead efforts in the areas of Human Resources and Education & Research. Mr. Pai was in practice as a Chartered Accountant before joining a financial services company in 1988 as the Executive Director. He is a member of the Accounting Standard Committee set up by SEBI and was also a member of the Kelkar Committee on Direct Taxes. Mr. Pai has a bachelor's degree in commerce (B.Com) from St. Joseph's College of Commerce, Bangalore and a bachelor's degree in law (LLB) from Bangalore University. He is a Fellow Chartered Accountant (FCA). 

**Srinath Batni** has served as one of our directors since May 2000. He is currently our Group Co Head - Customer Delivery. Mr. Batni also serves as a director of Infosys China and Infosys Australia. From 1996 to 2000 he served as Senior Vice President and Head - Retail and Telecommunications Business Unit. Mr. Batni received a B.E. in Mechanical Engineering from Mysore University and an M.E. in Mechanical Engineering from the Indian Institute of Science, Bangalore. 

 In August 2006, Mr. Batni sold 10,000 Equity Shares of the Company and failed to notify the Company about the sale within the time prescribed under our insider trading rules. The audit committee of the Company's board of directors, which is responsible for review of management's monitoring of compliance with the Company's standards of business conduct, determined that Mr. Batni's failure to timely notify the Company of the sale of equity shares was a technical violation of the Company's insider trading rules, which form a part of the Company's Code of Conduct, and therefore imposed on Mr. Batni a penalty of Rs. 500,000, which Mr. Batni paid to charity. 

**V. Balakrishnan**is our Chief Financial Officer. Mr. Balakrishnan also serves as a director of Infosys Australia and Infosys Consulting. Mr. Balakrishnan was our Company Secretary and Senior Vice President - Finance until April 2006. Since he joined us in 1991, he has served in various capacities in our Finance department. Prior to that, Mr. Balakrishnan was Senior Accounts Executive for Amco Batteries Limited. Mr. Balakrishnan received a B.Sc. from the University of Madras. He is an Associate Member of the Institute of Chartered Accountants of India, an Associate Member of the Institute of Company Secretaries of India and an Associate Member of the Institute of Cost & Works Accountants of India. 

**COMPENSATION**

 Our  compensation committee determines and recommends to the board of directors the  compensation payable to the directors. All board-level compensation is approved  by shareholders. The annual compensation of the executive directors is approved  by the compensation committee, within the parameters set by the shareholders at  the shareholders meetings. Remuneration of the executive directors consists of  a fixed component,  bonus and a variable performance linked  incentive. The compensation committee makes a quarterly appraisal  of the performance of the employee directors based on a detailed  performance-related matrix. 

    We have a variable compensation structure for all of our  employees. Each employee's compensation consists of performance incentives  payable upon the achievement by the company of certain financial performance  targets and is also based on individual performance. In fiscal 2005, our board  of directors aligned the compensation structure of our employee directors in  line with that applicable to all of our other employees. The new variable  compensation structure was approved by our shareholders at their meeting in  June 2004. All of our executive directors are entitled to a bonus of up to 20% of  their fixed salary. All of our executive directors are entitled to receive  company-linked performance incentives payable on our achievement of certain  financial performance targets. All our executive directors are entitled to  receive individual performance-linked incentives. The bonus and various  incentives are payable quarterly or at other intervals as may be decided by our  board of directors. 

    In fiscal 2007, our non-executive directors were paid an  aggregate of $413,262. Directors are also reimbursed for certain expenses in  connection with their attendance at board and committee meetings. Executive  Directors do not receive any additional compensation for their service on the  board. 

    We operate in numerous countries and compensation for our  officers and employees may vary significantly from country to country. As a  general matter, we seek to pay competitive salaries in all the countries in  which we operate. 
      The table below describes the compensation for our officers  and directors, for the fiscal year ended March 31, 2007.       
**Name**

**Salary ($)**

** Bonus/ Incentive ($)**

**Other Annual Compensation ($)**

**Amount accrued      for long term benefits ($)**

N. R. Narayana Murthy 

12,898

35,017

42,845

3,868

Nandan     M. Nilekani 

33,319

65,543

10,629

9,652

S. Gopalakrishnan 

33,319

65,543

11,462

9,735

K. Dinesh 

33,319

65,543

10,326

9,622

S. D. Shibulal 

31,304

58,571

8,777

8,956

Deepak M Satwalekar 

-

-

51,429

-

Marti G Subrahmanyam 

-

-

46,429

-

Omkar Goswami 

-

-

46,429

-

Rama Bijapurkar 

-

-

46,429

-

Claude Smadja 

-

-

46,429

-

Sen. Larry Pressler(1)

-

-

9,080

-

Sridar Iyengar 

-

-

46,429

-

David Boyles 

-

-

46,429

-

Jeffrey Lehman

-

-

44,643

-

T. V. Mohandas Pai 

58,263

117,336

21,779

15,287

Srinath Batni 

48,958

100,784

17,263

13,150

V. Balakrishnan 

39,586

100,512

28,674

11,190
(1) Ceased to be a member of the Board with effect from June  10, 2006.
**Option grants**

There were no option grants to our Chairman, CEO,  CFO or COO in the fiscal years ended March 31, 2007, 2006 and 2005. Details of  options granted to other senior executives are reported elsewhere in Item 6 in  the section titled "Compensation". 

**Option exercises and  holdings**

Our Chairman, CEO and COO did not hold or exercise  any options during the fiscal year ended March 31, 2007. The details of stock  options held and exercised with respect to other senior executives are reported  elsewhere in Item 6 in the section titled "Share Ownership".
    All executive directors are also  liable to retire by rotation. The terms of office of the directors are given  below:   
**Name**

**Date Current Term of Office Began (4)**

**Expiration/Renewal Date of Current Term of    Office (5)**

**Whether Term of Office is subject to retirement by rotation**

N. R. Narayana Murthy (1)

August 21, 2006

June 22, 2007

Yes

Nandan M. Nilekani 

May 1, 2002

April 30, 2007

Yes

S. Gopalakrishnan (2)

October 18, 2004

October 17, 2009

Yes

K. Dinesh 

May 1, 2002

April 30, 2007

Yes

S. D. Shibulal (2)

January 10, 2007

January 09, 2012

Yes

T. V. Mohandas Pai(2) 

May 27, 2005

May 26, 2010

Yes

Srinath Batni 

May 27, 2005

May 26, 2010

Yes

Deepak M. Satwalekar (2) (3) (6) 

June 12, 2004

-

Yes

Marti G. Subrahmanyam (2) (3) (6)

June 12, 2004

-

Yes

Omkar Goswami (6)

June 10, 2006

-

Yes

Rama Bijapurkar (6)

June 10, 2006

-

Yes

Claude Smadja (6)

June 11, 2005

-

Yes

Sridar A. Iyengar (6)

June 10, 2006

-

Yes

David L Boyles (6)

June 10, 2006

-

Yes

Jeffrey Sean Lehman (6)

June 10, 2006

-

Yes
    (1). On July 11, 2006, our board elected N. R. Narayana  Murthy as an additional director of the company with effect from August 21,  2006. Mr. Murthy will hold office up to the date of our ensuing Annual General  Meeting on June 22, 2007, when his appointment as a director subject to  retirement by rotation, will be placed for the approval of the shareholders.    (2). Is a director who is retiring by rotation in the  ensuing Annual General Meeting scheduled for June 22, 2007 and is seeking  re-election.    (3). Is a director who is subject to retirement by rotation.  The term of office of a non-whole time director, i.e. a non-executive director  is determined by rotation and may not be more than three years.    (4). For executive  directors, this date is the date they were appointed by our shareholders as  executive directors.    (5). For executive directors, this date is the date when  their current term of appointment as an executive director expires.     (6). For non-executive directors, this date is the date they were appointed as directors liable to retire by rotation by our shareholders. 
**Employment and indemnification contracts**

    Under  the Indian Companies Act, our shareholders must approve the salary, bonus and  benefits of all executive directors at a General Meeting of shareholders. Each  of our executive directors has signed an agreement containing the terms and  conditions of employment, including a monthly salary,  bonus and  benefits including vacation, medical reimbursement and pension fund  contributions. There are no benefits payable upon termination of this  agreement. These agreements are made for a five-year period, but either we or  the executive director may terminate the agreement upon six months notice to  the other party. The form of the employment agreement for our executive  directors has been filed previously and is incorporated by reference as an  exhibit to this Annual Report. 

    We have also entered into agreements to indemnify our  directors and officers for claims brought under US laws to the fullest extent  permitted by Indian law. These agreements, among other things, indemnify our  directors and officers for certain expenses, judgments, fines and settlement  amounts incurred by any such person in any action or proceeding, including any  action by or in the right of Infosys Technologies Limited, arising out of such  person's services as our director or officer. The form of the indemnification  agreement for our directors and officers has been filed previously and is  incorporated by reference as an exhibit to this Annual Report. Other than the  indemnification agreements referred to in this paragraph, we have not entered  in to any agreements with our non-executive directors. 

**Board composition**

    Our  Articles of Association provide that the minimum number of directors shall be 3  and the maximum number of directors shall be 18. Currently, we have 15  directors, 8 of whom are independent as defined by NASDAQ Rule 4200(a)(15). Our  Articles of Association and the Indian Companies Act require that at least  two-thirds of our directors be subject to retirement by rotation. One-third of  these directors must retire from office at each Annual General Meeting of the  shareholders. A retiring director is eligible for re-election. Our executive  directors are appointed for five-year terms by the shareholders. They  customarily retire every three years and are eligible for re-election at that  time. Executive directors are required to retire at age 60 in accordance with  our employee retirement policies. Other board members must retire from the  board at age 65. 

**Board committee  information**

    Details  relating to the Audit, Compensation, Nominations and Risk Management committees of our board are  provided below. 

**Audit committee**

    Our  audit committee is comprised of six independent directors, as determined under  applicable NASDAQ rules. They are: 

    Mr. Deepak M. Satwalekar,  Chairman;     Prof. Marti G. Subrahmanyam;     Dr. Omkar Goswami; 	Ms. Rama Bijapurkar;  	Mr. Sridar A. Iyengar (Audit  Committee Financial Expert); and    Mr. David L. Boyles

    The primary objective of the audit committee is to monitor  and provide effective supervision of our financial reporting process with a  view towards ensuring accurate, timely and proper disclosures and the  transparency, integrity and quality of financial reporting. Our audit committee  oversees the work carried out in the financial reporting process - by our  management, the internal auditors and the independent auditor - and  reviews the processes and safeguards employed by each. In addition, our audit  committee has the responsibility of oversight and supervision over our system  of internal control over financial reporting, our audit process, and process for  monitoring the compliance with related laws and regulations. The audit  committee recommends to our shareholders the appointment of our independent  auditors and approves the scope of both audit and non-audit services. The audit  committee held 4 meetings in person and 2 meetings via conference calls  during  fiscal 2007. The audit committee has adopted a charter. The charter has been  filed previously and is incorporated by reference as an exhibit to this Annual  Report. 

    See Item 18 for the report of the audit committee. 

**Compensation committee**

    Our  compensation committee consists entirely of non-executive, independent  directors as determined under applicable NASDAQ rules, and consists of: 

    Prof. Marti G. Subrahmanyam,  Chairman;     Mr. Deepak M. Satwalekar;     Mr. Sridar A. Iyengar;  and     Prof. Jeffrey Lehman

    The purpose of our compensation committee is to discharge the  board of directors' responsibilities relating to compensation of our executive  directors and senior management. The compensation committee has overall  responsibility for approving and evaluating our compensation plans, policies  and programs for executive directors and senior management. 

    The compensation committee held four meetings in person and  four meetings via conference calls during fiscal 2007. 

    The compensation committee has adopted a charter. The charter  has been filed previously and is incorporated by reference as an exhibit to  this Annual Report. 

**Nominations committee**

    The  nominations committee of the board consists exclusively of the following  non-executive, independent directors as determined under applicable NASDAQ  rules: 

    Mr. Claude Smadja, Chairman;   Mr. Deepak M. Satwalekar;  Dr. Omkar Goswami;      Mr. David  Boyles; and    Prof. Jeffrey Lehman

The purpose of our Nominations Committee is to oversee our nomination process for our top level management and specifically to identify, screen and review individuals qualified to serve as our Executive Directors, Non Executive Directors and Independent Directors consistent with criteria approved by our board and to recommend, for approval by our board, nominees for election at our annual meeting of shareholders. 

The nominations  committee held four meetings in fiscal 2007. 

    The nominations committee has adopted a charter. The charter   is incorporated by reference as an exhibit to  this Annual Report. 

**Risk Management Committee**

In July 2006, we established a risk management committee composed entirely of independent directors as determined under applicable NASDAQ rules.  The members of the risk management committee will be appointed by our board on the recommendation of our Nominations Committee.  

Our risk management committee is presently comprised of:  
David L. Boyles, Chairman;Prof. Marti G. Subrahmanyam;Claude Smadja; andSridar A. Iyengar 
The purpose of the risk management committee is to assist our board in fulfilling its corporate governance oversight responsibilities with regard to the identification, evaluation and mitigation of operational, strategic and external environment risks. The risk management committee has overall responsibility for monitoring and approving our risk policies and associated practices. The risk management committee is also responsible for reviewing and approving risk disclosure statements in any public documents or disclosures.

The risk management committee held 3 meetings in person  during fiscal 2007.

The risk management committee has adopted a charter.  The charter is incorporated by reference as an exhibit to this Annual Report.

**EMPLOYEES**

    As of March 31, 2007, we employed  approximately 72,200 employees including 68,200 IT professionals. We employed  approximately 52,700 employees including 49,500 IT professionals as of March  31, 2006. We employed approximately 36,800 employees as of March 31, 2005  including 34,400 IT professionals. We seek to attract and motivate IT  professionals by offering: 
-   an  entrepreneurial environment that empowers IT professionals; 
-   programs that  recognize and reward performance; 
-   challenging  assignments; 
-   constant  exposure to new skills and technologies; and 
-   a culture that  emphasizes openness, integrity and respect for the employee. 

    We do not have a collective bargaining agreement with any of  our employees. 

**Recruiting**

    We  focus our recruiting on the top 20% of students from engineering departments of  Indian schools and rely on a rigorous selection process involving a series of  tests and interviews to identify the best applicants. Our reputation as a  premier employer enables us to select from a large pool of qualified  applicants. For example, in fiscal 2007, we received approximately 1,302,400  applications, interviewed approximately 91,200 applicants and extended job  offers to approximately 36,700 applicants. In fiscal 2007, we hired  approximately 15,200 employees, net of attrition. These statistics do not  include Infosys BPO which recorded approximately 4,200 net hires. 

**Performance appraisals**

    We have  instituted an appraisal program that  incorporates a 360-degree feedback system recognizing high performers and  providing constructive feedback and coaching to underperformers. 

**Training and development**

    Our  training, continuing education and career development programs are designed to  ensure our technology professionals enhance their skill-sets in alignment with  their respective roles. Most new student hires complete approximately 14 weeks  of integrated on-the-job training prior to becoming billable to our clients. We  continually provide our technology professionals with challenging assignments  and exposure to new skills, technologies and global opportunities. 

    As of March 31, 2007, we employed 261 faculty members in our training division, including 151 with doctorate or masters degrees. Our faculty conducts integrated training for our new employees. We also have our employees undergo certification programs for 10 to 15 days each year to develop the skills relevant for their roles.  Some of the highly specialized programs are outsourced to institutions of high repute on a selective basis.

    Leadership development is a core part of our training program.  We established the Infosys Leadership Institute on a 336 acre campus in Mysore, India  to enhance leadership skills that are required to manage the complexities of  the rapidly changing marketplace and to further instill our culture through  leadership training. We have also built an employee training facility in Mysore, India  which is able to house 4,500 trainees at any one time and is able to provide  training facilities for approximately 15,200 employees annually. 

**Compensation**

    Our IT  professionals receive competitive salaries and benefits. We have also adopted a variable  compensation program which links compensation to company, team and individual  performance. 

**Visas**

    As of  March 31, 2007, the majority of our IT professionals in the United States held  H-1B visas (approximately 7,100 persons), allowing the employee to remain in  the United States during the term of the work permit, and as long as he or she  remains an employee of the sponsoring firm, or L-1 visas (approximately 650  persons). 

**SHARE OWNERSHIP**

    The  following table sets forth as of March 31, 2007, for each director and  executive officer, the total number of equity shares, ADSs and options to  purchase equity shares and ADSs exercisable within 60 days from March 31, 2007.  Beneficial ownership is determined in accordance with rules of the Securities  and Exchange Commission. All information with respect to the beneficial  ownership of any principal shareholder has been furnished by such shareholder  and, unless otherwise indicated below, we believe that persons named in the  table have sole voting and sole investment power with respect to all the shares  shown as beneficially owned, subject to community property laws, where  applicable. The shares beneficially owned by the directors include the equity  shares owned by their family members to which such directors disclaim  beneficial ownership. 
    The stock option grant price has been translated into US  dollars based on the noon buying rate in the City of New   York on March 30, 2007, for cable transfers in Indian rupees as  certified for customs purposes by the Federal Reserve Bank of New York, which was Rs. 43.10 per $1.00. The  share numbers and percentages listed below are based on 571,209,862 Equity Shares  outstanding as of March 31, 2007. Percentage of shareholders representing less  than 1% are indicated with an '*'.       
**Name beneficially owned**

**Equity Shares beneficially owned**

**% of equity shares**

**Equity Shares underlying options granted**

**Exercise price**

**Date of Expiration**

N. R. Narayana Murthy (1) 

28,550,526 

5.00

-

-

-

Nandan     M. Nilekani (2) 

19,755,645 

3.46

-

-

-

S. Gopalakrishnan (3) 

19,153,817

3.35

-

-

-

K. Dinesh (4) 

14,394,279

2.52

-

-

-

S. D. Shibulal (5) 

12,628,911

2.21

-

-

-

T. V. Mohandas Pai 

852,053

*

-

-

-

Srinath Batni (6) 

680,440

* 

-

-

-

Deepak Satwalekar 

56,000

* 

-

-

-

Marti G. Subrahmanyam 

60,300

* 

-

-

-

Sridar A. Iyengar 

10,000

* 

-

-

-

Omkar Goswami 

12,300

* 

-

-

-

Rama Bijapurkar 

20,000

* 

-

-

-

Claude Smadja 

16,000

* 

-

-

-

David Boyles 

2,000

* 

-

-

-

Jeffrey Lehman

900

* 

-

-

-

V. Balakrishnan (7)

476,600

* 

-

-

-

Total (all directors and executive officers) 

96,669,771

16.92

-

-

-
- Shares beneficially owned by Mr. Murthy include  25,370,854 Equity Shares owned by members of Mr. Murthy's immediate family. Mr.  Murthy disclaims beneficial ownership of such shares. 
-  Shares beneficially owned by Mr. Nilekani include  11,409,775 Equity Shares owned by members of Mr. Nilekani's immediate family.  Mr. Nilekani disclaims beneficial ownership of such shares. 
-  Shares beneficially owned by Mr. Gopalakrishnan include  12,897,091 Equity Shares owned by members of Mr. Gopalakrishnan's immediate  family. Mr. Gopalakrishnan disclaims beneficial ownership of such shares. 
-  Shares beneficially owned by Mr. Dinesh include  9,797,742 Equity Shares owned by members of Mr. Dinesh's immediate family. Mr.  Dinesh disclaims beneficial ownership of such shares. 
-  Shares beneficially owned by Mr. Shibulal  include 10,159,200 Equity Shares owned by members of Mr. Shibulal's  immediate family. Mr. Shibulal  disclaims beneficial ownership of such shares. 
-  Shares beneficially owned by Mr. Batni include 72,400  Equity Shares owned by members of Mr. Batni's immediate family. Mr. Batni  disclaims beneficial ownership of such shares. 
-  Shares beneficially owned by Mr. Balakrishnan include  150,000 Equity Shares owned by members of Mr. Balakrishnan's immediate family.  Mr. Balakrishnan disclaims beneficial ownership of such shares.
  The following table sets forth the options to purchase  securities granted to executive officers and directors that were outstanding as  of March 31, 2007:   
**Class of securities**

**Total securities**

**Weighted average Exercise    price**

**Expiration dates**

Equity Shares 

7,602

$ 9.67

July 9, 2010 to July 9,    2011

**Option plans**

******1998 Stock Option Plan**

 Our  1998 Stock Option Plan, or the 1998 stock plan, provides for the grant of two  types of options to our employees and directors: incentive stock options, which  may provide our employees with beneficial tax treatment, and non-qualified  stock options. The 1998 stock plan was approved by our board of directors in  December 1997, and by our shareholders in January 1998. Unless terminated  sooner by our board of directors, the 1998 stock plan will terminate  automatically in January 2008. A total of 11,760,000  ADSs, representing 11,760,000  Equity Shares, are currently reserved for  issuance under the 1998 stock plan. All options granted under the 1998 stock  plan will be exercisable for our ADSs. 

    Our compensation committee administers the 1998 stock plan.  The committee has the power to determine the terms of the options granted,  including exercise prices, the number of ADSs subject to each option, the  exercisability thereof, and the form of consideration payable upon such  exercise. In addition, the committee has the authority to amend, suspend, or  terminate the 1998 stock plan, provided that no such action may affect any ADS  previously issued and sold or any option to purchase an ADS previously granted  under the 1998 stock plan. 

    The 1998 stock plan generally does not allow for transfer of  options, and only the optionee may exercise an option during his or her  lifetime. An optionee generally must exercise an option within three months of  termination of service. If an optionee's termination is due to death or  disability, his or her option will fully vest and become exercisable and the  option must be exercised within twelve months after such termination. The  exercise price of incentive stock options granted under the 1998 stock plan  must at least equal the fair market value of the ADSs on the date of grant. The  exercise price of nonstatutory stock options granted under the 1998 stock plan  must at least equal 90% of the fair market value of the ADSs on the date of  grant. The term of options granted under the 1998 stock plan may not exceed 10  years. 

The 1998 stock plan  provides that in the event of our merger with or into another corporation or a  sale of substantially all of our assets, the successor corporation shall either  assume the outstanding options or grant equivalent options to the holders. If  the successor corporation neither assumes the outstanding options nor grants  equivalent options, such outstanding options shall vest immediately, and become  exercisable in full. 

**1999 Stock Option Plan**

    In  fiscal 2000, we instituted the 1999 Stock Option Plan, or the 1999 Plan. Our  shareholders and board of directors approved the 1999 Plan in June 1999. The  1999 Plan provides for the issue of 52,800,000 Equity Shares to employees. The 1999 Plan is administered by our compensation  committee. Under the 1999 Plan, options will be issued to employees at an  exercise price, which shall not be less than the Fair Market Value, or FMV.  Under the 1999 Plan, options may also be issued to employees at exercise prices  that are less than FMV only if specifically approved by our members in a  General Meeting. All options under the 1999 plan are exercised for equity  shares. 

    The 1999 Plan generally does not allow for transfer of  options, and only the optionee may exercise an option during his or her  lifetime. An optionee generally must exercise an option within three months of  termination of service. If an optionee's termination is due to death or  disability, his or her option will fully vest and become exercisable and the  option must be exercised within twelve months after such termination. Unless a  prior shareholder approval has been obtained, the exercise price of stock  options granted under the 1999 Plan must at least equal the fair market value  of the equity shares on the date of grant. 

    The 1999 Plan provides that in the event of our merger with  or into another corporation or a sale of substantially all of our assets, the  successor corporation shall either assume the outstanding options or grant  equivalent options to the holders. If the successor corporation neither assumes  the outstanding options nor grants equivalent options, such outstanding options  shall vest immediately, and become exercisable in full. 

**Item 7. Major  Shareholders and Related Party Transactions**

**MAJOR SHAREHOLDERS**

    The  following table sets forth as of March 31, 2007, certain information with  respect to beneficial ownership of our equity shares by each shareholder or  group known by us to be the beneficial owner of 5% or more of our outstanding  equity shares. 

