##### Table of Contents



Item     FORM 20-F o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934ORþ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from  to
 For the fiscal year ended March 31, 2004
    
    Commission file number 001-15190
 Satyam Computer Services Limited  N/A
(Translation of Registrants Name Into English)
    
    Republic of India
(Jurisdiction of Incorporation or Organization)
   Satyam Technology Center
Bahadurpallay Village
Qutbullapur Mandal, R.R. District-500855
Hyderabad, Andhra Pradesh
India
(91) 40-5523 3505
(Address and Telephone Number of Principal Executive Offices)   Securities registered or to be registered pursuant to Section 12(b) of the Act:   None Securities registered or to be registered pursuant to Section 12(g) of the Act:
American Depositary Shares, each represented by two Equity Shares, par value Rs.2 per share.
(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(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: 314,564,030 equity shares, including 33,639,972 underlying equity
shares for 16,819,986 ADSs, were issued and outstanding as of March 31, 2004. 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  þ
    
    No  o
 Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17  o
    
    Item 18  þ




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TABLE OF CONTENTS SATYAM COMPUTER SERVICES LIMITED ITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    2ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2ITEM 3.
    
    KEY INFORMATION
    
    
    2ITEM 4.
    
    INFORMATION ON THE COMPANY
    
    
    14ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    24ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    52ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    60ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    60ITEM 9.
    
    THE OFFER AND LISTING
    
    
    61ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    63ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    76ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    77ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    78ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    78ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    
    78ITEM 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    79ITEM 16B.
    
    CODE OF ETHICS
    
    
    79ITEM 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    79ITEM 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    80ITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    81ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    81ITEM 19.
    
    EXHIBITS
    
    
    82Ex-8.1 Significant SubsidiariesEx-10.1 Consent of Independent AuditorsEx-99.1 Certification to Chief Executive OfficerEx-99.2 Certification of Chief Financial Officer




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CURRENCY OF PRESENTATION AND CERTAIN DEFINED TERMS Unless the context otherwise requires, references herein to we,
us, the company, SAY or Satyam are to Satyam Computer Services
Limited, a limited liability company organized under the laws of the
Republic of India, and its consolidated subsidiaries. References to U.S.
or the United States are to the United States of America, its territories
and its possessions. References to India are to the Republic of India. We
are a leading Indian information technology services company which is
traded on the New York Stock Exchange under the symbol SAY as well as the
major Indian stock exchanges. Satyam is a trademark owned by Satyam
Computer Services. Sify.com, SatyamOnline, Satyam: Net,
satyamonline.com and Satyam iway are trademarks used by our associate
company, Sify Limited, or Sify, for which registration applications are
pending in India. All other trademarks or tradenames used in this Annual
Report on Form 20-F, or Annual Report, are the property of their
respective owners. In this Annual Report, references to $, Dollars or U.S. dollars
are to the legal currency of the United States, and references to Rs.,
rupees or Indian rupees are to the legal currency of India. References
to a particular fiscal year are to our fiscal year ended March 31 of such
year. For your convenience, this Annual Report contains translations of some
Indian rupee amounts into U.S. dollars which should not be construed as a
representation that those Indian rupee or U.S. dollar amounts could have
been, or could be, converted into U.S. dollars or Indian rupees, as the
case may be, at any particular rate, the rate stated below, or at all. Except as otherwise stated in this Annual Report, all translations
from Indian rupees to U.S. dollars contained in this Annual Report have
been based on the noon buying rate in the City of New York on March 31,
2004 for cable transfers in Indian rupees as certified for customs purposes
by the Federal Reserve Bank of New York. The noon buying rate on March 31,
2004 was Rs. 43.40 per $1.00. Information contained in our websites, including our corporate website,
www.satyam.com, is not part of this Annual Report. FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED ITEM 3. KEY
INFORMATIONRISK FACTORS, ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS AND ELSEWHERE IN THIS ANNUAL REPORT. YOU ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT
MANAGEMENTS ANALYSIS ONLY AS OF THE DATE OF THIS ANNUAL REPORT. IN
ADDITION, YOU SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS ANNUAL
REPORT AND IN OUR QUARTERLY REPORTS AND OTHER DOCUMENTS FILED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, OR SEC, FROM TIME TO TIME.
OUR FILINGS WITH THE SEC ARE AVAILABLE ON ITS WEBSITE, WWW.SEC.GOV. -1-




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##### Table of Contents



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 You should read the following selected consolidated historical
financial data in conjunction with our financial statements and the related
notes and Item 5. Operating and Financial Review and Prospects included
elsewhere in this Annual Report. The statement of operations data for the
fiscal years ended March 31, 2000, 2001, 2002, 2003 and 2004 and the
balance sheet data as of March 31, 2000, 2001, 2002, 2003 and 2004 are
derived from our consolidated audited financial statements including the
notes, included elsewhere in this report, prepared in accordance with U.S.
GAAP for the fiscal years ended March 31, 2000, 2001, 2002, 2003 and 2004.
As of December 9, 2002, we ceased to hold a controlling interest in Sify
and have accounted for our interest in Sify using the equity method.
Consequently, financial data for the years ended March 31, 2003 and 2004
are not comparable with prior periods. Years ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004(As restated)
    
    (As restated)
    
    (As restated)
    
    (As restated)(in thousands ($), except per share data and as stated otherwise)Statement of operations DataRevenues:Information technology services
    
    
    164,455
    
    
    
    310,307
    
    
    
    413,906
    
    
    
    458,336
    
    
    
    565,028BPO
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,293Software products
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    871
    
    
    
    51Total revenues
    
    
    164,455
    
    
    
    310,307
    
    
    
    414,491
    
    
    
    459,207
    
    
    
    566,372Cost of revenues(1)
    
    
    (90,449
    )
    
    
    (208,121
    )
    
    
    (238,996
    )
    
    
    (272,688
    )
    
    
    (343,596
    )Gross Profit
    
    
    74,006
    
    
    
    102,186
    
    
    
    175,495
    
    
    
    186,519
    
    
    
    222,776Operating expenses:Selling, general and
administrative expenses(2)
    
    
    (69,592
    )
    
    
    (124,100
    )
    
    
    (140,896
    )
    
    
    (119,424
    )
    
    
    (101,627
    )Amortization of goodwill
    
    
    (5,043
    )
    
    
    (24,728
    )
    
    
    (16,997
    )
    
    
    
    
    
    
    Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    (81,115
    )
    
    
    
    
    
    
    Impairment of non-marketable
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,299
    )
    
    
    
 -2-




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Years ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004(As restated)
    
    (As restated)
    
    (As restated)
    
    (As restated)(in thousands ($), except per share data and as stated otherwise)Reversal of put option charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,843
    
    
    
    Total Operating expenses
    
    
    (74,635
    )
    
    
    (148,828
    )
    
    
    (239,008
    )
    
    
    (102,880
    )
    
    
    (101,627
    )Operating income/(loss)
    
    
    (629
    )
    
    
    (46,642
    )
    
    
    (63,513
    )
    
    
    83,639
    
    
    
    121,149Interest income
    
    
    2,625
    
    
    
    5,732
    
    
    
    3,806
    
    
    
    7,158
    
    
    
    20,309Interest expense
    
    
    (11,290
    )
    
    
    (9,632
    )
    
    
    (2,856
    )
    
    
    (800
    )
    
    
    (471
    )Gain on sale of shares in Sify
    
    
    
    
    
    
    
    
    
    
    45,594
    
    
    
    
    
    
    
    2,652Gain on sale of shares in Satyam GE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830
    
    
    
    Gain/(loss) on foreign exchange
transactions
    
    
    1,072
    
    
    
    5,816
    
    
    
    10,813
    
    
    
    (4,757
    )
    
    
    (8,874
    )Other income/(expenses), net
    
    
    (19
    )
    
    
    646
    
    
    
    1,277
    
    
    
    (1,746
    )
    
    
    2,270Income (loss) before income taxes,
minority interest and equity in
earnings (loss) of associated
companies
    
    
    (8,241
    )
    
    
    (44,080
    )
    
    
    (4,879
    )
    
    
    84,324
    
    
    
    137,035Income taxes
    
    
    (365
    )
    
    
    2,346
    
    
    
    (769
    )
    
    
    (9,769
    )
    
    
    (22,544
    )Minority interest
    
    
    2,785
    
    
    
    25,772
    
    
    
    73,406
    
    
    
    11,082
    
    
    
    Equity in earnings (losses) of
associated companies, net of taxes
    
    
    135
    
    
    
    (5,467
    )
    
    
    (25,401
    )
    
    
    (3,339
    )
    
    
    (2,631
    )Net Income (loss)
    
    
    (5,686
    )
    
    
    (21,429
    )
    
    
    42,357
    
    
    
    82,298
    
    
    
    111,860Earnings (loss) per shareBasic
    
    
    (0.02
    )
    
    
    (0.08
    )
    
    
    0.14
    
    
    
    0.26
    
    
    
    0.36Diluted
    
    
    (0.02
    )
    
    
    (0.08
    )
    
    
    0.14
    
    
    
    0.26
    
    
    
    0.35Earnings (loss) per ADSBasic
    
    
    (0.04
    )
    
    
    (0.16
    )
    
    
    0.28
    
    
    
    0.53
    
    
    
    0.71Diluted
    
    
    (0.04
    )
    
    
    (0.16
    )
    
    
    0.28
    
    
    
    0.52
    
    
    
    0.71Weighted average equity shares
used in computing earnings per
share (in thousands)Basic
    
    
    264,720
    
    
    
    269,943
    
    
    
    305,751
    
    
    
    311,797
    
    
    
    313,155Diluted
    
    
    264,720
    
    
    
    269,943
    
    
    
    307,113
    
    
    
    318,658
    
    
    
    317,057Weighted average equity shares
used in computing earnings per
ADS:Basic
    
    
    132,360
    
    
    
    134,972
    
    
    
    152,875
    
    
    
    155,899
    
    
    
    156,578Diluted
    
    
    132,360
    
    
    
    134,972
    
    
    
    153,556
    
    
    
    159,329
    
    
    
    158,529Cash dividend per equity share
    
    
    0.01
    
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.03
    
    
    
    0.08Cash dividend per ADS
    
    
    0.03
    
    
    
    0.03
    
    
    
    0.04
    
    
    
    0.06
    
    
    
    0.17
 -3-




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Years ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004(As restated)
    
    (As restated)
    
    (As restated)
    
    (As restated)(in thousands ($), except per share data and as stated otherwise)Other dataNet cash provided by ( used in)Operating activities
    
    
    14,115
    
    
    
    5,935
    
    
    
    116,371
    
    
    
    98,540
    
    
    
    89,211Investing activities
    
    
    (83,619
    )
    
    
    (137,775
    )
    
    
    (40,360
    )
    
    
    (271,959
    )
    
    
    (60,152
    )Financing activities
    
    
    251,664
    
    
    
    14,212
    
    
    
    110,747
    
    
    
    (12,145
    )
    
    
    (11,461
    )Capital Expenditure
    
    
    40,847
    
    
    
    84,764
    
    
    
    34,157
    
    
    
    10,989
    
    
    
    16,745Number of information technology services
technical associates
    
    
    4,473
    
    
    
    7,798
    
    
    
    7,898
    
    
    
    9,086
    
    
    
    13,182
   (1)
    
    Inclusive of deferred stock based compensation expense of $ 13,356 in fiscal 2000, $31.3 million in fiscal 2001, $7.2 million in fiscal
2002, $1.6 million in fiscal 2003 and $ 853 thousand in fiscal 2004(2)
    
    Inclusive of deferred stock based compensation expense of $ 3,575 in fiscal 2000, $14.8 million in fiscal 2001,$3.6 million in fiscal
2002, $29 million in fiscal 2003 and $ 772 thousand in fiscal 2004. As at March 31,Balance sheet data
    
    2000
    
    2001
    
    2002
    
    2003
    
    2004(As restated)
    
    (As restated)
    
    (As restated)
    
    (As restated)In thousand ($)Cash and cash equivalents
    
    
    192,304
    
    
    
    66,068
    
    
    
    243,454
    
    
    
    62,202
    
    
    
    86,730Total Assets
    
    
    412,559
    
    
    
    481,099
    
    
    
    515,502
    
    
    
    568,843
    
    
    
    713,768Total Long term debt
(excluding current
portion)
    
    
    50,050
    
    
    
    9,625
    
    
    
    2,712
    
    
    
    1,738
    
    
    
    1,826Total Shareholders equity
    
    
    170,048
    
    
    
    202,752
    
    
    
    394,364
    
    
    
    487,716
    
    
    
    633,889Capital Stock
    
    
    205,234
    
    
    
    269,135
    
    
    
    422,674
    
    
    
    423,850
    
    
    
    433,398
 Restatement of Previously Reported Amounts Satyam has restated beginning shareholders equity as of March 31,
2001 and shareholders equity and net income as of and for the years ended
March 31, 2003 and 2002, to reflect the impact on deferred tax liabilities
and income taxes of Satyams equity in the losses of Sify. Following table summarizes the effect on the Income statement during the
each of the years restated: During the year ended March 31,2000
    
    2001
    
    2002
    
    2003($ in thousands)Net Income as previously reported
    
    
    (6,940
    )
    
    
    (27,912
    )
    
    
    25,892
    
    
    
    79,772Income tax benefit
    
    
    1,254
    
    
    
    6,483
    
    
    
    16,465
    
    
    
    2,526Net Income as restated
    
    
    (5,686
    )
    
    
    (21,429
    )
    
    
    42,357
    
    
    
    82,298
 Following table summarizes the effect on the Balance sheet for each of the
years restated: As at March 31,2000
    
    2001
    
    2002
    
    2003($ in thousands)Shareholders equity as previously
reported
    
    
    168,474
    
    
    $
    194,695
    
    
    $
    369,842
    
    
    $
    460,668Reduction in deferred tax liabilities
    
    
    1,574
    
    
    
    8,057
    
    
    
    24,522
    
    
    
    27,048Shareholders equity as restated
    
    
    170,048
    
    
    
    202,752
    
    
    
    394,364
    
    
    
    487,716
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##### Table of Contents



Risk Factors Any investment in our ADSs involves a high degree of risk. You should
consider carefully the following information about these risks, together
with the other information contained in this Annual Report, before you
decide to buy our ADSs. If any of the following risks actually occur, our
company could be seriously harmed. In any such case, the market price of
our ADSs could decline, and you may lose all or part of the money you paid
to buy our ADSs.  Risks Related to Our Overall OperationsAny inability to manage our rapid growth could disrupt our business and
reduce our profitability We have experienced significant growth in recent periods. Our total
revenues increased 23.3% in fiscal 2004 as compared to fiscal 2003. As of
March 31, 2004, we had 14,456 employees, whom we refer to as associates,
worldwide as compared to 9,838 associates as of March 31, 2003. We expect
our growth to place significant demands on our management and other
resources and will require us to continue to develop and improve our
operational, financial and other internal controls, both in India and
elsewhere. In particular, continued growth increases the challenges
involved in:  
    
    recruiting and retaining sufficiently skilled technical, marketing and management personnel;
    
    providing adequate training and supervision to maintain our high quality standards; and
    
    preserving our culture and values and our entrepreneurial environment.  The value of our interest in Sify may decline. Sifys ADSs are listed for trading on the Nasdaq National Market under
the symbol SIFY, however we do not know whether Sify will be able to
retain this listing in the future. The market price of Sifys ADSs has been
highly volatile, ranging from a high of $ 452 per ADS to a low of $0.88 per
ADSs from its initial public offering in October 1999 through May 31, 2004,
and may continue to fluctuate widely. Any decline in the market price of
Sifys ADSs is likely to cause the value of the equity shares of Sify which
we hold to decline. We hold our interest in Sify in the form of equity
shares for which there is no market and our ability to convert these equity
shares into ADSs is restricted. Under a shareholders agreement to which we
are a party, mergers, acquisitions and sales of substantially all the
assets of Sify require the approval of two other Sify shareholders,
Softbank Asia Infrastructure Fund, or SAIF, and VentureTech Solutions
Private Ltd., or VentureTech. Sify has not been profitable since its
founding and may continue to incur significant losses and negative cash
flows in the future.  Deferred stock compensation expenses may significantly reduce our net
income under U.S. GAAP. Our reported income under U.S. GAAP has been and will continue to be
affected by the grant of warrants or options under our various employee
benefit plans. Under the terms of our existing plans, employees were
typically granted warrants or options to purchase equity shares at a
substantial discount to the current market value. These grants require us
to record non-cash compensation expenses under currently applicable U.S.
GAAP, amortized over the vesting period of the warrants or options. We
expect to recognize amortization of deferred stock based compensation
expense in respect of our three Associate Stock Option Plans, ASOP, ASOP-B
and ASOP ADS, in the approximate amounts of $7.3 million in fiscal 2005
and $0.6 million in fiscal 2006 based on the price of our equity shares on
March 31, 2004 and in connection with both granted and ungranted warrants
and options on that date. Depending on the market value of our equity
shares on the dates future grants are made, amortization of deferred stock
based compensation expense with respect to ungranted warrants may cause the
expected amounts to change. The size of our stock compensation expenses has
contributed, and may continue to contribute to negative operating income
and negative net income for purposes of U.S. GAAP. We recognized deferred
stock based compensation of $0.8 million under our ASOP, ASOP B and ASOP
ADS Plans in fiscal 2004 and $1.6 million was amortized and charged to
earnings. -5-




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##### Table of Contents



Our financial results are impacted by the financial results of entities
that we do not control. As at March 31, 2004, we have a significant, non-controlling interests
in Sify, Satyam Venture Engineering Services Private Limited and CA Satyam
ASP Private Limited that are accounted for under U.S. GAAP using the equity
method of accounting. Under this method, we are obligated to report as
Equity in losses (gains) of associates a pro rata portion of the
financial results of any such company in our statement of operations even
though we do not control the other company but have the ability to exercise
significant influence over their operating and financial policies. Thus,
our reported results of operations can be significantly increased or
decreased depending on the results of Sify, Satyam Venture Engineering
Services Private Limited and CA Satyam ASP Private Limited or other
companies in which we may make similar investments even though we may have
only a limited ability to influence their activities. We may also be
required to record additional impairment charges in their carrying value if
we deem the investment to be impaired due to adverse events, many of which
are outside of our control, on their business, results of operations and
financial condition in future periods.  Impairment of goodwill on account of our investments may impact our net
income under U.S. GAAP. We make estimates in the preparation of financial statements including
the utility of goodwill. Changes in such estimates resulting from events
many of which are outside of our control, may result in the impairment of
goodwill which would negatively impact our net income under U.S. GAAP. Such
impact on net income may result in a reduction of the market value of our
shares.  Our revenues are highly dependent upon a small number of customers. We derive a significant portion of our revenues from a limited number
of corporate customers. In fiscal 2004, our largest customer, General
Electric Company and its affiliates, accounted for 14.3% of our information
technology, or IT services revenues (excluding inter-segment revenues) and
14.3% of our total revenues. In fiscal 2004, our second largest customer,
State Farm Mutual Automobile Insurance Co. accounted for 9.9% of our IT
services revenues (excluding inter-segment revenues) and 9.9% of our total
revenues. During fiscal 2004 and fiscal 2003, our five largest customers
accounted for 36.5% and 38.4%, respectively, of our IT services revenues
(excluding inter-segment revenues) and 36.4% and 38.4%, respectively, of
our total revenues. The volume of work performed for specific customers is
likely to vary from year to year, particularly since we are usually not the
exclusive outside service provider for our customers. As a result, if we
were to lose one of our major customers or have it significantly reduce its
volume of business with us, our profitability could be reduced.  We dedicate significant resources to develop international operations
which may be more difficult to manage and operate. In addition to our offshore IT centers in India, we have established
IT centers in the United States, United Kingdom, Japan, Dubai, Australia,
Singapore, Malaysia and other countries and plan to open additional
international facilities. Our lack of experience with facilities outside of
India subjects us to risk with regard to foreign regulation and overseas
facilities management. Increasing the number of IT centers and the scope of
operations outside of India subjects us to a number of risks, including
administrative difficulties, currency exchange rate fluctuations,
restrictions against the repatriation of earnings, overlapping taxes and
cost overruns and delays.  System failure could disrupt the lines of communication our business
depends on. To deliver our services to our customers, we must maintain active
voice and data communications 24 hours a day between our main offices in
Hyderabad, our other IT centers and the offices of our customers worldwide.
Any significant loss of our ability to transmit voice and data through
satellite and telephone communications could result in lost customers and
curtailed operations which would reduce our profitability.  We may be unable to attract skilled professionals in the competitive
labor market. Our ability to execute projects and to obtain new customers depends,
in large part, on our ability to attract, train, motivate and retain highly
skilled technical associates, particularly project managers, project
leaders and other senior technical personnel. We believe that there is
significant competition for technical associates who -6-




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possess the skills needed to perform the services we offer. An
inability to hire and retain additional qualified personnel will impair our
ability to bid for or obtain new projects and to continue to expand our
business. Also, we cannot assure you that we will be able to assimilate and
manage new technical associates effectively. In fiscal 2004 and fiscal
2003, we experienced associate attrition at a rate of 17.5% and 15.6%
respectively. Any increase in our attrition rates, particularly the rate of
attrition of experienced software engineers and project managers and
leaders, would harm our growth strategy. We cannot assure you that we will
be successful in recruiting and retaining a sufficient number of
replacement technical associates with the requisite skills to replace those
technical associates who leave. Further, we cannot assure you that we will
be able to redeploy and re-train our technical associates to keep pace with
continuing changes in IT, evolving technologies and changing customer
preferences. Historically, wage costs in the Indian IT services industry
have been significantly lower than wage costs in the United States for
comparably skilled technical associates. However, in recent years, wage
costs in the Indian IT services industry have been increasing at a faster
rate than those in the United States, driven in part by demand for Indian
technical associates overseas. In the long-term, wage increases may make us
less competitive unless we are able to continue increasing the efficiency
and productivity of our professionals and the prices of our services.  U.S. immigration restrictions could limit our ability to expand our U.S.
operations. Our professionals working onsite at a customers premises in the
United States are typically required to obtain visas. Although there is no
limit to new L-1 petitions, there is a limit to the number of new H-1B
petitions that are approved in any government fiscal year which on October
1, 2003 was reduced from 195,000 workers to 65,000 per year. In years in
which this limit is reached, we may be unable to obtain H-1B visas
necessary to bring critical Indian technical associates to the United
States on an extended basis. Changes in existing U.S. immigration laws that
make it more difficult for us to obtain visas could impair our ability to
compete for and provide services to customers.  Our fixed-price contracts expose us to additional risks, many of which
are beyond our control, which may reduce the profitability of these
contracts. As a core element of our business strategy, we continue to offer a
portion of our services on a fixed-price basis, rather than on a
time-and-materials basis. During fiscal 2004 and fiscal 2003, we derived
31.7% and 27.5%, respectively, of our total IT services revenues from
fixed-price contracts. Although we use our software engineering processes
and past project experience to reduce the risks associated with estimating,
planning and performing fixed-price projects, we bear the risk of cost
overruns, completion delays and wage inflation in connection with these
projects. Many of these risks may be beyond our control. Our failure to
estimate accurately the resources and time required for a project, future
rates of wage inflation and currency exchange rates or our failure to
complete our contractual obligations within the time frame committed could
reduce the profitability of our fixed-price contracts.  We may be liable to our customers for damages resulting from a system
failure. Many of our contracts involve projects that are critical to the
operations of our customers businesses and provide benefits that may be
difficult to quantify. Any failure in a customers system could result in a
claim for substantial damages against us, regardless of our responsibility
for such failure. Although we attempt to limit our contractual liability
for damages arising from negligent acts, errors, mistakes or omissions in
rendering our services, we cannot assure you that the limitations of
liability set forth in our service contracts will be enforceable in all
instances or will otherwise protect us from liability for damages. We do
not maintain liability insurance to cover losses from such claims for
damages. Assertions of one or more large claims against us could result in
lost customers, and could increase our costs and reduce our profitability.  We face intense competition in the IT services market which could reduce
our revenues and prevent us from maintaining our customers. The market for IT services is rapidly evolving and highly competitive.
We expect that competition will continue to intensify. We face competition
in India and elsewhere from a number of companies, including:  
    
    Indian IT services companies, such as Infosys Technologies
Limited, Wipro Limited and Tata Consultancy Services; -7-




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
    
    U.S. IT services companies, such as Computer Sciences
Corporation, Electronic Data Systems, Accenture, IBM, Cambridge
Technology Partners and Keane Inc; and
    
    Other international, national, regional and local firms from a
variety of market segments, including major international accounting
firms, systems consulting and implementation firms, applications
software firms, service groups of computer equipment companies,
general management consulting firms, programming companies and
temporary staffing firms. We expect that future competition will increasingly include firms with
operations in other countries, potentially including countries with lower
personnel costs than those prevailing in India. A significant part of our
competitive advantage has historically been the cost advantage relative to
service providers in the United States and Europe. Since wage costs in this
industry in India are presently increasing at a faster rate than those in
the United States and Europe, our ability to compete effectively will
become increasingly dependent on our reputation, the quality of our
services and our expertise in specific markets. Many of our competitors
have significantly greater financial, technical and marketing resources and
generate greater revenues than us, and we cannot assure you that we will be
able to compete successfully with such competitors and will not lose
existing customers to such competitors. We believe that our ability to
compete also depends in part on a number of factors outside our control,
including the ability of our competitors to attract, train, motivate and
retain highly skilled technical associates, the price at which our
competitors offer comparable services and the extent of our competitors
responsiveness to customer needs.  We may be restricted from acquiring non-Indian companies which could
adversely affect our growth strategy. We have developed a growth strategy based on, among other things,
expanding our presence in existing and new markets and selectively pursuing
attractive joint venture and acquisition opportunities. Under Indian law,
an Indian company is usually required to obtain the approval of the Reserve
Bank of India, or RBI, and/or the government of India to acquire a
non-Indian company. If we are unable to obtain such approvals or are
delayed in obtaining them, we may not be able to fully execute our growth
strategy, which could adversely affect our operations.  Our revenues are difficult to predict and can vary significantly from
quarter to quarter which could cause our share price to decline
significantly. Our quarterly operating results have historically fluctuated and may
fluctuate significantly in the future. This is primarily because we derive
our revenue from fees for services generated on a project-by-project basis.
Our projects vary in size, scope and duration. For example, we have some
projects that employ only several people for a few weeks and we have other
projects that employ over 100 people for six months or more. A customer
that accounts for a significant portion of our revenue in a particular
period may not account for a similar portion of our revenue in future
periods. In addition, customers may cancel contracts or defer projects at
any time for a number of different reasons. As a result, our revenues and
our operating results in a particular period are difficult to predict, may
decline in comparison to corresponding prior periods regardless of the
strength of our business, and may not meet the expectations of securities
analysts or investors. If this were to occur the share price of our equity
shares and our ADSs would likely decline significantly.  Our customers may terminate projects before completion or choose not to
renew contracts, many of which are terminable at will, which could
adversely affect our profitability. Any failure to meet a customers expectations could result in a
cancellation or non-renewal of a contract. Our contracts with customers do
not commit our customers to provide us with a specific volume of business
and can typically be terminated by our customers with or without cause,
with little or no advance notice and without penalty, which could
significantly reduce our revenues. Additionally, our contracts with
customers typically are limited to a specific project and not any future
work. There are also a number of factors other than our performance and not
within our control that could cause the loss of a customer. Our customers
may demand price reductions, change their outsourcing strategy by moving
more work in-house, or replace their existing software with packaged
software supported by licensors, any of which could reduce our
profitability. -8-