    Beneficial ownership is determined in accordance with rules  of the Securities and Exchange Commission, which generally attribute beneficial  ownership of securities to persons who possess sole or shared voting power or  investment power with respect to those securities and includes equity shares  issuable pursuant to the exercise of stock options or warrants that are  immediately exercisable or exercisable within 60 days of March 31, 2007. These  shares are deemed to be outstanding and to be beneficially owned by the person  holding those options or warrants for the purpose of computing the percentage  ownership of that person, but are not treated as outstanding for the purpose of  computing the percentage ownership of any other person. Unless otherwise  indicated, all information with respect to the beneficial ownership of any  principal shareholder has been furnished by such shareholder and, unless  otherwise indicated, we believe that persons named in the table have sole  voting and sole investment power with respect to all the equity shares shown as  beneficially owned, subject to community property laws where applicable. The  shares beneficially owned by the directors include equity shares owned by their  family members to which such directors disclaim beneficial ownership. 
    The share numbers and percentages listed below are based on 571,209,862  Equity Shares outstanding, as of March 31, 2007.       
**Name of the beneficial    owner**

**Class of security**

**No. of  shares beneficially held**

**% of  class of shares**

**No. of shares    beneficially held**

**% of class of shares**

**No. of shares    beneficially held**

**% of class of shares**

 

 

**March 31, 2007**

**March 31, 2006 (6)**

**March 31, 2005 (7)**

N. R. Narayana Murthy(1) 

Equity shares 

28,550,526

5.00

32,550,526      (2)

5.91 

35,653,480      (2) 

6.59 

FMR Corp. 

Equity shares 

-

-

27,806,200      (2)(3) 

5.07 

30,276,586      (2)(4) 

5.65 

Shareholding of all directors and officers as a group        and officers as a group (16 persons) 

-

96,669,771

16.82 (5)

109,805,862        (2)

19.18 

120,213,844        (2)

21.25 
-  Shares beneficially owned by Mr. Murthy include  25,370,854 Equity Shares owned by members of Mr. Murthy's immediate family. Mr.  Murthy disclaims beneficial ownership of such shares. 
-  In July 2006, we effected a 1:1 bonus issue effected in the form of a stock dividend.
-  This information is based solely on the Schedule 13G  filed jointly by FMR Corp., Edward C. Johnson III and Fidelity Management and  Research Company with the Securities and Exchange Commission on February 14,  2006, which reported ownership as of December 31, 2005. The number of our  equity shares that were issued and outstanding as of December 31, 2005 was  274,525,163. Based upon the information that is available to us, the number of  shares beneficially owned by FMR Corp. and its affiliates on March 31, 2004,  respectively, was less than 5% of our total equity shares that were issued and  outstanding at that time.
-  This information is solely based on the Schedule 13G  filed jointly by FMR Corp., Edward C. Johnson and Abigail P. Johnson and  Fidelity Management and Research Company with the Securities and Exchange  Commission on February 14, 2005, which reported ownership as of December 31,  2004. The number of our equity shares that were issued and outstanding as of December  31, 2004 was 269,456,304. Based upon the information that is available to us,  the number of shares beneficially owned by FMR Corp. and its affiliates on  March 31, 2004 and March 31, 2003, respectively, was less than 5% of our total  equity shares that were issued and outstanding at that time. 
-  Comprised of 2,178,991 shares owned by non-founder  directors and officers and 7,602 options that are currently exercisable  within 60 days of March 31, 2007 by our various officers and  directors. These have been deemed to be outstanding and to be beneficially  owned by the person holding such options for calculating the total shareholding  of all directors and officers as a group. Accordingly, the percentage ownership  of the group is calculated on a base of 574,553,065 equity shares which  includes 33,43,203 options that are currently exercisable or exercisable by all  optionees within 60 days of March 31, 2007. 
-  Share numbers and percentages based on equity shares  outstanding as of March 31, 2006. 
-  Share numbers and percentages based on equity shares  outstanding as of March 31, 2005. 

Our American Depository Shares are listed on the NASDAQ Global  Select Market. Each ADS currently represents one equity share of par value Rs.  5 (or $0.11) per share. Our ADSs are registered pursuant to Section 12(b) of  the Securities Exchange Act of 1934 and as of March 31, 2007 are held by 85,172  holders of record in the United    States. 

    Our equity shares can be held by Foreign Institutional  Investors or FIIs, and Non Resident Indians or NRIs, who are registered with  the Securities and Exchange Board of India, or SEBI, and the Reserve Bank of India, or RBI.  Currently around 54.86% of our equity shares are held by these FIIs and NRIs of  which some of them may be residents or bodies corporate registered in the  United States and elsewhere. We are not aware of which FIIs and NRIs hold our  equity shares as residents or as corporate entities registered in the United States. 

    Our major shareholders do not have differential voting rights  with respect to the equity shares. To the best of our knowledge, we are not  owned or controlled directly or indirectly by any government, by any other  corporation or by any other natural or legal person. We are not aware of any  arrangement, the operation of which may at a subsequent date result in a change  in control. 

**RELATED PARTY TRANSACTIONS**

**Infosys BPO (formerly Progeon).** Infosys established Infosys BPO in April 2002, under the laws of India. 

In June 2005, 8,750,000 cumulative convertible preference shares issued by Infosys BPO to CIFC converted to Infosys BPO Shares as per the terms of a stock subscription agreement entered into between Infosys, Citicorp International Finance Corporate ("CIFC") and Infosys BPO in April 2002. 

In June, 2006, we acquired all the Infosys BPO Shares held by CIFC for a consideration of $116 million. Subsequent to this transaction, in December 2006, Infosys BPO repurchased 1,139,469 Infosys BPO Shares from its minority shareholders held as a result of exercise of vested Infosys BPO Options for a consideration of $16 million. In January 2007, we initiated the purchase of all outstanding Infosys BPO Shares by providing a choice to all holders of Infosys BPO Shares to sell their Infosys BPO Shares, arising out of exercise of vested Infosys BPO options, at a fair market value either through immediate cash settlement or by entering into a non-cancellable deferred purchase agreement to transfer their Infosys BPO Shares to us by February, 2008 at a pre-determined fair market value. As a result, we paid an aggregate of $3 million for the purchase of 211,909 shares and recorded a liability of $5 million for the committed purchase of 360,417 shares to be transferred by February, 2008.

In fiscal 2007, we further provided holders of vested and unvested Infosys BPO Options with the choice to sell their Infosys BPO Options and/or swap Infosys BPO options for Infosys Options at a swap ratio based on the fair market value of the respective options on the date of the swap. We paid $13 million for 1,218,732 Infosys BPO Options bought by us and granted 151,933 Infosys Options in lieu of Infosys BPO options. 

The options swap and options buy-out transactions resulted in  aggregate goodwill of $14 million. 

Under US GAAP, we have accounted for the committed purchase of 360,417 Infosys BPO Shares as financing of our purchase of Infosys BPO's  minority interest using the guidance in EITF Issue 00-04, Majority Owner's Accounting for a Transaction in the Shares of a Consolidated Subsidiary and a Derivative Indexed to the Minority Interest in that Subsidiary. As a result, Infosys effectively holds 99.98% of the equity share capital of Infosys BPO as of March 31, 2007.

During fiscal 2007 and 2006, we engaged Infosys BPO for software development services for which we have been billed approximately $2 million and $1 million.

**Infosys Australia**. In January 2004 we acquired, for cash, 100% of the equity in Expert Information Services Pty. Limited, Australia for $14 million.  The acquired company was renamed as 'Infosys Technologies ( Australia) Pty. Limited'. During fiscal 2007 and 2006, we engaged Infosys Australia for software development   services for which we have been billed approximately $89 million and $55   million. 

**Infosys China**. In October   2003, we established a wholly-owned subsidiary, Infosys China, to expand our business operations in   China. We have invested $10 million   in Infosys China as of March 31, 2007. During   fiscal 2007, we made an unsecured loan of $2 million to Infosys China.   During fiscal 2007 and 2006, we engaged Infosys China   for software development services for which we have been billed approximately $9   million and $2 million. 

**Infosys   Consulting**. In April 2004, we established a   wholly-owned subsidiary, Infosys Consulting, incorporated in the State of   Texas to add   high-end consulting capabilities to our Global Delivery Model. We have invested   $20 million in Infosys Consulting as of March 31, 2007 including an additional   investment of $3 million during fiscal 2007. During fiscal 2007 and 2006, we   engaged Infosys Consulting for consulting services for which we have been billed   approximately $42 million and $27 million. 

**Employment and indemnification agreements**

    We have  entered into agreements with our executive directors that provide for a monthly  salary,  bonuses, and benefits including, vacation, medical  reimbursements and pension fund contributions. These agreements have a  five-year term and either party may terminate the agreement with six months  notice. The form of the employment agreement for our executive directors has  been filed previously and is incorporated by reference as an exhibit to this  Annual Report. 

    We have also entered into agreements to indemnify our  directors and officers for claims brought under US laws to the fullest extent  permitted by Indian law. These agreements, among other things, indemnify our  directors and officers for certain expenses, judgments, fines and settlement  amounts incurred by any such person in any action or proceeding, including any  action by or in the right of Infosys Technologies Limited, arising out of such  person's services as our director or officer. The form of the indemnification  agreement for our directors and officers has been filed previously and is  incorporated by reference as an exhibit to this Annual Report. 

**Loans to employees**

    We provide personal loans and salary advances to our employees  in India  who are not executive officers or directors. We also provide allowances for  purchase of cars and houses for our middle level managers. 

    The annual rates of interest for these loans vary between 0%  and 4%. Loans aggregating $28 million and $28 million were outstanding as of  March 31, 2007 and 2006. 

**Item 8.  Financial Information**

**CONSOLIDATED STATEMENTS AND OTHER FINANCIAL  INFORMATION**

  The following financial statements and auditors' report  appear under Item 18 in this Annual Report and are incorporated herein by  reference: 
-   Report of Independent Registered Public  Accounting Firm 
-   Consolidated balance sheets as of March 31, 2006 and 2007 
-   Consolidated statements of Income for the years ended  March 31, 2005, 2006 and 2007 
-   Consolidated statements of Stockholders' Equity and  Comprehensive Income for the years ended March 31, 2005, 2006 and 2007 
-   Consolidated statements of Cash Flows for the years ended  March 31, 2005, 2006 and 2007 
-   Notes to the consolidated financial statements 
-   Financial Statement Schedule II- Valuation  and qualifying accounts 

**Export revenue**

    For the fiscal year ended March  31, 2007, we generated $3,040 million, or 98.4% of our total revenues of $3,090  million, from the export of our products and rendering of services out of India. 

**Legal proceedings**

    This  information is set forth under Item 4 under the heading 'Legal proceedings' and  such information is incorporated herein by reference. 

**Dividends**

    Under  Indian law, a corporation pays dividends upon a recommendation by the board of  directors and approval by a majority of the shareholders, who have the right to  decrease but not increase the amount of the dividend recommended by the board  of directors. Dividends may be paid out of profits of an Indian company in the  year in which the dividend is declared or out of the undistributed profits of  previous fiscal years. 

    In fiscal 2007, fiscal 2006 and fiscal 2005, we paid cash  dividends of approximately $0.53, $0.15 and $0.38 per equity share,  respectively. Although we have no current intention to discontinue dividend  payments, future dividends may not be declared or paid and the amount, if any,  thereof may be decreased. Holders of ADSs will be entitled to receive dividends  payable on equity shares represented by such ADSs. Cash dividends on equity  shares represented by ADSs are paid to the Depositary in Indian rupees and are  generally converted by the Depositary into US dollars and distributed, net of  Depositary fees, taxes, if any, and expenses, to the holders of such ADSs. 
      Translations from Indian rupees to US dollars are based on  the average of each monthly average for the applicable fiscal year of the noon buying rate in the City of New York during the period for cable transfers in Indian  rupees as certified for customs purposes by the Federal Reserve Bank of New York.       
**Fiscal**

**Dividend per Equity Share (Rs.)**

**Dividend per Equity Share ($)**

**Dividend per ADS ($)**

2007**

24.25 

0.53 

0.53

2006 

6.50 

0.15 

0.15

2005* 

 16.88 

0.38 

0.38
* Includes a special one-time dividend of Rs. 12.50 ($0.28)  per share.    ** Includes a Silver Jubilee special dividend of Rs. 15.00 ($0.33) per   share.
The  information presented above has been adjusted for the 3:1 bonus issue effected in the form of a stock dividend in July 2004 and 1:1 bonus issue  effected in July 2006.  

**SIGNIFICANT CHANGES**

None. 

**Item 9. The  Offer and Listing**

**PRICE HISTORY**

    Our  equity shares are traded in India  on the Bombay Stock Exchange Limited, or BSE, and the National Stock Exchange  of India Limited, or NSE, or collectively, the Indian stock exchanges. Our ADSs  are traded on Nasdaq under the ticker symbol 'INFY'. Each ADS represents one  equity share. Our ADSs began trading on the Nasdaq on March 11, 1999. The  Deutsche Bank Trust Company Americas serves as a depositary with respect to our  ADSs traded on the market pursuant to the Deposit Agreement dated March 10,  1999, as amended and restated. Our equity shares were previously traded on the  Bangalore Stock Exchange, or BgSE. There have been no trades of our shares on  the BgSE since August 2002, and we delisted from the BgSE on June 22, 2004. 

    As of March 31, 2007, we had 571,209,862 equity shares issued  and outstanding. There were 85,172 record holders of ADRs, evidencing  109,156,657 ADSs (equivalent to 109,156,657 equity shares). As of March 31, 2007,  there were 488,869 record holders of our equity shares listed and traded on  the Indian stock exchanges. 

   The following tables set forth for the periods indicated the  price history of the equity shares and the ADSs on the Indian stock exchanges  and the Nasdaq. Each ADS currently represents one equity share. Prior to our  July 2004 3:1 bonus issues  for our equity shares and 1:1 bonus issue for  our ADSs, each ADS represented one-half of one equity share. The stock prices  from the Indian exchanges have been restated to give appropriate effect to the  stock and ADS splits. All translations from Indian rupees to US dollars are  based on the noon buying rate in the City of New York  on March 30, 2007 for cable transfers in Indian rupees as certified for customs  purposes by the Federal Reserve Bank of New    York which was Rs.43.10 per $1.00. March 30, 2007 was the last day of our fiscal year ended March 31, 2007 for which such rates were available. The high and low prices for the Indian stock exchanges and Nasdaq based on the closing prices for each day of the revelant period.

  

**BSE Price per Equity Share**

**NSE Price per Equity Share**

**Nasdaq Price per ADS**

**Fiscal**

**High**

**Low**

**High**

**Low**

**High**

**Low**

 2007 

 $55.16 

 $28.81 

 $55.29 

 $28.83 

$60.55 

$32.85

 2006 

 35.44 

 21.89 

 35.44 

 21.89 

 41.26 

 28.30

 2005 

 26.26 

 13.12 

 26.27 

 13.11 

 38.61 

 18.11

 2004 

 17.09 

 7.55 

 17.07 

 7.58 

 25.32 

 10.06

 2003 

 14.00 

 8.71 

 14.00 

 8.71 

 21.48 

 11.86

**Fiscal 2007**

**High**

**Low**

**High**

**Low**

**High**

**Low**

 First Quarter 

 38.69 

 28.81 

 38.70 

 28.83 

42.39  

32.85 

 Second Quarter 

 43.07 

 36.00 

 43.11 

 36.02 

 48.24 

 38.18 

 Third Quarter 

 52.28 

 41.83 

 52.35 

 41.76 

 56.50 

 47.28 

 Fourth Quarter 

 55.16 

 46.19 

 55.29 

 46.19 

 60.55 

 50.16 

**2006**

 First Quarter 

 27.74 

 21.89 

 27.77 

 21.89 

 38.80 

 28.30 

 Second Quarter 

 29.32 

 24.75 

 29.31 

 24.78 

 38.95 

 33.85 

 Third Quarter 

 35.00 

 28.03 

 35.08 

 28.02 

 41.26 

 32.79 

 Fourth Quarter 

 35.44 

 31.75 

 35.44 

 31.79 

 40.98 

 34.18 

**2005**

  

  

  

  

 First Quarter 

 16.23 

 13.12 

 16.24 

 13.11 

 23.61 

 18.11

 Second Quarter 

 19.74 

 15.67 

 19.73 

 15.69 

 29.15 

 21.75

 Third Quarter 

 24.92 

 19.55 

 24.93 

 19.56 

 36.00 

 27.89

 Fourth Quarter 

 26.26 

 22.08 

 26.27 

 22.11 

 38.61 

 30.25

**Month**

**High**

**Low**

**High**

**Low**

**High**

**Low**

 April 2007 

49.38 
44.57
49.38 

44.61 

55.84 

49.81

 March 2007 

 49.96 

 46.19 

 50.10 

 46.19 

 54.34 

 50.16 

 February 2007 

 55.16 

 48.22 

 55.29 

 48.20 

 60.55 

 53.51 

 January 2007 

 53.65 

 50.31 

 53.63 

 50.22 

 58.32 

 54.23 

 December 2006 

 52.28 

 49.89 

 52.27 

 49.88 

 55.20 

 52.68 

 November 2006 

 52.27 

 48.04 

 52.35 

 48.03 

 56.50 

 50.85 

Source for all tables above: www.bseindia.com for BSE  quotes, www.nasdaq.com for Nasdaq quotes and www.nse-india.com for NSE quotes. 

    On April 30, 2007, the closing price of equity shares on the  BSE was Rs. 2049.35 equivalent to $49.93 per equity share based on the  exchange rate on that date. 

**The Indian securities trading market**

  The  information in this section has been extracted from publicly available  documents from various sources, including officially prepared materials from  the Securities and Exchange Board of India, the BSE, and the NSE. 

**Listing**

    The  SEBI has promulgated regulations creating an independent self regulatory  authority called the Central Listing Authority. No stock exchange can consider  a listing application unless it is accompanied by a letter of recommendation  from the Central Listing Authority. 

**Indian Stock Exchanges**

    The  major stock exchanges in India,  the BSE and the NSE, account for a majority of trading volumes of securities in  India.  The BSE and NSE together dominate the stock exchanges in India in terms  of number of listed companies, market capitalization and trading. 

    The stock exchanges in India operate on a trading day plus  two, or T+2, rolling settlement system. At the end of the T+2 period,  obligations are settled with buyers of securities paying for and receiving  securities, while sellers transfer and receive payment for securities. For  example, trades executed on a Monday would typically be settled on a Wednesday.  The SEBI has proposed to move to a T+1 settlement system. In order to contain  the risk arising out of the transactions entered into by the members of various  stock exchanges either on their own account or on behalf of their clients, the  Stock Exchanges have designed risk management procedures, which include  compulsory prescribed margins on the individual broker members, based on their  outstanding exposure in the market, as well as stock-specific margins from the  members. 

    To restrict abnormal price volatility, SEBI has instructed  stock exchanges to apply the following price bands calculated at the previous  day's closing price (there are no restrictions on price movements of index  stocks): 

***Market Wide Circuit Breakers.*** Market wide circuit breakers  are applied to the market for movement by 10%, 15% and 20% for two prescribed  market indices: the BSE Sensex for the BSE and the Nifty for the NSE. If any of  these circuit breaker thresholds are reached, trading in all equity and equity  derivatives markets nationwide is halted. 

***Price Bands.*** Price bands are circuit filters of up to 20%  movements either up or down, and are applied to most securities traded in the  markets, excluding securities included in the BSE Sensex and the NSE Nifty and  derivatives products. The equity shares of Infosys are included in the BSE  Sensex and the NSE Nifty. 

**The National Stock Exchange of India Limited**

    The  market capitalization of the capital markets (equities) segment of the NSE as  of March 31, 2007 was approximately Rs. 33.67 trillion or approximately $781  billion. The clearing and settlement operations of the NSE are managed by its  wholly-owned subsidiary, the National Securities Clearing Corporation Limited.  Funds settlement takes place through designated clearing banks. The National  Securities Clearing Corporation Limited interfaces with the depositaries on the  one hand and the clearing banks on the other to provide delivery versus payment  settlement for depositary-enabled trades. 

**Bombay Stock Exchange Limited**

    The  estimated aggregate market capitalization of stocks trading on the BSE as of  March 31, 2007 was approximately Rs. 35.45 trillion or approximately $805  billion. The BSE began allowing online trading in May 1995. As of March 31,  2007, the BSE had 925 members, comprised of 180 individual members, 723 Indian  companies and 22 foreign institutional investors. Only a member of the stock  exchange has the right to trade in the stocks listed on the stock exchange. 

    Trading on both the NSE and the BSE occurs Monday through  Friday, between 9:55 a.m. and 3:30 p.m. (Indian Standard Time). 

**Derivatives**

    Trading  in derivatives in India  takes place either on separate and independent derivatives exchanges or on a  separate segment of an existing stock exchange. The derivative exchange or  derivative segment of a stock exchange functions as a self regulatory  organization under the supervision of the SEBI. 

**Depositories**

    The  National Securities Depository Limited and Central Depositary Services (India) Limited are the two depositories that  provide electronic depositary facilities for trading in equity and debt  securities in India.  The SEBI mandates a company making a public or rights issue or an offer for  sale to enter into an agreement with a depository for dematerialisation of  securities already issued or proposed to be issued to the public or existing  shareholders. The SEBI has also provided that the issue and allotment of shares  in initial public offerings and/or the trading of shares shall only be in  electronic form. 

**Securities Transaction Tax**

    In  October 2004, a securities transaction tax was implemented in India. Under  the law, a transaction tax is levied on delivery-based transactions in equity  shares in a company or in units of an equity oriented fund on recognized stock  exchanges at the rate of 0.20% of the value of the security. The transaction  tax is required to be shared equally between the buyer and the seller. For  non-delivery based transactions, a lower rate of 0.02% to be adjusted against  business profits is applicable. For derivatives, the tax will be 0.0133%. Debt  market transactions have been exempted from the securities transaction tax. Sale of a unit of an  equity-oriented fund to a mutual fund will attract a transaction tax of 0.20%.  See 'Taxation' for a further description of the securities transaction tax and  capital gains treatment under Indian law. 

**Item 10.  Additional Information**

**MEMORANDUM AND ARTICLES OF ASSOCIATION**

    Set  forth below is the material information concerning our share capital and a  brief summary of the material provisions of our Articles of Association,  Memorandum of Association and the Indian Companies Act, all as currently in  effect. The following description of our equity shares and the material  provisions of our Articles of Association and Memorandum of Association does  not purport to be complete and is qualified in its entirety by our Articles of  Association and Memorandum of Association that are incorporated by reference to  this Annual Report. 

    Our Articles of Association provide that the minimum number  of directors shall be 3 and the maximum number of directors shall be 18.  Currently, we have 15 directors. Our Articles of Association provide that at  least two-thirds of our directors shall be subject to retirement by rotation.  One third of these directors must retire from office at each Annual General  Meeting of the shareholders. A retiring director is eligible for re-election. 

    Executive directors are required to retire at age 60 in accordance  with our employee retirement policies. Other board members must retire from the  board at age 65. Our Articles of Association do not require that our directors  have to hold shares of our company in order to serve on our board of directors. 

    Our Articles of Association provide that any director who has  a personal interest in a transaction must disclose such interest, must abstain  from voting on such a transaction and may not be counted for the purposes of  determining whether a quorum is present at the meeting. Such director's  interest in any such transaction shall be reported at the next meeting of  shareholders. The remuneration payable to our directors may be fixed by the  board of directors in accordance with provisions prescribed by the Government of  India. Our Articles of Association provide that our board of directors may  generally borrow or secure the payment of any sum of money for our business  purposes, provided, however, where any amounts are to be borrowed, that when  combined with any already outstanding debt, exceed the aggregate of our paid-up  capital and free reserves, we cannot borrow such amounts without the consent of  our shareholders. 

**Objects and Purposes of our Memorandum of  Association**

    The  following is a summary of our Objects as set forth in Section 3 of our  Memorandum of Association: 
-   To provide  services of every kind including commercial, statistical, financial,  accountancy, medical, legal, management, educational, engineering, data  processing, communication and other technological, social or other services. 
-   To carry on all  kinds of business as importer, exporter, buyers, sellers and lessors of and  dealers in all types of components and equipments necessary to provide the  services our objects enlist. 
-   To manufacture,  export, import, buy, sell, rent, hire or lease or otherwise acquire or dispose  or deal in all kinds of digital equipments, numerical controller, flexible  manufacturing systems, robots, communication systems, computers, computer  peripherals, computer software, computer hardware, computer technology,  machines, computer software, computer hardware, computer technology, machines,  computer aided teaching aids, energy saving devices, alternative sources of  energy, electrical and electronics components, devices, instruments, equipments  and controls for any engineering applications, and all other related  components, parts and products used in communication and computers. 
-   To conduct or  otherwise subsidize or promote research and experiments for scientific,  industrial, commercial economic, statistical and technical purposes. 
-   To carry on any  other trade or business whatsoever as can in our opinion can be advantageously  or conveniently carried on by us. 

**General**

    Our  authorized share capital is Rs. 3,000,000,000 divided into 600,000,000 Equity  Shares, having a par value of Rs. 5/- per share. As of March 31, 2007, 571,209,862  Equity Shares were issued, outstanding and fully paid. The equity shares are  our only class of share capital. We currently have no convertible debentures or  warrants outstanding. As of March 31, 2007, we had outstanding options to  purchase 1,897,840 Equity Shares and 2,084,124 ADSs. For the purposes of this annual  report, "shareholder" means a shareholder who is registered as a member in our  register of members or whose name appears in the beneficiary position held by  the depositories. 

**Dividends**

    Under  the Indian Companies Act, our board of directors recommends the payment of a  dividend which is then declared by our shareholders in a general meeting. However,  the board is not obliged to recommend a dividend. 

Similarly,  under our Articles of Association and the Indian Companies Act our shareholders  may, at the Annual General Meeting, declare a dividend in an amount less than  that recommended by the board of directors, but they cannot increase the amount  of the dividend. In India,  dividends are generally declared as a percentage of the par value of a  company's equity shares. The dividend declared by the shareholders, if any, and  subject to the limitations described above, is required to be distributed and  paid to shareholders in proportion to the paid up value of their shares within  30 days of the declaration by the shareholders at the Annual General  Meeting. Pursuant to our Articles of Association, our board of directors has  discretion to declare and pay interim dividends without shareholder approval.  Under the Indian Companies Act, dividends can only be paid in cash to the  registered shareholder, the shareholder's order or the shareholder's banker's order,  at a record date fixed on or prior to the date of the Annual General Meeting. 

The Indian  Companies Act provides that any dividends that remain unpaid or unclaimed after  the 30-day period from the date of declaration of a dividend are to be  transferred to a special bank account opened by the company at an approved  bank. We transfer any dividends that remain unclaimed for seven years from the  date of the transfer to an Investor Education and Protection Fund established  by the Government of India under the provisions of the Indian Companies Act.  After the transfer to this fund, such unclaimed dividends may not be claimed. 

Under  the Indian Companies Act, dividends may be paid out of profits of a company in  the year in which the dividend is declared or out of the undistributed profits  of previous fiscal years after providing for depreciation. Before declaring a  dividend greater than 10% of the par value of its equity shares, a company is  required to transfer to its reserves a minimum percentage of its profits for  that year, ranging from 2.5% to 10% depending upon the dividend percentage to  be declared in such year. 

The  Indian Companies Act further provides that in the event of an inadequacy or  absence of profits in any year, a dividend may be declared for such year out of  the company's accumulated profits that has been transferred to its reserves,  subject to the following conditions: 
-  the rate of dividend to be declared may not  exceed 10% of its paid up capital or the average of the rate at which dividends   were declared by the company in the prior  five years, whichever is less; 
-  the total amount to be  drawn from the accumulated profits earned in the previous years and transferred  to the reserves may not exceed an amount equivalent to 10% of the sum of its  paid up capital and free reserves, and the amount so drawn is to be used first  to set off the losses incurred in the fiscal year before any dividends in  respect of preference or equity shares are declared; and 
-  the balance of reserves after such withdrawals  shall not fall below 15% of the company's paid up capital. 

** Bonus Shares**

    In  addition to permitting dividends to be paid out of current or retained earnings  as described above, the Indian Companies Act permits a company to distribute an  amount transferred from the reserve or surplus in the company's profit and loss  account to its shareholders in the form of bonus shares (similar to a stock  dividend). The Indian Companies Act also permits the issuance of bonus shares  from a securities premium account. Bonus shares are distributed to shareholders  in the proportion recommended by the board of directors. Shareholders of record  on a fixed record date are entitled to receive such bonus shares. 

Any  issue of bonus shares would be subject to the guidelines issued by the  Securities and Exchange Board of Inida ("SEBI") in this regard. The relevant  SEBI guidelines prescribe that no company shall, pending conversion of  convertible securities, issue any shares by way of bonus unless similar benefit  is extended to the holders of such convertible securities, through reservation  of shares in proportion to such conversion. The bonus issue shall be made out  of free reserves built out of the genuine profits or share premium collected in  cash only. The bonus issue cannot be made unless the partly paid shares, if any  existing, are made fully paid-up. Further, for the issuance of such bonus  shares a company should not have defaulted in the payment of interest or  principal in respect of fixed deposits and interest on existing debentures or  principal on redemption of such debentures. The declaration of bonus shares in  lieu of dividend cannot be made. Further a company should  have sufficient  reason to believe that it has not defaulted in respect of the payment of statutory  dues of the employees such as contribution to provident fund, gratuity, bonus,  etc. The issuance of bonus shares must be implemented within six months from  the date of approval by the Board of Directors.

**Consolidation and Subdivision of Shares**

    The  Indian Companies Act permits a company to split or combine the par value of its  shares, provided such split or combination is not made in fractions.  Shareholders of record on a fixed record date are entitled to receive the split  or combination. 

**Preemptive Rights and Issue of Additional Shares**

    The  Indian Companies Act gives shareholders the right to subscribe for new shares  in proportion to their respective existing shareholdings unless otherwise  determined by a special resolution passed by a General Meeting of the  shareholders. Under the Indian Companies Act, in the event of an issuance of  securities, subject to the limitations set forth above, a company must first  offer the new shares to the shareholders on a fixed record date. The offer must  include: (i) the right, exercisable by the shareholders of record, to  renounce the shares offered in favor of any other person; and (ii) the  number of shares offered and the period of the offer, which may not be less  than 15 days from the date of offer. If the offer is not accepted it is  deemed to have been declined and thereafter the board of directors is  authorized under the Indian Companies Act to distribute any new shares not  purchased by the preemptive rights holders in the manner that it deems most beneficial  to the company. 

** Meetings  of Shareholders**

    We  must convene an Annual General Meeting of shareholders each year within  15 months of the previous annual general meeting or within six months of  the end of the previous fiscal year, whichever is earlier. In certain  circumstances a three month extension may be granted by the Registrar of  Companies to hold the Annual General Meeting. The Annual General Meeting of the  shareholders is generally convened by our Secretary pursuant to a resolution of  the board of directors. In addition, the Board may convene an Extraordinary  General Meeting of shareholders when necessary or at the request of a  shareholder or shareholders holding at least 10% of our paid up capital  carrying voting rights. Written notice setting out the agenda of any meeting  must be given at least 21 days prior to the date of the General Meeting to  the shareholders of record, excluding the days of mailing and date of the  meeting. Shareholders who are registered as shareholders on the date of the  General Meeting  are entitled to attend or vote at such meeting. The Annual  General Meeting of shareholders must be held at our registered office or at  such other place within the city in which the registered office is located, and  meetings other than the Annual General Meeting may be held at any other place  if so determined by the board of directors. 

NASDAQ  Marketplace Rule 4350(a) provides that a foreign private issuer may follow  its home country practice in lieu of the requirements of Rule 4350, provided  such foreign private issuer shall disclose in its annual reports filed with the  SEC each requirement of Rule 4350 that it does not follow and describe the  home country practice followed by the issuer in lieu of such requirements. 

Under  the NASDAQ Marketplace Rule 4350(f), companies that maintain a listing on  NASDAQ are required to provide for a quorum as specified in its by-laws for any  meeting of its stockholders, and in no case shall the quorum be less than  331/3% of the outstanding shares of a company's common voting stock. In India, the  requirement for a quorum is the presence of at least five shareholders in  person. Our Articles of Association provide that a quorum for a General Meeting  of our shareholders is constituted by the presence of at least five  shareholders in person. Hence, we do not meet the quorum requirements under  Rule 4350(f), and instead we follow our home country practice. Under the  NASDAQ Marketplace Rule 4350(g), companies that maintain a listing on  NASDAQ are required to solicit proxies and provide proxy statements for all  meetings of shareholders and also provide copies of such proxy solicitation to  NASDAQ. However, Section 176 of the Indian Companies  Act prohibits a  company incorporated under that Act from soliciting proxies. Because we are  prohibited from soliciting proxies under Indian law, we will not meet the proxy  solicitation requirement of Rule 4350(g). However, as described above, we  give written notices of all our shareholder meetings to all the shareholders and  we also file such notices with the SEC. 

**Voting  Rights**

    At  any General Meeting, voting is by show of hands unless a poll is demanded by a  shareholder or shareholders present in person or by proxy holding at least 10%  of the total shares entitled to vote on the resolution or by those holding  shares with an aggregate paid up capital of at least Rs. 50,000. Upon a  show of hands, every shareholder entitled to vote and present in person has one  vote and, on a poll, every shareholder entitled to vote and present in person  or by proxy has voting rights in proportion to the paid up capital held by such  shareholders. The Chairman has a casting vote in the case of any tie. Any  shareholder of the company entitled to attend and vote at a meeting of the  company may appoint a proxy. The instrument appointing a proxy must be  delivered to the company at least 48 hours prior to the meeting. Unless  the articles of association otherwise provide, a proxy may not vote except on a  poll. A corporate shareholder may appoint an authorized representative  who can  vote on behalf of the shareholder, both upon a show of hands and upon a poll.  An authorized representative is also entitled to appoint a proxy. 

Ordinary  resolutions may be passed by simple majority of those present and voting at any  General Meeting for which the required period of notice has been given.  However, special resolutions such as amendments of the articles of association,  commencement of a new line of business, the waiver of preemptive rights for the  issuance of any new shares and a reduction of share capital, require that votes  cast in favor of the resolution (whether by show of hands or on a poll) are not  less than three times the number of votes, if any, cast against the resolution  by members so entitled and voting. As per the Indian Companies Act, unless the  articles of association of a company provide for all directors to retire at  every annual general meeting, not less than two-third of the directors of a  public company must retire by rotation, while the remaining one-third may  remain on the board until they resign or are removed. Our Articles of  Association require two thirds of our Directors to retire  by rotation.  One-third of the directors who are subject to retirement by rotation must  retire at each Annual General Meeting. Further, the Indian Companies Act  requires certain resolutions such as those listed below to be voted on only by  a postal ballot: 
-   amendments of the memorandum of association to alter the objects of the company  and to change the registered office of the company under section 146 of  the Indian Companies Act; 
-   the issuance of shares with differential rights with respect to voting,  dividend or other provisions of the Indian Companies Act; 
-   the sale of the whole or substantially the whole of an undertaking or  facilities of the company; 
-   providing loans, extending guarantees or providing a security in excess of the  limits allowed under Section 372A of the Indian Companies Act; 
-   varying the rights of the holders of any class of shares or debentures; 
-   the election of a director by minority shareholders; and 
-   the buy back of shares. 

**Register of Shareholders; Record Dates; Transfer of  Shares**

    We  maintain a register of shareholders held in electronic form through National  Securities Depository Limited and the Central Depositary Services (India) Limited.  For the purpose of determining the shares entitled to annual dividends, the  register is closed for a specified period prior to the Annual General Meeting.  The date on which this period begins is the record date. 

To determine  which shareholders are entitled to specified shareholder rights such as a  dividend, we may close the register of shareholders. The Indian Companies Act  requires us to give at least seven days prior notice to the public before such  closure. We may not close the register of shareholders for more than thirty  consecutive days, and in no event for more than forty-five days in a year.  Trading of our equity shares, however, may continue while the register of  shareholders is closed. 

Following the  introduction of the Depositories Act, 1996, and the repeal of Section 22A  of the Securities Contracts (Regulation) Act, 1956, which enabled companies to  refuse to register transfers of shares in some circumstances, the equity shares  of a public company are freely transferable, subject only to the provisions of  Section 111A of the Indian Companies Act. Since we are a public company,  the provisions of Section 111A will apply to us. In accordance with the  provisions of Section 111A(2) of the Indian Companies Act, our board of  directors may refuse to register a transfer of shares if they have sufficient  cause to do so. If our board of directors refuses to register a transfer of  shares, the shareholder wishing to transfer his, her or its shares may file a  civil suit or an appeal with the Company Law Board/Tribunal. 

Pursuant  to Section 111A(3), if a transfer of shares contravenes any of the  provisions of the Indian Companies Act and Securities and Exchange Board of  India Act, 1992 or the regulations issued thereunder or any other Indian laws,  the Tribunal may, on application made by the relevant company, a depository incorporated  in India, an investor, a participant, or the Securities and Exchange Board of  India, direct the rectification of the register, record of members and/or  beneficial owners. Pursuant to Section 111A(4) the Company Law  Board/Tribunal may, in its discretion, issue an interim order suspending the  voting rights attached to the relevant shares before making or completing its  investigation into the alleged contravention. 

Under the Indian  Companies Act, unless the shares of a company are held in a dematerialized  form, a transfer of shares is effected by an instrument of transfer in the form  prescribed by the Indian Companies Act and the rules thereunder, together with  delivery of the share certificates. Our transfer agent for our equity shares is  Karvy Computershare Private Limited located in Hyderabad, India. 

**Disclosure  of Ownership Interest**

    Section 187C  of the Indian Companies Act requires holders of record who do not hold  beneficial interests in shares of Indian companies to declare to the company  certain details, including the nature of the holder's interest and details of  the beneficial owner. Any person who fails to make the required declaration  within 30 days may be liable for a fine of up to Rs. 1,000 for each  day the declaration is not made. Any charge, promissory note or other  collateral agreement created, executed or entered into with respect to any share  by the ostensible owner thereof, or any hypothecation by the ostensible owner  of any share, pursuant to which a declaration is required to be made under  Section 187C, shall not be enforceable by the beneficial owner or any  person claiming through the beneficial owner if such declaration is not made.  Failure to comply with Section 187C will not affect the obligation of the  company to register a transfer of shares or to pay any  dividends to the  registered holder of any shares pursuant to which such declaration has not been  made. While it is unclear under Indian law whether Section 187C applies to  holders of ADSs of the company, investors who exchange ADSs for the underlying  equity shares of the company will be subject to the restrictions of  Section 187C. Additionally, holders of ADSs may be required to comply with  such notification and disclosure obligations pursuant to the provisions of the  Deposit Agreement to be entered into by such holders, the company and a  depositary. 

**Audit and  Annual Report**

    Under  the Indian Companies Act, a company must file its annual report with the  Registrar of Companies within 7 months from the close of the accounting  year or within 30 days from the date of the Annual General Meeting,  whichever is earlier. Copies of the annual report are also required to be  simultaneously sent to stock exchanges on which the company's shares are listed  under the applicable listing agreements. At least 21 days before the  Annual General Meeting of shareholders, a company must distribute a detailed version  of the company's audited balance sheet and profit and loss account and the  reports of the board of directors and the auditors thereon. Under the Indian  Companies Act, a company must file the balance sheet and annual profit and loss  account presented to the shareholders with the Registrar of Companies within  30 days of the conclusion of the	Annual General Meeting.    A  company must also file an annual return containing a list of the company's  shareholders and other company information, within 60 days of the  conclusion of the Annual General Meeting. 

**Company  Acquisition of Equity Shares**

    Under  the Indian Companies Act, approval by way of a special resolution of a  company's shareholders voting on the matter (votes cast in favor should be  three times the votes cast against) and approval of the Court/ Tribunal of the  state in which the registered office of the company is situated is required to  reduce the share capital of a company, provided such reduction is authorized by  the articles of association of the company. However, a company would have to  extinguish or reduce the liability of its shares in respect of share capital  not paid up, cancel any paid up share capital which is lost or   pay any paid up share capital which is in excess of the wants of  the company. A company is not permitted to acquire its own shares for treasury  operations. 

A  company may, under some circumstances, acquire its own equity shares without  seeking the approval of the Court/Tribunal. 

    An  acquisition by a company of its own shares that does not rely on an approval of  the Court/Tribunal must however comply with prescribed rules, regulations and  conditions of the Indian Companies Act. In addition, public companies which are  listed on a recognized stock exchange in India must comply with the  provisions of the Securities and Exchange Board of India (Buy-back of  Securities) Regulations, 1998, or Buy-back Regulations. Since we are a public  company listed on two recognized stock exchanges in India, we would have to comply with  the relevant provisions of the Indian Companies Act and the provisions of the  Buy-back Regulations. Any ADS holder may participate in a company's purchase of  its own shares by withdrawing his or her ADSs from the depository facility,  acquiring equity shares upon the withdrawal and then selling those shares back  to the company. 

There  can be no assurance that equity shares offered by an ADS investor in any buyback of shares by us will be accepted by us. The regulatory approvals required  for ADS holders to participate in a buyback is not entirely clear. ADS  investors are advised to consult their legal advisors for advice prior to  participating in any buyback by us, including advice related to any related  regulatory approvals and tax issues. 

**Liquidation  Rights**

    Subject  to the rights of secured creditors, employees, holders of any shares entitled  by their terms to preferential repayment over the equity shares and taxes, if  any, as may be prescribed under the Indian Companies Act, in the event of our  winding-up, the holders of the equity shares are entitled to be repaid the  amounts of paid up capital or credited as paid upon those equity shares.  Subject to such payments, all surplus assets are paid to holders of equity  shares in proportion to their shareholdings. 

**Redemption  of Equity Shares**

    Under  the Indian Companies Act, equity shares are not redeemable. 

**Discriminatory  Provisions in Articles**

    There  are no provisions in our Articles of Association discriminating against any existing  or prospective holder of such securities as a result of such shareholder owning  a substantial number of shares. 

**Alteration  of Shareholder Rights**

    Under  the Indian Companies Act, and subject to the provisions of the articles of  association of a company, the rights of any class of shareholders can be  altered or varied (i) with the consent in writing of the holders of not  less than three-fourths of the issued shares of that class; or (ii) by  special resolution passed at a separate meeting of the holders of the issued  shares of that class. In the absence of any such provision in the articles,  such alteration or variation is permitted as long as it is not prohibited by  the agreement governing the issuance of the shares of that class. 

Under  the Indian Companies Act, the articles of association may be altered by a  special resolution of the shareholders. 

**Limitations  on the Rights to Own Securities**

    The  limitations on the rights to own securities of Indian companies, including the  rights of non-resident or foreign shareholders to hold securities, are  discussed in the sections entitled 'Currency Exchange Controls' and 'Risk  Factors' in this Annual Report.

**Provisions  on Changes in Capital**

    Our  authorized capital can be altered by an ordinary resolution of the shareholders  in a General Meeting. The additional issue of shares is subject to the  preemptive rights of the shareholders. In addition, a company may increase its  share capital, consolidate its share capital into shares of larger face value than  its existing shares or sub-divide its shares by reducing their par value,  subject to an ordinary resolution of the shareholders in a General Meeting. 

**Takeover  Code and Listing Agreements**

    Under  the Securities and Exchange Board of India (Substantial Acquisition of Shares  and Takeovers) Regulations, 1997, or Takeover Code, upon the acquisition of  more than 5%, 10%, 14%, 54% or 74% of the outstanding shares or voting rights  of a publicly-listed Indian company, the acquirer (meaning a person who directly  or indirectly, acquires or agrees to acquire shares or voting rights in a  target company, or acquires or agrees to acquire control over the target  company, either by himself or with any person acting in concert) is required to  disclose the aggregate of his shareholding or voting rights in that target  company to the company. The target company and the said acquirer are required  to notify all the stock exchanges on which the shares of such company are  listed. Further, the Takeover Code requires that any person holding more than  15% and less than 55% of the shares or voting rights in a company, upon the  sale or purchase of 2% or more of the shares or voting rights    of the company,  disclose such sale/purchase and his revised shareholding to the company and all  the stock exchanges on which the shares are listed within two days of such  purchase or sale or receipt of intimation of allotment of such shares. A person  who holds more than 15% of the shares or voting rights in any company is  required to make an annual disclosure of his holdings to that company (which in  turn is required to disclose the same and to each of the stock exchanges on  which the company's shares are listed). Holders of ADSs would be subject to  these notification requirements. 

Upon  the acquisition of 15% or more of such shares or voting rights, or a change in  control of the company, the acquirer is required to make a public announcement  offering to purchase from the other shareholders at least a further 20% of all  the outstanding shares of the company at a minimum offer price determined  pursuant to the Takeover Code. If an acquirer holding more than 15% but less  than 55% of shares acquires 5% or more shares during a fiscal year, the  acquirer is required to make a public announcement offering to purchase from  the other shareholders at least 20% of all the outstanding shares of the  company at a minimum offer price determined pursuant to the Takeover Code. Any  further acquisition of outstanding shares or voting rights of a publicly listed  company by an acquirer who holds more than 55% but less than 75% of shares or  voting rights also requires the making of an open offer to acquire such number  of shares as would not result in the public shareholding being  reduced to below  the minimum specified in the listing agreement. Where the public shareholding  in the target company may be reduced to a level below the limit specified in  the listing agreement the acquirer may acquire such shares or voting rights  only in accordance with the provisions of the Takeover Code. Since we are a  listed company in India,  the provisions of the Takeover Code will apply to us and to any person  acquiring our equity shares or voting rights in our Company. However, the  Takeover Code provides for a specific exemption from this provision to a holder  of ADSs and states that this provision will apply to a holder of ADSs only once  he or she converts the ADSs into the underlying equity shares. 

We  have entered into listing agreements with each of the Indian stock exchanges on  which our equity shares are listed. Each of the listing agreements provides  that if a person acquires or agrees to acquire 5% or more of the voting rights  of our equity shares, the purchaser and we must, in accordance with the  provisions of the Takeover Code, report its holding to us and the relevant  stock exchange(s). The agreements also provide that if any person acquires or  agrees to acquire our equity shares exceeding 15% of voting rights in our  Company or if any person who holds our equity shares (which in the aggregate  carries less than 15% of the voting rights) seeks to acquire our equity shares  exceeding 15% of voting rights in our Company, then the acquirer/ purchaser  must, in accordance with the provisions of the Takeover Code, before acquiring  such equity shares, make an offer on a uniform basis to all of our remaining  shareholders to acquire equity shares that have at least an  additional 20% of  the voting rights of our total outstanding equity shares at a prescribed price. 

Although  the provisions of the listing agreements entered into between us and the Indian  stock exchanges on which our equity shares are listed will not apply to equity  shares represented by ADSs, holders of ADSs may be required to comply with such  notification and disclosure obligations pursuant to the provisions of the  Deposit Agreement entered into by such holders, our Company and the depositary. 

**Voting  Rights of Deposited Equity Shares Represented by ADSs**

    Under  Indian law, voting of the equity shares is by show of hands unless a poll is  demanded by a member or members present in person or by proxy holding at least  10% of the total shares entitled to vote on the resolution or by those holding  shares with an aggregate paid up capital of at least Rs. 50,000. A proxy  may not vote except on a poll. 

As  soon as practicable after receipt of notice of any meetings or solicitation of  consents or proxies of holders of shares or other deposited securities, our  Depositary shall fix a record date for determining the holders entitled to give  instructions for the exercise of voting rights. The Depositary shall then mail  to the holders of ADSs a notice stating (i) such information as is  contained in such notice of meeting and any solicitation materials,  (ii) that each holder on the record date set by the Depositary will be  entitled to instruct the Depositary as to the exercise of the voting rights, if  any pertaining to the deposited securities represented by the ADSs evidenced by  such holder's ADRs, (iii) the manner in which such instruction may be  given, including instructions to give discretionary proxy to a person  designated by us, and (iv) if the Depositary does not receive instructions  from a holder, he would be deemed to have instructed the  Depositary to give a  discretionary proxy to a person designated by us to vote such deposited  securities, subject to satisfaction of certain conditions. 

On  receipt of the aforesaid notice from the Depositary, our ADS holders may  instruct the Depositary on how to exercise the voting rights for the shares  that underlie their ADSs. For such instructions to be valid, the Depositary  must receive them on or before a specified date. 

The  Depositary will try, as far as is practical, and subject to the provisions of  Indian law and our Memorandum of Association and our Articles of Association,  to vote or to have its agents vote the shares or other deposited securities as  per our ADS holders' instructions. The Depositary will only vote or attempt to  vote as per an ADS holder's instructions. The Depositary will not itself  exercise any voting discretion. 