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Risks Related to Investments in Indian Companies We are incorporated in India, and a substantial portion of our assets
and our employees are located in India. Consequently, our financial
performance and the market price of our ADSs will be affected by changes in
exchange rates and controls, interest rates, government of India policies,
including taxation policies, as well as political, social and economic
developments affecting India.  Conflicts in South Asia and terrorist attacks in the United States, South
Asia and around the world could adversely affect the economy 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 April 1999, India and Pakistan conducted long-range missile
tests. Since May 1999, military confrontations between India and Pakistan
have occurred in the Himalayan region of Kargil and other border areas. In
October 1999, the leadership of Pakistan changed as a result of a coup led
by the military. In September 2001, terrorist attacks were conducted in the
United States, which caused various adverse consequences, including adverse
economic consequences. In addition, in October 2001 the United States
commenced military operations against various targets located in
Afghanistan. In December 2001, terrorist attacks were conducted on the
Indian Parliament building resulting in heightened diplomatic and military
tension between India and Pakistan. In early 2003, the United States and
United Kingdom jointly conducted military operations against Iraq. These
events are widely believed to have provoked a significant slow-down in
worldwide economic activity. Events of this nature could influence the
Indian and/or United States economy, from which the majority of our
revenues are derived, and could have a material adverse effect on the
market for securities of Indian companies, including our ADSs, and the
market for our services.  Political instability could seriously harm business and economic
conditions in India generally and our business in particular. During the past decade, the government of India has pursued policies
of economic liberalization, including significantly relaxing restrictions
on the private sector. Nevertheless, the role of the Indian central and
state governments in the Indian economy as producers, consumers and
regulators has remained significant. The General Elections to the lower
house of the Indian Parliament have just been completed. No party has won
absolute majority and a coalition government has been formed again. We
cannot assure you that these liberalization policies will continue in the
future. Government corruption scandals and protests against privatization
could slow down the pace of liberalization and deregulation. The rate of
economic liberalization could change, and specific laws and policies
affecting technology companies, foreign investment, currency exchange rates
and other matters affecting investment in our securities could change as
well. A significant change in Indias economic liberalization and
deregulation policies could disrupt business and economic conditions in
India generally and our business in particular.  Foreign investment restrictions under Indian law may adversely impact the
value of our ADSs, including, for example, restrictions that limit your
ability to convert equity shares into ADSs, which may cause our equity
shares to trade at a discount or premium to the market price of our ADSs. Our equity shares are listed and traded on the Stock Exchange, Mumbai
(formerly known as the Stock Exchange, Bombay), the National Stock Exchange
of India Limited and the Hyderabad Stock Exchange Limited and they may
trade on these stock exchanges at a discount or premium to the ADSs traded
on the NYSE in part because of restrictions on foreign ownership of the
underlying shares. Under prior Indian laws and regulations, our depositary could not
accept deposits of outstanding equity shares and issue ADRs evidencing ADSs
representing such equity shares without prior approval of the Government of
India. The RBI has announced fungibility regulations permitting, under
limited circumstances, the conversion of ADSs to equity shares and the
reconversion of equity shares to ADSs provided that the actual number of
ADSs outstanding after such reconversion is not greater than the original
number of ADSs outstanding. If you elect to surrender your ADSs and receive
equity shares, you will only be able to trade those equity shares on an
Indian stock exchange and, under present law, likely will not be permitted
to reconvert those equity shares to ADSs. Additionally, investors who
exchange ADSs for the underlying equity shares and are not holders of
record will be required to declare to us details of the holder of record,
and the holder of record will be required to disclose the details of the
beneficial owner. Any investor who fails to comply with this requirement -9-




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may be liable for a fine of up to Indian Rs.1,000 for each day such
failure continues. Such restrictions on foreign ownership of the underlying
equity shares may cause our equity shares to trade at a discount or premium
to the ADSs. Except for limited circumstances, the RBI must approve the sale of
equity shares underlying ADSs by a non-resident of India to a resident of
India. Since currency exchange controls are in effect in India, the Reserve
Bank of India will approve the price at which equity shares are transferred
based on a specified formula, and a higher price per share may not be
permitted. Additionally, except in 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 an additional Reserve Bank of
India approval for each transaction. We cannot assure our ADS holders that
any required approval from the RBI or any other government agency can be
obtained on any terms or at all.  Currency exchange rate fluctuations may affect the value of our ADSs. The exchange rate between the rupee and the U.S. dollar has changed
substantially in recent years and may fluctuate substantially in the
future. In fiscal 2004 and fiscal 2003, our U.S. dollar-denominated
revenues represented 84.5% and 81.2%, respectively, of our total revenues.
We expect that a majority of our revenues will continue to be generated in
U.S. dollars 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 rupees. Consequently, our
results of operations will be adversely affected to the extent that the
rupee appreciates against the U.S. dollar. Depreciation of the rupee will
result in foreign currency translation losses in respect of foreign
currency borrowings, if any. In fiscal 2004, our foreign currency gains
were approximately $49.5 million while it was $16.6 million in fiscal 2003.
Fluctuations in the exchange rate between the rupee and the U.S. dollar
will also affect the U.S. dollar conversion by the depositary of any cash
dividends paid in rupees on the equity shares represented by the ADSs. In
addition, fluctuations in the exchange rate between the Indian rupee and
the U.S. dollar will affect the U.S. dollar equivalent of the Indian rupee
price of our equity shares on the Stock Exchange, Mumbai, the National
Stock Exchange and the Hyderabad Stock Exchange, which we refer to
collectively as the Indian stock exchanges. As a result, these fluctuations
are likely to affect the prices of our ADSs. These fluctuations will also
affect 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
deposit agreement. We cannot assure you that holders of ADSs will be able
to convert rupee proceeds into U.S. dollars or any other currency or with
respect to the rate at which any such conversion could occur. In addition,
our market valuation could be seriously harmed by the devaluation of the
rupee if U.S. investors analyze our value based on the U.S. dollar
equivalent of our financial condition and results of operations.  The government of India has recently taken actions to curtail or
eliminate tax benefits that we have historically benefited from. We have historically benefited from significant tax incentives
provided under Indian tax laws. The principal applicable incentives are:  (i)
    
    a tax deduction for all profits derived from exporting computer
software and services; and(ii)
    
    a 10-year tax holiday in respect of income derived from the
operation of software development centers designated as Software
Technology Parks under Indian tax legislation. As a result, the majority of our income is not subject to Indian tax
and, accordingly, our effective tax rate is far below the Indian statutory
income tax rate of 35% plus an applicable surcharge. The Software
Technology Park tax exemption scheme has been modified effective as of
April 1, 2001. All facilities registered in the program before March 31,
2001, which include all of our existing facilities in India and
registrations for 2 new facilities which have not yet been constructed,
will continue to benefit from this program under present law. Over time, as
we construct additional facilities, however, the overall benefits of this
tax program to our company will decrease with a resulting increase in our
effective tax rate. We cannot assure you as to what action the present or
future governments of India will take regarding tax incentives for the IT
industry.  It may be difficult for you to enforce any judgment obtained in the
United States against us or our affiliates. -10-




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We are incorporated under the laws of the Republic of India and many
of our directors and key managerial personnel, and some of the experts
named in this document, reside outside the United States. In addition,
virtually all of our assets and the assets of many of these persons are
located outside the United States. As a result, you may be unable to:  (i)
    
    effect service of process upon us outside India or these
persons outside the jurisdiction of their residence; or(ii)
    
    enforce against us in courts outside of India or these persons
outside the jurisdiction of their residence, judgments obtained in
United States courts, including judgments predicated solely upon
the federal securities laws of the United States. We have been advised by our Indian counsel, Crawford Bayley & Co.,
that 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 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 which has been obtained in the United States. If and to the extent
Indian courts were of the opinion that fairness and good faith so required,
it would, under current practice, give binding effect to the final judgment
which had been rendered in the United States unless such a judgment
contravened principles of public policy of India.  Conditions in the Indian securities market may affect the price or
liquidity of our equity shares and our ADSs. The Indian securities markets are smaller and more volatile than
securities markets in more developed economies. The Indian stock exchanges
have in the past experienced substantial fluctuations in the prices of
listed securities and the price of our equity shares has been especially
volatile. The high and low prices of our shares on the Stock Exchange,
Mumbai from 2000 until the present are set forth in the table below. High
    
    LowYear
    
    Rs.
    
    $ equivalent
    
    Rs.
    
    $ equivalent2000
    
    
    1445.99
    
    
    
    31.84
    
    
    
    291.50
    
    
    
    6.422001
    
    
    429.70
    
    
    
    9.46
    
    
    
    111.00
    
    
    
    2.442002
    
    
    331.15
    
    
    
    7.29
    
    
    
    189.75
    
    
    
    4.182003
    
    
    381.00
    
    
    
    8.39
    
    
    
    127.30
    
    
    
    2.802004 (Until May 31)
    
    
    391.00
    
    
    
    8.61
    
    
    
    250.00
    
    
    
    5.50
 On May 31, 2004, the closing price of our shares on the Stock
Exchange, Mumbai was Rs. 313.60 ($ 6.90). For comparison purposes, these
prices have been adjusted to give effect to our September 1, 1999
two-for-one stock split and our August 25, 2000 five-for-one stock split
and an exchange rate of Rs. 45.42 per $1.00 as on May 28, 2004 has been
used. The Indian stock exchanges have also experienced problems that have
affected the market price and liquidity of the securities of Indian
companies. These problems have included temporary exchange closures, the
suspension of stock exchange administration, broker defaults, settlement
delays and strikes by brokers. In addition, the governing bodies of the
Indian stock exchanges have from time to time restricted securities from
trading, limited price movements and restricted margin requirements.
Further, from time to time, disputes have occurred between listed companies
and stock exchanges and other regulatory bodies, which in some cases may
have had a negative effect on market sentiment. Similar problems could
occur in the future and, if they do, they could harm the market price and
liquidity of our equity shares and our ADSs. -11-




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The laws of India may not adequately protect our intellectual property
rights. The laws of India do not protect intellectual property rights to the
same extent as the laws in the United States. Further, the global nature of
our business makes it is difficult for us to control the ultimate
destination of our products and services. The misappropriation or
duplication of our intellectual property could curtail our operations or
reduce our profitability. We rely upon a combination of non-disclosure and other contractual
arrangements and copyright, trade secret and trademark laws to protect our
intellectual property rights. Ownership of software and associated
deliverables created for customers is generally retained by or assigned to
our customers, and we do not retain an interest in such software and
deliverables. We have applied for the registration of Satyam and other related
marks as trademarks in India, the United States and in other jurisdictions
where we carry on business. We currently require our technical employees to
enter into non-disclosure and assignment of rights agreements to limit use
of, access to and distribution of confidential and proprietary information.
We cannot assure you that the steps taken by us in this regard will be
adequate to prevent misappropriation of confidential and proprietary
information or that we will be able to detect unauthorized use and take
appropriate steps to enforce our intellectual property rights. Although we believe that our services and products do not infringe
upon the intellectual property rights of others, we cannot assure you that
such a claim will not be asserted against us in the future. Assertion of
such claims against us could result in litigation, and we cannot assure you
that we would prevail in such litigation or be able to obtain a license for
the use of any infringed intellectual property from a third party on
commercially reasonable terms. We expect that the risk of infringement
claims against us will increase if more of our competitors are able to
obtain patents for software products and processes. Any such claims,
regardless of their outcome, could result in substantial cost to us and
divert managements attention from our operations. 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 infringement claim or litigation against us could therefore result in
substantial costs and diversion of resources.  You may be subject to Indian taxes arising out of capital gains on the
sale of the underlying equity shares. Generally, capital gains, whether short-term or long-term, arising on
the sale of the underlying equity shares in India are subject to Indian
capital gains tax. For the purpose of computing the amount of capital gains
subject to tax, Indian law specifies that the cost of acquisition of the
equity shares will be deemed to be the share price prevailing on the Stock
Exchange, Mumbai or the National Stock Exchange on the date the Depositary
advises the custodian to redeem receipts in exchange for underlying equity
shares. The period of holding of such equity shares, for determining
whether the gain is long-term or short-term, commences on the date of the
giving of such notice by the Depositary to the custodian. Investors are
advised to consult their own tax advisers and to consider carefully the
potential tax consequences of an investment in our ADSs.  There may be less company information available in Indian securities
markets than securities markets in developed countries. There is a difference between the level of regulation and monitoring
of the Indian securities markets and the activities of investors, brokers
and other participants and that of markets in the United States and other
developed economies. The Securities and Exchange Board of India, or SEBI,
is responsible for improving disclosure and other regulatory standards for
the Indian securities markets. SEBI has issued regulations and guidelines
on disclosure requirements, insider trading and other matters. There may,
however, be less publicly available information about Indian companies than
is regularly made available by public companies in developed economies.  Risk Related to our ADSs and our Trading Market  You may be restricted in your ability to exercise preemptive rights under
Indian law and thereby may suffer future dilution of your ownership
position. Under the Companies Act, 1956 of India, or the 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 -12-




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maintain their existing ownership percentages before the issuance of
any new equity shares, unless the preemptive rights have been waived by
adopting a special resolution by holders of three-fourths of the shares
which are voted on the resolution. As U.S. holders of ADSs represent 10.69%
of our outstanding equity shares, you may be unable to exercise preemptive
rights for equity shares underlying ADSs unless a registration statement
under the Securities Act of 1933, as amended, or the Securities Act, is
effective with respect to the rights or an exemption from the registration
requirements of the Securities Act is available. Our decision to file a
registration statement will depend on the costs and potential liabilities
associated with any given registration statement as well as the perceived
benefits of enabling the holders of our ADSs to exercise their preemptive
rights and any other factors that we deem appropriate to consider at the
time the decision must be made. We may elect not to file a registration
statement related to preemptive rights otherwise available by law to you.
In the case of future issuances, the new securities may be issued to our
Depositary, which may sell the securities for your benefit. The value, if
any, our Depositary would receive upon the sale of such securities cannot
be predicted. To the extent that you are unable to exercise preemptive
rights granted in respect of the equity shares represented by your ADSs,
your proportional interests in our company would be reduced.  Holders of ADSs may be restricted in their ability to exercise voting
rights. At our request, the depositary bank will mail to you any notice of
shareholders meeting received from us together with information explaining
how to instruct the depositary bank to exercise the voting rights of the
securities represented by ADSs. If the depositary bank timely receives
voting instructions from you, it will endeavor to vote the securities
represented by your ADSs in accordance with such voting instructions.
However, the ability of the depositary bank to carry out voting
instructions may be limited by practical and legal limitations and the
terms of the securities on deposit. We cannot assure you that you will
receive voting materials in time to enable you to return voting
instructions to the depositary bank in a timely manner. Securities for
which no voting instructions have been received will not be voted. Under Indian law, subject to the presence in person at a stockholder
meeting of persons holding equity shares representing a quorum, all
resolutions proposed to be approved at that meeting are voted on by a show
of hands unless a stockholder present in person and holding at least 10% of
the total voting power or on which an aggregate sum of not less than
Rs.50,000 has been paid-up, at the meeting demands that a poll be taken.
Equity shares not represented in person at the meeting, including equity
shares underlying ADSs for which a holder has provided voting instructions
to the depositary bank, are not counted in a vote by show of hands. As a
result, only in the event that a stockholder present at the meeting demands
that a poll be taken will the votes of ADS holders be counted. Securities
for which no voting instructions have been received will not be voted on a
poll. As a foreign private issuer, we are not subject to the SECs proxy
rules, which regulate the form and content of solicitations by United
States-based issuers of proxies from their stockholders. To date, our
practice has been to provide advance notice to our ADS holders of all
stockholder meetings and to solicit their vote on such matters through the
depositary, and we expect to continue this practice. The form of notice and
proxy statement that we have been using does not include all of the
information that would be provided under the SECs proxy rules.  An active or liquid trading market for our ADSs is not assured. We cannot predict the extent to which an active, liquid public trading
market for our ADSs will exist. Active, liquid trading markets generally
result in lower price volatility and more efficient execution of buy and
sell orders for investors. The lack of an active, liquid trading market
could result in the loss of market makers, media attention and analyst
coverage. If there is no longer a market for our equity shares, or if we
fail to continue to meet eligibility requirements, we may be required to
delist from the New York Stock Exchange and this may cause our stock prices
to decrease significantly. In addition, if there is a prolonged decline in
the price of our equity shares, we may not be able to issue equity
securities to fund our growth, which would cause us to limit our growth or
to incur higher cost funding, such as short-term or long-term debt. Liquidity of a securities market is often a function of the volume of
the underlying shares that are publicly held by unrelated parties. Although
you are entitled to withdraw the equity shares underlying the ADSs from the
depositary at any time, there is no public market for our equity shares in
the United States. -13-




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The future sales of securities by our company or existing shareholders
may harm the price of our ADSs or our equity shares. The market price of our ADSs or our equity shares could decline as a
result of sales of a large number of ADSs or equity shares or the
perception that such sales could occur. Such sales also might make it more
difficult for us to sell ADSs or equity securities in the future at a time
and at a price that we deem appropriate. As of May 31, 2004, we have an
aggregate of 314,958,768 equity shares outstanding, which includes
underlying equity shares of 33,652,880 for 16,826,940 ADSs. All ADSs are
freely tradable, other than ADSs purchased by our affiliates. The remaining
equity shares outstanding may be sold in the United States only pursuant to
a registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, including Regulation S. Forward-looking statements contained in this Annual Report may not be ealized. We have included statements in this document which contain words or
phrases such as may, will, will likely result, believe, expect,
will continue, anticipate, estimate, intend, plan, contemplate,
seek to, future, objective, goal, project, should and similar
expressions or variations of such expressions, that are forward-looking
statements. Actual results may differ materially from those suggested by
the forward-looking statements due to risks or uncertainties associated
with our expectations with respect to, but not limited to, our ability to
implement our strategy and our growth and expansion. In addition, other factors that could cause results to differ
materially from those estimated by the forward-looking statements contained
in this document include, but are not limited to, general economic and
political conditions in India, Southeast Asia, and other countries which
have an impact on our business activities, changes in Indian and foreign
laws, regulations and taxes, changes in competition and other factors
beyond our control, including the factors described in this Risk Factors
section. We do not intend to update any of the forward-looking statements
after the date of this Annual Report to conform such statements to actual
results. 
 ITEM 4.  INFORMATION ON THE COMPANY History and Development Our IT professionals work onsite, offshore or offsite to provide
customized IT solutions for companies in several industry sectors. Our
development centers in India, United States, United Kingdom, Japan, Dubai,
Australia, Singapore, Malaysia and other countries serve over 300 global
companies, of which 101 are Fortune Global 500 corporations. Our marketing
network spans 45 countries, across 6 continents. The full legal name of our company is Satyam Computer Services
Limited. Satyam was organized as a limited liability company under the laws
of the Republic of India pursuant to the provisions of the Indian Companies
Act on June 24, 1987. Our registered office is located at Mayfair Center,
SP Road, Secunderabad 500 003, Andhra Pradesh, India. Our principal place
of business is the Satyam Technology Center located at Bahadurpally
Village, Qutbullapur Mandal, R.R. District 500 855, Hyderabad, Andhra
Pradesh, India, telephone number (91) 40-5523 3505. Our agent for service
in the United States is CT Corporation System, 111 8th Avenue, New York,
New York 10011, telephone number 1 (212) 894-8940. Our operations are
primarily conducted in India and majority of our revenues are derived from
the United States. We effected a two-for-one stock split (in the form of stock dividend)
of our equity shares in September 1999 and a five-for-one stock split of
our equity shares in August 2000. In May 2001, we completed an offering of 16,675,000 ADSs (representing
33,350,000 equity shares) in the United States and elsewhere outside of
India a price of $9.71 per ADS. We received approximately $152.7 million,
net of underwriting discounts, commissions and other costs of this
offering. On May 15, 2001, our ADSs were listed on the New York Stock
Exchange. Our principal capital expenditures for the fiscal years 2004, 2003 and
2002 were comprised mainly of expansion of infrastructure facilities in
India and abroad. Our capital expenditures amounted to $16.7 million in -14-




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fiscal 2004, $11.0 million in fiscal 2003 and $34.2 million in fiscal
2002. In fiscal 2004 and fiscal 2003, capital expenditures were incurred
mainly for the purchase of computers and other electrical equipment. In
fiscal 2002, our capital expenditures were incurred mainly for expansion of
offshore facilities in acquisition/long lease of land in Bangalore and
expansion of facilities in Hyderabad and Chennai. Business Overview We are a global professional IT services company. We offer a
comprehensive range of services, including software development, system
maintenance, packaged software integration, and engineering design
services. We use our global infrastructure to deliver value-added services
to our customers to address IT needs in specific industries and to
facilitate eBusiness initiatives. We began providing IT services to
businesses in 1988 and as of March 31, 2004 we had 13,120 technical
associates servicing over 300 customers worldwide. In addition to our core
business of providing IT services, we have also selectively invested in
related businesses. We recognized the importance of the Internet to India and, in December
1995, created Sify Limited (formerly Satyam Infoway Limited), which we
believe is the largest integrated Internet, network and electronic commerce
services company in India, offering end-to-end solutions with a
comprehensive range of products delivered over a common Internet backbone
infrastructure. Sifys shares are listed only in the United States and are
quoted on the Nasdaq National Market under the symbol SIFY. In February
2002, we acquired Sifys software services business for approximately $6.9
million in a transaction approved by Sifys shareholders and subjected to
an independent valuation. The objective of this acquisition was to permit
us to focus on our core business of software services and Sify to focus on
Internet Services. During the year ended March 31, 2003, due to the sale of
new shares by Sify to Softbank Asia Infrastructure Fund, or SAIF, and
VentureTech Solutions Private Ltd. or VentureTech, our ownership interest
in Sify was reduced from 52.51% to 37.15%. As a result of this reduced
ownership interest, we deconsolidated Sify on December 9, 2002 and have
since accounted for our interest in Sify using the equity method.
VentureTech invested an additional $1.8 million in Sify in April 2003, and
our ownership interest was further reduced to 36.0%. Further, during the
year ended March 31, 2004, we completed the sale of one million equity
shares in Sify Ltd. through the latters sponsored ADS program for a
consideration of $ 3.4 million (net of tax). Consequent to this sale, our
ownership interest was further reduced to 32.04%. We owned 100% of the outstanding stock of VisionCompass Inc., or VCI,
which had developed and marketed our software product, VisionCompass.
Following our decision to discontinue the operations of VisionCompass so as
to focus on our core business of IT services, VCI was formally dissolved on
March 24, 2004. On June 5, 2002 we formed Nipuna Services Limited or Nipuna, a wholly
owned subsidiary in Secunderabad, Andhra Pradesh, India to provide various
services connected with business process outsourcing. As of March 31, 2004,
we had invested $4.0 million in Nipuna.  Industry Overview In May 2003, Gartner Dataquest forecasted that the worldwide IT
services market would grow from $536.3 billion in 2002 to $727.4 billion in
2007, representing an annual compound growth rate of 6.3%. We believe the
growth of this industry is driven by the following factors and trends: Increased importance of IT to businesses.In todays increasingly
competitive business environment, companies have become dependent on
technology not only to conduct day-to-day operations, but also as a
strategic tool to enable them to re-engineer business processes,
restructure organizations and react quickly to competitive, regulatory and
technological changes. As systems continually become more complex,
companies increasingly turn to external IT service providers to develop and
implement new technologies and integrate them with existing applications in
which a company may have already made a considerable investment. Impact of the Internet and the emergence of eBusiness. Businesses are
increasingly using the Internet to interact with new and existing customers
and create new revenue opportunities. Business conducted electronically
over the Internet, or eBusiness, extends beyond Internet-based
applications, such as eCommerce websites and corporate intranets, to
include packaged software tools such as customer and supply chain
management software. eBusiness initiatives are often large and difficult to
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constantly evolving business processes and technological innovations.
In addition, managing and upgrading existing systems has also become more
critical given the importance of these systems to eBusiness initiatives.
Internal IT departments often do not have the appropriate resources or
breadth of skills necessary to execute these initiatives. As a result,
companies increasingly turn to outside service providers to design,
integrate, implement and maintain their eBusiness applications. Emergence of a high-quality IT services industry in India.India has
emerged as a destination for companies seeking to engage IT service
providers in a variety of areas, including eBusiness and software design,
development, integration and system maintenance. Indias National
Association of Software and Service Companies, or NASSCOM estimates that
export revenue generated from the software and service industry in India
was approximately $12.2 billion in fiscal 2003 and is expected to reach
$50.0 billion by fiscal 2008. The key factors contributing to this rapid
growth include the availability of a large pool of highly skilled,
English-speaking engineers and professionals, the ability to produce high
quality software applications, low personnel costs relative to the United
States and a time difference which permits work to be done during
non-business hours in the United States and Europe. We believe that India ranks second only to the United States as the
country with the largest population of English-speaking technical
personnel. According to the NASSCOM Strategic Review 2004, educational
institutions in India produce approximately 290,000 engineering students
each year. Given the shortage of technical labor in the United States and
other developed economies, the availability of people could be a
competitive advantage for Indian IT services companies. Also, the English
speaking ability of Indian technical engineers and professionals
facilitates interaction with customers in the United States and Europe and
is a significant advantage compared to non-English speaking countries which
also offer IT services. Indian companies have developed high-quality methodologies.A January
2002 NASSCOM survey of international quality standards of the top 300
Indian IT services companies showed that 216 had acquired ISO 9000 or SEI
or other certifications and 58 more companies were in the process of
acquiring the same. According to NASSCOM, currently 36 Indian companies
have received a level five assessment under the Software Engineering
Institutes Capability Maturity Model, or SEI-CMM, developed by the
Carnegie Mellon University. Level five is the highest level attainable
under the SEI-CMM standards, which assess an organizations quality
management system and systems engineering processes and methodologies. The
level five certification process involves periodically subjecting our
management system and systems engineering processes and methodologies to
stringent third party review and verification. Some of our customers look
to an SEI-CMM certification as a threshold indication of the quality of our
processes and methodologies. Need for IT service providers who can provide a range of services
worldwide.Many companies today need a wide range of IT services, from high
value-added services such as the integration and implementation of
eBusiness and packaged software applications to lower-end services such as
system maintenance and the re-engineering of older applications. As a
result, companies often seek a service provider that can understand and
integrate a wide spectrum of emerging technologies with existing systems
and which offers a comprehensive range of services from software design and
development to system maintenance. In addition, as companies become global,
they increasingly require IT support on a worldwide basis. In the eBusiness
environment, service providers need to have a close relationship with
customers given the complexity and time sensitive nature of eBusiness. We believe there is a need for full service IT service providers that
have expertise in both existing systems and new Internet-based
technologies, access to a large pool of highly-skilled technical personnel
and the ability to cost-effectively service customers on a worldwide basis.  Our Business We believe the following aspects of our business help us to address
the challenges faced by our customers in the current IT environment. Comprehensive range of services.We provide our customers the ability
to meet all of their IT needs from one service provider. Our understanding
of both existing systems and new technologies allows us to assist our
customers in the management and maintenance of established systems and the
development and integration of -16-