Neither  the Depositary nor its agents are responsible for any failure to carry out any  voting instructions, for the manner in which any vote is cast, or for the  effect of any vote. There is no guarantee that our shareholders will receive  voting materials in time to instruct the Depositary to vote and it is possible  that ADS holders, or persons who hold their ADSs through brokers, dealers or  other third parties, will not have the opportunity to exercise a right to vote. 

**MATERIAL  CONTRACTS**

    We have entered into agreements with our employee directors  that provide for a monthly salary,  bonuses, and benefits including,  vacation, medical reimbursements and pension fund contributions. These  agreements have a five-year term and either party may terminate the agreement  with six months notice. The form of the employment agreement for our executive  directors has been filed previously and is incorporated by reference as an  exhibit to this Annual Report. 

    We have also entered into agreements to indemnify our  directors and officers for claims brought under US laws to the fullest extent  permitted by Indian law. These agreements, among other things, indemnify our  directors and officers for certain expenses, judgments, fines and settlement  amounts incurred by any such person in any action or proceeding, including any  action by or in the right of Infosys Technologies Limited, arising out of such  person's services as our director or officer. The form of the indemnification  agreement for our directors and officers has been filed previously and is  incorporated by reference as an exhibit to this Annual Report. 

On April 20, 2006, we entered into an agreement with Citicorp International Finance Corporation, or CIFC, to acquire its entire holdings in Infosys BPO. Pursuant to this agreement, on June 30, 2006, we acquired 8,750,000 equity shares of Infosys BPO from CIFC for a cash consideration of $116 million.  The share purchase agreement and the escrow agreement in connection with the share purchase agreement  have been filed previously and are incorporated by reference as exhibits to this Annual Report.

**Currency Exchange Controls**

**General**

    The  subscription, purchase and sale of shares of an Indian company are governed by  various Indian laws restricting the issuance of shares by the company to  non-residents or subsequent transfer of shares by or to non-residents. These  restrictions have been relaxed in recent years. Set forth below is a summary of  various forms of investment, and the restrictions applicable to each, including  the requirements under Indian law applicable to the issuance of ADSs. 

**Foreign Direct Investment**

**Issuances by the Company**

    Subject  to certain conditions, under current regulations, foreign direct investment in  most industry sectors does not require prior approval of the Foreign Investment  Promotion Board, or FIPB, or the Reserve Bank of India, or RBI, if the percentage of  equity holding by all foreign investors does not exceed specified  industry-specific thresholds. These conditions include certain minimum pricing  requirements, compliance with the Takeover Code (as described below), and  ownership restrictions based on the nature of the foreign investor (as  described below). Purchases by foreign investors of ADSs are treated as direct  foreign investment in the equity issued by Indian companies for such offerings.  Foreign investment of up to 100% of our share capital is currently permitted in  the IT industry. 

**Subsequent Transfers**

    Restrictions  for subsequent transfers of shares of Indian companies between residents and  non-residents were relaxed significantly as of October 2004. As a result, for a  transfer between a resident and a non-resident of securities of an Indian  company in the IT sector, such as ours, no prior approval of either the RBI or  the Government of India is required, as long as certain conditions are met.  These conditions include compliance, as applicable, with pricing guidelines,  the Takeover Code (as described below), and the ownership restrictions based on  the nature of the foreign investor (as described below). If a sale or purchase  is conducted on a stock exchange at prevailing market prices, the pricing  guidelines will be deemed satisfied. For off-market, negotiated transactions,  the guidelines require a transaction price, based on the prevailing market  price.

Transfers  between two non-residents are not subject to RBI approvals or pricing  restrictions. However, for industries other than the technology sector,  approval from the Government of India may be required for a transfer between  two non-residents. 

**Portfolio Investment by Non-Resident Indians**

    Investments  by persons of Indian nationality or origin residing outside of India, or NRIs,  or registered Foreign Institutional Investors, or FIIs (as described below)  made through a stock exchange are known as portfolio investments, or Portfolio  Investments. 

NRIs  are permitted to make Portfolio Investments on favorable tax and other terms  under India's  Portfolio Investment Scheme. Under the scheme, an NRI can purchase up to 5% of  the paid up value of the shares issued by a company, subject to the condition  that the aggregate paid up value of shares purchased by all NRIs does not  exceed 10% of the paid up capital of the company. The 10% ceiling may be  exceeded if a special resolution is passed in a General Meeting of the  shareholders of a company, subject to an overall ceiling of 24%. In addition to  Portfolio Investments in Indian companies, NRIs may also make foreign direct  investments in Indian companies pursuant to the foreign direct investment route  discussed above. 

Overseas  corporate bodies controlled by NRIs, or OCBs, were previously permitted to  invest on favorable terms under the Portfolio Investment Scheme. The RBI no  longer recognizes OCBs as an eligible class of investment vehicle under various  routes and schemes under the foreign exchange regulations. 

**Investment by Foreign Institutional Investors**

    Currently,  FIIs such as pension funds, investment trusts, and asset management companies  are eligible to make Portfolio Investments on favorable terms in all the  securities traded on the primary and secondary markets in India.  Investment by FIIs in certain sectors, such as the retail sector, are prohibited. 

SEBI  regulations provide that no single FII may hold more than 10% of a company's  total equity shares. 

In  most cases, under SEBI and the RBI regulations, unless shareholders' approval  has been obtained, FIIs in aggregate may hold no more than 24% of an Indian  company's equity shares. However, we have obtained the required shareholders'  approval and our shares may be owned completely by FIIs, subject to the 10%  individual holding limitation described above. 

There  is uncertainty under Indian law about the tax regime applicable to FIIs that  hold and trade ADSs. FIIs are urged to consult with their Indian legal and tax  advisers about the relationship between the FII guidelines and the ADSs and any  equity shares withdrawn upon surrender of the ADSs. 

**Takeover Code**

Upon  conversion of ADSs into equity shares, a holder of ADSs will be subject to the  Takeover Code. A more detailed description of the Takeover Code is provided  under 'Takeover Code and Listing Agreements' above. 

**ADSs**

**Issue of ADSs**

    Shares  of Indian companies represented by ADSs may be approved for issuance to foreign  investors by the Government of India under the Issue of Foreign Currency  Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism)  Scheme, 1993, or the 1993 Regulations, as modified from time to time. The 1993  Regulations are in addition to the other policies or facilities, as described  above, relating to investments in Indian companies by foreign investors. 

**Fungibility of ADSs**

    In  March 2001, the RBI amended the Foreign Exchange Management (Transfer or Issue  of Securities by a Person Resident Outside India) Regulations, 2000 and  established two alternative methods to allow equity shares to be converted into  and sold as ADSs. 

First,  a registered broker in India  can purchase shares of an Indian company that has issued ADSs on behalf of a  person resident outside India,  for the purposes of converting the shares into ADSs. However, such conversion  of equity shares into ADSs is possible only if the following conditions are  satisfied: 
-   the shares are purchased on a recognized stock exchange; 
-   the shares are purchased with the permission of the custodian to the ADS  offering of the Indian company and are deposited with the custodian; 
-   the shares purchased for conversion into ADSs do not exceed the number of  shares that have been released by the custodian pursuant to conversions of ADSs  into equity shares under the Depositary Agreement; and 
-   a non-resident investor, broker, the custodian and the Depository comply with  the provisions of the 1993 Regulations and any related guidelines issued by the  Central Government from time to time. 

Second,  the amendment to the regulations permit an issuer in India  to sponsor the issue of ADSs through an overseas depositary against underlying  equity shares accepted from holders of its equity shares in India for offering outside of India. The  sponsored issue of ADSs is possible only if the following conditions are  satisfied: 
-        the price of the offering is  determined by the managing underwriters of the offering; 
- the  ADS offering is approved by the FIPB; 
-   the ADS offering is approved by a special resolution of the shareholders of the  issuer in a general meeting; 
-   the facility is made available to all the equity shareholders of the issuer; 
-   the proceeds of the offering are repatriated into India within one month of the  closing of the offering; 
-   the sales of the existing equity shares are made in compliance with the Foreign  Direct Investment Policy (as described above) in India; 
-   the number of shares offered by selling shareholders are subject to limits in  proportion to the existing holdings of the selling shareholders when the offer  is oversubscribed; and 
-   the offering expenses do not exceed 7% of the offering proceeds and are paid by  shareholders on a pro-rata basis. 

The  issuer is also required to furnish a report to the RBI specifying the details  of the offering, including the amount raised through the offering, the number  of ADSs issued, the underlying shares offered and the percentage of equity in  the issuer represented by the ADSs. 

**Transfer of ADSs and Surrender of ADSs**

    A  person resident outside India  may transfer the ADSs held in Indian companies to another person resident outside  India  without any permission. An ADS holder is permitted to surrender the ADSs held  by him in an Indian company and to receive the underlying equity shares under  the terms of the Deposit Agreement. Under Indian regulations, the re-deposit of  these equity shares with the Depositary for ADSs may not be permitted.

**Government of India  Approvals**

    Pursuant to the RBI's regulations relating to sponsored ADS  offerings, an issuer in India  can sponsor the issue of ADSs through an overseas depositary against underlying  equity shares accepted from holders of its equity shares in India. The  guidelines specify, among other conditions, that: 
-   the ADSs must be offered at a price  determined by the lead manager of such offering; 
-   all equity holders may participate; 
-   the issuer must obtain special shareholder  approval; and 
-   the proceeds must be repatriated to India  within one month of the closure of the issue. 

**TAXATION**

**Indian Taxation**

**General.** The following summary is based on the  law and practice of the Income-tax Act, 1961, or Income-tax Act, including the  special tax regime contained in Sections 115AC and 115ACA of the  Income-tax Act read with the Issue of Foreign Currency Convertible Bonds and  Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, or the  Scheme, as amended on January 19, 2000. The Income-tax Act is amended  every year by the Finance Act of the relevant year. The Finance Bill, 2007,  which is pending before the Indian Parliament, has proposed certain amendments  to the Income Tax Act. Some or all of the tax consequences of  Sections 115AC and 115ACA may be amended or changed by future amendments  to the Income-tax Act. 

We believe this information is materially complete as of the date  hereof. However, this summary is not intended to constitute a complete analysis  of the individual tax consequences to non-resident holders or employees under  Indian law for the acquisition, ownership and sale of ADSs and equity shares. 

**EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN TAX  ADVISORS WITH RESPECT TO INDIAN AND LOCAL TAX CONSEQUENCES OF ACQUIRING, OWNING  OR DISPOSING OF EQUITY SHARES OR ADSs.**

***Residence**.*  For purposes of the Income-tax Act, an individual is considered  to be a resident of India during any fiscal year if he or she is in India in  that year for a period or periods amounting to at least 182 days; or at  least 60 days and, within the four preceding years has been in India for a  period or periods amounting to at least 365 days. 

The period of 60 days referred to above shall be read as  182 days (i) in case of a citizen of India who leaves India in a  previous year for the purposes of employment outside of India or (ii) if a  citizen of India or a person of Indian origin living abroad who visits India  and within the four preceding years has been in India for a period or periods  amounting to 365 days or more. 

A company is a resident of India  if it is incorporated in India  or the control and the management of its affairs is situated wholly in India.  Individuals and companies that are not residents of India would be treated as  non-residents for purposes of the Income-tax Act. 

***Taxation of  Distributions***.  Since April 1, 2003, dividend  income is exempt from tax for shareholders. Domestic companies are currently liable  to pay a dividend distribution tax at the rate of 13.75% including a surcharge  on the total amount distributed as dividend. Additionally, an education cess is  levied at the rate of 2% of such tax and surcharge after which the dividend  distribution tax payable would be 14.03%.   The Finance Bill, 2007 has proposed to increase the tax rate on  dividends distributed by domestic companies to 15% and the rate of education  cess to 3%. A revised dividend distribution tax of 16.995% is therefore  expected to take effect with retrospective effect from April 1, 2007 once the  Finance Bill, 2007 is enacted. Any distributions of additional ADSs or equity  shares to resident or non-resident holders will not be subject to Indian tax. 

***Minimum Alternate  Tax**.*  The Indian Government had introduced  Section 115JA to the Income Tax Act which came into effect in April 1, 1997, to  bring certain zero tax companies under the ambit of a Minimum Alternative Tax,  or MAT. If the taxable income of a company computed under this Act, in respect  of a previous year was less than 30% of its book profits, the total income of  such company chargeable to tax for the relevant previous year shall be deemed  to be an amount equal to 30% of such book profits. Effective April 1, 2001,  Finance Act, 2000 introduced Section 115JB, pursuant to which the income of  companies eligible for tax holiday under sections 10A or 10B of the Act was  exempted from MAT. The amount of income to which any of the provisions of  section 10A or section 10B apply, was reduced from the book profit for the  purposes of calculation of income tax payable under the aforesaid section. The  Finance Bill, 2007 has proposed to include income eligible for deductions under  sections 10A and  10B of the Act  in the  computation of book profits for the levy of MAT. The rate of MAT for domestic companies,  effective April 1, 2007, would be 11.33% (including a surcharge and education  cess) on the book profits.  The Income tax Act  provides that the  MAT paid by the companies can be adjusted against its tax liability over the  next five years. 

***Fringe Benefits Tax**.*   The Finance Bill, 2007   proposes to consider any specified security or sweat equity shares  allotted or transferred, directly or indirectly, by the company free of cost or  at concessional rate to its employees for the purposes of a Fringe Benefits  Tax, or FBT. The value of fringe benefit will be the fair market value, or FMV,  of the specified security or share on the date of exercise of the option by the  employee as reduced by the amount actually paid by, or recovered from the  employee in respect of such security or share. This would be applicable for  options exercised on or after April 1, 2007. The benefit subject to FBT is  proposed to be considered the cost of acquisition for computing capital gains  tax in the hands of the employee at the time of sale of specified  securities.  

***Taxation of Capital  Gains**.*  The following is a brief summary of capital gains taxation of  non-resident holders and resident employees relating to the sale of ADSs and  equity shares received upon conversion of ADSs. The relevant provisions are  contained mainly in sections 45, 47(viia), 115AC and 115ACA, of the  Income-tax Act, in conjunction with the Scheme. Effective April 1, 2002,  the Finance Act, 2001 introduced a new section 115AC in place of the  prevailing section 115AC of the Income-tax Act. You should consult your  own tax advisor concerning the tax consequences of your particular situation. 

Capital gains arising to a non-resident investor on the transfer  of the shares (whether in India  or outside India  to a non-resident investor) will not be liable to income tax under the  provisions of the Income Tax Act in certain circumstances. Shares (including  shares issuable on the conversion of the ADSs) held by the non-resident  investor for a period of more than 12 months are treated as long term  capital assets. If the shares are held for a period of less than 12 months  from the date of conversion, the capital gains arising on the sale thereof are  to be treated as short term capital gains. 

Capital gains are taxed as follows:            
-  gains from a sale of ADSs outside India by a non-resident to another non-resident  are not taxable in India; 
-  long-term capital gains realized by a resident from the  transfer of the ADSs will be subject to tax at the rate of 10% excluding the  applicable surcharge and education cess; short-term capital gains on such a  transfer will be taxed at graduated rates with a maximum of 30%, excluding the  applicable surcharge and education cess; 
-  long-term capital gains realized by a non-resident upon the sale  of equity shares obtained from the conversion of ADSs are subject to tax at a  rate of 10% excluding the applicable surcharge and education cess; and  short-term capital gains on such a transfer will be taxed at the maximum  marginal rate of tax applicable to the seller, excluding surcharges and  education cess, if the sale of such equity shares is settled off a recognized  stock exchange; and 
-  long-term capital gain realized by a non-resident upon the  sale of equity shares obtained from the conversion of ADSs is exempt from tax  and any short term capital gain is taxed at 10% excluding the applicable  surcharge and education cess, if the sale of such equity shares is settled on a  recognized stock exchange and a Securities Transaction Tax, or STT (described  below), is paid on such sale. 

The rate of surcharge is currently 10% in the case of domestic  companies and individuals whose taxable income is greater than  Rs. 1,000,000. For foreign companies, the rate of surcharge is 2.5%. 

Since June 1, 2006, with respect to a sale and purchase of  equity shares entered into on a recognized stock exchange, (i) both the  buyer and seller are required to pay a STT at the rate of 0.125% of the transaction  value of the securities, if the transaction is a delivery based transaction,  i.e. the transaction involves actual delivery or transfer of shares;  (ii) the seller of the shares is required to pay a STT at the rate of  0.025% of the transaction value of the securities if the transaction is a  non-delivery based transaction, i.e. a transaction settled without taking  delivery of the shares. 

Any resulting taxes may be offset by the applicable credit  mechanism allowed under double tax avoidance agreements in the case of  non-residents. The capital gains tax is computed by applying the appropriate  tax rates to the difference between the sale price and the purchase price of  the ADSs or equity shares. Under the Scheme, the purchase price of equity  shares in an Indian listed company received in exchange for ADSs will be the  market price of the underlying shares on the date that the Depositary gives  notice to the custodian of the delivery of the equity shares in exchange for  the corresponding ADSs, or the "stepped up" basis purchase price. The market  price will be the price of the equity shares prevailing on the Bombay Stock  Exchange Limited or the National Stock Exchange, as applicable. There is no  corresponding provision under the Income-tax Act in relation to the "stepped  up" basis for the purchase price of equity shares. However, the  tax department  in India  has not denied this benefit. In the event that the tax department denies this  benefit, the original purchase price of ADSs would be considered the purchase  price for computing the capital gains tax. 

According to the Scheme, a non-resident holder's holding period  for the purposes of determining the applicable Indian capital gains tax rate  relating to equity shares received in exchange for ADSs commences on the date  of the notice of the redemption by the Depositary to the custodian. However,  the Scheme does not address this issue in the case of resident employees, and  it is therefore unclear  when the holding period for the purposes of  determining capital gains tax commences for such a resident employee. 

The Scheme provides that if the equity shares are sold on a  recognized stock exchange in India  against payment in Indian rupees, they will no longer be eligible for the  preferential tax treatment. 

It is unclear  whether section 115AC and the Scheme are  applicable to a non-resident who acquires equity shares outside India from a  non-resident holder of equity shares after receipt of the equity shares upon  conversion of the ADSs. 

It is unclear  whether capital gains derived from the sale of  subscription rights or other rights by a non-resident holder not entitled to an  exemption under a tax treaty will be subject to Indian capital gains tax. If  such subscription rights or other rights are deemed by the Indian tax  authorities to be situated within India, the gains realized on the  sale of such subscription rights or other rights will be subject to Indian  taxation. The capital gains realized on the sale of such subscription rights or  other rights, which will generally be in the nature of short-term capital  gains, will be subject to tax at variable rates with a maximum rate of 40%  excluding the applicable surcharge and education cess, in case of a foreign  company, and 30% excluding the applicable surcharge and education cess, in case  of resident employees, and non-resident individuals with taxable income over  Rs. 250,000. 

***Withholding Tax on  Capital Gains.***  Any taxable  gain realized by a non-resident on the sale of ADSs or equity shares is to be  withheld at the source by the buyer. However, as per the provisions of  Section 196D(2) of the Income Tax Act, no withholding tax is required to  be deducted from any income by way of capital gains arising to Foreign  Institutional Investors as defined in Section 115AD of the Income Tax Act  on the transfer of securities defined in Section 115 AD of the Income Tax  Act. 

***Buy-back of  Securities***.  Indian  companies are not subject to any tax on the buy-back of their shares. However,  the shareholders will be taxed on any resulting gains. We would be required to  deduct tax at source according to the capital gains tax liability of a  non-resident shareholder. 

***Stamp Duty and  Transfer Tax**.*  A transfer of ADSs is not subject to Indian stamp duty. A sale of  equity shares in physical form by a non-resident holder will be subject to  Indian stamp duty at the rate of 0.25% of the market value of the equity shares  on the trade date, although customarily such tax is borne by the transferee.  Shares must be traded in dematerialized form. The transfer of shares in  dematerialized form is currently not subject to stamp duty. 

***Wealth Tax**.*  The holding  of the ADSs and the holding of underlying equity shares by resident and  non-resident holders is not subject to Indian wealth tax. Non-resident holders  are advised to consult their own tax advisors regarding this issue. 

***Gift Tax and Estate  Duty**.*  Currently, there are no gift taxes or estate duties. These taxes  and duties could be restored in future. Non-resident holders are advised to  consult their own tax advisors regarding this issue. 

***Service Tax**.*    Brokerage  or commission paid to stock brokers in connection with the sale or purchase of  shares is subject to a service tax of 12%, excluding surcharges and education  cess. The stock broker is responsible for collecting the service tax from the  shareholder and paying it to the relevant authority. 

**Material United States Federal Tax  Consequences**

    The  following is a summary of the material US federal income and estate tax  consequences that may be relevant with respect to the acquisition, ownership  and disposition of equity shares or ADSs and is for general information only.  This summary addresses the US  federal income and estate tax considerations of holders that are US holders.  US holders are beneficial holders of equity shares or ADSs who are citizens  or residents of the United States, or corporations (or other entities treated  as corporations for US federal tax purposes) created in or under the laws of  the United States or any political subdivision thereof or therein, estates, the  income of which is subject to US federal income taxation regardless of its  source, and trusts for which a US court exercises primary supervision and a  US person has the authority to control all substantial decisions. This  summary is limited to US  holders who will hold equity shares or ADSs as capital assets. In addition,	this summary is limited to US  holders  who are not resident in India  for purposes of the Convention Between the Government of the United States of America and the Government of  the Republic of India for the Avoidance of Double  Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income.  If a partnership holds the equity shares or ADSs, the tax treatment of a  partner will generally depend upon the status of the partner and upon the  activities of the partnership. A partner in a partnership holding equity shares  or ADSs should consult his, her or it's own tax advisor.   This summary does not address tax considerations applicable  to holders that may be subject to special tax rules, such as banks, insurance  companies, financial institutions, dealers in securities or currencies,  tax-exempt entities, persons that will hold equity shares or ADSs as a position  in a 'straddle' or as part of a 'hedging' or 'conversion' transaction for tax  purposes, persons that have a 'functional currency' other than the US dollar  or holders of 10% or more, by voting power or value, of the shares of our  company. This summary is based on the tax laws of the United States as in  effect on the date of this Annual Report and on United States Treasury  Regulations in effect or, in some cases, proposed, as of the date of this  Annual Report, as well as judicial and administrative interpretations thereof  available on or before such date, and is based in part on the assumption that  each obligation in the deposit agreement and any  related agreement will be  performed in accordance with its terms. All of the foregoing are subject to  change, which change could apply retroactively and could affect the tax  consequences described below. 

**EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS, HER  OR ITS OWN TAX ADVISOR WITH RESPECT TO THE US FEDERAL, STATE, LOCAL AND  NON-US TAX CONSEQUENCES OF ACQUIRING, OWNING OR DISPOSING OF EQUITY SHARES OR  ADSs.**

***Ownership of ADSs****.*  For US federal income tax purposes,  holders of ADSs will be treated as the holders of equity shares represented by  such ADSs. 

***Dividends****.*Except for ADSs or equity shares, if any, distributed pro rata to all  shareholders of our company, including holders of ADSs, the gross amount of any  distributions of cash or property with respect to ADSs or equity shares (before  reduction for any Indian withholding taxes)  generally will be included in  income by a US holder as foreign source dividend income at the time of  receipt, which in the case of a US holder of ADSs generally should be the  date of receipt by the Depositary, to the extent such distributions are made  from the current or accumulated earnings and profits (as determined under US  federal income tax principles) of our company. Such dividends will not be  eligible for the dividends received deduction generally allowed to corporate US holders.  To the extent, if any, that the amount of any distribution by our company exceeds  our company's current and accumulated earnings and profits (as determined under  US federal income tax  principles) such  excess will be treated first as a tax-free return of the  US  holder's tax basis in the equity shares or ADSs and thereafter as capital gain. 

    Subject to certain limitations, dividends paid to  non-corporate US holders, including individuals, may be eligible for a  reduced rate of taxation if we are deemed to be a 'qualified foreign  corporation' for United States federal income tax purposes. A qualified foreign  corporation includes a foreign corporation if (1) its shares (or, according to  legislative history, its ADSs) are readily tradable on an established  securities market in the United States or (2) it is eligible for the benefits under  a comprehensive income tax treaty with the United States. In addition, a  corporation is not a qualified foreign corporation if it is a passive foreign  investment company (as discussed below). The ADSs are traded on the Nasdaq  Global Select Market. Due to the absence of specific statutory provisions addressing  ADSs, however, there can be no assurance that we are a qualified foreign  corporation solely as a result of our listing on Nasdaq. Nonetheless, we may be  eligible for  benefits under the comprehensive income tax treaty between India and the United States. The reduced rate of  taxation will not apply to dividends received in taxable years beginning after  December 31, 2010. Each US  holder should consult its own tax advisor regarding the treatment of dividends  and such holder's eligibility for a reduced rate of taxation. 

    Subject to certain conditions and limitations, any Indian  withholding tax imposed upon distributions paid to a US  holder with respect to ADSs or equity shares should be eligible for credit  against the US  holder's federal income tax liability. Alternatively, a US holder may claim a deduction for such  amount, but only for a year in which a US holder does not claim a credit  with respect to any foreign income taxes. The overall limitation on foreign  taxes eligible for credit is calculated separately with respect to specific  classes of income. For this purpose, distributions on ADSs or ordinary shares   generally will be 'passive category income' or 'general category income'  for purposes of  computing the United States foreign tax credit allowable to a  US holder. 

    If dividends are paid in Indian rupees, the amount of the  dividend distribution included in the income of a US holder will be in the  US dollar value of the payments made in Indian rupees, determined at a spot  exchange rate between Indian rupees and US dollars applicable to the date  such dividend is included in the income of the US holder, regardless of  whether the payment is in fact converted into US dollars. Generally, gain or  loss, if any, resulting from currency exchange fluctuations during the period  from the date the dividend is paid to the date such payment is converted into  US dollars will be treated as US source ordinary income or loss. 

***Sale or exchange  of equity shares or ADSs****.*  A US holder  generally will recognize gain or loss on the sale or exchange of equity shares  or ADSs equal to the difference between the amount realized on such sale or  exchange and the US  holder's tax basis in the equity shares or ADSs, as the case may be. Such gain  or loss will be capital gain or loss, and will be long-term capital gain or  loss if the equity shares or ADSs, as the case may be, were held for more than  one year. Gain or loss, if any, recognized by a US  holder generally will be treated as US  source passive category income or loss for US foreign tax credit purposes.  Capital gains realized by a US  holder upon the sale of equity shares (but not ADSs) may be subject to certain  tax in India.  See 'Taxation - Indian Taxation - Taxation of Capital Gains.' Due to  limitations on foreign tax credits, however, a US  holder may not be able to utilize any such taxes as a credit against the US holder's  federal income tax liability. 

***Estate taxes**.*  An individual shareholder who is a citizen or  resident of the United States  for US federal estate tax  purposes will have the value of the equity shares or ADSs held by such holder  included in his or her gross estate for US federal estate tax purposes.  An individual holder who actually pays Indian estate tax with respect to the  equity shares will, however, be entitled to credit the amount of such tax  against his or her US  federal estate tax liability, subject to a number of conditions and  limitations. 

***Backup withholding tax and information reporting requirements**.*Any dividends paid, or  proceeds on a sale of, equity shares or ADSs to or by a US holder may be  subject to US information reporting, and a backup withholding tax (currently  at a rate of 28%) may apply unless the holder is an exempt recipient or provides  a US taxpayer identification number, certifies that such holder is not  subject to backup withholding and otherwise complies with any applicable backup  withholding requirements. Any amount withheld under the backup withholding  rules will be allowed as a refund or credit against the holder's US federal  income tax, provided that the required information is furnished to the Internal  Revenue Service. 

***Passive foreign investment company****.*A non-US corporation generally will  be classified as a passive foreign investment company for US federal income  tax purposes if either: 
-   75% or more of  its gross income for the taxable year is passive income; or 
-   on average for  the taxable year by value, or, if it is not a publicly traded corporation and  so elects, by adjusted basis, if 50% or more of its assets produce or are held  for the production of passive income.

We do not believe that we satisfy either of the tests for  passive foreign investment company status for the fiscal year ending March 31, 2007. Since this determination is  made on an annual basis, however, no assurance can be given that we will not be  considered a passive foreign investment company in future taxable years. If we  were to be a passive foreign investment company for any taxable year, US holders  would be required to either: 
-   pay an interest  charge together with tax calculated at ordinary income rates on 'excess  distributions,' as the term is defined in relevant provisions of the US tax  laws and on any gain on a sale or other disposition of equity shares; 
-   if a 'qualified  electing fund election' (as the term is defined in relevant provisions of the  US tax laws) is made, include in their taxable income their pro rata share of  undistributed amounts of our income; or 
-   if the equity  shares are 'marketable' and a mark-to-market election is made, mark-to-market  the equity shares each taxable year and recognize ordinary gain and, to the  extent of prior ordinary gain, ordinary loss for the increase or decrease in  market value for such taxable year.        

    If we are treated as a passive foreign investment company, we  do not plan to provide information necessary for the 'qualified electing fund'  election. 

**THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A  COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP OF EQUITY  SHARES OR ADSS. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE TAX  CONSEQUENCES TO YOU BASED ON YOUR PARTICULAR SITUATION.**

**DOCUMENTS ON DISPLAY**

    This  report and other information filed or to be filed by Infosys Technologies  Limited can be inspected and copied at the public reference facilities  maintained by the SEC at: 

    Judiciary Plaza     450 Fifth Street, N.W.     Public Reference Room     Washington, D.C. 20459 

    Copies of these materials can also be obtained from the  Public Reference Section of the SEC, 450th    Street, N.W. Washington, D.C. 20549,  at prescribed rates. 

    The SEC maintains a web site at www.sec.gov that  contains reports, proxy and information statements, and other information  regarding registrants that make electronic filings with the SEC using its EDGAR  system. 

    Additionally, documents referred to in this Form 20-F may be  inspected at our corporate offices which are located at Electronics City,  Hosur Road, Bangalore-560 100. 

**Item 11.  Quantitative and Qualitative Disclosure About Market Risk**

    This  information is set forth under the caption 'Operating and Financial Review and  Prospects' is as set out above in this Annual Report and such information is  incorporated herein by reference. 

**Item 12.  Description of Securities Other Than Equity Securities**

    Not  applicable. 

**Part II**

**Item 13.  Defaults, Dividend Arrearages and Delinquencies**

    None. 

**Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds**

Our board of directors recommended that our shareholders approve a bonus share issuance of one additional equity shares for every equity share held on July 14, 2006, the record date. Our board of directors also recommended a stock dividend of one ADS for every ADS held on the July 14, 2006 record date. Our shareholders approved the issue of bonus shares and stock dividend of ADSs at the Annual General Meeting of the Shareholders, held on June 10, 2006. The bonus shares were allotted to all shareholders on July 15, 2006 and distributed on July 18, 2006. The additional ADSs pursuant to the stock dividend on ADSs were distributed to holders of ADSs on July 18, 2006. 

**Item 15. Controls and Procedures**

**DISCLOSURE CONTROLS AND PROCEDURES**

    As of the end of the period covered by this Annual Report on  Form 20-F, we carried out an evaluation, under the supervision and with the  participation of our management, including our Chief Executive Officer and  Chief Financial Officer, of the effectiveness of the design and operation of  our disclosure controls and procedures (as defined in Rules 13a-15(e) and  15d-15(e) of the Securities Exchange Act of 1934, as amended). 

    Based on this evaluation, our Chief Executive Officer and  Chief Financial Officer concluded that our disclosure controls and procedures  are effective as of March 31, 2007, to provide reasonable assurance that the  information required to be disclosed in filings and submissions under the  Securities Exchange Act of 1934, as amended, is recorded, processed,  summarized, and reported within the time periods specified by the SEC's rules  and forms, and that material information related to us and our consolidated  subsidiaries is accumulated and communicated to management, including the Chief  Executive Officer and Chief Financial Officer, as appropriate to allow timely  decisions about required disclosure.

**Management's Report on Internal  Control Over Financial Reporting**

    Our management is responsible for establishing and  maintaining adequate internal control over financial reporting as defined in  Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our  internal control over financial reporting is a process to provide reasonable  assurance regarding the reliability of financial reporting and the preparation  of financial statements for external purposes in accordance with generally  accepted accounting principles. Our internal control over financial reporting  includes those policies and procedures that: 
-   pertain to the maintenance of records that,  in reasonable detail, accurately and fairly reflect the transactions and  dispositions of our assets;
-   provide reasonable assurance that  transactions are recorded as necessary to permit preparation of financial  statements in accordance with generally accepted accounting principles, and  that our receipts and expenditures are being made only in accordance with  authorizations of our management and directors; and 
-   provide reasonable assurance regarding  prevention or timely detection of unauthorized acquisition, use or disposition  of our assets that could have a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

    Management assessed the effectiveness of our internal control  over financial reporting as of March 31, 2007. In conducting its assessment of  internal control over financial reporting, management based its evaluation on  the framework in Internal Control - Integrated Framework issued by the  Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based  on our assessment, management has concluded that our internal control over  financial reporting was effective as of March 31, 2007. 

    Our independent registered public accounting firm, KPMG, has  audited the consolidated financial statements included in this annual report on Form 20-F, and as part of their audit, has issued their report, included herein, on (1) our management's assessment of   the effectiveness of  our internal control over financial reporting and (2) the effectiveness of our internal control over financial reporting as of March 31, 2007. 

**Report of Independent Registered Public Accounting Firm**

    The Board of Directors and Stockholders

    Infosys Technologies Limited

We have audited management's assessment, included in Item 15 of the  accompanying Form 20-F that Infosys Technologies Limited maintained effective  internal control over financial reporting as of March 31, 2007, based on criteria  established in Internal Control-Integrated Framework issued by the Committee of  Sponsoring Organizations of the Treadway Commission (COSO). Infosys  Technologies Limited's management is responsible for maintaining effective  internal control over financial reporting and for its assessment of the  effectiveness of internal control over financial reporting. Our responsibility  is to express an opinion on management's assessment and an opinion on the  effectiveness of the Company's internal control over financial reporting based  on our audit.

We conducted our audit in accordance with the standards of the Public  Company Accounting Oversight Board (United States). Those standards  require that we plan and perform the audit to obtain reasonable assurance about  whether effective internal control over financial reporting was maintained in  all material respects. Our audit included obtaining an understanding of  internal control over financial reporting, evaluating management's assessment,  testing and evaluating the design and operating effectiveness of internal  control, and performing such other procedures as we considered necessary in the  circumstances. We believe that our audit provides a reasonable basis for our  opinion.

A company's internal control over financial reporting is a process  designed to provide reasonable assurance regarding the reliability of financial  reporting and the preparation of financial statements for external purposes in  accordance with generally accepted accounting principles.  A company's internal control over financial  reporting includes those policies and procedures that (1) pertain to the  maintenance of records that, in reasonable detail, accurately and fairly  reflect the transactions and dispositions of the assets of the company; (2) provide  reasonable assurance that transactions are recorded as necessary to permit  preparation of financial statements in accordance with generally accepted  accounting principles, and that receipts and expenditures of the company are  being made only in accordance with authorizations of management and directors  of the company; and (3) provide reasonable assurance regarding prevention or  timely detection of unauthorized acquisition,  use, or disposition of the  company's assets that could have a material effect on the financial  statements.  

Because of its inherent limitations, internal control over financial  reporting may not prevent or detect misstatements.  Also, projections of any evaluation of  effectiveness to future periods are subject to the risk that controls may  become inadequate because of changes in conditions, or that the degree of  compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Infosys Technologies  Limited maintained effective internal control over financial reporting as of  March 31, 2007, is fairly stated, in all material respects, based on criteria  established in Internal Control-Integrated Framework issued by the Committee of  Sponsoring Organizations of the Treadway Commission (COSO). Also, in our  opinion, Infosys Technologies Limited maintained, in all material respects,  effective internal control over financial reporting as of March 31, 2007, based  on criteria established in Internal Control-Integrated Framework issued by the  Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public  Company Accounting Oversight Board (United States), the consolidated balance  sheets of Infosys Technologies Limited and subsidiaries as of March 31, 2006  and 2007, and the related consolidated statements of income, stockholders'  equity and comprehensive income, and cash flows for each of the years in the  three-year period ended March 31, 2007, and our report dated April 28, 2007  expressed an unqualified opinion on those consolidated financial statements.

KPMG  Bangalore, India   April 28, 2007

**CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING**

    During the period covered by this  Annual Report, there were no changes in our internal control over financial  reporting that have materially affected or are reasonably likely to materially  affect our internal control over financial reporting.

**Item 16 A. Audit  Committee Financial Expert**

    Mr.  Sridar A. Iyengar is a member of our board of directors and is a member of its  audit committee. Our board of directors has determined that Mr. Sridar A.  Iyengar is an audit committee financial expert as defined in Item 401(h) of  Regulation S-K, and is independent pursuant to applicable NASDAQ rules. 

**Item 16 B. Code  of Ethics**

    Our  audit committee has adopted a written Code of Ethics, as defined in Item 406 of  Regulation S-K, applicable to our principal executive officer, principal  financial officer, principal accounting officer and all officers working in our  finance, accounting, treasury, internal audit, tax, legal, purchase, financial  analyst, investor relations functions, disclosure committee members, and senior  management, as well as members of the audit committee and the board of  directors. The code of ethics is posted on our website at www.infosys.com. 

    Our audit committee has also adopted a Whistleblower Policy  wherein it has established procedures for receiving, retaining and treating  complaints received, and procedures for the confidential, anonymous submission  by employees of complaints regarding questionable accounting or auditing  matters, conduct which results in a violation of law by Infosys or in a  substantial mismanagement of company resources. Under this policy, our employees  are encouraged to report questionable accounting matters, any reporting of  fraudulent financial information to our shareholders, the government or the  financial markets any conduct that results in a violation of law by Infosys to  our management (on an anonymous basis, if employees so desire). Under  this policy, we have prohibited discrimination, retaliation or harassment of  any kind against any employee who, based on the employee's reasonable belief  that such conduct or practices have occurred or are occurring, reports that  information or participates in an investigation. 

    We have also adopted a Code of Conduct, applicable to all  officers, directors and employees. The Code of Conduct is available on our  website, www.infosys.com. 

**Item 16 C.  Principal Accountant Fees and Services**
      The following table sets forth fees for professional audit services for the audit of the company's annual financial statements, and fees for other services rendered by our principal accountant and their associated entities for fiscal 2006 and 2007:       **Type of Service****Fiscal 2006****Fiscal 2007**
**    Description of Services**

(a) Audit Fees 

$571,357

$503,689

**    **Audit and review of financial statements 

(b) Tax Fees 

116,407 

23,049

**    **Tax audit, tax returns, tax processing, tax filing and advisory services 

(c) All Other Fees 

676,400 

28,611

**    **Statutory certifications, quality registrar, work permit related services and other advisory services
Total
$1,364,164

$555,349

 

The principal accountants were also paid $125,000 and $140,300 (fees,  expenses and applicable taxes) during fiscal 2006 and 2007, respectively by the  selling shareholders for the professional services rendered in relation to our  Sponsored Secondary ADR Program. 

    Our audit committee charter requires us to take the prior  approval of our audit committee on every occasion we engage our principal  accountants or their associated entities to provide us any non-audit services.  We disclose to our audit committee the nature of services that are provided and  the fees to be paid for the services. All of the non-audit services provided by  our principal accountants or their associated entities in the previous two fiscal  years have been pre-approved by our Audit Committee. 

**Item 16 D.  Exemptions from the Listing Standards for Audit Committees**

    We have not sought any exemption from the listing  standards for audit committees applicable to us as foreign private issuer,  pursuant to Rule 10(A)-3(d) of the Securities Exchange Act of 1934. 

**Item 16 E.  Purchase of Equity Securities by the Issuer and Affiliated Purchasers**

    None. 

**Part III**

**Item 17.  Financial statements**

    See Item 18. 

**Item 18. Financial statements**

**CONSOLIDATED STATEMENTS AND OTHER FINANCIAL  INFORMATION**

**Report of the audit committee**

To the members of Infosys Technologies Limited 

    In connection with the March 31, 2007 consolidated financial  statements prepared under United States Generally Accepted Accounting  Principles, the audit committee: (1) reviewed and discussed the consolidated  financial statements with management; (2) discussed with the auditors the  matters required by Statement on Auditing Standards No. 61, as amended, and the  Sarbanes-Oxley Act of 2002; and (3) reviewed and discussed with the auditors  the matters required by Independence Standards Board Statement No. 1. Based  upon these reviews and discussions, the audit committee recommended to the  board of directors that the audited consolidated financial statements be  included in the Annual Report on Form 20-F to be filed with the Securities and  Exchange Commission of the United    States of America. 
Bangalore,India      April 28, 2007Deepak M. Satwalekar*Chairman,  Audit committee*Dr.    Marti G. Subrahmanyam*Member, Audit committee*Dr. Omkar  Goswami*Member, Audit committee*  Rama Bijapurkar*Member,  Audit committee*Sridar  A. Iyengar*Member,  Audit committee*David L.  Boyles*Member,  Audit committee* 
**Report of management**

The management is responsible for preparing the company's consolidated  financial statements and related information that appears in this annual  report. The management believes that the consolidated financial statements  fairly reflect the form and substance of transactions, and reasonably present  the financial condition and results of operations of Infosys Technologies  Limited and subsidiaries in conformity with United States Generally Accepted  Accounting Principles. The management has included, in the company's  consolidated financial statements, amounts that are based on estimates and  judgments, which it believes are reasonable under the circumstances. 

    The company maintains a system of  internal procedures and controls intended to provide reasonable assurance, at  appropriate cost, that transactions are executed in accordance with company  authorization and are properly recorded and reported in the consolidated  financial statements, and that assets are adequately safeguarded. 

    KPMG audits the company's  consolidated financial statements in accordance with the Standards of the  Public Company Accounting Oversight Board (United States). 

    The board of directors has  appointed an audit committee composed of outside directors. The committee meets  with the management, internal auditors, and the independent auditors to review  internal accounting controls and accounting, auditing, and financial reporting  matters.
Bangalore,India        April 28, 2007V. Balakrishnan*Chief  Financial Officer*S.  Gopalakrishnan*Chief Operating  Officer *Nandan M. Nilekani*Chief Executive  Officer* 
**Report of Independent Registered Public Accounting Firm**

The Board of Directors and Stockholders

    Infosys Technologies Limited

We have audited the accompanying consolidated balance sheets of Infosys  Technologies Limited and subsidiaries as of March 31, 2006 and 2007, and the  related consolidated statements of income, stockholders' equity and  comprehensive income, and cash flows for each of the years in the three-year  period ended March 31, 2007. In connection with our audits of the consolidated  financial statements, we also have audited financial statement schedule  II.  These consolidated financial  statements and financial statement schedule are the responsibility of the  Company's management. Our responsibility is to express an opinion on these  consolidated financial statements and financial statement schedule based on our  audits.

We conducted our audits in accordance with the standards of the Public  Company Accounting Oversight Board (United States).  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 audits provide a  reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above  present fairly, in all material respects, the financial position of Infosys  Technologies Limited and subsidiaries as of March 31, 2006 and 2007, and the  results of their operations and their cash flows for each of the years in the  three-year period ended March 31, 2007, in conformity with US generally  accepted accounting principles.  Also in  our opinion, the related financial statement schedule, when considered in  relation to the basic consolidated financial statements taken as a whole,  present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public  Company Accounting Oversight Board (United States), the effectiveness of  Infosys Technologies Limited's internal control over financial reporting as of  March 31, 2007, based on criteria established in Internal Control-Integrated  Framework issued by the Committee of Sponsoring Organizations of the Treadway  Commission (COSO), and our report dated April 28, 2007 expressed an unqualified  opinion on management's assessment of, and on the effective operation of,  internal control over financial reporting.  

KPMG    Bangalore, India    April 28, 2007

**Infosys Technologies Limited and subsidiaries**
**Consolidated Balance Sheets as of March 31,***(Dollars in millions except per share data)* 
**2006**

**2007**

**ASSETS**
  
***Current Assets***

  

  

 Cash and cash equivalents 

 $889 

 $1,403 

 Investments in liquid mutual fund units 

 170 

 6 

 Trade accounts receivable, net of allowances 

 361 

 565 

 Unbilled revenue 

 48 

 74 

 Prepaid expenses and other current assets 

 40 

 48 

 Deferred tax assets 

 1 

 2 

*Total current assets*

 1,509 

 2,098 

 Property, plant and equipment, net 

 491 

 738 

 Goodwill 

 8 

 128 

 Intangible assets, net 

 - 

 20 

 Deferred tax assets 

 13 

 19 

 Advance income taxes 

 18 

 33 

 Other assets 

 27 

 37 

**Total Assets**

 $**2,066**

**$3,073**

**LIABILITIES AND STOCKHOLDERS' EQUITY**

  

  

***Current Liabilities***

  

  

 Accounts payable 

 $3 

 $6 

 Income taxes payable 

 - 

 4 

 Client deposits 

 2 

 1 

 Unearned revenue 

 44 

 72 

 Other accrued liabilities 

 160 

 272 

*Total current liabilities*

 209 

 355 

*Non-current liabilities*

  

  

 Other non-current liabilities 

 5 

 1 

 Minority interests 

 15 

 - 

***Stockholders' Equity***

  

  

 Common stock, $0.16 par value 600,000,000 equity shares authorized, Issued and outstanding -551,109,960 and 571,209,862 as of March 31, 2006 and March 31, 2007 respectively 

 31 

 64 

 Additional paid-in capital 

 410 

 692 

 Accumulated other comprehensive income 

 9 

 90 

 Retained earnings 

 1,387 

 1,871 

 Total stockholders' equity 

 1,837 

 2,717 

**Total Liabilities And Stockholders' Equity**

**$2,066**

**$3,073**
    See accompanying notes to the consolidated financial statements    
**Infosys Technologies Limited and subsidiaries**
**Consolidated Statements of Income for the years ended March 31,***(Dollars in millions except share and per share data) *
  

**2005**

**2006**

**2007**

**Revenues**

**$1,592**

**$2,152**

**$3,090**

 Cost of revenues 

 904 

 1,244 

 1,777 

**Gross profit**

**688**

**908**

**1,313**

 Operating Expenses: 

  

  

  

 Selling and marketing expenses 

 103 

 136 

 209 

 General and administrative expenses 

 127 

 173 

 249 

 Amortization of intangible assets 

 2 

 - 

 3 

 Total operating expenses 

 232 

 309 

 461 

**Operating income**

**456**

**599**

**852**

 Gain on sale of long term investment 

 11 

 - 

 1 

 Other income, net 

 24 

 31 

 83 

**Income before income taxes and minority interest**

**491**

**630**

**936**

 Provision for income taxes 

 72 

 70 

 84 

**Income before minority interest**

**$419**

**$560**

**$852**

 Minority interest 

 - 

 5 

 2 

**Net income**

**$419**

**$555**

**$850**

**Earnings per equity share**

  

  

  

 Basic 

 $0.78 

 $1.02 

 $1.53 

 Diluted 

 $0.77 

 $0.99 

 $1.50 

**Weighted average equity shares used in computing earnings per equity share**

  

  

  

 Basic 

 533,802,066 

 543,160,222 

 554,018,739 

 Diluted 

 547,180,826 

 557,967,786 

 566,110,582 
    See accompanying notes to the consolidated financial statements    
**Infosys Technologies Limited and subsidiaries**
**Consolidated Statements of Stockholders' Equity and Comprehensive Income***(Dollars in millions* ) 
  

**Common stock Shares**

**Common stock Par value**

**Additional paid-in capital**

**Comprehensive income**

**Accumulated other comprehensive income**

**Retained earnings**

**Total stockholders' equity**

**Balance as of March 31, 2004**

**533,128,448**

**$9**

**$157**

  

**$39**

**$748**

**$953**

 Common stock issued 

 8,012,650 

 - 

 99 

  

 - 

 - 

 99 

 Cash dividends 

 - 

 - 

 - 

  

 - 

 (222) 

 (222) 

 Income tax benefit arising on exercise of stock options 

 - 

 - 

 10 

  

 - 

 - 

 10 

 Stock split effected in the form of a stock dividend 

  

 22 

 - 

  

 - 

 (22) 

 - 

 Comprehensive income 

  