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new technologies. We also help them understand their IT needs and work
with them to develop an appropriate strategy to address these needs. Global delivery model.We provide our services through our offshore
centers located in India, our offsite centers located in the United States,
United Kingdom, Japan, Dubai, Australia, Singapore, Malaysia, and other
countries and onsite teams operating on our customers premises. Through
this global network, we can provide a flexible delivery mix that is
tailored to meet our customers specific needs. In addition, our global
network of centers allow us to service our customers on a 24-hour basis and
thereby shorten the time required to complete projects. Our onsite teams
and offsite centers allow us to respond quickly to customer requests, to
interact closely with the customer to develop IT services where the
customers specifications are not clearly defined and to market services
tailored to meet the needs of specific geographic markets. In-depth industry knowledge.We have developed significant industry
expertise in insurance, financial services, manufacturing and
telecommunications. This allows us to better understand and address the IT
needs of customers within a particular industry. Our technical associates
include experienced project managers and software engineers with
substantial experience in providing IT services to a particular industry.
We have also hired business specialists who possess the industry knowledge
our company needs to better understand the requirements of our customers in
these sectors and assist our software engineers in proactively designing IT
services. We believe our customers benefit from our ability to design and
develop applications and services tailored to address industry-specific
needs. Adherence to high quality standards.We have a large pool of highly
trained technical associates that allows us to provide high quality
services tailored to meet our customers needs. As of March 31, 2004, 49%
of our technical associates had bachelors degrees in engineering, and 51%
had masters degrees in engineering, technology or computer applications and
bachelors degrees in science and others. Each new technical associate must
participate in a three to six-month software engineering training program
and all technical associates are expected to undertake between 40 and 80
hours per year of development training. In addition, we have implemented
strict quality control programs which form an integral part of our project
management methodology to ensure we provide high quality services to our
customers. We have a company-wide quality management system which satisfies
the ISO 9001 TickIT and received a level five assessment under the SEI-CMM
standards. Among other things, our system involves a rigorous review of
software development processes, testing of all work, measurement and
analysis of key quality metrics and regular internal quality audits. Our
adherence to this system ensures that our customers receive timely delivery
of consistent and high-quality services.  Strategy Our main goal is to be a leading worldwide provider of comprehensive
IT services. We intend to accomplish our goal by. Continuing to focus on eBusiness and high-value added services.To
better service our customers in all key industry segments, we intend to
continue to focus on and expand our eBusiness offerings and our other
high-value added services, such as packaged software integration and
engineering design services. To continue to differentiate our services and
achieve recognition as a leading worldwide provider of comprehensive IT
services, we intend to broaden our range of Internet-based applications as
new technologies become available. Leveraging our existing customer base.Our goal is to build long-term
stable business relationships with our customers to generate consistent
revenues. With our existing customers, we plan to continue to expand the
scope and range of the services we provide by extending our capabilities
into new and emerging technologies and by understanding our customers
businesses. In fiscal 2004 and fiscal 2003, we generated 84.0% and 84.0%,
respectively, of our IT services revenues (excluding inter-segment
revenues) from customers who were customers in the prior year. To further
strengthen our relationships and broaden the scope and range of the
services we provide to existing customers, our senior corporate executives
have specific relationship management responsibilities for our largest
customers. In fiscal 2003, we appointed approximately 30 relationship
managers to further our relations with our major customers. Expanding our presence in existing markets and penetrating new
geographic markets.We plan to expand our presence in our existing markets
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and the Asia-Pacific region. We intend to accomplish this by
leveraging our existing global customer base to serve them in other
geographic locations. In fiscal 2003, we opened additional sales and
marketing offices in Europe, the Asia-Pacific region and Canada and offsite
centers in Australia, China and Malaysia to help us gain better access to
new customers. We also plan to continue to hire local employees to staff
and manage our offsite centers. We believe that the use of locally hired
technical associates and managers working from offsite centers will enable
us to increase our share of the local market and compete more effectively
with local IT service providers. Continuing to enhance our specific industry expertise.We aim to have
an in-depth understanding of targeted industries in order to identify
customer needs in those industries and be able to proactively design and
offer tailored IT services to address those needs. By focusing on targeted
industries, we believe we can develop services that are reusable within an
industry and thereby lower our cost of delivering those services. We intend
to enhance our health care, government and retail IT services capabilities
by hiring additional specialists with expertise in these industries. Attracting and retaining quality technical associates and augmenting
their training.To attract, retain and motivate our technical associates,
we plan to continue to provide an environment that rewards entrepreneurial
initiative and performance, including competitive salaries and benefits as
well as incentives in the form of cash bonuses and stock options. We also
intend to continue to devote significant resources to training our
technical associates through our Satyam Learning Center in a variety of
software languages and computer platforms. Enhancing our capabilities through joint ventures, technology
alliances and acquisitions. We plan to continue to broaden our network of
joint ventures and technology alliances with technology providers,
customers, and IT service providers, particularly in markets in which we
are not currently involved. We enter into these joint ventures and
alliances to acquire expertise in high-end software products and emerging
technologies, to add qualified personnel, to gain access to additional
customers to invest in companies which service niche markets. We will also
consider acquiring companies to gain ownership of specific technologies and
to exploit other synergies with our existing business. While we currently
have not identified any specific candidates, we regularly engage in
discussions and negotiations relating to potential investment, joint
ventures, technology alliances and acquisitions in the ordinary course of
our business. IT Services We offer a comprehensive range of IT services based on existing and
emerging technologies that are tailored to meet the specific needs of our
customers. Our IT services include: Software development.We design, develop and install software for a
variety of IT systems. Our applications range from single-platform,
single-site systems to multi-platform, multiple-site systems. A project may
involve the development of new applications or new functions for existing
software applications. Each development project typically involves all
aspects of the software development process, including definition,
prototyping, design, pilots, programming, testing, installation and
maintenance. System maintenance.We provide maintenance services for large software
systems, which may include modifications and enhancements to the system and
product support. We also assist customers in migrating to new technologies
while extending the useful life of existing systems. Projects may involve
re-engineering software to migrate applications from mainframe to
client/server architectures or to migrate from existing operating systems
to UNIX or Windows NT. For companies with extensive proprietary software
applications, implementing such technologies may require rewriting and
testing millions of lines of software code. We perform most of the
maintenance work at our offshore facilities using satellite links to our
customers system. In addition, we maintain a small team on the customers
premises to coordinate support functions. Packaged software integration.We work with providers of packaged
software in the areas of enterprise resource planning, customer
relationship management and supply chain management to install and
integrate these packages with our customers existing computer systems and
with various Internet applications as required to address the eBusiness
needs of our customers. These packaged software applications help enable
companies to strengthen relationships with their customers and business
partners, create new revenue opportunities, enhance operating efficiencies
and improve communications. We also customize this software to meet the
specific needs of our customers and provide ongoing maintenance and support
services. We have established -18-




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alliances with providers of enterprise resource planning systems, such
as Oracle and SAP. We have also established alliances with other companies
who supply customer relationship or supply chain management systems and
eBusiness applications for building on-line businesses. In addition, we
offer our customers applications in the areas of business and customer
intelligence, data-mining and data-warehousing to enable them to analyze
trends. Engineering design services.We provide engineering design services
using computer aided design, modeling and engineering tools. Our
engineering design services include component design, product and process
analysis, and simulations and range from basic drawing changes to complex
designs. In addition, our services may involve customizing the latest
computer aided design, modeling and engineering software to specific user
requirements.  Delivery of IT Services We offer our customers flexible delivery alternatives through our
offshore centers located in India, through offsite centers which we have
established in our major markets and through onsite teams operating at the
customers premises. Offshore centers.We typically assign a team of technical associates
to visit a customers premises and determine the scope and requirements of
a particular project. Some members of the initial team remain onsite to
facilitate direct liaison with the customer, while others return to India
to establish and supervise a larger project team of suitably qualified
technical associates to implement the project. Typically 20% of a project
team will be on site depending on the nature and complexity of the project.
Projects completed in our offshore centers in India contributed 43.9% and
47.0% to our IT services revenues in fiscal 2004 and fiscal 2003,
respectively. We have also entered into arrangements with several customers where an
entire project team is assigned to a single customer. Such teams, called
dedicated offshore centers, work from our facilities in India and are
staffed and managed by us. Once the project priorities are established by
the customer, we, in conjunction with the customers IT department, manage
the execution of the project. When needed, our dedicated offshore centers
will have equipment specific to the customer, or will have a separate work
area with its own security protocols. We have an established dedicated
offshore centers for, among others, General Electric Appliances Products
LLP, and Ford Motor Company. Offsite centers.We believe that a key success factor in meeting our
customers needs is our physical presence near the customer. Accordingly,
we have expanded and improved the offshore development model by
establishing offsite centers in our major markets. In the United States, we
currently operate offsite centers located in Atlanta, Georgia; Chicago,
Illinois; Parsippany, New Jersey; and Santa Clara, California. Outside of
the United States, we have offsite centers located in Tokyo, Japan;
Basingstoke, U.K.; Singapore; Sydney, Australia; Dubai, Malaysia and other
countries. We believe our offsite centers allow us to respond quickly to
customer requests, to interact closely with the customer to develop IT
services where the customers specifications are not clearly defined and to
market services tailored to meet the needs of specific geographic markets.
In addition, we staff our offsite centers with locally-hired managers,
marketers and technical associates which we believe enable us to compete
more effectively with local IT service providers. Onsite teams.Some customers require the presence of our project teams
at their premises, particularly for mission critical or high-end projects.
The customers team and our project team collaborate to develop IT services
that meet the customers specifications. Projects completed at onsite and offsite centers contributed 56.1% of
our IT services revenues in fiscal 2004 and 53.0% in fiscal 2003. As of March 31, 2004, 3,456 of our technical associates worked in our
customers premises and offsite centers compared to 2,386 as of March 31,
2003.  Quality and project management We believe that quality is a culture, expressed in the way we interact
and cater to the needs of our clients, and in the products and processes we
deliver to them. So while we have met several external quality parameters,
we are even more stringent about setting and meeting our own exacting
standards. -19-




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To minimize disruptions and financial loss in the event of a disaster
or disruption to our business operations, we have implemented a business
continuity management system. This integrated enterprise wide process
explores possible failure scenarios, assesses their impact on our business
and puts in place appropriate controls to mitigate and manage the risks. Our global Business Continuity Center in Singapore is designed to
ensure that our clients receive seamless and uninterrupted support in case
we are unable to provide our services from India or elsewhere and equips us
with an alternate site for our critical projects when required. We are the
first major Indian software company to establish such operations in
Singapore. We chose Singapore as the site for this center based on its
excellent connectivity to the rest of the world, low risk profile and new
visa scheme to facilitate disaster recovery and business continuity
operations. Our multiple international locations provide us with numerous options
for alternate sites in any eventuality. Our business continuity plans,
backed by redundant network connectivity and replication/back-up
facilities, are intended to ensure a high level of preparedness. During fiscal 2003, we launched a new initiative known as ORBIT 5
(Organizational and Business Transformation), aimed at transforming the
efficiency of our processes to deliver a higher standard and service. The ORBIT 5 initiative aims not only to achieve and maintain our
processes and sub-processes at the highest level but also to help us to
create world-class infrastructure and systems. To further improve our business processes, we have also adopted the
iSTRIVETM methodology. This methodology involves systematic data gathering
and statistical analysis to enable us pinpoint errors in our processes.  Customers We market our services primarily to companies in the United States,
Europe, the Middle East and the Asia-Pacific region. Our strategy is to
seek new customers and at the same time secure additional engagements from
existing customers by providing high quality services and by being
responsive to customer needs. The strength of our relationships has
resulted in significant recurring revenue from existing customers. We
generated $ 474.8 million, $385.0 million and $348.4 million in IT services
revenues in fiscal 2004, fiscal 2003 and fiscal 2002 respectively, from
customers who were customers in the prior fiscal year. We also derive a
significant proportion of our IT services revenues from a limited number of
customers. Our largest customer, General Electric Company and its
affiliates, accounted for 14.3%, 16.2% and 18.3%, of our IT services
revenues (excluding inter-segment revenues) and 14.3%, 16.1% and 18.3%, of
our total revenues in fiscal 2004, fiscal 2003 and fiscal 2002
respectively. During the same periods, our second largest customer,
accounted for 9.9%, 8.7% and 6.9% respectively, of our IT services revenues
(excluding inter-segment revenues) and 9.9%, 8.7% and 6.9% respectively, of
our total revenues. Our five largest customers accounted for 36.5%, 38.4%
and 38.5% of our IT services revenues (excluding inter-segment revenues)
and 36.4%, 38.4% and 38.4% of our total revenues in fiscal 2004, fiscal
2003 and fiscal 2002 respectively.  Sales and Marketing We sell and market our services through 22 sales and marketing offices
spread across the globe. We target our efforts towards Fortune 500 & Global
1000 corporations. Our sales efforts are complemented by our marketing
team, which assists in brand building, Alliance management and other
corporate level marketing efforts. Our sales efforts are largely
decentralized and conducted within each of our business segments. As of
March 31, 2004, we had 199 sales (including pre-sale, support) and
marketing employees.  Joint Ventures and Alliances We have in the past entered into, and plan to continue to enter into,
joint ventures and alliances with technology providers, customers, and IT
service providers, particularly in markets in which we are not currently
involved. We enter into these joint ventures and alliances to gain access
to additional customers, to acquire expertise in high-end software products
and emerging technologies, to add qualified personnel and to make
investments in companies engaged in providing services to niche markets. -20-




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Competition The IT services industry is highly competitive and served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of our company. Our primary India based competitors
include Infosys Technologies Limited, Wipro Limited and Tata Consultancy
Services. Our primary U.S. based competitors include Computer Sciences
Corporation, Electronic Data Systems, Accenture, Cambridge Technology
Partners and Keane Inc. Generally, our competitors include participants
from a variety of market segments, including major international accounting
firms, systems consulting and implementation firms, applications software
firms, service groups of computer equipment companies, general management
consulting firms, programming companies and temporary staffing firms. Many
of these competitors have substantially greater financial, technical and
marketing resources and greater name recognition than us. We believe that
the principal competitive factors in the IT services industry include the
range of services offered, technical expertise, responsiveness to customer
needs, speed in delivering IT services, quality of service and perceived
value. We believe that we compete favorably with respect to these factors.
There are relatively few barriers to entry into our markets such that we
may face additional competition from new entrants into our markets. In
addition, there is a risk our customers may elect to increase their
internal IT resources to satisfy their IT services needs.  Communications Infrastructure A key component of our IT services delivery model is the linking of a
customers onsite system with our offsite and offshore centers through a
privately owned Frame Relay Network consisting of satellite and fiber
communications links. Our data and voice network, SatyamNet, connects our
facilities worldwide through a high speed network with a backbone of
satellite, fiber optic and land lines. Video Conferencing facilities are
available at multiple locations to improve customer interaction. SatyamNet
allows projects to progress and software applications to be installed
without the need for extensive attendance at the customers premises.
Similarly, day-to-day maintenance of a customers system can be carried out
largely from one or more offsite or offshore centers with only a few
maintenance professionals required to be stationed at the customers
premises. We lease dedicated telecommunication lines from VSNL, TATA,
BHARATI and Software Technology Park of India which permit data
communication between our facilities in India and the MCI, SPRINT and AT&T
communication networks to connect to our customers facilities abroad. All
of our Indian satellite and fiber links terminate at our U.S. communication
hubs in Vienna, Virginia and Parsippany, New Jersey. From the Vienna and
Parsippany communication hubs, we connect our offshore centers in India to
our offsite centers in the United States through high speed networks and to
customers systems through leased lines, the Internet, the customers own
network or a network operated by third parties. These two locations act as
back-up telecommunications centers for each other to help ensure that the
connectivity to our customer premises is always available. In December 2001, we completed a major upgrade of SatyamNet to enhance
and optimize network efficiency across all operating locations. This
upgrade has enhanced our aggregate links capacity by more than 100.0% in
different bandwidths, which cater to the networking requirements of
approximately 7,000 workstations across various geographic locations. We
currently lease two 2Mbps Fiber Optic links from Hyderabad and Chennai and
three 512 Kbps international links ( one fiber and the other two satellite
) and one 64 kbps international satellite link. The aggregate bandwidth is
9.5 Mbps and consists of both fiber and satellite links to take care of
media redundancy. In addition, we have 1 Mbps committed information rate
high speed links aggregating to 6 Mbps connecting various cities in India.
Our intra-city links are connected by 2048 kbps lines to multiple locations
through multiple providers, thus providing high availability and complete
redundancy. We are connected with the United Kingdom by a 256 K dedicated
leased circuit and also connected to Australia and Singapore by a 128 K
link framed leased circuit from our U.S. office hubs. We have also added
redundant Internet Mail and Name Resolution servers in our U.S. offices as
a part of our disaster recovery infrastructure. During business hours, the average loading of SatyamNet is currently
approximately 40% of total capacity, with sudden bursts in usage reaching
approximately 50%. Our network has extra capacity available to service new
customers in the immediate future and to permit sudden bursts of data
transfer and other contingent uses. The network utilization is monitored
using a centralized management software, and the utilization reports are -21-




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shared with senior associates on a weekly basis. When the utilization
reaches 60%, the process for enhanced BW is activated. We have not experienced any significant downtime in our communications
network during the past three years. To help minimize the likelihood of
downtime in our voice and data communications network, we have built
redundancy and alternative pathways into our network. For example, most of
our communications take place over international links. Each office that
has its own international link also has a inter-city link to another nearby
office, which provides an alternative pathway for international
communications if the offices own international link breaks down. We have
also provided ISDN links as a back-up for the intra-city links. The terms of our customer contracts often impose particular
confidentiality and security standards. We have independently established a
system of security measures to protect our computer systems from security
breaches and computer viruses that may attempt to gain access to our
communications network. We maintain a firewall at the entry point of the
network which checks incoming data for viruses and unauthorized access
before they are transmitted on SatyamNet. All traffic received at our
facilities in India is again checked for viruses, with contaminated files
quarantined. We have implemented a two tier virus protection, which
includes arrangements with two virus protection vendors as a preventive
countermeasure against computer viruses. Our backup process which includes
daily, weekly and monthly backups. Backup tapes are stored at different
locations to ensure maximum protection against losses. We have been
accredited with BS7799 / ISO 17799 certification by Ministry of Information
Technology, Government of India, for all our locations in India  in
recognition of our high standards of network security and business
continuity practices.  Premises and Equipment Our corporate headquarters, the Satyam Technology Center, is located
in Hyderabad, India. We own this facility, which provides a modern
workspace for approximately 1,400 software engineers in two buildings
covering an aggregate area of approximately 209,300 square feet, which are
linked to our other facilities through our SatyamNet. The Satyam Technology
Center also has recreational facilities and housing for up to 500
associates and covers an area of approximately 153,000 square feet. The
State of art Auditorium / Convention center with 250 seat capacity, first
of its kind in South India, has been constructed at our Satyam Technology
Center to host meetings with large number of participants, gatherings and
for live interactive sessions. We have additional software technology centers located in Bangalore,
Bhubaneshwar, Chennai, Hyderabad and Pune, with facilities aggregating
approximately 885,500 square feet. We own the facilities in Bhubaneshwar
and lease our other facilities with terms ranging from six years to nine
years. Each facility is equipped with computers, servers,
telecommunications lines and back-up electricity generation facilities
sufficient to ensure an uninterrupted power supply. During the fiscal 2004, we constructed a new facility with a built up
area of 1,00,000 square feet on our own 23 acre campus located in
Electronic City, Phase II Bangalore, India. In addition to the offshore centers in India, we operate offsite
centers in major markets to establish a local presence closer to our
customers.  Research and Development Our research and development efforts are focused on development
services required by our existing customers or as needed to attract new
customers. As of March 31, 2004, we employed 41 associates dedicated to our
research and development activities. In addition, a number of our
management and other operational personnel are also involved in research
and development activities. We expect to continue to invest some of our
resources in research and development. We have spent approximately $ 633
thousand in fiscal 2004, $1.4 million in fiscal 2003, $2.2 million in
fiscal 2002 on company-sponsored research and development activities.  Intellectual Property Ownership of software and associated deliverables created for
customers is generally retained by or assigned to the customer, and we do
not usually retain an interest in such software or deliverables. We also
develop software products and software tools which are licensed to
customers and remain our property. We rely -22-




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upon a combination of non-disclosure and other contractual
arrangements and copyright, trade secret, patent and trademark laws to
protect our proprietary rights in technology. We currently require our
technical associates to enter into non-disclosure and assignment of rights
agreements to limit use of, access to and distribution of our proprietary
information. The source code for our proprietary software is generally
protected as trade secrets and as unpublished copyright works. We have
applied for the registration of Satyam as trademarks in India and United
States. We generally apply for trademarks and service marks to identify our
various service and product offerings. Although we believe that our
services and products do not infringe the intellectual property rights of
others, we cannot assure you that such a claim will not be asserted against
us in the future.  Seasonality Our IT services business is not affected by seasonality.  Government Regulation 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 and a partial taxable income deduction for profits derived from
exported IT services under Indian tax laws. 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. Further, there are restrictive parts of Indian law that effect
our business, including the fact that we are generally required 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
we are generally required, subject to some exceptions, to obtain approval
from relevant government authorities in India in order to raise capital
outside India. Finally, the conversion of our equity shares into ADSs is
governed by guidelines issued by the Reserve Bank of India. Please see Item 10. Additional Information, as well as Item 3. Key
Information  Risk Factors for additional information on the effects of
governmental regulation of our business. BPO Services On June 05, 2002, we formed Nipuna Services Limited or Nipuna, a
wholly-owned subsidiary in Secunderabad, Andhra Pradesh, India to provide
various services connected with business process outsourcing. As of March
31, 2004, we had invested $4.0 million in Nipuna. Nipuna completed its first full year of operations with 10 active
customers. At present, Nipuna is offering support in the areas of
production back office, health care insurance, IT help desk, finance and
accounts, customer contact and data management. Nipuna had 503 employees as
of March 31, 2004. Nipunas Hyderabad facility is capable of hosting 550
employees, and an additional facility in Bangalore capable of hosting 350
employees will be operational in fiscal 2005. Nipuna reported revenue of
US$2.4 million in fiscal 2004. In October 2003, Nipuna issued 45,669,999 0.05% convertible redeemable
cumulative preference shares of par value Rs 10 ($0.22) per share to each
of Olympus Capital and Intel Capital at an issue price of $0.22 per share,
in exchange for an aggregate consideration of $10 million. A similar amount
will be invested in the second phase, making a total investment of US$20
million. These preference shares are to be mandatory converted / redeemed
into equity shares on or before June 2007 based on certain provisions in
the agreement relating to revenues and profits earned up to March 31, 2006.
If not converted or early converted at the option of the investors based on
certain triggering events, these convertible preference shares are
redeemable on maturity in June 2007 at a redemption premium, which could
range in between 7.5% to 13.5% per annum. The investors are entitled to receive dividends from the preference
shares at the rate of 0.05% per cent per annum. The dividend on the
preference shares for the period ended March 31, 2004 is payable. We have guaranteed payment of all sums payable by Nipuna to the
investors on redemption of the preference shares. Further, we are required
to subscribe to Convertible Debentures amounting to US$20 million based on
certain provisions in the agreement. These convertible debentures shall
bear an interest rate equal to -23-




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the prime lending rate of the State Bank of India prevailing at the
time of issuance and are convertible upon the election of Nipuna into
Ordinary Shares at any time. Satyam Computer Services, Nipuna and the two investors have also
entered into a Warrant Agreement whereby Nipuna agrees to issue to the
investors warrants in consideration of and based upon the referral revenues
received by Nipuna or its subsidiaries at any time during the period
commencing from the date of initial closing and ending in June 2007 from
business referred to Nipuna or its subsidiaries by an Investor or its
Affiliates. The investors have rights to purchase from Nipuna Ordinary
Shares which, upon issuance, would constitute 7.5% of the then outstanding
equity share capital of the Company on a fully diluted basis during the
exercise period at the price per share then in effect. Software Products Through our wholly owned subsidiary in the United States,
VisionCompass Inc., or VCI, we developed VisionCompass, a software product
for use as a management tool to assess and help improve business
performance. Following our decision to discontinue the operations of
VisionCompass so as to focus on our core business of IT services, VCI was
formally dissolved on March 24, 2004. 
 ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion of the financial condition and results of
operations of our company should be read in conjunction with the financial
statements and the related notes included elsewhere in this document. This
discussion contains forward-looking statements that involve risks and
uncertainties. For additional information regarding these risks and
uncertainties, please see "Item 3.-Risk Factors. Restatement of Previously Reported Amounts Satyam has restated beginning shareholders equity as of March 31,
2001 and shareholders equity and net income as of and for the years ended
March 31, 2003 and 2002, to reflect the impact on deferred tax liabilities
and income taxes of Satyams equity in the losses of Sify. Such impact was
not previously recognized. Satyam recognized a deferred tax liability of
US$ 36.92 million as at March 31, 2001 for the outside basis difference
between the book carrying value and tax basis of its investment in Sify.
This outside basis difference was generated from the increase in the book
carrying value of Satyams investment in Sify resulting from Sifys
issuance of its shares to third parties. In subsequent periods, Satyam
recognized its equity in the losses of Sify as a reduction in the book
carrying value of its investment and as a charge to the income statement.
However, Satyam did not recognize the tax benefit resulting from the
decrease in the outside basis difference deferred tax liability. The effects of these adjustments are as follows: As at March 31,2003
    
    2002
    
    2001($ in thousands)Shareholders equity as previously reported
    
    $
    460,668
    
    
    $
    369,842
    
    
    $
    194,695Reduction in deferred tax liabilities
    
    
    27,048
    
    
    
    24,522
    
    
    
    8,057Shareholders equity as restated
    
    $
    487,716
    
    
    $
    394,364
    
    
    $
    202,752
 For the year ended March 31,2003
    
    2002($ in thousands)Net income as previously reported
    
    $
    79,772
    
    
    $
    25,892Income tax benefit
    
    
    2,526
    
    
    
    16,645Net income as restated
    
    $
    82,298
    
    
    $
    42,357
 The significant effects of this restatement are disclosed in Note 22
to the accompanying financial statements and in Item 3  Selected Financial
Data. -24-




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Overview We are the fourth largest provider of IT services in India, based on
the amount of export revenues generated during our fiscal year ended March
31, 2004. We offer a comprehensive range of services, including software
development, system maintenance, packaged software integration, engineering
design services, and business process outsourcing, or BPO. We use our
global infrastructure to deliver value-added services to our customers to
address IT needs in specific industries and to facilitate e-Business
initiatives. Our total revenues increased by 23.3% to $566.4 million in
fiscal 2004 from $459.2 million in fiscal 2003 and 10.8% to $459.2 million
in fiscal 2003 from $414.5 million in fiscal 2002. Our reportable operating
segments are divided into IT services, BPO and software products. On June 5, 2002, we formed a wholly-owned subsidiary, Nipuna Services
Limited, or Nipuna, to provide various services connected with business
process outsourcing. We own 100% of the outstanding stock of VisionCompass Inc., or VCI,
which had developed and marketed our software product, VisionCompass.
However, keeping in view the business and economic conditions, the relative
size and managerial time, we decided to discontinue the operations of
VisionCompass so as to focus on our core business of IT services. VCI was
formally dissolved on March 24, 2004. We have applied for one patent in the
United States related to VisionCompass which we intend to pursue despite
closure of VCI operations as this product remains in use by customers.
VisionCompass shall be continued to be marketed by Satyam. Consolidation of Subsidiaries As of March 31, 2004, we had invested $28.0 million in VCI and $16.3
million in five of our other subsidiaries. Since its inception in January
1999 VCI incurred significant operating losses and negative cash flows. As
of March 31, 2004 the cumulative net losses incurred were $27.5 million by
VCI and $17.6 million by our other five subsidiaries. The results of VCI
and our other subsidiaries are reflected in our consolidated audited
financial statements under U.S. GAAP.  Satyam Manufacturing Technologies, Inc. On March 28, 2003, we acquired Northrop Grummans 24% interest in
Satyam Manufacturing Technologies Inc., or SMTI and SMTI became our 100%
owned subsidiary. We issued Northrop Grumman a non interest bearing
unsecured promissory note with a principal amount of $3.5 million payable
in four quarterly installments from April 01, 2003 to January 01, 2004 in
payment of the purchase price. The amount was fully paid during fiscal
2004.  Our Investment in Associated Companies Our investments in business entities in which we do not have control,
but have the ability to exercise significant influence over operating and
financial policies (generally 20-50 percent ownership), are referred to as
associated companies and are accounted for by the equity method. The following table gives details regarding our percentage holding,
carrying value and share of earnings / (losses) of our associated companies
for the years ended March 31, 2004 and 2003. -25-




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##### Table of Contents



2004
    
    2003Share of
    
    
    
    
    
    
    
    
    
    Share ofearnings/
    
    
    
    
    
    
    
    
    
    earnings/(losses)
    
    Carrying
    
    
    
    
    
    (losses)
    
    CarryingName of associated
    
    
    
    
    
    during
    
    value as at
    
    
    
    
    
    during
    
    value as atcompany
    
    % holding
    
    the year
    
    year end
    
    % holding
    
    the year
    
    year end($ millions)
    
    
    
    
    
    ($ millions)Sify*
    
    
    32.0
    
    
    $
    (2.2
    )
    
    $
    22.3
    
    
    
    37.2
    
    
    $
    (1.3
    )
    
    $
    27.1Satyam Venture
    
    
    50.0
    
    
    
    0.0
    
    
    
    1.2
    
    
    
    50.0
    
    
    
    0.2
    
    
    
    1.2CA Satyam
    
    
    50.0
    
    
    
    (0.4
    )
    
    
    0.8
    
    
    
    50.0
    
    
    
    (0.1
    )
    
    
    1.3Satyam GE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    Cricinfo**
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.0
    )
    
    
    Refco-Sify**
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    Placements.com**
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    Total
    
    
    
    
    
    $
    (2.6
    )
    
    $
    24.3
    
    
    
    
    
    
    $
    (3.3
    )
    
    $
    29.6
  *
    
    Sify accounted using the equity method from December 10, 2002. Share
of losses for the period from December 10, 2002 to March 31, 2003**
    