  

  

  

  

  

  

     Net income 

 - 

 - 

 - 

 $419 

 - 

 419 

 419 

     Other comprehensive income 

  

  

  

  

  

  

  

         Translation adjustment 

 - 

 - 

 - 

 (6) 

 (6) 

 - 

 (6) 

 Comprehensive income 

** **

** **

** **

 $413 

** **

** **

** **

**Balance as of March 31, 2005**

**541,141,098**

**$31**

**$266**

  

**$33**

**$923**

**$1,253**

 Common stock issued 

 9,968,862 

 - 

 128 

 -

 - 

 - 

 128 

 Cash dividends 

 - 

 - 

 - 

 -  

 - 

 (91) 

 (91) 

 Change in proportionate share of subsidiary resulting from issuance of stock by subsidiary 

 - 

 - 

 12 

 - 

 - 

 - 

 12 

 Income tax benefit arising on exercise of stock options 

 - 

 - 

 4 

 - 

 - 

 - 

 4 

 Comprehensive income 

  

  

  

  

  

  

  

     Net income 

 - 

 - 

 - 

 $ 555 

 - 

 555 

 555 

     Other comprehensive income 

  

  

  

  

  

  

  

         Unrealized gain on mutual fund investments, net of tax effect 

 

 

 

 1 

 1 

 

 1 

         Translation adjustment 

 - 

 - 

 - 

 (25) 

 (25) 

 - 

 (25) 

 Comprehensive income 

  

  

  

 $531 

  

  

  

**Balance as of March 31, 2006**

**551,109,960**

**$31**

**$410**

  

**$9**

**$1,387**

**$1,837**

 Common stock issued 

 20,099,902 

 3 

 274 

 - 

 - 

 - 

 277 

 Cash dividends 

 - 

 - 

 - 

 - 

 - 

 (336) 

 (336) 

 Change in proportionate share of subsidiary resulting from issuance of stock by subsidiary 

 - 

 - 

 (1) 

 - 

 - 

 - 

 (1) 

 Stock compensation expenses 

 - 

 - 

 5 

 - 

 - 

 - 

 5 

 Income tax benefit arising on exercise of stock options 

 - 

 - 

 4 

 - 

 - 

 - 

 4 

 Stock split effected in the form of a stock dividend 

 - 

 30 

 - 

 - 

 - 

 (30) 

 - 

 Comprehensive income 

  

  

  

  

  

  

  

     Net income 

 - 

 - 

 - 

 $850 

 - 

 850 

 850 

     Other comprehensive income 

  

  

  

  

  

  

  

         Translation adjustment 

 - 

 - 

 - 

 82 

 82 

 - 

 82 

 Comprehensive income 

 - 

 - 

 - 

 $932 

  

  

  

 Adjustment to initially apply SFAS 158, net of tax effect of $1 million 

 - 

 - 

 - 

 - 

 (1) 

 - 

 (1) 

**Balance as of March 31, 2007**

**571,209,862**

**$64**

**$692**

  

**$90**

**$1,871**

**$2,717**
    See accompanying notes to the consolidated financial statements    
**Infosys Technologies Limited and subsidiaries**
**Consolidated Statements of Cash Flows for the years ended March 31,***(Dollars in millions)*
  

**2005**

**2006**

**2007**

**OPERATING ACTIVITIES:**

** **

** **

** **

 Net income 

**$419**

**$555**

**$850**

**Adjustments to reconcile net income to net cash provided by operating activities:**

  

  

  

 Depreciation and amortization 

 66 

 99 

 118 

 Minority interest 

 - 

 5 

 2 

 Stock compensation expenses 

 - 

 - 

 5 

 Deferred taxes 

 (3) 

 (5) 

 (6) 
Gain on sale of liquid mutual fund units -(1)(2)Gain on sale of long term investments (11)-(1)Income tax benefit arising on exercise of stock options 104-
**Changes in assets and liabilities**

  

  

  

 Trade accounts receivable 

 (150) 

 (65) 

 (184) 

 Prepaid expenses and other current assets 

 2 

 1 

 (4) 

 Unbilled revenue 

 (9) 

 (16) 

 (24) 

 Accounts payable 

 - 

 1 

 3 

 Income taxes 

 (2) 

 (37) 

 (15) 

 Client deposits 

 (8) 

 (5) 

 (1) 

 Unearned revenue 

 6 

 24 

 26 

 Other accrued liabilities 

 24 

 39 

 95 

**Net cash provided by operating activities**

**344**

**599**

**862**

**Investing Activities:**

  

  

  

 Expenditure on property, plant and equipment 

 (186) 

 (246) 

 (336) 

 Payment towards intellectual property right 

 - 

 - 

 (3) 

 Loans to employees 

 2 

 (3) 

 1 

 Non-current deposits placed with corporations 

 (15) 

 (11) 

 (14) 

 Withdrawal of non-current deposits placed with corporations 

 - 

 8 

 2 

 Acquisition of minority interest in subsidiary 

 - 

 - 

 (148) 

 Investment in liquid mutual fund units 

 (100) 

 (419) 

 (1,002) 

 Redemption of liquid mutual fund units 

 40 

 523 

 1,163 

 Proceeds from sale of long term investments 

 11 

 - 

 1 
Proceeds from issuance of equity shares by subsidiary --2
**Net cash used in investing activities**

**(248)**

**(148)**

**(334)**

**Financing Activities:**

  

  

  

 Proceeds from issuance of common stock on exercise of employee stock options 

 99 

 128 

 277 

 Payment of dividends 

 (222) 

 (91) 

 (336) 

 Income tax benefit arising on exercise of stock options 

 -****

 - 

 4 

**Net cash provided by / (used in) financing activities**

**(123)**

**37**

**(55)**

 Effect of exchange rate changes on cash 

 (8) 

 (9) 

 41 

 Net increase/ (decrease) in cash and cash equivalents during the year 

 (35) 

 479 

 514 

 Cash and cash equivalents at the beginning of the year 

 445 

 410 

 889 

**Cash and cash equivalents at the end of the year**

**$410**

**$889**

**$1,403**

**Supplementary information:**

  

  

  

 Income taxes paid 

 $66 

 $125 

 $99 
    See accompanying notes to the consolidated financial statements    
**Notes to the Consolidated Financial Statements**

**1. Company overview and significant accounting policies**

***1.1. Company overview***

 Infosys Technologies Limited (Infosys), along with its majority owned and controlled subsidiary, Infosys BPO Limited (Infosys BPO), formerly Progeon limited and wholly-owned subsidiaries Infosys Technologies (Australia) Pty. Limited (Infosys Australia), Infosys Technologies (China) Co. Limited (Infosys China), formerly Infosys Technologies (Shanghai) Co. Limited and Infosys Consulting Inc. (Infosys Consulting) is a leading global technology services firm. The company provides end-to-end business solutions that leverage technology. The company provides solutions that span the entire software life cycle encompassing technical consulting, design, development, software re-engineering, maintenance, systems integration, package evaluation and implementation, testing and infrastructure management services. In addition, the company offers software products for the banking industry and business process management services. 

***1.2. Basis of preparation of financial statements and consolidation***

 The consolidated financial statements include Infosys and its subsidiaries (the company) and are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Infosys consolidates entities in which it owns or controls more than 50% of the voting shares. The results of acquired businesses are included in the consolidated financial statements from the date of acquisition. Inter-company balances and transactions are eliminated on consolidation. 

***1.3. Use of estimates***

 The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to, accounting for costs and efforts expected to be incurred to complete performance under software development arrangements, allowance for uncollectible accounts receivable, future obligations under employee benefit plans, provisions for post-sales customer support, the useful lives of property, plant, equipment and intangible assets and income tax valuation allowances. Actual results could differ from those estimates. Appropriate changes in estimates are made as management become aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected in the financials statements in the period in which changes are made and, if material, their effects are disclosed in the notes to the consolidated financial statements. 

***1.4. Revenue recognition***

 The company derives revenues primarily from software development and related services, licensing of software products and from business process management services. Arrangements with customers for software development and related services are either on a fixed price, fixed timeframe or on a time and material basis. 

 Revenue on time-and-material contracts is recognized as the related services are performed and revenue from the end of the last billing to the balance sheet date is recognized as unbilled revenues. Revenue from fixed-price, fixed-timeframe contracts is recognized as per the percentage-of-completion method. Guidance has been drawn from paragraph 95 of Statement of Position (SOP) 97-2, Software Revenue Recognition, to account for revenue from fixed price arrangements for software development and related services in conformity with SOP 81-1. The input (efforts expended) method has been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates. Costs and earnings in excess of billings are classified as unbilled revenue while billings in excess of costs and earnings are classified as unearned revenue. Maintenance revenue is recognized ratably over the term of the underlying maintenance agreement. 

 The company provides its clients with a fixed-period warranty for corrections of errors and telephone support on all its fixed-price, fixed-timeframe contracts. Costs associated with such support services are accrued at the time related revenues are recorded and included in cost of revenues. The company estimates such costs based on historical experience and estimates are reviewed on a periodic basis for any material changes in assumptions and likelihood of occurrence. 

    In  arrangements with software development and related services and maintenance  services, the company has specifically applied the guidance in paragraph 9 of EITF  Issue 00-21 to determine whether the software development and related services  can be considered a separate unit of accounting. The arrangements  generally meet the criteria for software development and related services to be  considered a separate unit of accounting. The company uses the relative fair value  method to allocate revenue to maintenance services and the software development  and related services. In cases where the company is unable to establish objective  and reliable evidence of fair value for the software development and related  services, the company has used the residual method to allocate the arrangement  consideration. Maintenance revenues are recognized ratably over the term  of the underlying maintenance arrangement while software development and  related services revenues are recognized using the  percentage-of-completion  method.

 In accordance with SOP 97-2, license fee revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the license fee is fixed and determinable, and the collection of the fee is probable. Arrangements to deliver software products generally have three elements: license, implementation and Annual Technical Services (ATS). The company has applied the principles in SOP 97-2 to account for revenue from these multiple element arrangements. Vendor specific objective evidence of fair value (VSOE) has been established for ATS. VSOE is the price charged when the element is sold separately. When other services are provided in conjunction with the licensing arrangement, the revenue from such contracts are allocated to each component of the contract using the residual method, whereby revenue is deferred for the undelivered services and the residual amounts are recognized as revenue for delivered elements. In the absence of an established VSOE for implementation, the entire arrangement fee for license and implementation is recognized as the implementation is performed. Revenue from client training, support and other services arising due to the sale of software products is recognized as the services are performed. ATS revenue is recognized ratably over the period in which the services are rendered. 

 Revenues from business process management and other services are recognized on both, the time-and-material and fixed-price, fixed-timeframe basis. Revenue on time-and-material contracts is recognized as the related services are rendered. Revenue from fixed-price, fixed-timeframe contracts is recognized as per the proportional performance method using an output measure of performance. 

 When the company receives advances for services and products, such amounts are reported as client deposits until all conditions for revenue recognition are met. 

 The company accounts for volume discounts and pricing incentives to customers using the guidance in EITF Issue 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products). The discount terms in the company's arrangements with customers generally entitle the customer to discounts if the customer completes a specified cumulative level of revenue transactions. In some arrangements, the level of discount varies with increases in the levels of revenue transactions. The discounts are passed on to the customer either as check payments or as a reduction of payments due from the customer. The company recognizes discount obligations as a reduction of revenue based on the ratable allocation of the discount to each of the underlying revenue transactions that result in progress by the customer toward earning the discount. The company recognizes the liability based on its estimate of the customer's future purchases. Also, when the level of discount varies with increases in levels of revenue transactions, the company recognizes the liability based on its estimate of the customer's future purchases. If the company cannot reasonably estimate the customer's future purchases, then the liability is recorded based on the maximum potential level of discount. The company recognizes changes in the estimated amount of obligations for discounts using a cumulative catch-up adjustment. Furthermore, the company does not recognize any revenue up front for breakages immediately on the inception of an arrangement. 

***1.5. Cash and cash equivalents***

 The company considers all highly liquid investments with a remaining maturity at the date of purchase / investment of three months or less and that are readily convertible to known amounts of cash to be cash equivalents. Cash and cash equivalents comprise cash and cash on deposit with banks, and corporations. 

***1.6. Investments***

 Investments in non-readily marketable equity securities of other entities where the company is unable to exercise significant influence and for which there are no readily determinable fair values are recorded at cost. Declines in value judged to be other than temporary are included in earnings. 

 Investment securities designated as 'available for sale' are carried at their fair value. Fair value is based on quoted market prices. Temporary unrealized gains and losses, net of the related tax effect are reported as a separate component of stockholders' equity until realized. Realized gains and losses and declines in value judged to be other than temporary on available for sale securities are included in earnings. 

 The cost of securities sold is based on the specific identification method. Interest and dividend income are recognized when earned. 

***1.7. Property, plant and equipment***

 Property, plant and equipment are stated at cost, less accumulated depreciation. The company depreciates property, plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows: 

 Buildings 

 15 years 

 Vehicles 

 5 years 

 Plant and equipment 

 5 years 

 Computer equipment 

 2-5 years 

 Furniture and fixtures 

 5 years 

  

  

 The cost of software purchased for internal use is accounted under SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Deposits paid towards the acquisition of these long lived assets outstanding at each balance sheet date and the cost of assets not put to use before such date are disclosed under "Capital work-in-progress". Costs of improvements that substantially extend the useful life of particular assets are capitalized. Repairs and maintenance cost are charged to earnings when incurred. The cost and related accumulated depreciation are removed from the consolidated financial statements upon sale or disposition of the asset. 

 The company evaluates the recoverability of these assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. Assets to be disposed are reported at the lower of the carrying value or the fair value less the cost to sell. 

***1.8. Business combinations***

 Business combinations have been accounted using the purchase method under the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations. Cash and amounts of consideration that are determinable at the date of acquisition are included in determining the cost of the acquired business. 

***1.9. Goodwill***

 Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable tangible and intangible net assets purchased. Goodwill is tested for impairment on an annual basis, relying on a number of factors including operating results, business plans and future cash flows. Recoverability of goodwill is evaluated using a two-step process. The first step involves a comparison of the fair value of a reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds its fair value, the second step of the process involves a comparison of the fair value and carrying value of the goodwill of that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. Goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. 

***1.10. Intangible assets***

 Intangible assets are amortized over their respective individual estimated useful lives on a straight-line basis. The estimated useful life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence, demand, competition, and other economic factors (such as the stability of the industry, and known technological advances), and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. 

 Intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. 

***1.11. Research and development***

 Research and development costs are expensed as incurred. Software product development costs are expensed as incurred until technological feasibility is achieved. Research and development costs and software development costs incurred under contractual arrangements with customers are accounted as cost of revenues. 

***1.12. Foreign currency***

 The functional currency of the company and Infosys BPO is the Indian rupee (Rs.). The functional currency for Infosys Australia, Infosys China and Infosys Consulting is the respective local currency. The consolidated financial statements are reported in US dollars. The translation of Rs. to US dollars is performed for balance sheet accounts using the exchange rate in effect at the balance sheet date and for revenue, expense and cash-flow items using a monthly average exchange rate for the respective periods. The gains or losses resulting from such translation are included in 'Other comprehensive income', a separate component of stockholders' equity. The translation of the financial statements of foreign subsidiaries from the local currency to the functional currency of the company is also performed on the same basis. 

 Foreign-currency denominated assets and liabilities are translated into the functional currency at exchange rates in effect at the balance sheet date. The gains or losses resulting from such translation are included in earnings. Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining net income for the period in which the transaction is settled. Revenue, expense and cash-flow items denominated in foreign currencies are translated into the functional currency using the exchange rate in effect on the date of the transaction. 
******
***1.13. Earnings per share***

 Basic earnings per share is computed by dividing net income for the period by the weighted average number of equity shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the diluted weighted average number of equity shares outstanding during the period. Diluted earnings per share reflect the potential dilution from equity shares issuable through employee stock options. The dilutive effect of employee stock options is reflected in diluted earnings per share by application of the treasury stock method. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the if-converted method. If securities have been issued by a subsidiary that enable their holders to obtain the subsidiary's common stock, the earnings of the subsidiary shall be included in the consolidated diluted earnings per share computations based on the consolidated group's holding of the subsidiary's securities. 

 If the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the computations of basic and diluted earnings per share are adjusted retroactively for all periods presented to reflect that change in capital structure. If such changes occur after the close of the reporting period but before issuance of the financial statements, the per-share computations for that period and any prior-period financial statements presented are based on the new number of shares. 

***1.14. Income taxes***

 Income taxes are accounted using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the assets will not be realized.  Changes in valuation allowance from period to period are reflected in the income statement of the period of change. Deferred taxes are not provided on the undistributed earnings of subsidiaries outside India where it is expected that the earnings of the foreign subsidiary will be permanently reinvested. Tax benefits of deductions earned on exercise of employee stock options in excess of compensation charged to earnings are credited to additional paid in capital. 

***1.15. Fair value of financial instruments***

 In determining the fair value of its financial instruments, the company uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. The methods used to determine fair value include discounted cash flow analysis and dealer quotes. All methods of assessing fair value result in general approximation of value, and such value may never actually be realized. For all financial instrument including cash and cash equivalents, investments in liquid mutual fund units, trade accounts receivables, prepaid expenses and other current assets, accounts payable, client deposits and other accrued liabilities, the carrying amounts approximate fair value due to the short maturity of those instruments. 

***1.16. Concentration of risk***

 Financial instruments that potentially subject the company to concentrations of credit risk consist principally of cash equivalents, trade accounts receivable, investment securities and hedging instruments. By nature, all such financial instruments involve risk, including the credit risk of non-performance by counterparties. In management's opinion, as of March 31, 2006 and March 31, 2007 there was no significant risk of loss in the event of non-performance of the counterparties to these financial instruments, other than the amounts already provided for in the financial statements, if any. Exposure to credit risk is managed through credit approvals, establishing credit limits and monitoring procedures. The factors which affect the fluctuations in the company's provisions for bad debts and write offs of uncollectible accounts include the financial health and economic environment of the clients. The company specifically identifies the credit loss and then makes the provision. The company's cash resources are invested with corporations, financial institutions and banks with high investment grade credit ratings. Limits are established by the company as to the maximum amount of cash that may be invested with any such single entity. 

***1.17. Derivative financial instruments***

 The company uses derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in foreign exchange rates on accounts receivable and forecasted cash flows denominated in certain foreign currencies. The counterparty for these contracts is generally a bank. Although the company believes that these financial instruments constitute hedges from an economic perspective, they do not qualify for hedge accounting under SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Any derivative that is either not designated a hedge, or is so designated but is ineffective per SFAS 133, is marked to market and recognized in earnings immediately and included in other income, net. 
******
***1.18. Retirement benefits to employees***

***1.18.1. 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. 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. The company fully contributes all ascertained liabilities to the Infosys Technologies Limited Employees' Gratuity Fund Trust (the Trust). In case of Infosys BPO, contributions are made to the Infosys BPO's Employees' Gratuity Fund Trust. Trustees administer contributions made to the Trusts and contributions are invested in specific designated instruments as permitted by law and investments are also made in mutual funds that invest in the specific designated instruments. 

 The company adopted Statement of Financial Accounting Standards ("SFAS") No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements No. 87, 88, 106, and 132R. This Statement requires recognition of the funded status of a defined benefit plan in the statement of financial position as an asset or liability if the plan is overfunded or underfunded, respectively. Changes in the funded status of a plan are required to be recognized in the year in which the changes occur, and reported in comprehensive income as a separate component of stockholders' equity. Further, certain gains and losses that were not previously recognized in the financial statements are required to be reported in comprehensive income, and certain disclosure requirements were changed. These changes are effective for fiscal years ending after December 15, 2006, with no retroactive restatement of prior periods. 
    Following is the incremental impact of applying SFAS No. 158 on individual line items in the consolidated balance sheet at March 31, 2007:    *(Dollars in millions)*
  

**Before application of SFAS 158**

**SFAS 158 adjustments**

**After application of SFAS 158**

 Deferred tax assets, non-current 

 $18 

 1 

 $19 

 Other assets 

 $39 

 (2) 

 $37 

 Total Assets 

 $3,074 

 (1) 

 $3,073 

 Accumulated other comprehensive Income 

$91 

(1) 

 $90 

 Total stockholder's equity 

 $2,718 

 (1) 

 $2,717 

 Total Liabilities And Stockholder's Equity 

 $3,074 

 (1) 

 $3,073 

***1.18.2. 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 has no further obligations to the Plan beyond its monthly contributions. Certain employees of Infosys BPO are also eligible for superannuation benefit. Infosys BPO makes monthly provisions under the superannuation plan based on a specified percentage of each covered employee's salary. Infosys BPO has 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. 

 Effective April 1, 2005, a portion of the monthly contribution amount was paid directly to the employees as an allowance and the balance amount was contributed to the trusts. 

***1.18.3. Provident fund***

 Eligible employees of Infosys 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 portion is contributed to the government administered pension fund. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the government. The company has an obligation to fund any shortfall on the yield of the trust's investments over the administered interest rates. 

 In respect of Infosys BPO, eligible employees receive benefits from a provident fund, which is a defined contribution plan. Both the employee and Infosys BPO 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. 

***1.19. Stock-based compensation***

The company adopted FASB Statement No.123 (revised 2004) (SFAS 123R), Share-Based Payment, effective April 1, 2006. This statement requires compensation expense relating to share-based payments to be recognized in net income using a fair-value measurement method. Under the fair value method, the estimated fair value of awards is charged to income on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The Company elected the modified prospective method as prescribed in SFAS 123R and therefore, prior periods were not restated. Under the modified prospective method, this statement was applied to new awards granted after the time of adoption, as well as to the unvested portion of previously granted equity-based awards for which the requisite service had not been rendered as of April 1, 2006.In addition, the company previously accounted for forfeitures when they occurred. Commencing at the date of adoption, the company includes a forfeiture estimate in the amount of compensation expense being recognized.

The adoption of SFAS 123R, has resulted in the recognition of stock compensation expense of $5 million for fiscal 2007. Impact on the company's financial statements for fiscal 2007 due to the adoption of SFAS 123R using the modified prospective approach are given below:
*(Dollars in millions except per share data)*
** Details**

**Year ended March 31, 2007**

 Operating income 

 (5) 

 Income before income taxes and minority interest 

 (5) 

 Income before minority interest 

 (5) 

 Net income 

 (5) 

 Earnings per equity share 

  

 Basic 

 $(0.01) 

 Diluted 

 $(0.01) 

 Cash provided by operating activities 

 (4) 

 Cash used in financing activities 

 4 

The fair value of each option is estimated on the date of grant using the Black-Scholes-Merton valuation model that uses the assumptions noted below. The outstanding term of an option is estimated based on the vesting term and contractual term of the option, as well as expected exercise behavior of the employee who receives the option. Expected volatility during the estimated outstanding term of the option is based on historical volatility during a period equivalent to the estimated outstanding term of the option and implied volatility as determined based on observed market prices of the Company's publicly traded equity shares. Expected dividends during the estimated outstanding term of the option are based on recent dividend activity. Risk-free interest rates are based on the Government securities yield in effect at the time of the grant. 

 The fair value of each option granted by Infosys is estimated on the date of grant using following assumptions: 

  

**Year ended March 31,**

  

**2005**

**2006**

**2007**

 Dividend yield % 

 - 

 - 

 0.2% 

 Expected Life 

 - 

 - 

 2 - 6 years 

 Risk free interest rate 

 - 

 - 

 7.0 - 7.3% 

 Expected volatility 

 - 

 - 

 34 - 54% 

 The fair value of each option granted by Infosys BPO is estimated on the date of grant using following assumptions: 

  

**Year ended March 31,**

  

**2005**

**2006**

**2007**

 Dividend yield % 

 - 

 - 

 - 

 Expected Life 

 1-6 years 

 1-6 years 

 1 - 6 years 

 Risk free interest rate 

 6.7% 

 7.5% 

 7.6 - 8.1% 

 Volatility 

 50% 

 50% 

 50% 

 Prior to April 1, 2006, the company applied the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed stock option plans. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. FASB Statement No. 123 (SFAS 123), Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS 123, the Company elected to continue to apply the intrinsic value-based method of accounting described above, and adopted the disclosure requirements of SFAS 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123. 