    Associated companies of Sify. Share of losses for the period April
01, 2002 to December 09, 2002. Subsequently included in share of
losses of Sify.  Sify We continue to be the single largest shareholder of Sify, which
provides Internet services in India, even though our ownership interest in
Sify was reduced from 37.2% as at March 31, 2003 to 32.0% as at March 31,
2004. The holding in Sify reduced from 37.2% as at March 31, 2003 to 35.0%
as at July 31, 2003 due to Sifys private placements to Softbank Asia
Infrastructure Fund, or SAIF, and VentureTech Solutions Private Ltd, or
VentureTech, in December 2002, May 2003 and July 2003. Subsequent to
December 9, 2002, we have accounted for our interest in Sify under the
equity method of accounting, as we no longer hold a controlling interest in
Sify. We are under no future obligation to provide additional funds to Sify
and would be unwilling to do so. On June 23, 2003, Sifys shareholders approved sponsoring the sale of
its 4,600,200 unlisted Indian equity shares through a secondary issue of
Sifys American Depository Shares, or ADS. In September 2003, we sold
1,000,000 Indian equity shares out of our total holding of 12,182,600
Indian equity shares in Sify at a sale price of $4.40 (Rs.198.90) per share
as determined by Sify based on the recommendation of the lead manager to
the sponsored ADS program. The difference between the carrying value of
the investment in Sify as of September 30, 2003 and the sale proceeds
amounting to US$2.6 millon has been accounted for as a gain during the year
ended March 31, 2004 in the statement of operations. As are result of this
transaction, our ownership interest in Sify was reduced from 35.0% to its
current level of 32.0%.  Satyam Venture On October 28, 2000, we entered into an agreement with Venture
Industries to form an equally held joint venture company Satyam Venture
Engineering Services Private Limited or Satyam Venture. We hold 50% of
Satyam Venture and have invested $0.8 million for our share in the joint
venture. Satyam Venture is engaged in providing engineering solutions,
software development and customization services specifically for the
automotive industry worldwide.  CA Satyam On December 29, 2000, we entered into an agreement with Computer
Associates International, Inc. to form an equally held joint venture
company, CA Satyam ASP Private Limited or CA Satyam. We hold 50%
of CA Satyam. As per the agreement, both we and Computer Associates have
invested $1.5 million each in the joint venture. CA Satyam is engaged in
providing a portfolio of information and knowledge management solutions
that are intended to enhance employee productivity and organizational
agility. -26-




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##### Table of Contents



Satyam GE On June 30, 2002, we completed the transfer of 50% of the shares of
Satyam GE Software Services Private Limited, or Satyam GE, to GE Pacific
(Mauritius) Limited, or GEPL for a consideration of approximately $4.0
million. Our interest in Satyam GE was accounted for using the equity
method until June 30, 2002. During fiscal 2003, we recorded a gain of $830
thousand in the statement of operations for Satyam GE, the excess of
consideration received for the share sale over the carrying value as of
June 30, 2002. Deferred Stock-based Compensation We have 3 associate stock option plans: our Associated Stock Option
Plan, or ASOP, established in May 1998; our Associated Stock Option Plan B,
or ASOP B, established in May 1999; and our Associated Stock Option Plan
ADS, or ASOP ADS, established in May 1999. ASOP The aspects of the ASOP differ significantly from typical U.S. stock
option plans. We established a controlled associate welfare trust called
the Satyam Associate Trust, to administer the ASOP, and issued warrants to
purchase 13.0 million equity shares of Satyam Computer Services. To give
our associates the benefit of our stock split in September 1999, the Trust
exercised its warrants to acquire our shares before the split using the
proceeds from bank loans. The Trust periodically grants eligible associates
warrants to purchase equity shares held by or reserved for issuance by the
Trust. The warrants may vest immediately or may vest over a period ranging
from two to three years, depending on the associates length of service and
performance. Upon vesting, employees have 30 days in which to exercise
their warrants. Each warrant issued by the Trust currently entitles the
associate holding the warrant to purchase 10 equity shares of our company
at a price of Rs.450 ($10.4), plus an interest component associated with
the loan the Trust assumed, for the conversion of the warrants it held. The
interest component is computed based on a fixed vesting period and a fixed
interest rate. This exercise price has been substantially below the market
price of our shares at the time the warrants have been granted by the
Trust. Neither we nor the Trust may increase the exercise price of the
warrants. We account for the ASOP as a fixed plan in accordance with Accounting
Principles Board Opinion No. 25. Under U.S. GAAP, the difference between
the exercise price and the market price on the date the warrants are
granted to associates is required to be treated as a non-cash compensation
charge and amortized over the vesting period of the equity shares
underlying the warrants. Under U.S. GAAP, in fiscal 2004, 2003 and 2002, we
recognized deferred stock-based compensation of $776 thousand, $1.7 million
and $1.2 million, and $1.6 million, $3 million and $10.5 million was
amortized and charged to earnings, respectively. As of March 31, 2004,
warrants (net of forfeited and cancelled) to purchase 11,370,520 equity
shares have been granted to associates pursuant to ASOP, and warrants to
purchase 11,312,320 equity shares have been exercised. As of March 31,
2004, the Trust held warrants to purchase 1,629,480 equity shares that had
not yet been granted to associates pursuant to the ASOP but are expected to
be granted in the future. Under current accounting rules, we expect to
recognize amortization of deferred stock-based compensation expense in
respect of our ASOP in the approximate amounts of $6.1 million in fiscal
2005 and $0.6 million in fiscal 2006 based on the price of our equity
shares on March 31, 2004 and in connection with both granted and ungranted
warrants on such date. Depending on the market value of our equity shares
on the dates future grants are made, amortization of deferred stock-based
compensation expense with respect to ungranted warrants may cause the
expected amounts to change. ASOP B The ASOP B is substantially similar to the ASOP and is administered by
a committee of our board of directors. The Securities and Exchange Board of
India, or SEBI, guidelines state the exercise price as the average of the
two weeks high and low price of the share preceding the date of grant of
option on the stock exchange on which the shares of the company are
listed. However as per our special resolution in the last AGM, we opted
for higher of the following, a) the closing price of the shares on the date
of the meeting of the Compensation Committee convened to grant the stock
options, on the stock exchange where highest volumes are traded; or b) the
average of the two weeks high and low price of the share preceding the date
of grant of option on the stock exchange on which the shares of the company
are listed.. Under U.S. GAAP, in fiscal 2004, fiscal 2003 and fiscal 2002,
we recognized deferred stock-based compensation of $(14) thousand, $(11) -27-




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thousand and $6 thousand and $27 thousand, $58 thousand and $68
thousand was amortized and charged to earnings, respectively. As of March
31, 2004, options (net of forfeited and cancelled) to purchase 18,932,219
equity shares have been granted to associates under this plan and warrants
to purchase 1,421,738 equity shares have been exercised. We expect to
recognize amortization of deferred stock-based compensation expense in
respect of these granted options in the approximate amounts of $1.2
thousand in fiscal 2005 and $nil in fiscal 2006. Under current accounting
rules, we expect that the exercise prices of options granted in the future
under the ASOP B will generally be not less than the fair market value of
the underlying shares and therefore we do not expect to incur significant
compensation expense. We also account for the ASOP B as a fixed option
plan. ASOP ADS Under ASOP ADS, we periodically issue grants to eligible associates to
purchase ADSs. As of March 31, 2004, warrants (net of forfeited and
cancelled) for 1,326,418 ADSs representing 2,652,836 equity shares have
been granted to associates under the ASOP ADS, and warrants to purchase
144,986 ADSs representing 289,972 equity shares have been exercised. The
warrants issued under ASOP ADS could be at a price per option which is not
less than 90% of the value of one ADS as reported on NYSE (fair market
value) on the date of grant converted into Indian Rupees at the rate of
exchange prevalent on the day of grant. We account for the ASOP ADS as a
fixed option plan. We expect that the exercise prices of options granted
in the future under the plan will not be less than the fair market value of
the underlying ADSs and therefore we do not expect to incur compensation
expense with respect to those future grants under current accounting rules. On March 31, 2004, the Financial Accounting Standards Board (FASB or
the Board) issued an exposure draft (the ED) entitled Share-Based
Payment.If the ED is adopted by the Board, the final standard will
eliminate the guidance of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees(APB 25) and amend FASB
Statement No. 123, Accounting for Stock Based Compensation(FAS 123) and
FASB Statement No. 95, Statement of Cash Flows(FAS 95). The ED requires
that all public companies report share-based compensation expense at the
grant date fair value of the related share-based awards. If this
requirement goes into effect, it will represent a significant change in
practice of accounting for deferred stock based compensation for the
company. Revenues Our revenues are generated from professional services fees and product
development provided through three segments, IT services, BPO and software
products. Management evaluates performance based on stand-alone revenues
and net income for these segments. Up to March 31, 2003, Satyam provided segmental disclosures based on
three business groups: IT services, internet services and software
products. Pursuant to the above change in the operating segments, figures
for our internet services segment for fiscal 2003 and fiscal 2002 have been
included in IT service segment. Currently our executive management evaluates Satyams operating
segments based on the following three-business groups:  
    
    IT services, providing a comprehensive range of services,
including software development, packaged software integration,
system maintenance, engineering design services and internet
services. We provide our customers the ability to meet all of their
information technology needs from one service provider. Our
e-Business services include designing, developing integrating and
maintaining Internet-based applications, such as e-Commerce websites
and implementing packaged software applications such as customer or
supply chain management software applications. We also assist our
customers to make their existing computing systems accessible over
the Internet. We offer our customers flexible delivery alternatives
through our offshore centers located in India, through offsite
centers which we have established in our major markets and through
onsite teams operating on the customers premises.
    
    BPO, providing services covering human resources, finance &
accounting, customer contact (voice, mail and chat), and transaction
processing (industry-specific offerings). We provide outsourcing
solutions to varied industries like insurance and healthcare,
banking and financial services, transportation and tourism,
manufacturing and automotive, telecom and media, energy and
utilities and retail. -28-




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##### Table of Contents




    
    Software products. Through VCI, we developed VisionCompass, a
software product for use as a management tool to assess and help
improve business performance. On April 24, 2003, we decided to
discontinue VCIs operations and focus on our core business of
providing IT services. VC was formally dissolved on March 24, 2004. The following table sets forth the total revenues for our three
business segments for the years ended March 31, 2004, 2003, and 2002 (in
millions, except percentages): 2004
    
    2003
    
    2002Segment
    
    Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %IT Services
    
    
    565.4
    
    
    
    99.6
    %
    
    
    458.3
    
    
    
    99.8
    %
    
    
    413.9
    
    
    
    99.8
    %BPO
    
    
    2.4
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Software
Products
    
    
    0.1
    
    
    
    0.0
    
    
    
    1.1
    
    
    
    0.2
    
    
    
    0.9
    
    
    
    0.2Total
    
    
    567.9
    
    
    
    100.0
    %
    
    $
    459.4
    
    
    
    100.0
    %
    
    $
    414.8
    
    
    
    100.0
    %
 Our total revenues increased by 23.6% to $567.9 million in fiscal 2004
from $459.4 million in fiscal 2003 and 10.8% to $459.4 million in fiscal
2003 from $414.8 million in fiscal 2002. Our top two customers accounted
for 24.2% of our revenues in fiscal 2004 down from 24.9% of our revenues in
fiscal 2003. Additionally, our top 5 customers accounted for 36.4% of our
revenues in fiscal 2004 as compared to 38.4% in fiscal 2003. Our worldwide
technical headcount increased to 13,450 as of March 31, 2004 compared to
9,086 as of March 31, 2003, while the number of our technical associates
offshore increased by 3,294 and technical associates onsite increased by
1,070 during this period.  IT services Our IT services revenues (excluding inter-segment revenues)
represented 99.8%, 99.8% and 99.9% of our total revenues in fiscal 2004,
2003 and 2002 respectively. These revenues increased by 23.3% to $565.0
million in fiscal 2004 from $458.3 million in fiscal 2003 and 10.7% to
$458.3 million in fiscal 2003 from $413.9 million in fiscal 2002. This
growth of $106.7 million in revenue during fiscal 2004 was primarily the
result of an increase in business from existing customers and the
generation of new business from new customers. We added 108 and 100
customers during the year including 20 and 23 from the Fortune 500 list
during the fiscal 2004 and 2003 respectively.  BPO Nipuna, which commenced its operations in June 2002, generated
revenues of $2.4 million in fiscal 2004 of which $1.1 million was from
inter-segment revenues. Nipuna had 503 employees as on March 31, 2004.  Software products Revenues from software products to date have been immaterial. Expenses Cost of revenues.Cost of revenues increased by 24.8% to $343.6
million in fiscal 2004 from $275.2 million in fiscal 2003. Cost of
revenues represented 60.7% of revenues in fiscal 2004 and 59.9% in fiscal
2003. Inter-segment cost of revenues were $1.4 million in fiscal 2004 as
compared to $nil in fiscal 2003 and have not been allocated to the
individual components that make up cost of revenues. The increase in cost of revenues by $68.4 million to $343.6 million in
fiscal 2004 from $275.2 million in fiscal 2003 was attributable primarily
to increases in associate compensation and benefits expenses and traveling
expenses. Associate compensation and benefit expenses increased 36.2% to
$256.0 million or 45.2% of revenue in fiscal 2004 from $187.9 million in
fiscal 2003. The increase in the associate compensation and benefits is due
to: (1) increase in the total number of technical associates by 4,364 to
13,450 in fiscal 2004 from 9,086 in fiscal 2003; (2) increase in number of
onsite technical associates by 1,070 to 3,456 in fiscal 2004 from 2,386 in
fiscal 2003 for which we pay a higher compensation; and (3) On account of
salary increments (approximately 17%) given to associates during the year..
Traveling expenses increased 22.9% to $31.7 or 5.6% of revenue in fiscal
2004 from $25.8 million in fiscal 2003. These increases were partly
compensated by a -29-




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##### Table of Contents



decrease in deferred stock-based compensation, communication expenses
and depreciation expense. Deferred stock-based compensation expense
decreased by 46.5% to $0.9 million or 0.2% of revenues in fiscal 2004 from
$1.6 million or 0.3% of revenues in fiscal 2003. Communication expense
decreased by 60.0% to $5.1 million or 0.9% of revenues in fiscal 2004 from
$12.9 million or 2.8% of revenues in fiscal 2003 on account of
communication expenses of SIFY being included in fiscal 2003. Subsequent to
December 09, 2002, our ownership interest in Sify was accounted using the
equity method due to our reduced owner ship interest. Depreciation expense
decreased by 8.8% to $20.1 million or 3.5% of revenues in fiscal 2004 from
$22.1 million or 4.8% of revenues in fiscal 2003. Gross profit.Our gross profit was $222.8 million for fiscal 2004,
representing an increase of 21.1% over gross profit of $184.0 million for
fiscal 2003.As a percentage of total revenues, gross profit decreased to
39.3% for fiscal 2004 from 40.1% for fiscal 2003.This decrease was
attributable to the factors as explained in the cost of revenues above. Selling, general and administrative expense.Selling, general and
administrative expenses decreased 13.1% to $101.6 million in fiscal 2004
from $116.9 million in fiscal 2003. Selling, general and administrative
expenses represented 17.9% of revenues in fiscal 2004 as compared to 25.5%
of revenues in fiscal 2003. This decrease was a result primarily of
decreases in traveling expenses, deferred stock-based compensation expense,
depreciation expense and other expenses. These decreases were partially
offset by increase in associate compensation and benefits, communication
expenses and professional charges. Traveling expenses decreased 14.3% to
$8.7 million or 1.5% of revenues in fiscal 2004 from $10.1 million or 2.2%
of revenues in fiscal 2003. Depreciation expense decreased 70.5% to $4.1
million or 0.7% of revenues in fiscal 2004 from $13.8 million or 3.0% of
revenues in fiscal 2003. The decrease is primarily due to depreciation of
$9.7 million of Sify included in fiscal 2003. Subsequent to December 09,
2002, our ownership interest in Sify was accounted using the equity method
due to our reduced owner ship interest. Operating income (loss).Our operating income was $121.1 million for
fiscal 2004, representing an increase of 44.9% over the operating income of
$83.6 million for fiscal 2003. As a percentage of revenues, operating
income increased to 21.4% for fiscal 2004, from an operating income of
18.2% for fiscal 2003. This increase was due to (i) decrease in selling,
general and administrative expense from 25.5% of revenue in fiscal 2003 to
17.9% of revenues in fiscal 2004 and (ii) impairment of other
non-marketable investments of 0.7% of revenues during fiscal 2003. This
increase was partially offset by increase in cost of revenue from 59.9% of
revenues in fiscal 2003 to 60.7% of revenues in fiscal 2004 and due to
reversal of put option charge in fiscal 2003 which was 4.3% of revenue in
fiscal 2003. Interest income.Interest income increased to $20.3 million in fiscal
2004 from $7.2 million in fiscal 2003. This increase in interest was due to
(i) increase in bank deposits from $268.5 million at the end of fiscal 2003
to $338.5 million at the end of fiscal 2004 and (ii) transfer of deposits
placed in overseas banks to Indian banks yielding higher interest. Net income.Our net income was $111.9 million for fiscal 2004,
representing an increase of 35.9% over net income of $82.3 million for
fiscal 2003. As a percentage of total revenues, net income increased to
19.7% for fiscal 2004 from 18% for fiscal 2003. This was primarily due to
increase in operating income and increase in interest income. Operating
income increased from $83.6 million or 18.2% of revenue in fiscal 2003 to
$121.1 million or 21.4% of revenue in fiscal 2004. Interest income
increased from $7.2 million or 1.6% of revenue in fiscal 2003 to $20.3
million or 3.6% of revenue in fiscal 2004. These increases were offset by
decrease in minority interest in losses of subsidiaries and increase in
income tax expense. Minority interest in losses of subsidiaries decreased
from $11.1 million or 2.4% of revenue in fiscal 2003 to $nil in fiscal
2004. Income tax expense increased from $9.7 million or 2.1% of revenue in
fiscal 2003 to $22.5 million or 4.0% of revenue in fiscal 2004. This
increase in income tax expense was primarily due to increase in tax of $8.9
million on income from United States.  Foreign Currency Transactions / Translation In fiscal 2004 and fiscal 2003, 84.5% and 81.2%, respectively, of our
total revenues were generated in U.S. dollars. A significant amount of our
expenses were incurred in Indian Rupees and the balance was primarily
incurred in U.S. dollars, European currencies and Japanese yen. Our
functional currency and the functional currency for our subsidiaries
located in India is the Indian rupee; however, the Japanese yen, U.S.
dollars, -30-




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##### Table of Contents



Sterling pounds and Singapore dollars are the functional currencies of
our foreign subsidiaries located in Japan, the U.S., the U.K. and
Singapore, respectively. The translation of such foreign currencies into
U.S. dollars (our reporting currency) is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date
and for revenue and expense accounts using monthly simple average exchange
rates prevailing during the reporting periods. Adjustments resulting from
the translation of functional currency financial statements to reporting
currency are accumulated and reported as other comprehensive income, a
separate component of shareholders equity.  Risk management policy Our functional currency is the Indian Rupee, although we transact a
major portion of our business in US dollars and accordingly face foreign
currency exposure through our sales in the United States. Accordingly, we
are exposed to substantial risk on account of adverse currency movements in
global foreign exchange markets. The exchange rate between the rupee and
the dollar has changed substantially in recent years and may fluctuate
substantially in the future. We manage risk on account of foreign currency fluctuations through
treasury operations. Our risk management strategy is to identify risks we
are exposed to, evaluate and measure those risks, decide on managing those
risks, regular monitoring and reporting to management. The objective of our
risk management policy is to minimize risk arising from adverse currency
movements by managing the uncertainty and volatility of foreign exchange
fluctuations by hedging the risk to achieve greater predictability and
stability. Our risk management policies are approved by senior management
and include implementing hedging strategies for foreign currency exposures,
specification of transaction limits; specifying authority and
responsibility of the personnel involved in executing, monitoring and
controlling such transactions. We purchase forward foreign exchange contracts to mitigate the risk of
changes in foreign exchange rates on cash flows denominated in certain
foreign currencies. We enter into forward foreign exchange contracts where
the counter party is generally a bank. We consider the risks of
non-performance by the counter party as non-material. These foreign forward
exchange contracts mature between one and nine months. These contracts do
not qualify for hedge accounting under SFAS 133, as amended. Any derivative
that is either not a designated hedge, or is so designated but is
ineffective per SFAS 133, is marked to market and recognized in earnings. The following table gives details in respect of Satyams outstanding
foreign exchange forward contracts: As of March 31,2004
    
    2003(in thousands)Aggregate Contracted Principal amounts of Forward
exchange contracts (sell)
    
    $
    44,500
    
    
    $
    4,000Gains on outstanding foreign exchange forward contracts
    
    
    435
    
    
    
    43
 We expect that a majority of our revenues will continue to be
generated in U.S. dollars 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, our results of operations will be affected to the extent the
rupee appreciates/depreciates against the U.S. dollar. The average
exchange rate of rupee to US dollar for fiscal 2004 was 45.95 against 48.42
for fiscal 2003. At the end of fiscal 2004, rupee appreciated to 43.40
against 47.53 at the end of fiscal 2003. As a result, loss on foreign
exchange transactions was $ 8.9 million in fiscal 2004 as compared to a
loss of $4.8 million in fiscal 2003. As of May 31, 2004, we had outstanding foreign exchange contracts
worth $108.8 million with maturity dates over next ten months to cover the
risks of dollar to Rupee fluctuations. -31-




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##### Table of Contents



Results of Operations The following tables set forth selected operating data as value of
revenues by segment (including inter-segment revenues) for the periods
indicated: Year ended March 31, 2004IT
    
    
    
    
    
    Softwareservices
    
    BPO
    
    products
    
    Consolidation
    
    Total(in thousands)Statement of Operations Data:Revenues  external customers
    
    $
    565,028
    
    
    $
    1,293
    
    
    $
    51
    
    
    
    
    
    
    $
    566,372Inter  segment revenue
    
    
    405
    
    
    
    1,097
    
    
    
    72
    
    
    $
    (1,574
    )
    
    
    Total Revenues
    
    
    565,433
    
    
    
    2,390
    
    
    
    123
    
    
    
    (1,574
    )
    
    
    566,372Cost of revenues
    
    
    (343,072
    )1
    
    
    (1,932
    )
    
    
    
    
    
    
    1,408
    
    
    
    (343,596
    )Gross profit
    
    
    222,361
    
    
    
    458
    
    
    
    123
    
    
    
    (166
    )
    
    
    222,776Operating expenses:Selling, general and administrative expenses
    
    
    (96,959
    )2
    
    
    (4,513
    )
    
    
    (321
    )
    
    
    166
    
    
    
    (101,627
    )Total operating expenses
    
    
    (96,959
    )
    
    
    (4,513
    )
    
    
    (321
    )
    
    
    166
    
    
    
    (101,627
    )Operating income (loss)
    
    
    125,402
    
    
    
    (4,055
    )
    
    
    (198
    )
    
    
    
    
    
    
    121,149Interest income
    
    
    20,272
    
    
    
    36
    
    
    
    1
    
    
    
    
    
    
    
    20,309Interest expense
    
    
    (457
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (471
    )Gain on sale of shares of Sify
    
    
    2,651
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,652Gain/(loss) on foreign exchange transactions
    
    
    (8,869
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (8,874
    )Other income/(expense), net
    
    
    2,369
    
    
    
    (101
    )
    
    
    2
    
    
    
    
    
    
    
    2,270Income (loss) before income taxes, minority
interest and equity in earnings (losses) of
associated companies
    
    
    141,368
    
    
    
    (4,138
    )
    
    
    (195
    )
    
    
    
    
    
    
    137,035Income taxes
    
    
    (22,542
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (22,544
    )Equity in earnings (losses) of associated
companies, net of taxes
    
    
    (2,631
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,631
    )Net income (loss)
    
    $
    116,195
    
    
    $
    (4,140
    )
    
    $
    (195
    )
    
    
    
    
    
    $
    111,860Depreciation
    
    
    24,006
    
    
    
    388
    
    
    
    3
    
    
    
    
    
    
    
    24,397Deferred stock-based compensation
    
    
    1,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,625
   1
    
    Inclusive of deferred stock-based compensation expenses of $853 thousand.2
    
    Inclusive of deferred stock-based compensation expenses of $772 thousand. -32-




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##### Table of Contents



Year ended March 31, 2003IT
    
    
    
    
    
    Softwareservices
    
    BPO
    
    products
    
    Consolidation
    
    Total(in thousands)Statement of Operations Data:Revenues  external customers
    
    $
    458,336
    
    
    
    
    
    
    $
    871
    
    
    
    
    
    
    $
    459,207Inter  segment revenue
    
    
    
    
    
    
    
    
    
    
    253
    
    
    $
    (253
    )
    
    
    Total Revenues
    
    
    458,336
    
    
    
    
    
    
    
    1,124
    
    
    
    (253
    )
    
    
    459,207Cost of revenues
    
    
    (275,170
    )3
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    (275,219
    )Gross profit
    
    
    183,166
    
    
    
    
    
    
    
    1,075
    
    
    
    (253
    )
    
    
    183,988Operating expenses:Selling, general and administrative expenses
    
    
    (116,303
    )4
    
    
    
    
    
    
    (843
    )
    
    
    253
    
    
    
    (116,893
    )Impairment of other non marketable investments
    
    
    (3,299
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,299
    )Reversal of put option charge
    
    
    19,843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,843Total operating expenses
    
    
    (99,759
    )
    
    
    
    
    
    
    (843
    )
    
    
    253
    
    
    
    (100,349
    )Operating income
    
    
    83,407
    
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    83,639Interest income
    
    
    7,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,158Interest expense
    
    
    (800
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (800
    )Gain on sales of shares in Satyam GE
    
    
    830
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830Gain/(loss) on foreign exchange transactions
    
    
    (4,757
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,757
    )Other income/(expense), net
    
    
    (1,746
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,746
    )Income (loss) before income taxes, minority
interest and equity in earnings (losses) of
associated companies
    
    
    84,092
    
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    84,324Income taxes
    
    
    (9,769
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,769
    )Minority interest
    
    
    11,082
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,082Equity in earnings (losses) of associated
companies, net of taxes
    
    
    (3,339
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,339
    )Net income (loss)
    
    $
    82,066
    
    
    
    
    
    
    $
    232
    
    
    
    
    
    
    $
    82,298Depreciation
    
    $
    33,501
    
    
    
    
    
    
    $
    75
    
    
    
    
    
    
    $
    33,576Deferred stock-based compensation
    
    $
    4,521
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,521
   3
    
    Inclusive of deferred stock-based compensation expenses of $1,591 thousand.4
    
    Inclusive of deferred stock-based compensation expenses of $2,930 thousand. -33-




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##### Table of Contents



Year ended March 31, 2002IT
    
    
    
    
    
    Softwareservices
    
    BPO
    
    products
    
    Consolidation
    
    Total(in thousands)Statement of Operations Data:Revenues  external customers
    
    $
    413,906
    
    
    
    
    
    
    $
    585
    
    
    
    
    
    
    $
    414,491Inter  segment revenue
    
    
    18
    
    
    
    
    
    
    
    284
    
    
    $
    (302
    )
    
    
    Total Revenues
    
    
    413,924
    
    
    
    
    
    
    
    869
    
    
    
    (302
    )
    
    
    414,491Cost of revenues
    
    
    (240,145
    )5
    
    
    
    
    
    
    (177
    )
    
    
    18
    
    
    
    (240,304
    )Gross profit
    
    
    173,779
    
    
    
    
    
    
    
    692
    
    
    
    (310
    )
    
    
    174,187Operating expenses:Selling, general and administrative expenses
    
    
    (136,550
    )6
    
    
    
    
    
    
    (3,322
    )
    
    
    284
    
    
    
    (139,588
    )Amortization of goodwill
    
    
    (16,997
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,997
    )Impairment of goodwill
    
    
    (81,115
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81,115
    )Total operating expenses
    
    
    (234,662
    )
    
    
    
    
    
    
    (3,322
    )
    
    
    284
    
    
    
    (237,700
    )Operating income (loss)
    
    
    (60,883
    )
    
    
    
    
    
    
    (2,630
    )
    
    
    
    
    
    
    (63,513
    )Interest income
    
    
    3,806
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,806Interest expense
    
    
    (2,856
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,856
    )Gain on sales of shares in Sify
    
    
    45,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,594Gain/(loss) on foreign exchange transactions
    
    
    10,813
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,813Other income/(expense), net
    
    
    1,277
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,277Income (loss) before income taxes, minority
interest and equity in earnings (losses) of
associated companies
    
    
    (2,249
    )
    
    
    
    
    
    
    (2,630
    )
    
    
    
    
    
    
    (4,879
    )Income taxes
    
    
    (769
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (769
    )Minority interest
    
    
    73,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,406Equity in earnings (losses) of associated
companies, net of taxes
    
    
    (25,401
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,401
    )Net income (loss)
    
    $
    44,987
    
    
    
    
    
    
    $
    (2,630
    )
    
    
    
    
    
    $
    42,357Depreciation
    
    $
    37,102
    
    
    
    
    
    
    $
    384
    
    
    
    
    
    
    $
    37,486Deferred stock-based compensation
    
    $
    10,794
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,794
   5
    
    Inclusive of deferred stock-based compensation expenses of $7,212 thousand.6
    
    Inclusive of deferred stock-based compensation expenses of $3,582 thousand. -34-




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##### Table of Contents



The following tables set forth selected operating data as a percentage of
revenues by segment (including inter-segment revenues) for the periods
indicated: Year ended March 31, 2004IT
    
    
    
    
    
    Softwareservices
    
    BPO
    
    products
    
    TotalStatement of Operations Data:Revenues  external customers
    
    
    99.9
    %
    
    
    54.1
    %
    
    
    41.5
    %
    
    
    100.0
    %Inter  segment revenue
    
    
    0.1
    
    
    
    45.9
    
    
    
    58.5
    
    
    
    Total Revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenues
    
    
    (60.7
    )7
    
    
    (80.8
    )
    
    
    
    
    
    
    (60.7
    )Gross profit
    
    
    39.3
    
    
    
    19.2
    
    
    
    100.0
    
    
    
    39.3Operating expenses:Selling, general and administrative expenses
    
    
    (17.1
    )8
    
    
    (188.8
    )
    
    
    (261.0
    )
    
    
    (17.9
    )Total operating expenses
    
    
    (17.1
    )
    
    
    (188.8
    )
    
    
    (261.0
    )
    
    
    (17.9
    )Operating income (loss)
    
    
    22.2
    
    
    
    (169.6
    )
    
    
    (161.0
    )
    
    
    21.4Interest income
    
    
    3.6
    
    
    
    1.5
    
    
    
    0.8
    
    
    
    3.6Interest expense
    
    
    (0.1
    )
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.1
    )Gain on sales of shares in Sify
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.5Gain/(loss) on foreign exchange transactions
    
    
    (1.6
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (1.6
    )Other income/(expense), net
    
    
    0.4
    
    
    
    (4.2
    )
    
    
    1.6
    
    
    
    0.4Income (loss) before income taxes, minority
interest and equity in earnings (losses) of
associated companies
    
    
    25.0
    
    
    
    (173.1
    )
    
    
    (158.6
    )
    
    
    24.2Income taxes
    
    
    (4.0
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (4.0
    )Equity in earnings (losses) of associated
companies, net of taxes
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    20.5
    %
    
    
    (173.2
    )%
    
    
    (158.6
    )%
    
    
    19.7
    %Depreciation
    
    
    4.2
    %
    
    
    16.2
    %
    
    
    2.4
    %
    
    
    4.3
    %Deferred stock-based compensation
    
    
    0.3
    %
    
    
    
    
    
    
    
    
    
    
    0.3
    %
   7
    
    Inclusive of deferred stock-based compensation expenses of 0.2% of IT
services revenue.8
    
    Inclusive of deferred stock-based compensation expenses of 0.1% of IT
services revenue. -35-




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##### Table of Contents



Year ended March 31, 2003IT
    
    
    
    
    
    Softwareservices
    
    BPO
    
    products
    
    TotalStatement of Operations Data:Revenues  external customers
    
    
    100.0
    %
    
    
    
    
    
    
    77.5
    %
    
    
    100.0
    %Inter  segment revenue
    
    
    
    
    
    
    
    
    
    
    22.5
    
    
    
    Total Revenues
    
    
    100.0
    
    
    
    
    
    
    
    100.0
    
    
    
    100.0Cost of revenues
    
    
    (60.0
    )9
    
    
    
    
    
    
    (4.4
    )
    
    
    (59.9
    )Gross profit
    
    
    40.0
    
    
    
    
    
    
    
    95.6
    
    
    
    40.1Operating expenses:Selling, general and administrative expenses
    
    
    (25.4
    )10
    
    
    
    
    
    
    (75.0
    )
    
    
    (25.5
    )Impairment of other non marketable investments
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Reversal of put option charge
    
    
    4.3
    
    
    
    
    
    
    
    
    
    
    
    4.3Total operating expenses
    
    
    (21.8
    )
    
    
    
    
    
    
    (75.0
    )
    
    
    (21.9
    )Operating income
    
    
    18.2
    
    
    
    
    
    
    
    20.6
    
    
    
    18.2Interest income
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    1.6Interest expense
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Gain on sales of shares in Satyam GE
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Gain/(loss) on foreign exchange transactions
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Other income/(expense), net
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Income (loss) before income taxes, minority
interest and equity in earnings (losses) of
associated companies
    
    
    18.4
    
    
    
    
    
    
    
    20.6
    
    
    
    18.4Income taxes
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Minority interest
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    2.4Equity in earnings (losses) of associated
companies, net of taxes
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Net income (loss)
    
    
    18.0
    %
    
    
    
    
    
    
    20.6
    %
    
    
    18.0
    %Depreciation
    
    
    7.3
    %
    
    
    
    
    
    
    6.7
    %
    
    
    7.3
    %Deferred stock-based compensation
    
    
    1.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    1.0
    %
   9
    
    Inclusive of deferred stock-based compensation expenses of 0.3% of IT services revenue.10
    
    Inclusive of deferred stock-based compensation expenses of 0.7% of IT services revenue. -36-




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##### Table of Contents



Year ended March 31, 2002IT
    
    
    
    
    
    Softwareservices
    
    BPO
    
    products
    
    TotalStatement of Operations Data:Revenues  external customers
    
    
    100.0
    %
    
    
    
    
    
    
    67.3
    %
    
    
    100.0
    %Inter  segment revenue
    
    
    0.0
    
    
    
    
    
    
    
    32.7
    
    
    
    Total Revenues
    
    
    100.0
    
    
    
    
    
    
    
    100.0
    
    
    
    100.0Cost of revenues
    
    
    (58.0
    )11
    
    
    
    
    
    
    20.4
    
    
    
    (58.0
    )Gross profit
    
    
    42.0
    
    
    
    
    
    
    
    79.6
    
    
    
    42.0Operating expenses:Selling, general and administrative expenses
    
    
    33.0
    )12
    
    
    
    
    
    
    (382.3
    )
    
    
    (33.7
    )Amortization of goodwill
    
    
    (4.1
    )
    
    
    
    
    
    
    
    
    
    
    (4.1
    )Impairment of goodwill
    
    
    (19.6
    )
    
    
    
    
    
    
    
    
    
    
    (19.6
    )Total operating expenses
    
    
    (56.7
    )
    
    
    
    
    
    
    (382.3
    )
    
    
    (57.4
    )Operating income (loss)
    
    
    (14.7
    )
    
    
    
    
    
    
    (302.6
    )
    
    
    (15.3
    )Interest income
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Interest expense
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Gain on sale of shares of Sify
    
    
    11.0
    
    
    
    
    
    
    
    
    
    
    
    11.0Gain/(loss) on foreign exchange transactions
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    2.6Other income/(expense), net
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Income (loss) before income taxes, minority
interest and equity in earnings (losses) of
associated companies
    
    
    (0.6
    )
    
    
    
    
    
    
    (302.6
    )
    
    
    (1.2
    )Income taxes
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Minority interest
    
    
    17.7
    
    
    
    
    
    
    
    
    
    
    
    17.7Equity in earnings (losses) of associated
companies, net of taxes
    
    
    (6.1
    )
    
    
    
    
    
    
    
    
    
    
    (6.1
    )Net income (loss)
    
    
    10.8
    %
    
    
    
    
    
    
    (302.6
    )%
    
    
    10.2
    %Depreciation
    
    
    9.0
    %
    
    
    
    
    
    
    44.2
    %
    
    
    9.0
    %Deferred stock-based compensation
    
    
    2.6
    %
    
    
    
    
    
    
    
    
    
    
    2.6
    %
   11
    
    Inclusive of deferred stock-based compensation expenses of 1.7% of IT services revenue.12
    
    Inclusive of deferred stock-based compensation expenses of 0.9% of IT services revenue. -37-




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##### Table of Contents



Comparison of fiscal 2004 and 2003 The following year on year comparison is based on our reportable
segments.  IT Services: Our principal business is providing IT services and we provide our
customers with the ability to meet all of their IT needs from one service
provider.  Revenues Our IT services revenues (excluding inter-segment revenues)
represented 99.8%, 99.8% and 99.9% of our total revenues in fiscal 2004,
2003 and 2002 respectively. These revenues increased by 23.3% to $565.0
million in fiscal 2004 from $458.3 million in fiscal 2003 and 10.7% to
$458.3 million in fiscal 2003 from $413.9 in fiscal 2002. This growth of $106.7 million or 23.3% in IT services revenue fiscal
2004 was primarily the result of an increase in business from existing
customers and the generation of new business from new customers. Revenues
from existing customers increased 23.3% to $474.8 million in fiscal 2004
from $385.0 million in fiscal 2003. Revenues from new business increased by
23.1% to $90.2 million in fiscal 2004 from $73.3 million in fiscal 2003. We
added 108 and 100 customers during the year including 20 and 23 from the
Fortune 500 list during the fiscal 2004 and 2003 respectively. The revenue
share of Fortune 500 customers was 60.4%, both in fiscal 2004 and 2003. IT services revenues and gross profits are affected by the rate at
which associates are utilized. We calculate utilization rates on a monthly
basis, based on the ratio of the actual number of hours billed by technical
associates in such month to the total number of billable hours. For
purposes of such calculation, we assume that an associate is 100.0%
utilized if he works 157 hours per month. Utilization rates for IT
services were 81.4% and 80.4% in fiscal 2004 and fiscal 2003, respectively.
The utilization rate increased on account of new business and increase in
business from existing clients.  Revenues by technology The following table presents our IT services revenues (excluding
inter-segment revenues) by type of IT service offering (in millions, except
percentages). 2004
    
    2003
    
    Change 2004 over 2003Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %Software development
    
    $
    268.1
    
    
    
    47.4
    %
    
    $
    214.1
    
    
    
    46.7
    %
    
    $
    54.0
    
    
    
    25.2
    %System maintenance
    
    
    132.0
    
    
    
    23.4
    
    
    
    108.6
    
    
    
    23.7
    
    
    
    23.4
    
    
    
    21.5Packaged software integration
    
    
    144.0
    
    
    
    25.5
    
    
    
    94.3
    
    
    
    20.6
    
    
    
    49.7
    
    
    
    52.7Engineering design services
    
    
    20.9
    
    
    
    3.7
    
    
    
    15.6
    
    
    
    3.4
    
    
    
    5.3
    
    
    
    34.0Internet services
    
    
    
    
    
    
    
    
    
    
    25.7
    
    
    
    5.6
    
    
    
    (25.7
    )
    
    
    -100.0Total IT services
    
    $
    565.0
    
    
    
    100.0
    %
    
    $
    458.3
    
    
    
    100.0
    %
    
    $
    106.7
    
    
    
    23.3
    %
 During fiscal 2004, revenues from packaged software integration has
shown significant growth of 52.7%, followed by engineering design services
and software development, which grew by 34% and 25.2% respectively. We
expect these trends to continue in the near future. Our ownership interest in Sify has been accounted using the equity
method since December 10, 2002. As a result, revenues from internet
services were Nil in fiscal 2004 as compared to $ 25.7 million in fiscal
2003.  Revenues by contract type The following table gives the composition of IT services revenues
(excluding inter-segment revenues) by type of contract (in millions, except
percentages). -38-




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##### Table of Contents



2004
    
    2003Amount
    
    %
    
    Amount
    
    %Time and material basis
    
    $
    386.1
    
    
    
    68.3
    %
    
    $
    332.2
    
    
    
    72.5
    %Fixed-price basis
    
    
    178.9
    
    
    
    31.7
    
    
    
    126.1
    
    
    
    27.5Total IT services
    
    $
    565.0
    
    
    
    100.0
    %
    
    $
    458.3
    
    
    
    100.0
    %
 Our revenues are generated principally from IT services provided on
either a time-and-material or a fixed-price basis. Revenues from IT service
provided on a time-and-material basis are recognized in the period that
services are performed. Revenues from IT services provided on a fixed-price
basis are recognized under the percentage of completion method of
accounting when the work executed can be reasonably estimated. The
percentage of completion estimates are subject to periodic revisions and
the cumulative impact of any revision in the estimates of the percentage of
completion is reflected in the period in which the changes become known.
Although from time to time we have revised our project completion
estimates, to date such revisions have not materially affected our reported
revenues. Revenues from IT services (excluding inter-segment revenues) provided
on a time-and-materials basis increased to 68.3% from 72.5% in fiscal 2003
and revenues from fixed-price basis increased to 31.7% from 27.5% in fiscal
2003. The increase in fiscal 2004 for fixed bid contracts is primarily due
to shift in type of contracts from time-and-material to fixed bid since
based on current market trends majority of the customers prefer to enter in
to fixed price contracts. We expect that revenue from fixed bid contract
will continue to increase in fiscal 2005 since current market trend
indicate customer preference towards fixed price contracts.  Revenues based on offshore and onsite / offsite The following tables gives the composition of revenues from IT
services (excluding inter-segment revenues) based on the location where
services are performed (in millions, except percentages). 2004
    
    2003Amount
    
    %
    
    Amount
    
    %Off shore
    
    $
    248.2
    
    
    
    43.9
    %
    
    $
    215.2
    
    
    
    47.0
    %Onsite/off-sites
    
    
    316.8
    
    
    
    56.1
    
    
    
    243.1
    
    
    
    53.0Total IT services
    
    $
    565.0
    
    
    
    100.0
    %
    
    $
    458.3
    
    
    
    100.0
    %
 We provide our IT services through our offshore centers located
throughout India, through our onsite teams on customers premises and
through our offsite centers in United States, United Kingdom, Japan,
Australia, Singapore, Malaysia, Dubai, Germany, Canada and China. Offshore IT services revenues consist of revenues from IT services
work conducted in our offshore centers and onsite work conducted at
customers premises which is related to offshore work. Offshore IT services
revenues do not include revenues from offsite centers or onsite work which
is not related to any offshore work. We charge higher rates and incur higher compensation expenses for work
performed by our onsite teams on a customers premises or at our offsite
centers as compared to work performed at our offshore centers in India.
Services performed by our onsite teams or at our offsite centers typically
generate higher revenues per capita but at a lower gross margin than the
same amount of services performed at our offshore centers in India. The onsite percentage increased as a result of new engagements during
fiscal 2004, since in the early stages of new engagements we require
extensive interactions with customers to understand the business scenario
and create the right process and the methodology before we move the work
offshore at the most appropriate time. Revenues from new customers
increased by 23.1% to $90.2 million in fiscal 2004 from $73.3 million in
fiscal 2003. During fiscal 2003, revenues from new customers increased by
11.9% to $73.3 million from $65.5 million in fiscal 2002. -39-




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##### Table of Contents



We have set up a Global Business Continuity Center in Singapore and a
Global Solution Center in Malaysia as an integral part of our business
continuity plan. With development centers spread across 15 cities across
the globe, we have the ability to commence work at a number of alternate
sites in case of an emergency.  Revenues based on geography The following table gives the composition of our revenues based on the
location of our customers (in millions, except percentages). 2004
    
    2003Amount
    
    %
    
    Amount
    
    %North America
    
    $
    413.9
    
    
    
    73.3
    %
    
    $
    335.1
    
    
    
    73.1
    %Europe
    
    
    77.5
    
    
    
    13.7
    
    
    
    53.3
    
    
    
    11.6Japan
    
    
    11.1
    
    
    
    2.0
    
    
    
    10.5
    
    
    
    2.3India
    
    
    16.0
    
    
    
    2.8
    
    
    
    27.8
    
    
    
    6.1Rest of the World
    
    
    46.5
    
    
    
    8.2
    
    
    
    31.6
    
    
    
    6.9Total
    
    $
    565.0
    
    
    
    100.0
    %
    
    $
    458.3
    
    
    
    100.0
    %
 Of the total increase of $106.7 million in revenue in fiscal 2004,
$78.8 million increased in North America followed by $24.2 million in
Europe. Revenue in rest of the world increased by $14.9 million and in
Japan by $0.6 million. This was partly offset by a decrease in revenue in
India by $11.8 million. Revenues in India included revenue from internet
services of $nil in fiscal 2004 and $23.1 million in fiscal 2003. This
decline in revenues in India is due to Sify ceasing to be our subsidiary
w.e.f. December 10, 2002. Our increased business in the North America and Europe was due to new
clients and additional business from existing customers. We expect that
most of our revenues will be generated in North America, followed by
Europe, in fiscal 2005. Cost of Revenues.Cost of revenues increased by 24.7% to $343.1
million in fiscal 2004 from $275.2 million in fiscal 2003. Cost of
revenues represented 60.7% of IT services revenues in fiscal 2004 and 60.0%
in fiscal 2003. This increase by $67.9 million was attributable primarily
to increases in associate compensation and benefits expenses and traveling
expenses. This increase was partially offset by decrease in depreciation
expense and other expenses. Associate compensation and benefits expenses
increased by 36.3% to $256.1 million, or 45.3% of revenues, in fiscal 2004
from $187.9 million, or 41% of revenues, in fiscal 2003. The increase in
the associate compensation and benefits is due to: (1) increase in the
total number of technical associates by 4,096 to 13,182 in fiscal 2004 from
9,086 in fiscal 2003; (2) increase in number of onsite technical associates
by 1,038 to 3,444 in fiscal 2004 from 2,386 in fiscal 2003 for which we pay
a higher compensation; (3) an increase of existing salaries by 17% in
fiscal 2004. Traveling expenses increased 21.4% to $31.3 million, or 5.5%
of revenues, in fiscal 2004 from $25.8 million, or 5.6% of revenues, in
fiscal 2003. These increases were partly compensated by a decrease in
deferred stock based compensation, communication expenses and depreciation
expense. Deferred stock-based compensation decreased by 46.5% to $0.9
million in fiscal 2004 from $1.6 million in fiscal 2003 as a majority of
options granted had a vesting date till March 2003. Communication expense
decreased by 60.0% to $5.1 million or 0.9% of revenues in fiscal 2004 from
$12.9 million or 2.8% of revenues in fiscal 2003 due to communication
expenses of SIFY being included in fiscal 2003. Our ownership interest in
Sify has been accounted using the equity method since December 10, 2002.
Depreciation expense decreased 8.8% to $20.1 million, or 3.6% of revenues,
in fiscal 2004 from $22.1 million, or 4.8% of revenues, in fiscal 2003. Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 16.6% to $97.0 million in fiscal 2004
from $116.3 million in fiscal 2003. Selling, general and administrative
expenses represented 17.1% of revenues in fiscal 2004 and 25.4% in fiscal
2003. This decrease was attributable primarily to decrease in depreciation,
traveling expenses, deferred stock-based compensation and other expenses.
Depreciation decreased 73.3% to $3.7 million or 0.6% of revenue in fiscal
2004 from $13.7 million or 3.0% of revenue in fiscal 2003. The decrease is
primarily due to depreciation of $9.7 million included in fiscal 2003,
pertaining to Sifys assets up to December 9, 2002 after which ceased it to
be our subsidiary. Traveling expenses decreased 18.2% to $8.3 million or
1.5% of revenue in fiscal 2004 from $10.1 million or 2.2% of revenue in
fiscal 2003. Deferred stock-based compensation expense decreased 73.7% to
$0.8 million or 0.1% of revenue in fiscal 2004 from $2.9 million or 0.6% of
revenue in fiscal 2003. Other expenses primarily comprised -40-




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##### Table of Contents



of rent, power and fuel, repairs and maintenance and training and
development. Other expenses decreased 14% to $34.5 million or 6.1% of
revenue in fiscal 2004 from $40.2 million or 8.8% of revenue in fiscal
2003. This decrease was partially offset by increase in marketing expense
by 12.7% to $10.3 million in fiscal 2004 from $9.2 million. Operating income (loss).Our operating income was $125.4 million for
fiscal 2004, representing an increase of 50.3% over the operating income of
$83.4 million for fiscal 2003. As a percentage of revenues, operating
income increased to 22.2% for fiscal 2004, from 18.2% for fiscal 2003. This
increase was due to (i) decrease in selling, general and administrative
expense from 25.4% of revenue in fiscal 2003 to 17.1% of revenues in fiscal
2004 and (ii) impairment of other non-marketable investments of $3.3
million or 0.7% of revenues during fiscal 2003. This increase was partially
offset by increase in cost of revenue from 60.0% of revenues in fiscal 2003
to 60.7% of revenues in fiscal 2004 and due to reversal of put option
charge in fiscal 2003 which was $19.8 million or 4.3% of revenue in fiscal
2003. Interest income.Interest income increased to $20.3 million in fiscal
2004 from $7.2 million in fiscal 2003.This increase in interest was due to
(i) increase in bank deposits from $268.5 million at the end of fiscal 2003
to $338.5 million at the end of fiscal 2004 and (ii) transfer of deposits
placed in overseas banks to Indian banks yielding higher interest. Gain on sale of shares in Sify.In September 2003, we sold 1,000,000
of our 12,182,600 Sify equity shares through Sifys sponsored ADS program.
The sale transaction was privately negotiated and closed at a sale price of
$4.35 (Rs.198.9) per share.The difference between the carrying value of the
investment in Sify as of September 30, 2003 and the sales proceeds
amounting to $2.6 million has been accounted for as a gain during the year
ended March 31, 2004, in the statement of operations. Gain/(loss) on foreign exchange transactions.In fiscal 2004 and
fiscal 2003, 84.5% and 80.6%, respectively, of our revenues were generated
in U.S. dollars. The average exchange rate of rupee to US dollar for fiscal
2004 was 45.23 against 45.8 for fiscal 2003. As at March 31, 2004, the
rupee appreciated to 43.40 to $1.00 against 47.53 as at March 31, 2003. On
account of rupee appreciation, our loss on foreign exchange transactions
was $8.9 million in fiscal 2004 as compared to a gain of $4.8 million in
fiscal 2003. Other income/ (expenses), net.Other income increased to $2.4 million
in fiscal 2004 as compared to other expense of $1.7 million in fiscal 2003.
This increase in other income was primarily due to increase in gains on
forward exchange contracts to $2.4 million in fiscal 2004 from $56 thousand
in fiscal 2003. Income taxes.Income taxes were $22.5 million in fiscal 2004 as
compared to $9.8 million in fiscal 2003. This increase in income taxes is
primarily due to increase in income taxable in United States. Minority Interest.Minority interest in losses of subsidiaries
decreased to $nil in fiscal 2004 from $11.1 million in fiscal 2003. This is
primarily because our ownership interest in SIFY has been accounted using
the equity method since December 10, 2002.. Equity in earnings (losses) of associated companies.Equity losses of
associated companies were $2.6 million in fiscal 2004 as compared to $3.3
million in fiscal 2003. This decrease was primarily due to reduced holding
in Sify from 37.2% as at March 31, 2003 to 32.0% as at March 31, 2004. Net income.Our net income was $116.2 million for fiscal 2004,
representing an increase of 41.6% over net income of $82.1 million for
fiscal 2003. As a percentage of total revenues, net income increased to
20.5% for fiscal 2004 from 18.0% for fiscal 2003. This increase in net
income was primarily due to decrease in selling, general and administration
expenses from 40.0% of revenue in fiscal 2003 to 39.3% of revenue in fiscal
2004, impairment of other non-marketable investments of $3.3 million or
0.7% of revenue in fiscal 2003, increase in interest income from 1.6% of
revenue in fiscal 2003 to 3.6% of revenue in fiscal 2004 and increase in
other income/(net of expenses) from (0.4)% of revenue in fiscal 2003 to
0.4% of revenue in fiscal 2004. This increase in net income was offset by
decrease in gross profit from 40.0% of revenue in fiscal 2003 to 39.3% of
revenue in fiscal 2004, reversal of put option charge of 4.3% of revenue in
fiscal 2003 and increase in loss on foreign exchange transactions from 1.0%
of revenue to 1.6% of revenue in fiscal 2004. -41-




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##### Table of Contents



BPO On June 05, 2002, we formed Nipuna Services Limited or Nipuna, a
wholly owned subsidiary in Secunderabad, Andhra Pradesh, India to provide
various services connected with business process outsourcing. As of March
31, 2004, we had invested $4.0 million in Nipuna.  Software products In fiscal 2004, VCI has generated revenues of $123 thousand of which
$72 thousand was from inter-segment revenues. VCI generated a net loss of
$0.2 million in fiscal 2004. Revenues from software products to date have
been immaterial. The net loss of $0.2 million in fiscal 2004 as compared to
the net profit of $0.2 million in fiscal 2003 was primarily due to the
decrease in revenue to $123 thousand in fiscal 2004 as compared to $1.1
million in fiscal 2003. This was compensated by decrease in selling,
general and administration expenses, to $321 thousand in fiscal 2004 as
compared to $843 thousand in fiscal 2003. Keeping in view the business and economic conditions, the relative
size and managerial time, we decided to discontinue the operations of VCI
so as to focus on our core business of IT services. VC was formally
dissolved on March 24, 2004. Comparison of fiscal 2003 and 2002  Revenues Revenues increased by 10.8% to $459.2 million in fiscal 2003 from
$414.5 million in fiscal 2002. Our top two customers accounted for 24.9% of
the total revenues in 2003 up from 25.2% of the total revenues in 2002.
Additionally, our top 5 customers accounted for 38.4% of the revenues, both
in 2003 and 2002. IT Services.IT services revenues (including inter-segment revenues)
increased 10.7% to $458.3 million in fiscal 2003 from $413.9 million in
fiscal 2002, of which $nil and $18 thousand represented inter-segment
revenues in fiscal 2003 and 2002, respectively. All revenues discussed in
this sub-section relate only to IT services revenues generated from
external customers and exclude inter-segment revenues generated from
services provided by Satyam Computer Services to its subsidiaries and
vice-versa. Software Products.Revenues from software products to date have been
immaterial. Cost of revenues.Cost of revenues increased 14.5% to $275.2 million
in fiscal 2003 from $2403 million in fiscal 2002. This increase was
attributable primarily to increases in associate compensation and benefits
expenses and traveling expenses. These increases were primarily compensated
by a decrease in other expenses. Associate compensation and benefits
expenses increased 29.3% to $187.9 million, or 41.0% of revenues, in fiscal
2003 from $145.4 million, or 35.1% of revenues, in fiscal 2002. Traveling
expenses increased 47.2% to $25.8 million, or 5.6% of revenues, in fiscal
2003 from $17.5 million, or 4.2% of revenues, in fiscal 2002. Other
expenses were primarily comprised of cost of direct supplies, deferred
stock-based compensation expense and communication expenses. Other expenses
decreased 29.1% to $39.4 million, or 8.6% of revenues, in fiscal 2003 from
$55.6 million, or 13.4% of revenues, in fiscal 2002. Deferred stock-based
compensation expense decreased 78.0% to $1.6 million, or 0.3% of revenues,
in fiscal 2003 from $7.2 million, or 1.7% of revenues, in fiscal 2002.
Communication expenses decreased 30.8% to $12.8 million, or 2.8% of
revenues, in fiscal 2003 from $18.5 million, or 4.5% of revenues, in fiscal
2002. Inter-segment cost of revenues were $nil in fiscal 2003 as compared
to $18 thousand in fiscal 2002 and have not been allocated to the
individual components that make up cost of revenues. Cost of revenues
represented 59.9% of revenues in fiscal 2003 and 58.0% in fiscal 2002. Gross profit.Our gross profit was $183.9 million for fiscal 2003,
representing an increase of 5.6% over gross profit of $174.2 million for
fiscal 2002. As a percentage of total revenues, gross profit reduced to
40.1% for fiscal 2003 from 42.0% for fiscal 2002. Selling, general and administrative expenses.Selling, general and
administrative expenses decreased 16.3% to $116.9 million in fiscal 2003
from $139.6 million in fiscal 2002. This decrease was a result primarily of
decrease in associate compensation and benefits, deferred stock-based
compensation expense, professional charges, depreciation expense and other
expenses. Compensation and benefits expenses decreased 17.2% to -42-