 The following table illustrates the effect on net income and earnings per share for fiscal 2005 and 2006 if the company had applied the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. 
*(Dollars in millions except per share data)*
  

**Year ended March 31,**

  

**2005**

**2006**

 Net income, as reported 

 $419 

 $555 

 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 

 (26) 

 (10) 

 Pro forma net income 

 $393 

 $545 

 Earnings per share: 

  

  

   Basic - as reported 

 $0.78 

 $1.02 

   Basic - pro forma 

 $0.74 

 $1.00 

   Diluted - as reported 

 $0.77 

 $0.99 

   Diluted - pro forma 

 $0.72 

 $0.98 

***1.20. Dividends***

 Final dividends on common stock are recorded as a liability on the date of declaration by the stockholders and interim dividends are recorded as a liability on the date of declaration by the board of directors. 

***1.21. Equity issued by subsidiaries***

 Changes in the proportionate share of Infosys in the equity of subsidiaries resulting from additional equity issued by the subsidiaries are accounted for as an equity transaction in consolidation. 

***1.22. Recent Accounting Pronouncements***

In July 2006, the FASB issued Interpretation ("FIN") No. 48, Uncertainty in Income Taxes. FIN 48 applies to all tax positions within the scope of Statement 109 and clarifies when and how to recognize tax benefits in the financial statements with a two-step approach of recognition and measurement. FIN 48 is effective for fiscal years beginning after December 15, 2006. FIN 48 also requires the enterprise to make explicit disclosures about uncertainties in their income tax positions, including a detailed roll forward of tax benefits taken that do not qualify for financial statement recognition. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption should be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The company has evaluated the impact of this pronouncement and does not believe that adoption of FIN 48 on April 1, 2007 will have a material effect on the financial position, cash flows or results of operations. 

 In September 2006, the Financial Accounting Standard Board (FASB) issued SFAS No.157, Fair Value Measurements (SFAS 157). SFAS 157 defines "fair value" as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 provides guidance on determination of fair value, and lays down the fair value hierarchy to classify the source of information used in fair value measurements. The Company will be required to adopt this new standard from fiscal year beginning April 1, 2008. The Company is currently evaluating the requirements of SFAS 157 and have not yet determined the impact on the consolidated financial statements. 

In February 2007, the Financial Accounting Standards Board released FASB 159", The Fair Value Option for Financial Assets and Financial Liabilities" This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Company will be required to adopt this new standard from fiscal year beginning April 1, 2008. The Company is currently evaluating the requirements of SFAS 159 and have not yet determined the impact on the consolidated financial statements. 

**2. Notes to the consolidated financial statements**

***2.1. Cash and cash equivalents***
    Cash and cash equivalents are as follows:    *(Dollars in millions)*
  

**As of March 31,**

 

**2006**

**2007**

 Cash and bank deposits 

 $771 

 $1,362 

 Deposits with corporations 

 118 

 41 
 
 $889 

 $1,403 

 Cash and cash equivalents as of March 31, 2006 and 2007 include restricted cash balances of $1 million and $1 million, respectively. The restrictions are primarily on account of accrued dividends. * *

***2.2. Investment in liquid mutual fund units***

 Investment in liquid mutual fund units classified as available for sale securities are as follows: 
*(Dollars in millions)*
  

**As of March 31,**

  

**2006**

**2007**

 Cost 

 $169 

 $6 

 Gross unrealized holding gains 

 1 

 - 

 Fair value 

 $170 

 $6 

***2.3. Trade accounts receivable***
    Trade accounts receivable as of March 31, 2006 and 2007, net of allowance for doubtful accounts of $2 million and $5 million, amounted to $361 million and $565 million. The age profile of trade accounts receivable, net of allowances, is given below.     In percentage 
  

**As of March 31,**

Period (in days) 

**2006**

**2007**

 0 - 30 

 60.9 

 58.6 

 31 - 60 

 31.2 

 36.6 

 61 - 90 

 3.5 

 2.1 

 More than 90 

 4.4 

 2.7 

  

 100.0 

 100.0 

***2.4 Business combination***

 On January 2, 2004 the company acquired, for cash, 100% of the equity in Expert Information Services Pty. Limited, Australia for approximately $14 million. The acquired company was renamed as "Infosys Technologies ( Australia) Pty. Limited". Additionally, a  further  consideration  to the sellers on  continued employment and meeting of defined operating and financial performance parameters has been  accounted as compensation cost. 

***2.5 Acquisition of minority interest in Infosys BPO***

***(i) Acquisition of minority interest in Infosys BPO by purchase of shares from Citicorp***

On June 30, 2006, Infosys acquired 8,750,000 equity shares, representing 25.52% equity interest of Infosys BPO, from Citicorp International Finance Corporation for a consideration of $116 million.
    The purchase price has been allocated based on management's estimates and independent appraisals of fair values as follows:    (Dollars in millions) 
**Component**

**Purchase price allocated**

 Property, plant and equipment 

 $2 

 Net current assets 

 13 

 Deferred tax liabilities 

 (2) 

 Customer contracts 

 19 

 Goodwill 

 84 

 Total purchase price 

 $116 

***(ii) Repurchase of equity shares by Infosys BPO***

 On December 29, 2006, Infosys BPO repurchased 1,139,469 equity shares, representing 3.31% equity interest of Infosys BPO, from minority shareholders for a consideration of $16 million. 
    The purchase price has been allocated based on management's estimates and independent appraisals of fair values as follows:    (Dollars in millions) 
**Component**

**Purchase price allocated**

 Property, plant and equipment 

 $1 

 Net current assets 

 2 

 Deferred tax liabilities 

 - 

 Customer contracts 

 2 

 Goodwill 

 11 

 Total purchase price 

 $16 

***(iii) Purchase of equity shares / options of Infosys BPO by Infosys and swap of Infosys BPO options with Infosys Options***

 In January 2007, the Company initiated the purchase of all shares by providing a choice to the share holders to sell their shares, arising out of exercise of vested options, at fair market value either through immediate cash settlement or by entering into a non-cancellable deferred purchase agreement to transfer their shares by February 2008 at pre-determined fair market value. 

 Consequent to this proposal, Infosys has paid an aggregate of $3 million for the purchase of 211,909 shares, representing 0.63% equity interest of Infosys BPO, and recorded a liability of $5 million for the committed purchase of 360,417 shares, representing 1.06% equity interest of Infosys BPO, to be transferred by February 2008. 
    The purchase price has been allocated based on management's estimates and independent appraisals of fair values as follows:    (Dollars in millions) 
**Component**

**Purchase price allocated**

 Net current assets 

 $1 

 Customer contracts 

 1 

 Goodwill 

 6 

 Total purchase price 

 $8 

 The company further provided the option holders with the choice to sell for cash or swap their Infosys BPO options for Infosys options at a swap ratio, based on fair value determined using Black-Scholes-Merton model. Infosys paid a consideration of $13 million for 1,218,732 options bought and granted 151,933 Infosys options having an aggregate fair value of $3 million in lieu of Infosys BPO options. The transactions of options swap and options buy-out resulted in an aggregate goodwill of $14 million. The remaining fair value of $2 million resulting from options swap, net of estimated forfeitures, will be recorded as post-acquisition stock compensation expense over the future service period. 

 Consequent to the aforesaid transactions, as of March 31, 2007 Infosys effectively holds 99.98% of the outstanding equity shares of Infosys BPO. The company believes that these transactions resulted in recognition of goodwill primarily because of the acquired company's market position, skilled employees, management strength and potential to serve as a platform for enhancing business opportunities in the business process management area. The identified intangible customer contracts are being amortized over a period of four years, being management's estimate of the useful life of the asset. 

***2.6 Prepaid expenses and other current assets***
    Prepaid expenses and other current assets consist of the following:    *(Dollars in millions)*
  

**As of March 31,**

  

**2006**

**2007**

 Rent deposits 

 $4 

 $1 

 Security deposits with service providers 

 4 

 5 

 Current portion of loans to employees 

 20 

 24 

 Prepaid expenses 

 12 

 13 

 Other current assets 

 - 

 5 
 
 $40 

 $48 

 Other current assets represent advance payments to vendors for the supply of goods and rendering of services and marked to market gains on foreign exchange forward and option contracts. Deposits with service providers relate principally to leased telephone lines and electricity supplies. 

***2.7 Property, plant and equipment, net***
    Property, plant and equipment consist of the following:    (Dollars in millions) 
  

**As of March 31,**

  

**2006**

**2007**

 Land 

 $31 

 $39 

 Buildings 

 231 

 343 

 Furniture and fixtures 

 101 

 136 

 Computer equipment 

 171 

 240 

 Plant and equipment 

 128 

 183 

 Capital work-in-progress 

 128 

 224 

 790 

 1,165 

 Accumulated depreciation 

 (299) 

 (427) 
 
 $491 

 $738 

 Depreciation expense amounted to $64 million, $99 million and $115 million for fiscal 2005, 2006 and 2007. The amount of third party software expensed during fiscal 2005, 2006 and 2007 was $26 million, $32 million and $45 million. 

***2.8. Other assets***
    Other assets consist of the following:    *(Dollars in millions)*
  

**As of March 31,**

  

**2006**

**2007**

 Non-current portion of loans to employees 

 $8 

 $4 

 Non-current deposits with corporations 

 18 

 30 

 Others 

 1 

 3 
 
 $27 

 $37 

***2.9. Goodwill and Intangible assets***
    Following is a summary of movement in the carrying amount of goodwill:    *(Dollars in millions)*
  

**Year ended March 31,**

  

**2006**

**2007**

 Balance at the beginning of the year 

 $8 

 $8 

 Goodwill relating to acquisitions (refer note 2.5) 

 - 

 115 

 Effect of translation adjustments 

 - 

 5 

 Balance at the end of the year 

 $8 

 $128 
Goodwill has been allocated to the following reportable segments*(Dollars in millions)*
 Segment 

**As of March 31,**

  

**2006**

**2007**

 Financial services 

 $4 

 $52 

 Manufacturing 

 - 

 11 

 Telecom 

 - 

 3 

 Retail 

 - 

 44 

 Others 

 4 

 18 

 Total 

 $8 

 $128 
Following is a summary of carrying amount of intangible assets:*(Dollars in millions)*
  

**As of March 31,**

  

**2006**

**2007**

 Customer contracts

  

  

    Gross carrying value 

 - 

 $23 

     Accumulated amortization 

 - 

 (3) 

     Net carrying value 

 - 

 $20 
The estimated aggregate amortization expense of intangible asset for each of the four succeeding annual fiscal periods as of March 31, 2007 are as detailed below.*(Dollars in millions)*
  **Year ending March 31,**

**Amortization cost**

 2008 

 6 

 2009 

 6 

 2010 

 6 

 2011 

 2 

  

 $20 

***2.10. Loans to employees***

 The company provides loans to eligible employees in accordance with policy. No loans have been made to employees in connection with purchase of the company's equity securities by all employees. The employee loans are repayable over fixed periods ranging from 1 to 100 months. The annual rates of interest at which the loans have been made to employees vary between 0% through 4%. Loans aggregating $28 million and $28 million were outstanding as of March 31, 2006 and 2007. 
The required repayments of employee loans outstanding as of March 31, 2007 are as detailed below.*(Dollars in millions)*
**Repayment in the 12 months ending March 31,**

**Repayment**

 2008 

 $24 

 2009 

 2 

 2010 

 1 

 2011 

 1 

 2012 

 - 

  

 $28 

 The estimated fair values of the loan to employee's receivables amounted to $24 million as of March 31, 2006 and $26 million as of March 31, 2007. These amounts have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to develop these estimates of fair value. Consequently, these estimates are not necessarily indicative of the amounts that the company could realize in the market. 

***2.11. Other accrued liabilities***
Other accrued liabilities comprise the following:*(Dollars in millions)*
  

**As of March 31,**

  

**2006**

**2007**

 Accrued compensation to staff 

 $82 

 $104 

 Provision for post sales client support 

 3 

 5 

 Withholding taxes payable 

 20 

 42 

 Provision for expenses 

 49 

 106 

 Retainage 

 3 

 5 

 Others 

 3 

 10 
 
 $160 

 $272 

***2.12. Employee post-retirement benefits***

***2.12.1. Gratuity***
The following tables set out the funded status of the gratuity plans and the amounts recognized in the company's financial statements in fiscal 2005, 2006 and 2007. The measurement date used is March 31 of the relevant fiscal year.*(Dollars in millions)*
  

**Year ended March 31,**
 
**2005**

**2006**

**2007**

*Change in benefit obligations*
   
 Benefit obligations at the beginning of the year 

 $30 

 $34 

 $41 

 Unrecognized actuarial loss 

 (2) 

 - 

 - 

 Service cost 

 5 

 8 

 9 

 Interest cost 

 2 

 2 

 3 

 Benefits paid 

 (1) 

 (2) 

 (4) 

 Effect of exchange rate changes 

 - 

 (1) 

 2 

 Benefit obligations at the end of the year 

 $34 

 $41 

 $51 

*Change in plan assets*

  

 Fair value of plan assets at the beginning of the year 

 $24 

 $31 

 $38 

 Effect of exchange rate changes 

 - 

 (1) 

 1 

 Actual return on plan assets 

 2 

 3 

 4 

 Employer contributions 

 6 

 7 

 12 

 Benefits paid 

 (1) 

 (2) 

 (4) 

 Plan assets at the end of the year 

 $31 

 $38 

 $51 

 Funded status 

 $(3) 

 $(3) 

 - 

 Excess of actual return over estimated return on plan assets 

 $(1) 

 $(1) 

 - 

 Unrecognized actuarial loss 

 $4 

 $4 

 - 

 (Accrued) / prepaid benefit 

 - 

 - 

 - 
Net gratuity cost for fiscal 2005, 2006 and 2007 comprises the following components:*(Dollars in millions)*
  

**Year ended March 31,**

**2005**

**2006**

**2007**

 Service cost 

 $5 

 $8 

 $9 

 Interest cost 

 2 

 2 

 3 

 Expected return on assets 

 (1) 

 (2) 

 (3) 

 Net gratuity cost 

 $6 

 $8 

 $9 

  The assumptions used in accounting for the gratuity plan as of and for the year ended March 31, 2005, 2006 and 2007 are set out below:

**2005**

**2006**

**2007**

 Discount rate 

 6.7 % 

 7.5% 

 8.0% 

 Rate of increase in 

  

  

  

 Compensation levels 

 5.1 % 

 5.1% 

 5.1% 

 Rate of return on plan assets 

 6.7 % 

 7.5% 

 8.0% 

The company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards. 

 The company contributes all ascertained liabilities to the Infosys Technologies Limited Employees' Gratuity Fund Trust. In case of Infosys BPO, contributions are made to the Infosys BPO Employees' Gratuity Fund Trust. Trustees administer contributions made to the trust and contributions are invested in specific designated instruments as permitted by Indian law and investments are also made in mutual funds that invest in the specific designated instruments. As of March 31, 2007, all of the plan assets are invested in debt securities. 

 The company's overall expected long-term rate-of-return on assets has been determined based on consideration of available market information, current provisions of Indian law specifying the instruments in which investments can be made, and historical returns. Historical returns during fiscal 2005, 2006 and 2007 have not been lower than the expected rate of return on plan assets estimated for those years. 

 Accumulated benefit obligation was $15 million and $19 million as of March 31, 2006 and 2007. 
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:*(Dollars in millions)*
**Year ending March 31,**

  

 2008 

 $4 

 2009 

 4 

 2010 

 5 

 2011 

 6 

 2012 

 7 

 2013-2017 

 $29 

 The expected benefits are based on the same assumptions used to measure the company's benefit obligations as of March 31, 2007. 

 The company expects to contribute approximately $14 million to the gratuity trusts during fiscal 2008. 

***2.12.2. Superannuation***

 The company contributed $2 million, $4 and $7 million to the superannuation plan in fiscal 2005, 2006 and 2007. During fiscal 2007, a substantial portion of the monthly contribution amount has been paid directly to the employees as an allowance and a nominal amount has been contributed to the plan. 

***2.12.3. Provident fund***

 The company contributed $10 million, $15 million and $21 million to the provident fund in fiscal 2005, 2006 and 2007. 

***2.13. Stockholders' equity***

 Infosys has only one class of capital stock referred to as equity shares. On June 10, 2006, the members of the company approved a 1:1 bonus issue on the equity shares of the company. The bonus issue has the nature of a stock split effected in the form of a stock dividend with 1 additional share being issued for every share held. The computations of basic and diluted EPS have also been adjusted retroactively for all periods presented to reflect the change in capital structure. All references in these financial statements to number of shares, per share amounts and exercise price of stock option grants are retroactively restated to reflect the effect of bonus issue.

 The rights of equity shareholders are set out below. 

***2.13.1. Voting***

 Each holder of equity shares is entitled to one vote per share. The equity shares represented by American Depositary Shares (ADS) carry similar rights to voting and dividends as the other equity shares. Each ADS represents one underlying equity share. 

***2.13.2. Dividends***

 Should the company declare and pay dividends, such dividends will be paid in Indian Rupees. Indian law mandates that any dividend be declared out of distributable profits only after the transfer of a specified percentage of net income computed in accordance with current regulations to a general reserve. Moreover, the remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable taxes. Cash dividend per equity share for fiscal 2005, 2006 and 2007 were $0.38, $0.15 and $0.53 respectively. 

***2.13.3. Liquidation***

 In the event of liquidation of the company, the holders of common stock shall be entitled to receive any of the remaining assets of the company, after distribution of all preferential amounts. The amounts will be in proportion to the number of equity shares held by the stockholders. 

***2.13.4. Stock options***

 There is no voting, dividend or liquidation rights to the holders of options issued under the company's stock option plans. 
******
***2.14. Preferred stock of subsidiary***

 Infosys holds a majority of the equity share capital of Infosys BPO. The equity shares have been issued to Infosys as per the terms of the stock subscription agreement signed in April 2002, between Infosys, Citicorp International Finance Corporation (CIFC) and Infosys BPO. 12,250,000 equity shares have been issued to Infosys in each of April 2002 and March 2004 for an aggregate consideration approximating $5 million. Pursuant to the agreement, CIFC was issued 4,375,000 (0.0005%) cumulative convertible preference shares in each of June 2002 and March 2004 for an aggregate consideration approximating $20 million. On June 30, 2005, the preference shares were converted to 8,750,000 equity shares of Infosys BPO as per the terms of the stock subscription agreement. 

 As of March 31, 2006, CIFC held 8,750,000 equity shares of Infosys BPO. Infosys' percentage ownership in Infosys BPO immediately before and immediately after the conversion of preference shares was 99.5% and 73.4% respectively. The transaction resulted in a change of $12 million in the proportionate share of Infosys in the equity of Infosys BPO and the change has been accounted for as an equity transaction in consolidation. 

 On June 30, 2006, Infosys acquired 8,750,000 equity shares of Infosys BPO from Citicorp International Finance Corporation for a consideration of $116 million. 

***2.15. Non-Operating income***

 In fiscal 2005, the company sold its investment in Yantra Corporation. The carrying value of the investment in Yantra Corporation was completely written down in fiscal 1999. Consideration received from the sale resulted in a gain of $11 million during fiscal 2005. Further consideration of $1 million was received during the year ended March 31, 2007 resulting in a gain of $1 million. 
Other income, net, consists of the following:*(Dollars in millions)*
  

**Year ended March 31,**

  

**2005**

**2006**

**2007**

 Interest income 

 $17 

 $31 

 $43

 Income from mutual fund investments 

 9 

 17 

 27 

 Foreign exchange gains/(losses), net 

 (2) 

 (18) 

 8 

 Others 

 - 

 1 

 5 

  

 $24 

 $31 

 $83 

***2.16. Operating leases***

 The company has various operating leases, mainly for office buildings, that are renewable on a periodic basis. Rental expenses for operating leases in fiscal 2005, 2006 and 2007 were $9 million, $12 million and $15 million. 
The schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below.*(Dollars in millions)*
**Year ending March 31,**

  

 2008 

 $11 

 2009 

 9 

 2010 

 6 

 2011 

 6 

 2012 

 5 

 Thereafter 

 10 

 Total 

 $47 

***2.17. Research and development***

 Research and development expenses were $17 million, $23 million and $37 million for fiscal 2005, 2006 and 2007. 

***2.18. Employees' Stock Offer Plans (ESOP)***

 1998 Employees Stock Offer Plan (the 1998 Plan): The company's 1998 Plan provides for the grant of non-statutory stock options and incentive stock options to employees of the company. The establishment of the 1998 Plan was approved by the Board of Directors in December 1997 and by the stockholders in January 1998. The Government of India has approved the 1998 Plan, subject to a limit of 11,760,000 equity shares representing 11,760,000 ADS to be issued under the 1998 Plan. Unless terminated sooner, the 1998 Plan will terminate automatically in January 2008. All options under the 1998 Plan will be exercisable for equity shares represented by ADSs. The 1998 Plan is administered by a Compensation Committee comprising four members, all of who are independent directors on the Board of Directors. All options under the 1998 Plan are exercisable for equity shares represented by ADSs. The options under the 1998 Plan vest over a period of one through four years and expire five years from the date of completion of vesting. 

 1999 Stock Offer Plan (the 1999 Plan): In fiscal 2000, the company instituted the 1999 Plan. The stockholders and the Board of Directors approved the 1999 Plan in June 1999. The 1999 Plan provides for the issue of 52,800,000 equity shares to employees. The 1999 Plan is administered by a Compensation Committee comprising four members, all of who are independent directors on the Board of Directors. Under the 1999 Plan, options will be issued to employees at an exercise price, which shall not be less than the fair market value (FMV). Under the 1999 Plan, 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 a general meeting. All options under the 1999 Plan are exercisable for equity shares. The options under the 1999 Plan vest over a period of one through six years, although accelerated vesting based on performance conditions is provided in certain instances and expire over a period of 6 months through five years from the date of completion of vesting. 

 The activity in the 1998 Plan and the 1999 Plan in fiscal 2005, 2006 and 2007 are set out below. 

  

**2005**

**2006**

**2007**
 
**Shares arising out of options**

**Weighted average exercise price**

**Shares arising out of options**

**Weighted average exercise price**

**Shares arising out of options**

**Weighted average exercise price**

 1998 Plan: 
    
  

  

 Outstanding at the beginning of the year 

 7,742,016 

 $20 

 6,108,580 

 $20 

 4,546,480 

 $20 

 Forfeited and expired 

 (461,836) 

 $21 

 (190,696) 

 $26 

 (171,143) 

 $41 

 Exercised 

 (1,171,600) 

 $18 

 (1,371,404) 

 $18 

 (2,291,213) 

 $18 

 Outstanding at the end of the year 

 6,108,580 

 $20 

 4,546,480 

 $20 

 2,084,124 

 $21 

 Exercisable at the end of the year 

 3,841,284 

 $24 

 3,810,724 

 $22 

 2,084,124 

 $21 

1999 Plan: 

 

 

 Outstanding at the beginning of the year 

 36,724,240 

 $13 

 28,109,874 

 $13 

 19,179,074 

 $13 

 Granted 

 - 

 - 

 - 

 - 

 638,761 

 $49 

 Forfeited and expired 

 (1,773,316) 

 $13 

 (333,342) 

 $13 

 (111,306) 

 $12 

 Exercised 

 (6,841,050) 

 $11 

 (8,597,458) 

 $12 

 (17,808,689) 

 $13 

 Outstanding at the end of the year 

 28,109,874 

 $13 

 19,179,074 

 $13 

 1,897,840 

 $26 

 Exercisable at the end of the year 

 19,158,594 

 $15 

 16,954,352 

 $13 

 1,259,079 

 $14 

 The weighted-average fair value of options granted under the 1999 Plan during fiscal 2007 is $14. 

 The aggregate intrinsic value of options exercised under the 1998 Plan during fiscal 2005, 2006 and 2007 was $24 million, $49 million and $65 million, respectively. The aggregate intrinsic value of options exercised under the 1999 Plan during fiscal 2005, 2006 and 2007 was $111 million, $280 million and $519 million, respectively. The aggregate fair value of options vested under the 1998 Plan during fiscal 2005, 2006 and 2007 was $19 million, $12 million and $6 million, respectively. The aggregate fair value of options vested under the 1999 Plan during fiscal 2005, 2006 and 2007 was $56 million, $32 million and $10 million, respectively. 