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$36.8 million, or 8.0% of revenues, in fiscal 2003 from $44.4 million,
or 10.7% of revenues, in fiscal 2002. Deferred stock-based compensation
expense decreased 18.2% to $2.9 million, or 0.6% of revenues, in fiscal
2003 from $3.6 million, or 0.9% of revenues, in fiscal 2002. Professional
charges decreased 33.2% to $8.0 million, or 1.7% of revenues, in fiscal
2003 from $11.9 million, or 2.9% of revenues, in fiscal 2002. Depreciation
expense decreased 12.8% to $13.8 million, or 3.0% of revenues, in fiscal
2003 from $15.8 million, or 3.8% of revenues, in fiscal 2002. Other
expenses decreased 13.2% to $55.4 million, or 12.1% of revenues, in fiscal
2003 from $63.8 million, or 15.4% of revenues, in fiscal 2002.
Inter-segment selling, general and administrative expenses were $253
thousand in fiscal 2003 as compared to $284 thousand in fiscal 2002 and
have not been allocated to the individual components that make up selling,
general and administrative expenses. Selling, general and administrative
expenses represented 25.5% of revenues in fiscal 2003 as compared to 33.7%
of revenues in fiscal 2002. Operating income (loss).Operating income increased to $83.6 million
in fiscal 2003 as compared to an operating loss of $63.5 million in fiscal
2002. During fiscal 2002, operating expenses comprised of $98.1 million due
to amortization and impairment of goodwill. Also, gross profit increased by
$9.8 million from 174.2 million in fiscal 2003 to $184.0 million in fiscal
2004; selling, general and administration expenses decreased by $22.7
million from $139.6 million in fiscal 2003 to $116.9 million in fiscal
2004. Net income (loss).Net income was $82.3 million in fiscal 2003 as
compared to a net income of $42.4 million in fiscal 2002.  IT Services Revenues.IT services revenues (including inter-segment revenues)
increased 10.7% to $458.3 million in fiscal 2003 from $413.9 million in
fiscal 2002, of which $nil and $18 thousand represented inter-segment
revenues in fiscal 2003 and 2002, respectively. All revenues discussed in
this sub-section relate only to IT services revenues generated from
external customers and exclude inter-segment revenues generated from
services provided by Satyam Computer Services to its subsidiaries and
vice-versa.  Revenues by technology The following table presents our IT services revenues (excluding
inter-segment revenues) by technology of IT service offering (in millions,
except percentages). 2003
    
    2002
    
    Change 2003 over 2002Type of IT service offering
    
    Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %Software development
    
    $
    214.1
    
    
    
    46.7
    %
    
    $
    195.5
    
    
    
    47.2
    %
    
    $
    18.6
    
    
    
    9.5
    %System maintenance
    
    
    108.6
    
    
    
    23.7
    
    
    
    110.2
    
    
    
    26.6
    
    
    
    (1.6
    )
    
    
    (1.5
    )Packaged software integration
    
    
    94.3
    
    
    
    20.6
    
    
    
    53.0
    
    
    
    12.8
    
    
    
    41.3
    
    
    
    77.9Engineering design services
    
    
    15.6
    
    
    
    3.4
    
    
    
    18.6
    
    
    
    4.5
    
    
    
    (3.0
    )
    
    
    (16.1
    )Internet services
    
    
    25.7
    
    
    
    5.6
    
    
    
    36.6
    
    
    
    8.9
    
    
    
    (10.9
    )
    
    
    (29.8
    )Total IT services
    
    $
    458.3
    
    
    
    100.0
    %
    
    $
    413.9
    
    
    
    100.0
    %
    
    $
    44.4
    
    
    
    10.7
    %
  Revenues by contract type The following table gives the composition of IT services by type of
contract (in millions, except percentages). 2003
    
    2002Type of IT service offering
    
    Amount
    
    %
    
    Amount
    
    %Time and material basis
    
    $
    332.2
    
    
    
    72.5
    %
    
    $
    331.3
    
    
    
    80.0
    %Fixed price basis
    
    
    126.1
    
    
    
    27.5
    
    
    
    82.6
    
    
    
    20.0Total IT services
    
    $
    458.3
    
    
    
    100.0
    %
    
    $
    413.9
    
    
    
    100.0
    %
 Our revenues are generated principally from IT services provided on
either a time-and-material or a fixed-price basis. Revenues from IT service
provided on a time-and-material basis are recognized in the period that
services are performed. Revenues from IT services provided on a fixed-price
basis are recognized under the -43-




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percentage of completion method of accounting when the work executed
can be reasonably estimated. The percentage of completion estimates are
subject to periodic revisions and the cumulative impact of any revision in
the estimates of the percentage of completion is reflected in the period in
which the changes become known. Although from time to time we have revised
our project completion estimates, to date such revisions have not
materially affected our reported revenues.  Revenues based on offshore and onsite / off site The following tables give the composition of revenues from IT services
based on the location where services are performed (in millions, except
percentages). 2003
    
    2002Amount
    
    %
    
    Amount
    
    %Offshore
    
    $
    215.2
    
    
    
    47.0
    %
    
    $
    216.6
    
    
    
    52.3
    %Onsite/off-sites
    
    
    243.1
    
    
    
    53.0
    
    
    
    197.3
    
    
    
    47.7Total IT services
    
    $
    458.3
    
    
    
    100.0
    %
    
    $
    413.9
    
    
    
    100.0
    %
 Offshore IT services revenues consist of revenues from IT services
work conducted in our offshore centers and onsite work conducted at
customers premises which is related to offshore work. Offshore IT services
revenues do not include revenues from offsite centers or onsite work which
is not related to any offshore work. We charge higher rates and incur higher compensation expenses for work
performed by our onsite teams on a customers premises or at our offsite
centers as compared to work performed at our offshore centers in India.
Services performed at our onsite teams or at our offsite centers typically
generate higher revenues per capita but at a lower gross margin than the
same amount of services performed at our offshore centers in India.  Revenues based on geography Our revenues based on five geographic theaters: North America, India,
Japan, Europe and Rest of the World for fiscal 2003 and 2002 is summarized
in the following table (in millions, except percentages): 2003
    
    2002Amount
    
    %
    
    Amount
    
    %North America
    
    $
    335.1
    
    
    
    73.1
    %
    
    $
    288.8
    
    
    
    69.8
    %Europe
    
    
    53.3
    
    
    
    11.6
    
    
    
    39.2
    
    
    
    9.5Japan
    
    
    10.5
    
    
    
    2.3
    
    
    
    9.2
    
    
    
    2.2India
    
    
    27.9
    
    
    
    6.1
    
    
    
    42.4
    
    
    
    10.2Rest of the World
    
    
    31.5
    
    
    
    6.9
    
    
    
    34.3
    
    
    
    8.3Total
    
    $
    458.3
    
    
    
    100.0
    %
    
    $
    413.9
    
    
    
    100.0
    %
 For purposes of the remainder of the discussion of the results of
operations for our business segments, except as specifically indicated, we
have included all inter-segment data for all items under discussion. Please
refer to the Results of Operations table above for an analysis of
consolidation of the business segments. Cost of revenues.Cost of revenues increased 14.6% to $275.2 million
in fiscal 2003 from $240.1 million in fiscal 2002. Cost of revenues
represented 60.0% of revenues in fiscal 2003 as compared to 58.0% in fiscal
2002. The increase in cost of revenues was attributable primarily to an
increase in associate compensation and benefits and traveling expenses.
Compensation and benefit expenses increased 29.3% to $187.9 million or
41.0% of revenues in fiscal 2003 from $145.4 million, or 35.1% of revenues,
in fiscal 2002 respectively. Traveling expense increased 47.2% to
$25.8 million, or 5.6% of revenues, in fiscal 2003 from $17.5 million, or
4.2% of revenues, in fiscal 2002. These increases were partly offset by
decrease in deferred stock-based compensation expense, communication
expense and other expenses. Deferred stock-based compensation expense
decreased 78.0% to $1.6 million, or 0.3% of revenues, in fiscal 2003 from
$7.2 million, or 1.7% of revenues. Communication expenses decreased 30.4%
to $12.8 million, or 2.8% of revenues, in fiscal 2003 from $18.5 million,
or 4.5% of revenues, in fiscal 2002. Other expenses primary comprised cost
of direct supplies, rental expenses and professional charges. Other
expenses decreased 16.5% to $25.0 million, or 5.4% of revenues, in fiscal
2003 from $29.9 million, or 7.2% of revenues, in fiscal 2002. -44-




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Selling, general and administrative expenses.Selling, general and
administrative expenses decreased 14.8% to $116.3 million in fiscal 2003
from $136.6 million in fiscal 2002. Selling, general and administrative
expenses represented 25.4% of revenues in fiscal 2003 as compared to 33.0%
in fiscal 2002. The decrease in selling, general and administrative
expenses was attributable primarily to an decrease in compensation and
benefit expenses, professional charges, deferred stock compensation expense
and other expenses. Compensation and benefit expenses decreased 15.3% to
$36.3 million, or 7.9% of revenues, in fiscal 2003 from $42.9 million, or
10.4% of revenues, in fiscal 2002. Professional charges decreased 31.0% to
$8.0 million, or 1.7% of revenues, in fiscal 2003 from $11.5 million, or
2.8% of revenues, in fiscal 2002. Deferred stock-based compensation
expenses decreased 18.2% to $2.9 million, or 0.6% of revenues, in fiscal
2003 from $3.6 million, or 0.9% of revenues, in fiscal 2002. Other expenses
decreased 12.3% to $55.3 million, or 12.1% of revenues, in fiscal 2003 from
$63.1 million, or 15.2% of revenues, in fiscal 2002. Impairment of other non-marketable investments.During the year ended
March 31, 2003 we recorded an impairment charge on other non-marketable
investments amounting to $3.3 million based on our assessment of their
carrying values. We assessed the carrying values of these investments by
considering current factors including economic environment, market
conditions and the operational performance and other specific factors
relating to the business underlying these investments and concluded that
there is an other than temporary decline in their carrying value. Reversal of put option charge.In connection with our previous joint
venture with TRW Inc., TRW had the option to require us to purchase its
24.0% interest in the joint venture. The buyout price of TRWs interest in
the joint venture depended on the aggregate amount of revenue which TRW
would provide to the joint venture from June 1, 2000 to December 31, 2005.
We accounted for the put option at fair value at each balance sheet date,
with the initial fair value of the put option included as part of the
consideration for its 24% interest in the joint venture. The difference
between the fair values of the put option at each valuation date was
charged to selling, general and administration expenses in the statement of
operations. Based on the terms of the agreement, the value of put option
was $12.5 million as of March 31, 2002. In October 2002, Northrop Grumman Corporation acquired TRW and
subsequently TRWs name was changed to Northrop Grumman Space & Mission
Systems Corporation (NGSM). Following the restructuring of TRW, we
entered into a share purchase and joint venture termination agreement with
NGSM and BDM International Inc. (or NGSM Parties) under which we purchased
the 24% holding of NGSM Parties in the joint venture for $3.5 million and
the prospects of future business opportunities with Northop, on March 28,
2003. The acquisition has been accounted using the purchase method and the
allocation of the purchase price was almost entirely related to goodwill.
We recognized goodwill of $3.4 million on this acquisition equal to the
excess of the consideration paid of $3.5 million over the fair value of
that portion of the net assets acquired as of March 28, 2003. In accordance
with the provisions of SFAS 142, the goodwill has not been amortized post
acquisition. As a result of our acquisition of this 24% interest in the
joint venture, the value of the put option as of December 31, 2002
amounting to $19.8 million has been accounted for as operating income in
the year ended March 31, 2003. Goodwill.Effective April 1, 2002, we adopted Statement of Financial
Accounting Standards No. 142 or SFAS 142, Goodwill and Other Intangible
Assets. SFAS 142 requires, among other things, the discontinuance of
amortization related to goodwill and indefinite lived intangible assets.
These assets will then be subject to an impairment test at least annually.
We are required to perform goodwill impairment tests on an annual basis and
between annual tests in certain circumstances. We performed an initial
impairment review of goodwill on the adoption of SFAS 142 and also carried
out an annual impairment review in 2003. Based on these tests there was no
impairment of goodwill during the year ended March 31, 2003. Further due to
the adoption of SFAS 142, we ceased amortizing goodwill and as a result,
amortization of goodwill expense was $nil in fiscal 2003 as compared to
$4.3 million in fiscal 2002. This goodwill had arisen on acquisition of
minority interest in SES in September 1999. Operating income (loss).As a result of the foregoing, operating
income was $83.4 million in fiscal 2003 as compared to an operating loss of
$60.9 million in fiscal 2002. During fiscal 2002, operating expenses
comprised of $98.1 million due to amortization and impairment of goodwill.
Also, gross profit increased by $9.4 million from 173.8 million in fiscal
2003 to $183.2 million in fiscal 2004; selling, general and administration
expenses decreased by $20.3 million from $136.6 million in fiscal 2003 to
$116.3 million in fiscal 2004. -45-




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Interest income.Interest income increased to $7.2 million in fiscal
2003 from $3.8 million in fiscal 2002. The increase in interest income was
attributable primarily to interest earned on deposits kept out of proceeds
from our ADS offering. Interest expense.Interest expense decreased to $800 thousand in
fiscal 2003 from $2.9 million in fiscal 2002 primarily due to the repayment
of debts during the second and third quarter of fiscal 2002 by utilization
of ADR proceeds. Gain on sale of shares in Satyam GE.During the year ended March 31,
2003 we obtained the necessary approvals and transferred our 50%
shareholding in Satyam GE to GE Pacific for approximately $4.0 million. We
recorded a gain of $830 thousand for this sale, being the excess of sales
consideration received over the carrying value. Other income/(expense), net.Other expense increased to $1.7 million
in fiscal 2003 as compared to other income of $1.3 million in fiscal 2002
which was primarily on account of foreign currency translation gains. Income taxes.Income taxes were $9.8 million in fiscal 2003 and $769
thousand in fiscal 2002. This increase in income taxes was primarily due to
increase in income taxable in United States. Minority Interest.Minority interest in losses of subsidiaries
decreased to $11.1 million in fiscal 2003 from $73.4 thousand in fiscal
2002. This decrease was primarily due to reduced holding in Sify from
52.51% as at March 31, 2002 to 37.15% as at March 31, 2003. Equity earnings (losses) of associated companies.Equity losses of
associated companies were $3.3 million in fiscal 2003 as compared to $25.4
million in fiscal 2002. This decrease in equity losses of associated
companies was primarily due to decrease in our share of losses in Cricinfo,
which was an associate company of Sify, from $26.0 million in fiscal 2002
to $2.0 million in fiscal 2003. Net income (loss).As a result of the foregoing, net income was $82.1
million in fiscal 2003 as compared to net income of $45.0 million in fiscal
2002. This increase in net income was primarily due to increase in gross
profit from $173.8 million in fiscal 2002 to $183.2 million in fiscal 2003,
decrease in selling, general and administration expenses from $136.6
million in fiscal 2002 to $116.3 million in fiscal 2002, amortization and
impairment of goodwill of $98.1 million in fiscal 2002, increase in
interest income from $3.8 million in fiscal 2002 to $7.2 million in fiscal
2003 and decrease in our share of losses in associated companies from $25.4
million in fiscal 2002 to $3.3 million in fiscal 2002. This increases in
net profit was partly offset by decrease in gain on sale of shares in
associated companies from $45.6 million in fiscal 2002 to $830 thousand in
fiscal 2003, loss on foreign exchange of $4.8 million in fiscal 2003
compared to a gain of $10.8 million in fiscal 2002, increase in income
taxes from $769 thousand in fiscal 2002 to $9.8 million in fiscal 2003 and
decrease in minority interest in losses of subsidiaries from $73.4 million
in fiscal 2002 to $11.1 million in fiscal 2003.  Software products In fiscal 2003, VCI has generated revenues of $1.1 million of which
$0.3 million was from inter-segment revenues. VCI generated a net profit of
$0.2 million in fiscal 2003 as compared to a net loss of $2.6 million in
fiscal 2002. The net profit of $0.2 million in fiscal 2003 as compared to a net
loss of $2.6 million was primarily due to the decrease in selling and
general administrative expenses to $0.84 million in fiscal 2003 as compared
to $3.3 million in fiscal 2002. The net loss of $2.6 million in fiscal 2002
was attributable primarily to selling and general administrative expenses,
research and development expenses which primarily comprised employee
compensation and benefits of $1.7 million and professional charges of $0.4
million. Liquidity and Capital Resources Net cash provided by (used in) operating activities.Net cash provided
by operating activities was $89.2 million, $98.5 million and $116.4 million
in fiscal 2004, 2003 and 2002, respectively. -46-




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In fiscal 2002, non-cash adjustments to reconcile the $42.4 million
net income to net cash provided by operating activities consisted primarily
of deferred stock-based compensation expense of $10.8 million, depreciation
expense of $37.5 million, amortization and impairment expenses of goodwill
and license fees of $98.8 million and a decrease in minority interest of
$73.4 million. In fiscal 2003, non-cash adjustments to reconcile the $82.3 million
net income to net cash provided by operating activities consisted primarily
of depreciation and amortization of license fees expense of $37.2 million.
Net accounts receivable and unbilled revenues increased by $15.4 million
primarily as a result of an increase in our revenues and increase in the
collection period. Increase in other working capital assets of $7.3 million
was primarily on account of directors and officers liability insurance
taken during the year and interest accrued on deposits placed with banks.
Unearned and deferred revenues increased by $3.5 million because of advance
billing on clients for services to be rendered in future. In fiscal 2004, non-cash adjustments to reconcile the $111.9 million
net income to net cash used in operating activities consisted primarily of
depreciation expense of $24.4 million. Net accounts receivable and unbilled
revenues increased by $22.5 million primarily as a result of an increase in
our revenues. Increase in other working capital assets of $25.4 million was
primarily on account of interest accrued on deposits placed with banks.
Unearned and deferred revenues increased because of advance billing on
clients for services to be rendered in future. Net cash used in investing activities.Net cash used in investing activities was $60.2 million, $272.0
million and $40.4 million in fiscal 2004, 2003 and 2002, respectively. Net
cash used in investing activities in fiscal 2004 decreased by $211.8
million to $60.2 million from $272.0 million in fiscal 2003. This decrease
was primarily related to decrease in investments in bank deposits and
acquisitions and investments in associate companies. Investments made in
bank deposits in fiscal 2004 were $45.4 million as compared to $259.3
million in fiscal 2003. Net cash used for acquisitions and investment in
associate companies decreased from $5.1 million in fiscal 2003 to $nil in
fiscal 2004. These decreases were partially offset by increase in purchase
of premises and equipment by $5.8 million in fiscal 2004 compared to fiscal
2003. Net cash used in investing activities in fiscal 2003 increased by
231.6 million to $272.0 million from $40.4 million in fiscal 2002. This
increase was primarily related to investments in bank deposits of $259.3
million. This increase was partially offset by decrease in purchase of
premises and equipment, acquisitions and investments in associated
companies. Purchase of premises and equipment in fiscal 2002 consisted
primarily of infrastructure, computers and other equipment associated with
the expansion. Net cash used in investing activities in fiscal 2002 were
primarily related to acquisitions and investments in associated Companies
of $4.6 million; and purchases of premises and equipment of $34.2 million
consisted primarily of infrastructure, computers and other equipment
associated with the expansion. Net cash provided by/(used in) financing activities.Net cash provided
by/(used in) financing activities was $(11.5) million, $(12.1) million and
$110.7 million in fiscal 2004, 2003 and 2002, respectively. During fiscal
2004, $20.5 million was raised from financing activities, primarily from
issuance of preferred stock (net of issuance costs) of $9.4 million by our
subsidiary and $9.3 million by associate stock options. We used cash in
repayment of loan amounting to $2.5 million and payment of dividend
amounting to $26.2 million in fiscal 2004. During fiscal 2003, $3.3 million
was raised from financing activities, primarily from associate stock
options of $1.9 million and long-term debts of $1.4 million. We used cash
in repayment of debts amounting to $5.8 million and payment of dividend
amounting to $9.7 million in fiscal 2003. During fiscal 2002, we raised
$160.5 million from issuance of common stock, primarily from issue of
American Depository Shares of $150.6 million and $9.9 million from
associate stock options. We used cash in repayment of debts amounting to
$43.3 million and payment of dividend amounting to $6.4 million. As of March 31, 2004, we had $86.7 million in cash and cash
equivalents, $2.4 million in secured rupee denominated loans from the
Satyam Associate Trust and $1.8 million of other outstanding loans
denominated in rupee. As of March 31, 2004, we had an unused short term
working capital line of credit of $8.1 million from a bank and unused
non-funded lines of credit of $4.9 million. The following table describes our outstanding credit facilities as at
March 31, 2004. -47-




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Amount
    
    Interest
    
    ComputationLoan Type
    
    Lenders
    
    Outstanding
    
    (per annum)
    
    Method( in thousands)Rupee loan of
Satyam Associates
Trust
    
    Cholamandalam
    
    $
    2,428
    
    
    
    10.75
    %
    
    FixedOther loans
    
    Various parties
    
    
    1,754
    
    
    
    3.0%-14.5
    %
    
    FixedTotal
    
    
    
    $
    4,182
 We anticipate capital expenditures of approximately $35.0 million
during fiscal 2005, principally to finance construction of new facilities
in our offshore centres, expand facilities in offshore centers in India and
establish offsite centers outside India. We believe that existing cash and
cash equivalents and funds generated from operations will be sufficient to
meet these requirements. However, we may significantly alter our proposed
capital expenditures plans and accordingly, may require additional
financing to meet our requirements. After fiscal 2005, we may require
additional financing to fund our working capital and capital expenditure
requirements. In either case, we cannot assure you that additional
financing will be available at all or, if available, that such financing
will be obtained on terms favorable to us or that any additional financing
will not be dilutive to our shareholders. The following table sets forth our contractual obligations and
commitments to make future payments as of March 31, 2004. The following
table excludes our accounts payable, accrued operating expenses and other
current liabilities which are payable in normal course of operations. Payments Due as of March 31, 2004Within 1 year
    
    1-3 years
    
    3-5 years
    
    After 5 years
    
    Total(in thousands)Long term debt
    
    $
    2,356
    
    
    $
    1,826
    
    
    
    
    
    
    
    
    
    
    $
    4,182Operating leases
    
    
    1,877
    
    
    
    3,554
    
    
    
    1,557
    
    
    
    867
    
    
    
    7,855Unconditional purchase obligations:Other commercial commitments
    
    
    4,414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,414Bank guarantees
    
    
    2,631
    
    
    
    496
    
    
    
    2,174
    
    
    
    43
    
    
    
    5,344Letters of credit
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Total contractual cash obligations
    
    $
    11,318
    
    
    $
    5,877
    
    
    $
    3,697
    
    
    $
    911
    
    
    $
    21,803
 Based on past performance and current expectations, we believe that
our cash and cash equivalents, short-term investments, and cash generated
from operations will satisfy our working capital needs, capital
expenditures, investment requirements, stock repurchases, commitments, and
other liquidity requirements associated with our existing operations
through at least the next 12 months. In addition, there are no
transactions, arrangements, and other relationships with unconsolidated
entities or other persons that are reasonably likely to materially affect
liquidity or the availability of our requirements for capital resources.  Off-Balance Sheet Arrangements. None.  Income Tax Matters As of March 31, 2004, we had an operating loss carry forward of
approximately $17.6 million for tax purposes including valuation allowance.
Under Indian law, loss carry forwards from a particular year may be used to
offset taxable income over the next eight years and the unabsorbed
depreciation can be carried forward indefinitely. The statutory corporate income tax rate in India is currently 35.0%.
This tax rate is presently subject to a 2.5% surcharge resulting in an
effective tax rate of 35.9%. The provision for foreign taxes is due to
income taxes payable in overseas tax jurisdictions by its offsite and
onsite centers, principally in the United States. We benefit from certain
significant tax incentives provided to software entities under Indian tax
laws. These incentives presently include: (i) a deduction from payment of
Indian corporate taxes to the extent of 90% of the profits derived from
export of software from software development facilities designated as
Software -48-




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Technology Parks, or STP units, up to 2010; and (ii) a tax deduction
of 50% of profits from exporting computer software progressively reduced to
nil by the year 2004-05. The benefits of these tax incentives have
historically resulted in an effective tax rate for Satyam Computer Services
well below statutory rates. The exemptions for our STP units expire
starting from fiscal 2006 through fiscal 2010. However, Satyam Computer
Services earns certain other income and domestic income, which are taxable
irrespective of the tax holiday as stated above. Our subsidiaries are
subject to income taxes of the countries in which they operate.  Effects of Inflation India has experienced relatively high rates of inflation in the past
however it has not had a significant effect on our results of operations
and financial condition to date.  Exchange Rates The following table sets forth, for each of the months indicated,
information concerning the number of Indian rupees for which one U.S.
dollar could be exchanged based on the average of the noon buying rate in
the City of New York on the last day of each month during each of such
months for cable transfers in Indian rupees as certified for customs
purposes by the Federal Reserve Bank of New York: Month
    
    Month end
    
    Average
    
    High
    
    Low(Rupees)April-03
    
    
    47.37
    
    
    
    47.39
    
    
    
    47.46
    
    
    
    47.34May-03
    
    
    47.07
    
    
    
    47.11
    
    
    
    47.35
    
    
    
    46.85June-03
    
    
    46.40
    
    
    
    46.70
    
    
    
    47.15
    
    
    
    46.40July-03
    
    
    46.15
    
    
    
    46.22
    
    
    
    46.49
    
    
    
    46.06August-03
    
    
    45.88
    
    
    
    45.96
    
    
    
    46.18
    
    
    
    45.80September-03
    
    
    45.78
    
    
    
    45.85
    
    
    
    46.00
    
    
    
    45.72October-03
    
    
    45.33
    
    
    
    45.40
    
    
    
    45.70
    
    
    
    45.29November-03
    
    
    45.82
    
    
    
    45.55
    
    
    
    45.95
    
    
    
    45.30December-03
    
    
    45.55
    
    
    
    45.57
    
    
    
    45.77
    
    
    
    45.50January-04
    
    
    45.32
    
    
    
    45.46
    
    
    
    45.68
    
    
    
    45.29February-04
    
    
    45.32
    
    
    
    45.27
    
    
    
    45.32
    
    
    
    45.22March-04
    
    
    43.40
    
    
    
    44.97
    
    
    
    45.32
    
    
    
    43.40April-04
    
    
    44.52
    
    
    
    43.89
    
    
    
    44.52
    
    
    
    43.40May-04
    
    
    45.42
    
    
    
    45.18
    
    
    
    45.57
    
    
    
    44.55
 Critical Accounting Policies Financial Reporting Release No. 60, issued by the Securities and
Exchange Commission, requires all companies to include a discussion of
critical accounting policies or methods used in the preparation of
financial statements. The following is a brief discussion of the more
significant accounting policies and methods used by us. In addition,
Financial Reporting Release No. 61 issued by the SEC requires all companies
to include a discussion to address, among other things, liquidity,
off-balance sheet arrangements, contractual obligations and commercial
commitments. We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact
and any associated risks related to these policies on our business
operations is discussed throughout this Item 5  Operating and Financial
Review and Prospects where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these
and other accounting policies, see Note 1 in the Notes to the Consolidated
Financial Statements in Item 18 of this Annual Report on Form 20-F,
beginning on page F-10. Note that our preparation of this Annual Report on Form 20-F requires
us to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at
the date of our financial statements, and the reported amounts of revenue
and expenses during the reporting period. Management bases its estimates
and judgments on historical experience and on various other factors 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. There can be
no assurance that actual results will not differ from those estimates. -49-




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Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements. Revenue recognition Our revenue recognition policy is significant because our revenue is a
key component of our results of operations. We follow very specific and
detailed guidelines in measuring revenue; however, certain judgments affect
the application of our revenue policy. Revenue results are difficult to
predict, and any shortfall in revenue or delay in recognizing revenue could
cause our operating results to vary significantly from quarter to quarter
and could result in future operating losses. We derive our revenue primarily from IT services, which includes
software development, system maintenance, package software implementation,
engineering design services and e-business. Revenues earned from services performed on a time and material basis
are recognized as the services are performed. IT services performed on time
bound fixed-price engagements, require accurate estimation of the costs
which include salaries and related expenses of technical associates,
related communication expenses, travel costs, scope and duration of each
engagement. Revenue and the related costs for these projects are recognized
on percentage of completion, with revisions to estimates reflected in the
period in which changes become known. Provisions for estimated losses on
such engagements are made during the period in which a loss becomes
probable and can be reasonably estimated. We recognize revenue based on the
completed-contract method where the work to complete cannot be reasonably
estimated. We provide our clients with one to three months warranty as post-sale
support for its fixed price engagements. Costs associated with such
services are accrued at the time the related revenues are recorded.
Historically, Satyam has not incurred any expenditure on account of
warranties and since the customer is required to formally sign off on the
work performed, any subsequent work is usually covered by an additional
contract. Impairment of Goodwill We assess the impairment of identifiable intangibles, long-lived
assets and related goodwill and enterprise level goodwill whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger an
impairment review include the following:  
    
    significant underperformance relative to expected historical or
projected future operating results;
    
    significant changes in the manner of our use of the acquired
assets or the strategy for our overall business;
    
    significant negative industry or economic trends;
    
    significant decline in our stock price for a sustained period; and
    
    our market capitalization relative to net book value. When we determine that the carrying value of intangibles, long-lived
assets and related goodwill and enterprise level goodwill may not be
recoverable based upon the existence of one or more of the above indicators
of impairment, we measure any impairment based on a projected discounted
cash flow method using a discount rate determined by our management to be
commensurate with the risk inherent in our current business model. Effective April 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142or SFAS 142, Goodwill and Other Intangible Assets. SFAS
142 requires, among other things, the discontinuance of amortization
related to goodwill and indefinite lived intangible assets. These assets
will then be subject to an impairment test at least annually. We are
required to perform goodwill impairment tests on an annual basis and
between annual tests in certain circumstances. We performed an initial
impairment review of goodwill on the adoption of SFAS 142 and also carried
out an annual impairment review in 2004. Based on these tests there is no
impairment of goodwill during the year ended March 31, 2004. Future events could cause us to conclude that impairment indicators
exist and that goodwill associated with our acquired businesses is
impaired. Any resulting impairment loss could have a material adverse
impact on our financial condition and results of operations. -50-




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Accounts Receivable We estimate the amount of uncollectible receivables each period and
establish an allowance for uncollectible amounts. The amount of the
allowance is based on the age of unpaid amounts, information about the
creditworthiness of customers, and other relevant information. Estimates of
uncollectible amounts are revised each period, and changes are recorded in
the period they become known. A significant change in the level of
uncollectible amounts would have a significant effect on our results of
operations.  Accounting for income taxes As part of the process of preparing our consolidated financial
statements we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves us estimating our
actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities,
which are included within our consolidated balance sheet. We must then
assess the likelihood that our deferred tax assets will be recovered from
future taxable income and to the extent we believe that recovery is not
likely, we must establish a valuation allowance. To the extent we establish
a valuation allowance or increase this allowance in a period, we must
include an expense within the tax provision in the statement of operations. The provision for foreign taxes is due to income taxes payable in
overseas tax jurisdictions by its offsite and onsite centers, principally
in the United States. Satyam Computer Services benefits from certain
significant tax incentives provided to software entities under Indian tax
laws. These incentives presently include: (i) an exemption from payment of
Indian corporate income taxes for a period of ten consecutive years of
operations of software development facilities designated as Software
Technology Parks; and (ii) a tax deduction for profits from exporting
computer software. The benefits of these tax incentives have historically
resulted in an effective tax rate for Satyam Computer Services well below
statutory rates. Further, most of our operations are from Software
Technology Parks, or STP unit, which are entitled to a tax holiday of ten
years from the date of commencement of operations. STP units registered
after March 31, 2001 are not entitled to this exemption. Four our various
registered STP units, these exemptions expire starting from fiscal 2006
through fiscal 2010. However, we also earn certain other income and
domestic income, which are taxable irrespective of this tax holiday. Our
subsidiaries are subject to income taxes of the countries in which they
operate. Significant management judgment is required in determining our
provision for income taxes, our deferred tax assets and liabilities and any
valuation allowance recorded against our net deferred tax assets. The
valuation allowance is based on our estimates of taxable income by
jurisdiction in which we operate and the period over which our deferred tax
assets will be recoverable. In the event that actual results differ from
these estimates or 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.  Impact of Recently Issued Accounting PronouncementsDerivative Instruments Effective April 1, 2003, the FASB issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. This
statement amends SFAS No. 133 for certain decisions made by the Board as
part of the Derivatives Implementation Group (DIG) process and further
clarifies the accounting and reporting standards for derivative instruments
including derivatives embedded in other contracts and for hedging
activities. The adoption of this statement does not have a material impact
on Satyams operating results or financial position.  Financial Instruments Effective, May 1, 2003, the FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity.This statement establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. SFAS 150 is effective for financial instruments -51-




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entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of this statement has not had a material impact on
Satyams operating results or financial position.  Guarantors Accounting and Disclosure Requirements In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees Including Indirect
Guarantees of Indebtedness of Others. The adoption of the Interpretation
did not have a material impact on Satyams accounting or disclosure
policies.  Variable Interest Entities In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities.FIN 46 requires unconsolidated
variable interest entities to be consolidated by their primary
beneficiaries if the entities do not effectively disperse the risk and
rewards of ownership among their owners and other parties involved. The
provisions of FIN 46 are effective immediately to all variable entities
created after January 1, 2003, and variable interest entities in which an
enterprise obtains an interest in after that date. For variable interest
entities created before this date, the provisions are effective July 31,
2003. On October 8, 2003, the FASB issued FASB Staff Position No. 46-e,
which allows public entities, who meet certain criteria, to defer the
effective date for applying the provisions of FIN No. 46 to interests held
by the public entity in certain variable interest entities or potential
variable interest entities until the end of the first interim or annual
period ending after December 15, 2003. On December 24, 2003, the FASB
extended the effective date to periods ending after March 15, 2004. The
adoption of this interpretation did not have a material impact on Satyams
operating results or financial position.  Revenue Arrangements In January 2003, the EITF released Issue No. 00-21 (EITF 00-21),
Revenue Arrangements with Multiple Deliverables,which addresses certain
aspects of the accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities. Specifically, EITF 00-21
addresses whether an arrangement contains more than one unit of accounting
and the measurement and allocation to the separate units of accounting in
the arrangement. EITF 00-21 is effective for revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The adoption of the
consensus does not have a material impact on Satyams revenue recognition
policies. 
 ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Directors and Officers The following table sets forth the name, age, and position of each of
our directors and key management personnel as of June 18, 2004:  Directors Name
    
    Age
    
    Position HeldB. Ramalinga Raju
    
    
    47
    
    
    ChairmanB. Rama Raju
    
    
    45
    
    
    Managing Director and Chief Executive Officer(3)V. P. Rama Rao
    
    
    71
    
    
    Director(1)(2)(3)Dr. Mangalam Srinivasan
    
    
    72
    
    
    Director(1)(2)Mr. Krishna G. Palepu
    
    
    49
    
    
    Director(1)Mr. Vinod K Dham
    
    
    53
    
    
    Director(2)
 -52-




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Key Management Personnel(4) Name
    
    Age
    
    Position HeldJayaraman G
    
    
    48
    
    
    Vice President (Corp. Affairs) & Company SecretaryJoseph Abraham
    
    
    51
    
    
    Director & Senior Vice President, Vertical Business Unit  RetailKalyan Rao K
    
    
    50
    
    
    Tech FellowMohan Eddy F. S
    
    
    54
    
    
    Director, Internal Information Systems and Platinum Processes GroupMurty A. S
    
    
    45
    
    
    Director & Senior Vice President, Global Human ResourcesPrabhat G. B
    
    
    38
    
    
    Director, Horizontal Business UnitEnterprise Business SolutionRam Mynampati
    
    
    47
    
    
    President, Commercial and Healthcare BusinessesSrinivas V
    
    
    43
    
    
    Director and Senior Vice President & Chief Financial OfficerSubramanian D
    
    
    45
    
    
    Director & Senior Vice President, Global Manufacturing, SAP, Oil and Gas & Energy and Utilities and Engineering Business Units
  (1)
    
    Member of the Audit Committee(2)
    
    Member of the Compensation Committee(3)
    
    Member of the Investors Grievance Committee(4)
    
    Directors listed under key management personnel are
directors of business/support units and not members of our
board of directors. B. Ramalinga Rajuhas been on our board of directors since our
inception in 1987. He became Chairman of our board of directors in 1995.
Before this, he was with the Satyam Corporate Group as Vice Chairman. Mr.
Ramalinga Raju also sits on the board of directors of Nipuna Services
Limited. Mr. Ramalinga Raju holds a Master of Business Administration
degree from Ohio University and has attended the owner/president management
course at Harvard Business School. B. Rama Rajuhas been on our board of directors since our inception in
1987. He became the Managing Director and Chief Executive Officer of our
company in 1991. Before this, he was with Maytas Infra Limited as one of
its Directors. Mr. Rama Raju also sits on the board of directors of Nipuna
Services Limited, Maytas Infra Limited and Satyam Venture Engineering
Services Private Limited. Mr. Rama Raju holds a master of economics from
Loyola College, Chennai and a Master of Business Administration from Loredo
State University, Texas and has also attended the owner/president
management course at Harvard Business School. Mr. Rama Raju is the younger
brother of Mr. B. Ramalinga Raju, the Chairman of our company. V. P. Rama Raohas been on our board of directors since July 1991.
Before this, he was with the Indian Administrative Service and was the
Chief Secretary to the government of Andhra Pradesh. He was closely
involved with the industrial development of Andhra Pradesh for over two
decades. He also worked as the Chief of Industrial Infrastructure
Corporation. Mr. Rama Rao holds a post-graduate degree in arts, a bachelor
degree in civil laws and a post-graduate diploma in technical science and
industrial administration, from Manchester University, located in the
United Kingdom. Mr. V.P. Rama Rao also sits on the board of directors of
several companies in India. Dr. Mangalam Srinivasanhas been on our board of directors since July
1991. She is a management consultant and a visiting professor at several
U.S. universities. Dr. Mangalam Srinivasan holds a Ph.D. in technology from
George Washington University, a Master of Business Administration degree
(international finance and organization) from the University of Hawaii, a
Master of Arts Degree (English) from Presidency College, Madras University
and was an Advanced Special Scholar (astronomy and physics) at the
University of Maryland. Currently, Dr. Mangalam Srinivasan is an advisor to
Center for Kennedy School of Government of Harvard University where she is
a distinguished fellow. Mr. Krishna G. Palepuwas appointed to our board of directors on
January 23, 2003 as an additional director. Professor Palepu is the Ross
Graham Walker Professor of Business Administration at the Harvard Business
School, where he also holds the title of Senior Associate Dean, Director of
Research. Professor Palepu joined the Harvard Business School faculty in
1983 after receiving a Masters degree in Physics from Andhra University, a
MBA from the Indian Institute of Management, and a Ph.D. from the
Massachusetts Institute of Technology. Professor Palepu serves as
consultant to a wide variety of businesses, and is on the Boards of several
companies including Dr. Reddys Laboratories Limited, India, Enamics, Inc,
U.S., and Harvard Business School Publishing Co., U.S. -53-




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Vinod K. Dhamwas appointed to our board of directors on January 23,
2003 as an additional director. Mr. Vinod is Vice President and General
Manager, Carrier Access Business Unit, of Broadcom Corporation. Mr. Vinod
comes to Broadcom from its acquisition of Silicon Spice Inc., where he was
Chairman, President and CEO. Recognized as the Father of the Pentium
Processor, he held the positions of Vice President of Intels
Microprocessor Products Group and General Manager of the Pentium Processor
Division. Mr. Vinod is also director on the Boards of NewPath Ventures
Management Company LLC Hellosoft, Sasken Communication Technologies
Limited, Nevis Networks, Telsima and Insillica. . Jayaraman G. has been our Vice President (Corp. Affairs) & Company
Secretary since October, 2000. From March 2000 to September, 2000 he was
Asst. Vice President and Company Secretary. Before this, he was with Samrat
Spinner Limited as Director (Finance) & Company Secretary. Mr. Jayaraman
holds a Bachelor of Science degree and is a fellow member of the Institute
of Chartered Accountants of India and the Institute of Cost and Works
Accountants of India. He is also an associate member of Institute of
Company Secretaries of India. Joseph Abrahamhas been our Director and Senior Vice President,
Vertical Business Unit  Retail since November 2000. Prior to this, he was
our Senior Vice President, Strategic Business Unit 7 from 1998. Before
this, he was with Tata Consultancy Services as Executive Vice President,
Human Resources. Mr. Abraham holds a Master of Personnel Management and
Industrial Relations degree from Tata Institute of Social Services and a
Differential Test Battery Certificate from Morrisby Institute, United
Kingdom. Kalyan Rao K.is our Tech Fellow. Prior to this he was our President
 Vertical Business Unit Telecom, Infrastructure, Media & Entertainment
and Semiconductor and Horizontal Competency Unit  Hi tech since October
2002. Before this, he served in various positions since joining our company
in 1992. Mr. Kalyan Rao holds a master of engineering (ECE) degree from
Indian Institute of Science, Bangalore. Mohan Eddy F. S. has been our Director  Internal Information Systems
and Platinum Processes Group. Prior to this he was our Director 
Horizontal Business UnitCollaborative Enterprise Solutions since November
2000. Before this he was a Director, Strategic Business UnitSatyam
Renaissance Consulting from 1995. He is also a director of Satyam Asia Pte
Ltd. Mr. Mohan Eddy holds a Bachelor of Engineering degree and a
post-graduate diploma in management from Indian Institute of Management,
Calcutta. Murty A. S.has been our Director & Senior Vice PresidentGlobal
Human Resources since November 2000. Prior to this, he was our Senior Vice
President, Human Resources from 1999. Before this, he was our Senior
Vice-President of Strategic Business Unit I since 1994. Before joining our
company, Mr. Murty worked for Tata Consulting Services for over 12 years.
Mr. Murty holds a master of Engineering degree from Indian Institute of
Science, Bangalore. Prabhat G. B.has been our DirectorHorizontal Business
UnitEnterprise Business Solution since November 2000. Prior to this, he
was a Director, Strategic Business UnitSatyam Renaissance Consulting from
1995. Mr. Prabhat holds a master of science (computer sciences) degree from
Indian Institute of Technology, Chennai. Ram Mynampatihas been our President  Commercial and Healthcare
Businesses since October 2002. Prior to this he was our Executive Vice
President & Chief Operating OfficerVertical Business UnitInsurance,
Banking & Financial Services, Healthcare since November 2000. Before this,
he was our Executive Vice President, Strategic Business Units 1, 2 & 4 from
1999. Mr. Mynampati holds a Master of Computer Science degree from
California State University. Srinivas V.has been our Director and Senior Vice President & Chief
Financial Officer since October, 2002. Prior to this he was our Senior Vice
President & Chief Financial Officer since November 2000. Before this, he
was our Vice President and Chief Financial Officer from 1998. Mr. Srinivas
is a fellow member of the Institute of Chartered Accountants of India and
the Institute of Company Secretaries of India. He is also an associate
member of the Institute of Cost and Works Accountants of India. In
addition, he holds a Bachelor of Law degree and a Master of Commerce degree
from Osmania University. He is also a director of Nipuna Services Limited,
Sify Limited and Satyam Asia Pte. Limited. -54-




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Subramanian D.has been our Director and Senior Vice President 
Global Manufacturing, SAP, Oil and Gas & Energy and Utilities and
Engineering Business Units since October, 2002. Prior to this he was Senior
Vice President Global Manufacturing, SAP, Oil and Gas & Energy and
Utilities and Engineering Business Units since November, 2000. Before this
he was Vice President  SAP since joining our company in 1999. Mr.
Subramanian holds a masters in business administration (MBA) degree and he
is also an Associate Member of Cost and Management Accountants of India. Compensation  Executive Compensation Under the Companies Act, our shareholders must approve the salary,
bonus and benefits of all associate directors at an annual general meeting
of shareholders. At our general meeting held in May 28, 1999, our
shareholders approved the employment terms and conditions for each of our
associate directors including the monthly salary, benefits, medical
reimbursement and pension fund contributions. These terms are made for a
five-year period. The employment terms of Mr. B. Ramalinga Raju, the
chairman of our board of directors, and Mr. Rama Raju, our managing
director and chief executive officer, were renewed for a period of five
years with effect from April 1, 1999. At our general meeting held on July 25, 2003, our shareholders
approved the payment of remuneration to our non-executive directors by way
of commission. There are no loans to, or guarantees in favor of, directors
or key management personnel other than interest-bearing housing loans
provided to certain key management personnel which have not been made,
modified or renewed after July 30, 2002. The following table sets forth all compensation awarded to, earned by
or paid to Mr. B. Rama Raju, our managing director and chief executive
officer, during fiscal 2004 for services rendered in all capacities to us.
Mr. Raju was appointed as managing director and chief executive officer of
our company in 1991. With the exception of four executive officers who are
serving overseas, none of our other executive officers earned a combined
salary and bonus in excess of $100,000 during any of the last three fiscal
years. With respect to the four key managerial personnel, we have not
provided individual compensation information because their compensation is
attributed predominantly to their overseas assignments, and if they were
based in India, their individual compensation would not exceed $100,000.
The total remuneration received by our executive officers and directors for
their services to us for the fiscal year ended March 31, 2004 was $
1.54 million. The total remuneration and the amounts in the following table
are in dollars based on the noon buying rate of Rs. 43.40 per dollar on
March 31, 2004.  Annual Compensation Name and Principal Position
    
    Salary
    
    Bonus
    
    Others(1)B. Rama Raju, Managing Director and
Chief Executive Officer
    
    $
    85,935
    
    
    
    
    
    
    $
    12,865
   (1)
    
    Includes membership fees and housing allowance.  Option Grants During the fiscal year ended March 31, 2004, we granted options to our key
managerial personnel to purchase 186,527 shares under our ASOP B plan and
30,100 ADSs under our ASOP ADS plan. The expiration dates for these options
granted under ASOP B and ASOP ADS ranged from 01-Apr-2010 to 01-Apr-2013.
The exercise prices for the options granted under ASOP B, was Rs.366.63 and
the exercise price for the options granted under ASOP ADS ranged from
$25.92 to $ 26.90.  Employee Benefit Plans We have instituted an incentive plan to reward associates performance
through cash payments and, since September 1999, stock options. Associate
performance is measured by reference to the associates contribution to (1)
profits and his or her tenure of service, (2) organizational development
and (3) customer satisfaction. An -55-




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associate must score a minimum number of points in each performance
criterion to be eligible for a reward. Since the introduction of stock
options, cash bonuses have decreased.  Associate Stock Option Plan The ASOP provides for the grant of warrants to eligible associates,
entitling such associates to apply for and receive 10 equity shares of our
company per warrant. All full-time associates of our company and our
subsidiary companies are eligible associates. Our ASOP was approved at the annual general meeting of shareholders in
May 1998. Associates may exercise warrants issued under the ASOP at the
times and upon the dates determined by a committee of our board of
directors. The Trust acts as the operating agency for administering the
ASOP. In accordance with the resolutions passed at our annual general
meeting, we allotted to the Trust warrants for equity shares in an amount
not to exceed 13,000,000 shares. The Trust holds these warrants on behalf
of our associates and those of our subsidiaries. A committee of directors
constituted and authorized by our board of directors, or advisory board, is
in charge of studying and assessing eligible associates. The advisory board
identifies and recommends associates to the Trust according to guidelines
framed and approved by the board of directors. Factors considered for the
assessment of associates are performance, organizational development and
customer satisfaction. The advisory board can also recommend awards as
incentives to new associates joining us, and to associates who have shown
exceptional performance. On the recommendations of the advisory board, the
Trust advises us of offer of warrants to identified associates. An associate must pay consideration of one rupee per warrant to the
Trust before the warrant can be transferred to the associate. These
warrants are non-transferable by the associate. However, if the associate
ceases to be an associate of our company by reason of resignation,
dismissal or severance, the warrants will be transferred back to the Trust
for the same consideration paid by the associate. If the associate ceases
to be an employee by retirement or death, the rights and obligations under
the warrants accrue to the associate or his or her legal heirs. The
conversion date of warrants is determined by the advisory board. The
conversion price to be paid by the associate upon conversion has been
determined by the board of directors under the SEBI guidelines to be
Rs.450, or approximately $10.37 per share (translated at the noon buying
rate of Rs.43.40 per $1.00 on March 31, 2004). The SEBI guidelines apply to
the pricing of shares issued under employee stock option plans. Under the
then existing guidelines, the minimum exercise price to acquire shares
under our ASOP is the higher of the following:  (i)
    
    the average of the weekly high and low of the closing prices of
the underlying shares quoted on the relevant Indian stock exchange
during the six months period before the date which is 30 days before
the date of our shareholders meeting at which the plan was approved
(or April 24, 1998 in the case of our ASOP); and(ii)
    
    the average of the weekly high and low of the closing prices of
the underlying shares quoted on the relevant Indian stock exchange
during the two weeks period before the date which is 30 days before
the date of our shareholders meeting at which the plan was approved
(or April 24, 1998 in the case of our ASOP). However, for the purpose of US GAAP, we have accounted for deferred
stock-based compensation cost on the basis of closing price of the shares
on the date of grant. Shares transferred to the associate after conversion from warrants
become the absolute property of the associate.  Associates Stock Option Plan B In May 1999, the shareholders at our annual general meeting approved
the ASOP B. ASOP B provides for the grant of options to eligible
associates, which entitles these associates to apply for and receive five
equity shares of our company per option. All full-time associates of our
company and our subsidiary companies are eligible associates. Options
granted to eligible associates under the ASOP B become vested and
exercisable within time periods decided by a committee of our board of
directors. -56-




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Under our ASOP B, 41,727,140 equity shares were set aside for
associate stock options. Stock options carry a minimum vesting period
decided by the committee of our board of directors. The ASOP B is administered by a committee of the board. The committee
has the power to determine the terms of the options granted, including the
exercise price, the number of equity shares subject to each option, the
exercisability thereof and the form of consideration payable upon such
exercise (which may be less than the fair market value of our equity shares
on the date of grant) in accordance with the SEBI guidelines described
above. In addition, the committee has the authority to amend, suspend or
terminate our ASOP B.  ASOP ADS Our ASOP ADS provides for the grant of incentive stock options (within
the meaning of Section 422 of the Internal Revenue Code) and non-statutory
options to acquire ADSs of Satyam Computer Services to our associates,
officers and directors as well as to employees, officers and directors of
our parent or subsidiary entities. The establishment of our ASOP ADS was
approved at our annual general meeting of shareholders in May 1999, subject
to a $25.0 million limit on the aggregate market value of the equity shares
initially reserved pursuant to the ASOP ADS. Accordingly, the total equity
shares reserved for issuance may be reduced by the board of directors from
time to time to comply with the $25.0 million limit. All options under our
ASOP ADS will be exercisable for ADSs represented by ADSs. Our ASOP ADS may be administered by the board of directors or a
committee of the board. The committee has the power to determine the terms
of the options granted, including the exercise price, 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 our ASOP ADS, provided that no
such action may affect any ADS previously issued and sold or any option
previously granted under our ASOP ADS. Options granted under our ASOP ADS are not generally transferable by
the optionee, and each option is exercisable during the lifetime of the
optionee only by such optionee. Options granted under our ASOP ADS must
generally be exercised within three months of the end of the optionees
status as an associate of our company, but in no event later than the
expiration of the options term. In the event of an optionees termination
as a result of death or disability, the vesting and exercisability of the
optionees option will accelerate in full and the option must be exercised
within 12 months after such termination, but in no event later than the
expiration of the options term. The exercise price of incentive stock
options granted under our ASOP ADS must be at least equal to the fair
market value of our ADSs on the date of grant. The exercise price of
non-statutory stock options granted under our ASOP ADS must be at least
equal to 90.0% of the fair market value of our ADSs on the date of grant.
With respect to any participant owning stock possessing more than 10.0% of
the voting power of all classes of our outstanding capital stock, the
exercise price of any incentive stock option granted must equal at least
110.0% of the fair market value on the grant date and the term of such
incentive stock option must not exceed five years. The term of all other
options granted under our ASOP ADS may not exceed 10 years. Our ASOP ADS provides that in the event of a merger of our company
with or into another corporation, a sale of substantially all of our assets
or a like transaction involving our company, each option shall be assumed
or an equivalent option substituted by the successor corporation. If the
outstanding options are not assumed or substituted as described in the
preceding sentence, the vesting and exercisability of each option will
accelerate in full. The SEBI guidelines, effective June 1999, has removed the limits on
the amount of stock options or warrants a company can grant to its
employees and the amount of discount to market price at which a company can
grant such options. The guideline requires companies to account for the
difference between the market price of its shares and the exercise price of
its employee stock options as personnel expenses in its profit and loss
accounts. Board Practices  Board Composition Our Articles of Association set the minimum number of directors at
three and the maximum number of directors at 12. We currently have six
directors. The Companies Act and our Articles of Association require the
following: -57-




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
    
    at least two-thirds of our directors shall be subject to
retirement; and
    
    in any given year, at least one-third of these directors who are
subject to retirement shall retire and be eligible for re-election
at the annual meeting of our shareholders. B. Ramalinga Raju and B. Rama Raju are permanent directors and are not
subject to retirement by rotation. Dr. Managalam Srinivasan, Krishna G.
Palepu, Vinod K. Dham and V.P. Rama Rao are the directors who are scheduled
to retire by rotation. C. Satyanarayana, one of our previous directors,
expired on June 17, 2003.  Board Committees The audit committee of board of directors reviews, acts on and reports
to the board of directors with respect to various auditing and accounting
matters, including the recommendation of our independent auditors, the
scope of the annual audits, fees to be paid to the independent auditors,
the adequacy and effectiveness of the accounting and financial controls of
our company and our accounting practices. The members of the audit
committee are V.P. Rama Rao, Dr. Mangalam Srinivasan and Prof. Krishna G
Palepu, each of whom is an independent director. The compensation committee of the board of directors determines the
salaries and benefits for our executive directors and the stock options for
all associates. The members of the compensation committee are V.P. Rama
Rao, Dr. Mangalam Srinivasan, and Vinod K Dham, each of whom is an
independent director. The investors grievance committee of the board of directors formed in
January 2001 focuses on strengthening investor relations and addressing
investors concerns. The members of the committee are V.P. Rama Rao, who is
an independent director, and B. Rama Raju, Managing Director and CEO.  Director Compensation Our Articles of Association provides that each of our directors shall
receive a sitting fee not exceeding the maximum amount allowed under the
Companies Act. Currently, our directors receive Rs.10,000 for every board
or committee meeting. In addition, Independent directors receive
compensation by way of commission for their service on our board of
directors. Directors are reimbursed for travel and out-of-pocket expenses
in connection with their attendance at board and committee meetings.  Employment, Severance and Other Agreements Our Articles of Association provides that directors are appointed by
the shareholders by resolutions passed at general meetings; however, the
board of directors has the power to appoint additional directors for a
period up to the date of the next annual general meeting. Key managerial
personnel are appointed by the management. There are no severance
agreements with our key managerial personnel.  Employees Our success depends in large part on our ability to attract, develop,
motivate and retain highly skilled technical associates. We offer
competitive salaries, incentive pay, including, since May 1998, stock
options, extensive training, an entrepreneurial work environment and
opportunities to work overseas. As of March 31, 2004, we had 14,456
employees whom we refer to as associates, including 13,450 technical
associates. We had 9,838 and 9,532 associates as of March 31, 2003 and
2002, respectively. As of date, none of our associates is represented by
an union. We believe that our relationship with our associates is good. Recruiting.We recruit top graduates from the engineering departments
of Indias universities and engineering and technical colleges. India has
over 1,500 such schools and, with the rapid growth of the IT services
industry in India, the number of students pursuing education in software
engineering has increased in recent years. This has allowed us to recruit
from a large pool of qualified applicants who undergo our demanding
selection process involving a series of tests and interviews. In fiscal
2002, we received approximately 90,543 job applications, from both recent
graduates and those with previous experience, tested and/or interviewed
approximately 4,722, extended job offers to 1,259 and 1,287 joined our
company. In fiscal 2003, we received approximately 40,200 job applications,
from both recent graduates and those with previous -58-