 As of March 31, 2007 options outstanding under the 1998 Plan and the 1999 Plan had an intrinsic value of $62 million and $41 million, respectively. As of March 31, 2007 options exercisable under the 1998 Plan and 1999 Plan had an intrinsic value of $62 million and $41 million, respectively. As of March 31, 2007, the unamortized stock compensation expenses under the 1999 Plan was $5 million and the same is expected to be amortized over a weighted average period of approximately 1.72 years. 

 The company has accelerated the vesting period of 572,000 outstanding unvested options which were due to be vested in the normal course over the period upto  October 2007. The additional charge resulting from the acceleration of the vesting period has been included in stock compensation expense. 

 The following table summarizes information about stock options outstanding and exercisable as of March 31, 2007: 

  

**Options outstanding**

**Options exercisable**

**Range of exercise prices per share ($)**

**No. of shares arising out of options**

**Weighted Average remaining contractual life**

**Weighted average exercise price**

**No. of shares arising out of options**

**Weighted Average remaining contractual life**

**Weighted average exercise price**

 1998 Plan 

 

  

  

  

 

 

 4-15 

 825,671 

 2.78 

 $11 

 825,671 

 2.78 

 $11 

 16-30 

 1,011,073 

 2.21 

 $22 

 1,011,073 

 2.21 

 $22 

 31-45 

 154,720 

 1.27 

 $38 

 154,720 

 1.27 

 $38 

 46-83 

 92,660 

 1.07 

 $62 

 92,660 

 1.07 

 $62 

 2,084,124 

 2.32 

 $21 

 2,084,124 

 2.32 

 $21 

 1999 Plan: 

  

  

  

  

  

  

 7-15 

 674,273 

 2.65 

 $10 

 674,273 

 2.65 

 $10 

 16-30 

 584,806 

 1.62 

 $19 

 584,806 

 1.62 

 $19 

 31-49 

 638,761 

 2.69 

 $49 

 - 

 - 

 - 

  

 1,897,840 

 2.35 

 $26 

 1,259,079 

 2.18 

 $14 

 Infosys BPO's 2002 Plan (the 2002 Plan) provides for the grant of stock options to its employees and was approved by its 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 whose members are directors of Infosys BPO. The 2002 Plan provides for the issue of 5,250,000 equity shares to employees, at an exercise price, which shall not be less than the FMV. Options may also be issued to employees at exercise prices that are less than FMV only if specifically approved by the members of Infosys BPO in a 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 the 2002 Plan in fiscal 2005, 2006 and 2007 are set out below. 

  

**2005**

**2006**

**2007**

  

**Shares arising out of options**

**Weighted average exercise price**

**Shares arising out of options**

**Weighted average exercise price**

**Shares arising out of options**

**Weighted average exercise price**

 2002 Plan: 

 

 

 

 

 

 

 Outstanding at the beginning of the year 

 3,124,625 

 $1.00 

 3,116,518 

 $1.18 

 2,452,330 

 $3.01 

 Granted 

 432,900 

 $2.65 

 1,156,520 

 $4.97 

 593,300 

 $13.16 

 Forfeited and expired 

 (327,357) 

 $1.52 

 (1,032,960) 

 $1.41 

 (490,516) 

 $4.57 

 Exercised 

 (113,650) 

 $0.72 

 (787,748) 

 $0.76 

 (815,822) 

 $2.23 

 Purchased by Infosys (*) 

 - 

 - 

 - 

 - 

 (1,218,732) 

 $3.64 

 Swapped with Infosys options (*) 

 - 

 - 

 - 

 - 

 (518,360) 

 $13.03 

 Outstanding at the end of the year 

 3,116,518 

 $1.18 

 2,452,330 

 $3.01 

 2,200 

 $2.72 

 Exercisable at the end of the year 

 662,191 

 $0.90 

 514,413 

 $1.32 

 1,900 

 $2.45 
(*) These options are held by Infosys.
 The weighted average fair value of options granted under the 2002 Plan during fiscal 2005, 2006 and 2007 were $1.01, $2.00 and $6.65 respectively. 

 The aggregate intrinsic value of options exercised under the 2002 Plan for fiscal 2005, 2006 and 2007 was nil, $4 million and $8 million, respectively. The aggregate fair value of options vested under the 2002 Plan for fiscal 2005, 2006 and 2007 were nil. The aggregate cash received from exercise of options under the 2002 Plan during fiscal 2007 was $2 million. 

 The following table summarizes information about stock options outstanding and exercisable as of March 31, 2007: 

** **

**Options outstanding**

**Options exercisable**

**Range of exercise prices per share ($)**
**No. of shares arising out of options****Weighted Average remaining contractual life****Weighted average exercise price****No. of shares arising out of options****Weighted Average remaining contractual life****Weighted average exercise price**
 2002 Plan: 

 

  

  

  

 

 

 0.69-1.70 

 850 

 0.65 

 $1.09 

 850 

 0.65 

 $1.09 

 1.71-3.50 

 350 

 1.34 

 $1.71 

 350 

 1.34 

 $1.71 

 3.51-4.75 

 1,000 

 2.54 

 $4.46 

 700 

 2.55 

 $4.46 

 

 2,200 

 1.62 

 $2.72 

 1,900 

 1.48 

 $2.45 

***2.19. Income taxes***
The provision for income taxes in the income statement comprises:*(Dollars in millions)*
  

**Year ended March 31,**

  

**2005**

**2006**

**2007**

 Current taxes 

  

  

  

 Domestic taxes 

 $20 

 $19 

 $38 

 Foreign taxes 

 55 

 56 

 52 

  

 75 

 75 

 90 

 Deferred taxes 

  

  

  

 Domestic taxes 

 - 

 (2) 

 (2) 

 Foreign taxes 

 (3) 

 (3) 

 (4) 

  

 (3) 

 (5) 

 (6) 

 Aggregate taxes 

 $72 

 $70 

 $84 

 All components of the aggregate taxes of $72 million, $70 million and $84 million for fiscal 2005, 2006 and 2007 are allocated to the continuing operations of the company. Tax benefits of $10 million, $4 million and $4 million earned on exercise of employee stock options have been credited to additional paid in capital during fiscal 2005, fiscal 2006 and fiscal 2007. 

 Current foreign taxes for fiscal 2007 include a credit of $29 million being liability no longer required for taxes payable in foreign jurisdiction consequent to expiry of limitation period and completion of assessment by taxation authorities. 
Income taxes have been allocated as follows:*(Dollars in millions)*
  

**Year ended March 31,**

  

**2005**

**2006**

**2007**

 Income from continuing operations 

 $72 

 $70 

 $84 

 Stockholders' equity for: 

  

  

  

   Initial adoption of SFAS 158 

 - 

 - 

 (1) 
   Income tax benefit arising on exercise of stock options 
(10) 

(4) 

(4) 

    Total income taxes 

 $62 

 $66

 $79 
The tax effects of significant temporary differences that resulted in deferred tax assets and liabilities, and a description of the financial statement items that created these differences are as follows:*(Dollars in millions)*
  

**As of March 31,**

  

**2006**

**2007**

 Deferred tax assets 

  

  

 Property, plant and equipment 

 $13 

 $17 

 Investments 

 1 

 1 

 Loss carryforwards in subsidiary 

 - 

 14 

 Deferred tax on application of SFAS 158 

  

 1 

 Others 

 - 

 5 

 Compensated absences and other accruals 

 1 

 - 

  

 15 

 38 

 Less: Valuation allowance 

 (1) 

 (15) 

  

 14 

 23 

 Deferred tax liabilities 

  

  

 Intangible asset 

 - 

 (2) 

 Net deferred tax assets 

 $14 

 $21 

 In assessing the realisability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes that it is more likely than not the company will realize the benefits of those deductible differences, net of the existing valuation allowance at March 31, 2007. The valuation allowance relates to investments and losses in subsidiary. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. 

 As at April 2004, the valuation allowance was $2 million. The valuation allowance decreased by $1 million during fiscal 2005.There was no change in valuation allowance during fiscal 2006. During fiscal 2007, the valuation allowance was increased by $14 million on account of losses relating to  Infosys Consulting. 
 A reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before income taxes is summarized below. *(Dollars in millions)*
  

**Year ended March 31,**

**2005**

**2006**

**2007**

 Income before income taxes 

 $491 

 $630 

 $936 

 Enacted tax rates in India 

 36.59% 

 33.66% 

 33.66% 

 Computed expected tax expense 

 $180 

 $212 

 $315 

 Tax effect due to non-taxable income for Indian tax purposes 

 (126) 

 (160) 

 (224) 

 Tax reversals 

 - 

 - 

 (29) 

 Effect of differential foreign tax rates 

 9 

 15 

 13 

 Changes in valuation allowances 

 - 

 - 

 8 

 Others 

 9 

 3 

 1 

 Aggregate taxes 

 $72 

 $70 

 $84 

 The provision for foreign taxes is due to income taxes payable overseas, principally in the United States of America. The company benefits from certain significant tax incentives provided to software firms under Indian tax laws. These incentives presently include those for facilities set up under the Special Economic Zones Act, 2005 and an exemption from payment of Indian corporate income taxes for a period of ten consecutive years of operation of software development facilities designated as "Software Technology Parks" (the STP Tax Holiday). The Government of India has amended the tax incentives available to companies set up in designated STPs. The period of the STP Tax Holiday available to such companies is restricted to ten consecutive years, beginning from the financial year when the unit started producing computer software or April 1, 1999, whichever is earlier. The tax holidays on all facilities under STPs expire in stages by 2009. Under the Special Economic Zones Act, 2005 scheme, units in designated special economic zones which begin providing services on or after April 1, 2005 will be eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50 percent of such profits or gains for a further five years. Certain tax benefits are also available for a further five years subject to the unit meeting defined conditions. 

 The per share (basic) effect of the tax holiday was $0.24, $0.29 and $0.40 for fiscal 2005, fiscal 2006 and fiscal 2007. 

 Infosys is subject to a 15% Branch Profit Tax (BPT) in the US to the extent its US branch's net profit during the year is greater than the increase in the net assets of the US branch during the fiscal year, computed in accordance with the Internal Revenue Code. As at March 31, 2007, Infosys' US branch net assets amounted to approximately $334 million. As of March 31, 2007, the company has not triggered the BPT and intends to maintain the current level of its net assets in the US, as it is consistent with its business plan. Accordingly, a BPT provision has not been recorded. 

 Income taxes have not been provided for on $26 million of undistributed earnings of a foreign subsidiary, as such earnings have been permanently reinvested in the business. As of March 31, 2007, the unrecognized deferred tax liability associated with these earnings amounted to approximately $9 million. 

 The carry-forward business losses of $39 million as of March 31, 2007 relating to a foreign subsidiary, expires over the period up to March 31, 2027. 

***2.20. Earnings per share***

 The following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share: 

  

**Year ended March 31,**

  

**2005**

**2006**

**2007**

 Basic earnings per equity share - weighted average number of common shares outstanding excluding unallocated shares of ESOP 

 533,802,066 

 543,160,222 

 554,018,739 

 Effect of dilutive common equivalent shares - stock options outstanding 

 13,378,760 

 14,807,564 

 12,091,843 

 Diluted earnings per equity share - weighted average number of common shares and common equivalent shares outstanding 

 547,180,826 

 557,967,786 

 566,110,582 

Options to purchase 678,590 shares, 267,674 shares and 114,703 shares for fiscal 2005, 2006 and 2007, respectively under the 1998 Plan and 2,107,416 shares, 68,249 shares and 34,091 shares for fiscal 2005, 2006 and 2007, respectively under the 1999 Plan were not considered for calculating diluted earnings per share as their effect was anti-dilutive. 

 The computation of basic and diluted earnings per share has also been adjusted retroactively for all periods presented to reflect the effect of bonus issue. See Note 2.13 

***2.21. Derivative financial instruments***

 The company uses derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in foreign exchange rates on accounts receivable and forecasted cash flows denominated in certain foreign currencies. The counterparty for these contracts is generally a bank. Infosys held foreign exchange forward contracts of $119 million as of March 31, 2006 and $170 million, Euro 2 million and United Kingdom Pound Sterling 6 million of forward exchange contracts as of March 31, 2007. The foreign exchange forward contracts mature between 1 to 12 months. As of March 31, 2006, the company held put options of $4 million, call options of $8 million and range barrier options of $210 million, Euro 3 million and United Kingdom Pound Sterling 3 million. As of March 31, 2007, the company held range barrier options of $207 million and United Kingdom Pound Sterling 8 million, Euro Accelerator of Euro 24 million and Target Redemption Structure of United Kingdom Pound Sterling 16 million. 

***2.22. Segment reporting***

 SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. The company's operations predominantly relate to providing IT solutions, delivered to customers located globally, across various industry segments. The Chief Operating Decision Maker evaluates the company's performance and allocates resources based on an analysis of various performance indicators by industry classes and geographic segmentation of customers. Accordingly, revenues represented along industry classes comprise the principal 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 used in the preparation of the financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the summary of significant accounting policies. 

 Industry segments for the company are primarily financial services comprising enterprises providing banking, finance and insurance services, manufacturing enterprises, enterprises in the telecommunications (telecom) and retail industries, and others such as utilities, transportation and logistics companies. Geographic segmentation is based on business sourced from that geographic region and delivered from both on-site and off-shore. 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. 

 Revenue in relation to segments is categorized based on items that are individually identifiable to that segment, while expenditure is categorized in relation to the associated turnover of the segment. Allocated expenses of the geographic segments include expenses incurred for rendering services from the company's offshore software development centers and on-site expenses. Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying assets are used interchangeably. Management 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 adjusted only against the total income of the company. 

 Fixed assets used in the company's business are not identified to any of the reportable segments, as these are used interchangeably between segments. Management believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous. 

 Geographical information on revenue and industry revenue information is collated based on individual customers invoiced or in relation to which the revenue is otherwise recognized. 

***2.22.1. Industry segments***
*(Dollars in millions)*
**Year ended March 31, 2005 **

**Financial services**

**Manufacturing**

**Telecom**

**Retail**

**Others**

**Total**

**Revenues**

 $549 

 $231 

 $295 

 $155 

 $362 

 $1,592 

 Identifiable operating expenses 

 232 

 99 

 122 

 63 

 142 

 658 

 Allocated expenses 

 147 

 55 

 71 

 37 

 102 

 412 

**Segmental operating income**

 170 

 77 

 102 

 55 

 118 

 522 

 Unallocable expenses 

  

  

  

  

  

 66 

 Operating income 

  

  

  

  

  

 456 

 Gain on sale of long term investment 

  

  

  

  

  

 11 

 Other income, net 

  

  

  

  

  

 24 

 Income before income taxes 

  

  

  

  

  

 491 

 Provision for income taxes 

  

  

  

  

  

 72 

**Net income**

  

  

  

  

  

 $419 

  

**Year ended March 31, 2006**

**Financial services**

**Manufacturing**

**Telecom**

**Retail**

**Others**

**Total**

**Revenues**

 $775 

 $299 

 $354 

 $219 

 $505 

 $2,152 

 Identifiable operating expenses 

 330 

 132 

 132 

 90 

 204 

 888 

 Allocated expenses 

 203 

 77 

 85 

 59 

 144 

 568 

**Segmental operating income**

 242 

 90 

 137 

 70 

 157 

 696 

 Unallocable expenses 

  

  

  

  

  

 97 

 Operating income 

  

  

  

  

  

 599 

 Gain on sale of long term investment 

  

  

  

  

  

 - 

 Other income, net 

  

  

  

  

  

 31 

 Income before income taxes and minority interest 

  

  

  

  

  

 630 

 Provision for income taxes 

  

  

  

  

  

 70 

 Income before minority interest 

  

  

  

  

  

 560 

 Minority interest 

  

  

  

  

  

 5 

**Net income**

  

  

  

  

  

 $555 

  

**Year ended March 31, 2007**

**Financial services**

**Manufacturing**

**Telecom**

**Retail**

**Others**

**Total**

**Revenues**

 $1,157 

 $416 

 $598 

 $311 

 $608 

 $3,090 

 Identifiable operating expenses 

 493 

 174 

 229 

 128 

 244 

 1,268 

 Allocated expenses 

 316 

 114 

 164 

 85 

 167 

 846 

**Segmental operating income**

 348 

 128 

 205 

 98 

 197 

 976 

 Unallocable expenses 

  

  

  

  

  

 124 

 Operating income 

  

  

  

  

  

 852 

 Gain on sale of long term investment 

  

  

  

  

  

 1 

 Other income, net 

  

  

  

  

  

 83 

 Income before income taxes and minority interest 

  

  

  

  

  

 936 

 Provision for income taxes 

  

  

  

  

  

 84 

 Income before minority interest 

  

  

  

  

  

 852 

 Minority interest 

  

  

  

  

  

 2 

**Net income**

  

  

  

  

  

 $850 

***2.22.2. Geographic segments***
*(Dollars in millions)*
**Year ended March 31, 2005**

**North America**

**Europe**

**India**

**Rest of the World**

**Total**

**Revenues**

 $1,038 

 $355 

 $30 

 $169 

 $1,592 

 Identifiable operating expenses 

 433 

 141 

 7 

 77 

 658 

 Allocated expenses 

 258 

 84 

 7 

 64 

 413 

**Segmental operating income**

 347 

 130 

 16 

 28 

 521 

 Unallocable expenses 

  

  

  

  

 65 

 Operating income 

  

  

  

  

 456 

 Gain on sale of long term investment 

  

  

  

  

 11 

 Other income, net 

  

  

  

  

 24 

 Income before income taxes 

  

  

  

  

 491 

 Provision for income taxes 

  

  

  

  

 72 

**Net income**

  

  

  

  

 $419 

  

**Year ended March 31, 2006**

**North America**

**Europe**

**India**

**Rest of the World**

**Total**

**Revenues**

 $1,394 

 $528 

 $38 

 $192 

 $2,152 

 Identifiable operating expenses 

 584 

 213 

 16 

 75 

 888 

 Allocated expenses 

 357 

 129 

 10 

 72 

 568 

**Segmental operating income**

 453 

 186 

 12 

 45 

 696 

 Unallocable expenses 

  

  

  

  

 97 

 Operating income 

  

  

  

  

 599 

 Gain on sale of long term investment 

  

  

  

  

 - 

 Other income, net 

  

  

  

  

 31 

 Income before income taxes and minority interest 

  

  

  

  

 630 

 Provision for income taxes 

  

  

  

  

 70 

 Income before minority interest 

  

  

  

  

 560 

 Minority interest 

  

  

  

  

 5 

**Net income**

  

  

  

  

 $555 

**

**Year ended March 31, 2007**

**North America**

**Europe**

**India**

**Rest of the World**

**Total**

**Revenues**

 $1,955 

 $815 

 $50 

 $270 

 $3,090 

 Identifiable operating expenses 

 842 

 319 

 12 

 95 

 1,268 

 Allocated expenses 

 537 

 223 

 13 

 73 

 846 

**Segmental operating income**

 576 

 273 

 25 

 102 

 976 

 Unallocable expenses 

  

  

  

  

 124 

 Operating income 

  

  

  

  

 852 

 Gain on sale of long term investment 

  

  

  

  

 1 

 Other income, net 

  

  

  

  

 83 

 Income before income taxes and minority interest 

  

  

  

  

 936 

 Provision for income taxes 

  

  

  

  

 84 

 Income before minority interest 

  

  

  

  

 852 

 Minority interest 

  

  

  

  

 2 

**Net income**

  

  

  

  

 $850 

***2.22.3. Significant clients***

 No client individually accounted for more than 10% of the revenues in fiscal 2005, 2006 and 2007. 

***2.23. Litigation***

 The company is subject to legal proceedings and claims which have arisen in the ordinary course of its business. Legal actions, when ultimately concluded and determined, will not, in the opinion of management, have a material effect on the results of operations or the financial position of the company. 

***2.24. Commitments and contingencies***

 The contractual commitments for capital expenditure were $117 million and $158 million as of March 31, 2006 and 2007, respectively. 

 The company has outstanding  guarantees for various statutory purposes totaling $6 million and $11 million as of March 31, 2006 and 2007, respectively. These guarantees are generally provided to governmental agencies. 

***2.25. Tax contingencies***

 During fiscal 2006, the company received a demand from the Indian tax authorities for payment of additional tax of $30 million, including interest of $7 million, upon completion of their tax review for fiscal 2002 and fiscal 2003. Further during fiscal 2007, the company received a demand from the Indian taxation authorities for payment of additional tax of $22 million, including interest of $4 million, upon completion of their tax review for fiscal 2004. The tax demands were 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 mainly arose from certain expenses incurred in foreign currency being reduced from Export Turnover but not reduced from Total Turnover also. 

 The company is contesting the demand and management, including its tax advisers, believes 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. For the demand pertaining to fiscal 2002 and fiscal 2003, the position of the Company has been substantially upheld by the appellate authority. 

***Financial Statement Schedule - II***

 (Schedule II of Reg. §210.5-04(c) of Regulation S-X-17 of the Securities Act of 1933 and Securities Exchange Act of 1934) 

 Valuation and qualifying accounts 
Allowance for doubtful accounts on trade accounts receivable(Dollars in millions) 
**Description**

**Balance at beginning of the year**

**Charged to cost and expenses**

**Write offs**

**Balance at end of the year**

 Fiscal 2005

 $3 

 $5 

 $(4) 

 $4 

 Fiscal 2006 

 $4 

 $2 

 $(4) 

 $2 

 Fiscal 2007 

 $2 

 $6 

 $(3) 

 $5 

 

**SIGNATURES**    The  company hereby certifies that it meets all of the requirements for filing on Form  20-F and that it has duly caused and authorized the undersigned to sign this  annual report on its behalf. 

INFOSYS  TECHNOLOGIES LIMITEDBy:  / S / NANDAN M. NILEKANI **Nandan M.   Nilekani***Chief Executive Officer*

**Item 19. Exhibits**
 **Exhibit  number** **Description  of document***1.1 Articles of Association of the Registrant,  as amended*1.2 Memorandum  of Association of the Registrant, as amended **1.3 Certificate  of Incorporation of the Registrant, as currently in effect ***4.1 Form of  Deposit Agreement among the Registrant, Deutsche Bank Trust Company Americas and  holders from time to time of American Depository Receipts issued thereunder (including as an exhibit, the form of  American Depositary Receipt)**4.2  Registrant's  1998 Stock Option Plan**4.3 Registrant's  Employee Stock Offer Plan**4.4 Employees  Welfare Trust Deed of Registrant Pursuant to Employee Stock Offer Plan**4.5 Form of  Indemnification Agreement****4.6 Registrant's  1999 Stock Option Plan*****4.7 Form of  Employment Agreement with Employee Directors*******4.8Share Purchase Agreement with CIFC *******4.9Escrow Agreement******11.1 Code of Ethics  for Principal Executive and Senior Financial Officers12.1 Certification  of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 200212.2 Certification  of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 200213.1 Certification  of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 200213.2 Certification  of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002**15.1 Registrant's Specimen Certificate for  Equity Shares15.2 Consent of  Independent Registered Public Accounting Firm******15.3 Audit Committee  Charter******15.4 Compensation  Committee Charter15.5 Nomination  Committee Charter******15.6 Whistleblower Policy15.7 Risk Management Committee Charter*Incorporated by reference to exhibits  filed with the Registrant's Registration Statement on Form F-3 ASR(File No. 333-121444)  filed on November 7, 2006.**Incorporated by reference to exhibits  filed with the Registrant's Registration Statement on Form F-1 (File No.  333-72195) in the form declared effective on March 10, 1999.***Incorporated by reference to the exhibits  filed with Post-Effective Amendment No. 1 to the Registrant's Registration  Statement on Form F-6 (File No. 333-72199) filed on March 28, 2003, as amended  by Amendment No. 1 included in the exhibits filed with Post-Effective Amendment  No. 2 to such Registration Statement filed on June 30, 2004.****Incorporated by reference to exhibits filed  with the Registrant's Quarterly Report on Form 6-K filed on August 4, 1999.*****Incorporated by reference to Exhibits filed  with Registrant's Annual Report on Form 20-F filed on April 25, 2005.******Incorporated by reference to Exhibits filed  with Registrant's Annual Report on Form 20-F filed on May 13, 2003.*******Incorporated by reference to Exhibits filed  with Registrant's Annual Report on Form 20-F filed on April 28, 2006.