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experience, tested and/or interviewed approximately 13,400, extended
job offers to 3,350 and 2,561 joined our company. In fiscal 2004, we
received approximately 1,45,000 job applications, from both recent
graduates and those with previous experience, tested and/or interviewed
approximately 22,307, extended job offers to 9,653 and 6,700 joined our
company. Training of associates. We devote significant resources to training
our associates. We established the Satyam Learning Center, which is
responsible for conducting training programs. To assist our technical
associates to better understand and implement new technologies, each new
technical associate must participate in a three to six-month software
engineering training program and all technical associates are expected to
undertake between 40 and 80 hours per year of development training. Through
such ongoing training, we build the competencies in emerging disciplines
necessary to meet customers project needs. At the Satyam Learning Center,
our technical associates are trained on skill sets and encompassing
Microsoft, Sun, IBM, Linux and other platforms. Training is done keeping in
view project requirements and proactive competency development based on
forecasted market needs. This expertise allows us the flexibility to ramp
up to meet the demands of particular projects and to redeploy our personnel
among projects. We also recruit managers in non-software engineering fields
for positions as project leaders and project managers and provide them with
extensive training, usually over a six-month period, in software
engineering and project management skills. To focus our associates on
selecting the best technologies to match customer requirements, all of our
associates are also required to undergo a customer orientation program. Retention. To attract, retain and motivate our associates, we seek to
provide an environment that rewards entrepreneurial initiative and
performance. We also provide competitive salaries and benefits as well as
incentives in the form of cash bonuses and stock options. In fiscal 2004,
fiscal 2003 and fiscal 2002, we experienced associate attrition at a rate
of 17.5%, 15.6% and 13.2% respectively. As the pool of software
engineers in India becomes larger and as we increase the opportunities for
our associates to work overseas, either for onsite work at the customers
premises or in the offsite centers which we are establishing as one of our
strategic priorities, we believe our current rates of turnover will
continue. At any given time, our technical associates are working overseas,
either onsite at customer premises or at our offsite centers, while the
balance are working in the offshore centers in India. On average,
approximately 25.8%, 26.4% and 20.0% of our technical associates worked
overseas, primarily in the United States, in fiscal 2004, fiscal 2003 and
fiscal 2002, respectively. As at March 31, 2004, we employed 3,456
technical staff and 55 support in our onsite and offsite centers. We have
staffed the offsite centers mainly through local hiring, supplemented by
associates from India. Our professionals who work onsite at customers
premises in the United States on temporary and extended assignments are
typically required to obtain visas. H-1B visas are generally used for
sending personnel to the United States for onsite work, and L-1 visas are
typically used only for inter-company transfers of high level managers.
Although there is no limit to new L-1 petitions, there is a limit to the
number of new H-1B petitions that the United States Immigration and
Naturalization Service may approve in any government fiscal year. We are
generally able to obtain H-1B and L-1 visas within two to four months of
applying for such visas, which remain valid for three years and can be
extended for a further three years. We plan for our visa requirements by
forecasting our annual needs for such visas in advance and applying for
such visas as soon as practicable. We do not anticipate any problems
obtaining enough visas for our needs in the current U.S. government fiscal
year. In addition, we utilize L-1 visas whenever available and redeploy
existing H-1B visa holders to minimize the number of new H-1B visas we
need.  Share Ownership The following table sets forth information with respect to the
beneficial ownership of our equity shares as of June 18, 2004 by each of
our directors and our chief executive officer and all of our directors and
executive officers as a group. The table gives effect to equity shares
issuable within 60 days of June 18, 2004 upon the exercise of all options
and other rights beneficially owned by the indicated shareholders on that
date. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and includes voting and investment
power with respect to equity shares. Unless otherwise indicated, the
persons named in the table have sole voting and sole investment control
with respect to all equity shares beneficially owned. -59-




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Equity SharesBeneficially OwnedBeneficial Owner
    
    Number
    
    PercentB. Rama Raju
    
    
    15,193,000
    (1)
    
    
    4.82B. Ramalinga Raju
    
    
    13,872,000
    (2)
    
    
    4.40V.P. Rama Rao
    
    
    
    
    
    
    Dr. Mangalam Srinivasan
    
    
    
    
    
    
    Krishna G. Palepu
    
    
    
    
    
    
    Vinod K Dham
    
    
    
    
    
    
    All directors and executive
officers as a group (15 persons)
    
    
    29,065,000
    
    
    
    9.22
   (1)
    
    Includes 3,874,000 equity shares held by B. Rama Rajus wife, B.
Radha Raju. B. Rama Raju disclaims beneficial ownership of any
equity shares held by B. Radha Raju.(2)
    
    Includes 4,047,000 equity shares held by B. Ramalinga Rajus
wife, B. Nandini Raju. B. Ramalinga Raju disclaims beneficial
ownership of any equity shares held by B. Nandini Raju. Other than B. Rama Raju and B Ramalinga Raju, none of our directors or
executive officers beneficially owned more than 1% of our equity shares as
of June 18, 2004. 
 ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Share Ownership The only person or group of affiliated persons who is known to us to
beneficially own 5% or more of our equity shares as of May 31, 2004, is
Templeton Global Advisors Limited A/c Templeton Funds, Inc. (Templeton
Foreign Fund), which holds 18,631,754 equity shares representing 5.88% of
our equity shares. Templeton has the same voting rights as our other
shareholders. As of May 31, 2004, 124,100 of our equity shares, representing 0.04%
of our outstanding shares, were held by a total of 96 holders of record
with addresses in the United States. As of May 31, 2004, we have issued
16,826,940 ADSs (representing 33,653,880 equity shares) and which represent
10.69% of our outstanding equity shares and which are held by 16,177
beneficial holders and 10 registered holders. Related Party Transactions In October, 1999, we entered into a joint venture with Venture Global
Engineering LLC, USA. The joint venture company, called Satyam Venture
Engineering Services Private Limited or Satyam Venture, formed in January
2000, provides engineering services and computer services to the automotive
industry. We hold a 50% stake in the joint venture company. For fiscal 2004
and fiscal 2003, we provided infrastructure and other services to Satyam
Venture, which amounted to $ 1.2 million and $875 thousand respectively. As
of March 31, 2004, we owe $1.3 million to Satyam Venture. During the fiscal 2004, Sify rendered services to us aggregating to $
1.44 million, on terms which were no less favorable to us than could have
been obtained from independent third parties. 
 ITEM 8.  FINANCIAL INFORMATION Financial Statements We have elected to provide financial statements pursuant to Item 18 of
Form 20  F. No significant change has occurred since the date of our
annual financial statements for fiscal 2004. -60-




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Legal Proceedings As of the date of this document, we are not a party to any legal
proceedings that could reasonably be expected to seriously harm our
company. Dividends Although the amount varies, it is customary for public companies in
India to pay cash 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. However,
approval of shareholders is not required for distribution of Interim
dividend. Under the 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. We paid out dividends of
Rs.1207.0 million ($ 26.2 million), Rs. 469.0 million ($9.7 million) and
Rs. 279.0 million ($6.4 million.)in fiscal 2004, fiscal 2003 and fiscal
2002 respectively. These dividends include interim dividends for the
current fiscal year and dividends paid with respect to previous fiscal
year. Under Indian law, dividends are declared with respect to the shares
outstanding during the prior fiscal year and are paid in the subsequent
fiscal year after approval by shareholders in the Annual General Meeting.
The dividend is paid on the outstanding shares as at the end of fiscal year
and is prorated for shares issued during the fiscal year to take into
account the amount of time such shares have been issued. Although, we have
no current intention to discontinue dividend payments, we cannot assure you
that any future dividends will be declared or paid or that the amount
thereof will not be decreased. Owners of ADSs will be entitled to receive dividends payable in
respect of the equity shares represented by such ADSs. Cash dividends in
respect of the equity shares represented by the ADSs will be paid to the
depositary in rupees and, will generally be converted by the depositary
into U.S. dollars and distributed, net of depositary fees and expenses, to
the holders of such ADSs. 
 ITEM 9.  THE OFFER AND LISTING Trading Markets Our equity shares are traded in India on the Stock Exchange, Mumbai,
the National Stock Exchange and the Hyderabad Stock Exchange. Our ADSs
evidenced by American Depositary Receipts, or ADRs, are traded in the
United States on the New York Stock Exchange. Each ADS represents two
equity shares. The ADRs evidencing ADSs were issued by our depositary,
Citibank, N.A., pursuant to a Deposit Agreement. The number of our outstanding equity shares (including the underlying
shares for ADSs) as of May, 31, 2004 was 314,958,768. As of May, 31, 2004,
there were 16,826,940 ADSs outstanding (representing 33,653,880 equity
shares). Price History The information presented in the table below represents, for the
periods indicated: (1) the reported high and low sales prices quoted in
Indian rupees for the equity shares on the BSE; and (2) the imputed high
and low sales prices for the equity shares based on such high and low sales
prices, translated into U.S. dollars based on the noon buying rate on the
last date of each period presented. -61-




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Annual high and low market prices Rupee Price per
    
    U.S. Dollar Price perFiscal Year Ended March 31,(2)
    
    Equity Share(1)
    
    Equity ShareHigh
    
    Low
    
    High
    
    Low2000
    
    
    1445.99
    
    
    
    99.20
    
    
    
    33.13
    
    
    
    2.272001
    
    
    901.98
    
    
    
    179.00
    
    
    
    19.25
    
    
    
    3.822002
    
    
    331.15
    
    
    
    111.00
    
    
    
    6.78
    
    
    
    2.272003
    
    
    291.85
    
    
    
    175.10
    
    
    
    6.14
    
    
    
    3.682004
    
    
    391.00
    
    
    
    127.30
    
    
    
    9.01
    
    
    
    2.93Fiscal year 2003First Quarter
    
    
    280.15
    
    
    
    208.10
    
    
    
    5.73
    
    
    
    4.25Second Quarter
    
    
    258.85
    
    
    
    189.75
    
    
    
    5.35
    
    
    
    3.92Third Quarter
    
    
    291.85
    
    
    
    193.35
    
    
    
    6.08
    
    
    
    4.03Fourth Quarter
    
    
    282.85
    
    
    
    175.10
    
    
    
    5.95
    
    
    
    3.68Fiscal year 2004First Quarter
    
    
    196.45
    
    
    
    127.30
    
    
    
    4.23
    
    
    
    2.74Second Quarter
    
    
    265.00
    
    
    
    161.00
    
    
    
    5.79
    
    
    
    3.52Third Quarter
    
    
    381.00
    
    
    
    250.20
    
    
    
    8.36
    
    
    
    5.49Fourth Quarter
    
    
    391.00
    
    
    
    281.00
    
    
    
    9.01
    
    
    
    6.47
 Price RangeMonth high and low market prices
    
    High
    
    LowRs.
    
    Rs.November, 2003
    
    
    347.75
    
    
    
    305.35December, 2003
    
    
    381.00
    
    
    
    319.75January, 2004
    
    
    391.00
    
    
    
    307.00February, 2004
    
    
    346.90
    
    
    
    287.00March, 2004
    
    
    325.00
    
    
    
    281.00
 Price RangeMonth high and low market prices
    
    High
    
    LowRs.
    
    Rs.April, 2004
    
    
    338.00
    
    
    
    294.00May, 2004
    
    
    332.40
    
    
    
    250.00
   (1)
    
    Data derived from the BSE website. The prices and volumes
quoted on the National Stock Exchange and the Hyderabad Stock
Exchange may be different.(2)
    
    For comparative purposes, the price per equity share data above
is adjusted for the September 1, 1999 two-for-one stock split which
took effect on the BSE on August 16, 1999 and the August 25, 2000
five-for-one stock split which took effect on the BSE on August 7,
2000. -62-




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Our ADSs commenced trading on the New York Stock Exchange on May 15,
2001, at an initial offering price of $9.71 per ADS. The tables below set
forth, for the periods indicated, high and low trading prices for our ADS. Price RangeHigh
    
    LowFiscal Year ended March 31, 2003Quarterly High and low market prices of ADSs First Quarter
    
    $
    12.56
    
    
    $
    9.46Second Quarter
    
    
    11.75
    
    
    
    7.93Third Quarter
    
    
    13.5
    
    
    
    8.4Fourth Quarter
    
    
    13.06
    
    
    
    8.24Fiscal Year ended March 31, 2004Quarterly High and low market prices of ADSs First Quarter
    
    $
    10.10
    
    
    $
    7.25Second Quarter
    
    
    13.86
    
    
    
    8.5Third Quarter
    
    
    30.25
    
    
    
    12.45Fourth Quarter
    
    
    35.35
    
    
    
    18.1
 Price RangeMonthly High and low market prices of ADSs
    
    High
    
    LowNovember, 2003
    
    $
    22.40
    
    
    $
    18.80December, 2003
    
    
    30.25
    
    
    
    20.76January, 2004
    
    
    35.35
    
    
    
    21.60February, 2004
    
    
    25.10
    
    
    
    19.76March, 2004
    
    
    21.90
    
    
    
    18.10April, 2004
    
    
    23.96
    
    
    
    19.32May, 2004
    
    
    21.50
    
    
    
    16.00
 
 ITEM 10.  ADDITIONAL INFORMATION Memorandum and Articles of Association The following are summaries of our Articles of Association and
Memorandum of Association and the Companies Act which govern our affairs.
Our Articles of Association provides that the regulations contained in
Table A of the Companies Act apply to our company, so long as the
regulations do not conflict with the provisions of our Articles of
Association. We have filed complete copies of our Memorandum of Association
and Articles of Association, as well as Table A of the Companies Act, as
exhibits to our registration statement on Form F-1 filed with the
Securities and Exchange Commission on May 7, 2001 (Registration No.
333-13464).  Objects and Purposes Under our Memorandum of Association, the main objectives of our
company include, but are not limited to:  
    
    manufacturing and selling computer systems, peripherals,
accessories, consumables and other computer products;
    
    designing and developing computer systems and applications
software for our own use and for sale and designing and developing
systems and applications software for or on behalf of manufacturers,
owners and users of computer systems and digital or electronic
equipment; and
    
    providing electronic data processing centers, word processing,
software consultancy, system studies, management consultancy,
feasibility studies and computer training. -63-




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Board of Directors At each annual general meeting at least, one-third of our directors
must retire from office by rotation. A retiring director is eligible for
re-election and the directors to retire every year are those who have been
longest in office since their last re-election or appointment. No shares
are required to be held by a director for qualification as a director. In
addition, save in respect of the following managerial personnel, there are
no age-limit requirements for serving on our board of directors. Under the
Companies Act, no person under the age of 25 or over the age of 70 is
eligible for appointment as a managing director or a whole-time director or
a manager of our Company, provided that persons under the age of 25 or over
age 70 may be appointed with either the approval of our shareholders by a
special resolution or with the approval of the Central Government. Under
the Companies Act, our directors must refrain from participating in
discussions and voting on any matters in which they are interested party.
In addition, directors are also required to disclose such interests, if
any, at meetings of the board of directors.  Managerial Remuneration Under the Companies Act, the remuneration payable to our directors is
to be determined either by the articles of the company or by an ordinary
resolution passed by the company in the general meeting, unless the
articles require a special resolution for the same. As a public company, the total managerial remuneration in any year
cannot exceed 11 per cent of our profits in that year. In addition, the
remuneration payable to a managing or any whole-time director in any year
cannot exceed 5 per cent of our net profits in that year. If there is more
than one managing or whole-time director, then the aggregate remuneration
to all of them cannot exceed 10 per cent of our net profits. In addition, where a company has made no or inadequate profits, there
are additional limits on the maximum remuneration payable to the directors.
Approval of the Central Government would be required for payment of
remuneration in excess of the limits prescribed. Under our Articles of Association, our board of directors may, at its
discretion and by means of a resolution, borrow funds on behalf of the
company, create mortgages or liens on the companys property or uncalled
capital and issue debentures. However, the Companies Act imposes some
restrictions on the powers of the board to act without the consent of the
shareholders including, for example, the ability to borrow money beyond the
aggregate of our paid up capital and free reserves.  Equity Shares Our authorized share capital is 375,000,000 equity shares, par value
Rs.2 per share. The equity shares are our only class of share capital.
However, our Articles of Association and the Companies Act permit us to
issue preference shares in addition to the equity shares. The rights
attached to a class of shares may, subject to the provisions of the
Companies Act, be varied only with either the written consent of the
holders of 75% of the issued shares of that class or by special resolution
passed at a separate meeting of the holders of that class. Our equity shares are under the control of our board of directors, who
may, with prior approval from the shareholders at a general meeting, allot
or otherwise dispose of new equity shares in its discretion, including
allotments of shares at a premium or discount in accordance with the
provisions of the Companies Act. Our Articles of Association permit our
board of directors to make calls on our equity shares, but only in respect
of unpaid amounts on equity shares which are not fully paid-up. All of our
issued and outstanding equity shares are fully paid-up.  Dividends We paid out dividends of Rs.1207.0 million ($ 26.2 million), Rs. 469.0
million ($9.7 million) and Rs. 279.0 million ($6.4 million.)in fiscal 2004,
fiscal 2003 and fiscal 2002 respectively. Under the Indian Companies Act, unless our board of directors
recommends the payment of a dividend, we may not declare a dividend.
Similarly, under our Articles of Association, although the shareholders
may, at the -64-




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annual general meeting, approve a dividend in an amount less than that
recommended by the board, they cannot increase the amount of the dividend.
In India, dividends generally are declared as a percentage of the par value
of a companys equity shares. The dividend recommended by the board, if
any, and subject to the limitations described above, is distributed and
paid to shareholders in proportion to the paid up value of their shares
within 30 days of the approval by the shareholders at the annual general
meeting. Pursuant to our Articles of Association and the Companies Act, our
board has discretion to declare and pay interim dividends without
shareholder approval. With respect to equity shares issued during a
particular fiscal year (including any equity shares underlying ADSs issued
to the depositary), cash dividends declared and paid for such fiscal year
generally will be prorated from the date of issuance to the end of such
fiscal year. Under the Companies Act, dividends can only be paid in cash to
the registered shareholder at a record date fixed during or before the
annual general meeting or to his order or his bankers order. Under the Indian Companies Act, dividends and interim dividends may be
paid out of profits of a company in the year in which the dividend and/or
interim dividend is declared or out of the undistributed profits of
previous fiscal years. Before declaring a dividend and/or interim dividend
greater than 10.0% of the par value of its equity shares, a company is
required under the Companies Act to transfer to its reserves a minimum
percentage of its profits for that year, ranging from 2.5% to 10.0%
depending upon the dividend percentage to be declared in such year. The
Companies Act further provides that, in the event of an inadequacy or
absence of profits in any year, a dividend and/or interim dividend may be
declared for such year out of the accumulated profits, subject to the
following conditions:  
    
    the rate of dividend to be declared may not exceed 10.0% 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 10.0% 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 withdrawals shall not fall below
5.0% of its paid up capital. For additional information regarding dividends, please see Item 8.
Financial Information.  Bonus Shares In addition to permitting dividends to be paid out of current or
retained earnings as described above, the Companies Act permits us to
distribute an amount transferred from the general reserve or surplus in our
profit and loss account to our shareholders in the form of bonus shares,
which are similar to a stock dividend. The Companies Act also permits the
issuance of bonus shares from a share premium account. Bonus shares are
distributed to shareholders in the proportion recommended by the board.
Shareholders of record on a fixed record date are entitled to receive such
bonus shares. The last bonus shares issued by us was in September 1999.  Preemptive Rights and Issue of Additional Shares The Companies Act gives shareholders the right to subscribe for new
shares in proportion to their respective existing shareholding unless
otherwise determined by a special resolution passed by a general meeting of
the shareholders. For approval, a special resolution must be approved by a
number of votes which is not less than three times the number of votes
against the special resolution. If we issue equity shares and a special
resolution is not approved by our shareholders, the new shares must first
be offered to the existing shareholders as of a fixed record date. The
offer must include: (1) the right, exercisable by the shareholders of
record, to renounce the shares offered in favor of any other person; and
(2) 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. Our board is authorized under the
Companies Act to distribute any new shares not purchased by the preemptive
rights holders in the manner that it deems most beneficial to our company. -65-




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Annual General Meetings of Shareholders We must convene an annual general meeting of shareholders within six
months after the end of each fiscal year to adopt the accounts for such
fiscal year and to transact other businesses and may convene an
extraordinary general meeting of shareholders when necessary or at the
request of a shareholder or shareholders holding at least 10.0% of our paid
up capital carrying voting rights. The annual general meeting of the
shareholders is generally convened by our Company Secretary pursuant to a
resolution of the board. Written notice setting out the agenda of the
meeting must be given at least 21 days (excluding the day of mailing)
before the date of the general meeting to the shareholders on record.
Shareholders who are registered as shareholders on the date of the general
meeting are entitled to attend or vote at such meeting. Our Articles of
Association provides that a quorum for a general meeting is the presence of
at least five shareholders in person. 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; meetings other than the annual general
meeting may be held at any other place if so determined by the board. Our
registered office is located at Mayfair Centre, S P Road, Secunderabad 500
003, Andhra Pradesh, India.  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 10.0% of the total shares entitled to vote on the
resolution or by those holding shares with an aggregate paid up value 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 shareholder. The chairman of
our board has a deciding vote in the case of any tie. Any shareholder may appoint a proxy. The instrument appointing a proxy
must be delivered to us at least 48 hours before the meeting. 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. 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 to our
Articles of Association and the object clause of the Memorandum 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 poll) are not less than three times the number of
votes, if any, cast against the resolution. Under a recent amendment to the
Indian Companies Act, certain resolutions may and certain resolutions must
be passed by means of a postal ballot instead of a vote at a meeting of
shareholders.  Audit and Annual Report At least 21 days before the date of the annual general meeting of
shareholders (excluding the day of mailing), we must distribute to our
shareholders a detailed version of our audited balance sheet and profit and
loss account and the related reports of the board and the auditors,
together with a notice convening the annual general meeting. Under the
Companies Act, we must file the balance sheet and annual profit and loss
account presented to the shareholders within 30 days of the conclusion of
the annual general meeting with the Registrar of Companies in Andhra
Pradesh, India, which is the state in which our registered office is
located. We must also file an annual return containing a list of our
shareholders and other information, within 60 days of the conclusion of the
meeting.  Register of Shareholders; Record Dates; Transfer of Shares We maintain a register of shareholders. For the purpose of determining
the shares entitled to annual dividends, the register is closed for a
specified period before the annual general meeting. The date on which this
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To determine which shareholders are entitled to specified shareholder
rights, we may close the register of shareholders. The Companies Act and
our listing agreements with the Indian stock exchanges require us to give
at least seven days and thirty days prior notice respectively to the
public before such closure. We may not close the register of shareholders
for more than 30 consecutive days, and in no event for more than 45 days in
a year. 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
Companies Act. Because we are a public company, the provisions of Section
111A apply to us. Our Articles currently contain provisions which give our
directors discretion to refuse to register a transfer of shares in some
circumstances. According to our Articles, our directors are required to
exercise this right in the best interests of our company. While our
directors are not required to provide a reason for any such refusal in
writing, they must give notice of the refusal to the transferee within one
month after receipt of the application for registration of transfer by our
company. In accordance with the provisions of Section 111A(2) of the
Companies Act, our directors may exercise this discretion if they have
sufficient cause to do so. If our directors refuse 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, or CLB. Pursuant
to Section 111A(3), if a transfer of shares contravenes any of the
provisions of the Securities and Exchange Board of India Act, 1992 or the
regulations issued thereunder or the Sick Industrial Companies (Special
Provisions) Act, 1985 or any other Indian laws, the CLB may, on application
made by the company, a depositary incorporated in India, an investor, the
Securities and Exchange Board of India or other parties, direct the
rectification of the register of records. The CLB 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. Notwithstanding such investigation, the rights of a
shareholder to transfer the shares will not be restricted. There are no maximum limits on foreign direct equity participation in
the business in which our Company is engaged. With regard to share
transfers, if a person resident outside India were to sell its shares to a
person resident in India, approval of the RBI would be required unless the
sale is made on a stock exchange or in connection with an offer made under
the regulations regarding takeovers. For additional information regarding
ownership restrictions, please see Investment by Foreign Institutional
Investors below. Under the Companies Act, unless the shares of a company are held in a
dematerialized form, a transfer of shares is effected by a duly stamped
instrument of transfer in the form prescribed by the Companies Act and the
rules there under together with delivery of the share certificates. We have entered into listing agreements with three of the Indian stock
exchanges: the Stock Exchange, Mumbai, the National Stock Exchange and the
Hyderabad Stock Exchange. Clause 40A of each of the listing agreements
provides that if an acquisition of a listed companys shares results in the
acquirer and its associates holding 5.0% or more of the companys
outstanding equity shares or voting rights, the acquirer must report its
holding to the company and the relevant stock exchanges. If an acquisition
results in the acquirer and its associates holding equity shares that have
15.0% or more of the voting rights, then the acquirer must, before
acquiring such equity shares, make an offer, in accordance with clause 40B
of the listing agreements, on a uniform basis to all remaining shareholders
of the company to acquire equity shares that have at least an additional
20.0% of the voting rights of the total equity shares of the company at a
prescribed price. The acquisition of shares of a company listed on an
Indian stock exchange may be subject to regulations governing takeovers of
Indian companies. Although clauses 40A and 40B and such regulations will
not apply to the equity shares so long as they are represented by ADSs,
holders of ADSs may be required to comply with such notification and
disclosure obligations pursuant to the provisions of the deposit
agreements.  Disclosure of Ownership Interest Section 187C of the Companies Act requires beneficial owners of shares
of Indian companies who are not holders of record to declare to us details
of the holder of record and the nature and details of the beneficial
owners interest in the shares. 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 lien, promissory note or other
collateral agreement created, executed or entered into with respect to any
equity share by its registered owner, or any hypothecation by the
registered owner of any equity share, shall not be enforceable by the
beneficial -67-




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owner or any person claiming through the beneficial owner if such
declaration is not made. Failure to comply with Section 187C will not
affect our obligation to register a transfer of shares or to pay any
dividends to the registered holder of any shares pursuant to which the
declaration has not been made. While it is unclear under Indian law whether
Section 187C applies to holders of ADSs, investors who exchange ADSs for
the underlying equity shares will be subject to the restrictions of Section
187C. Additionally, holders of ADSs may be required to comply with the
notification and disclosure obligations pursuant to the provisions of the
deposit agreement covering the ADSs.  Company Acquisition of Equity Shares Under the Companies Act, approval of at least 75.0% of our
shareholders voting on the matter and approval of the High Court of Andhra
Pradesh is required to reduce our share capital. We may, under some
circumstances, acquire our own equity shares without seeking the approval
of the High Court. However, we would have to extinguish any shares we have
so acquired within the prescribed time period. Generally, a company is not
permitted to acquire its own shares for treasury operations. An acquisition
of our own shares (without having to obtain the approval of the High Court)
must comply with prescribed rules, regulations and conditions as laid down
in the Companies Act and the Securities and Exchange Board of India
(Buy-back of Securities) Regulations, 1998, or Buy-back Regulations.  Liquidation Rights Subject to the rights of creditors, employees and the holders of any
shares entitled by their terms to preferential repayment over the equity
shares, if any, 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 up on those equity shares. All surplus assets after payments due to
the holders of any preference shares at the commencement of the winding-up
shall be paid to holders of equity shares in proportion to their
shareholding.  Takeover Code 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% or 10% or 14% of the outstanding
shares or voting rights of a publicly-listed Indian company, a purchaser is
required to notify the company, and the company and the purchaser 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 75% 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, is required to notify the company and all the stock
exchanges where the shares are listed. A holder 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 purchaser is required to make an
open offer to the other shareholders, offering to purchase at least 20% of
all the outstanding shares of the company at a minimum offer price
determined pursuant to 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.  Material Contracts Except as described herein, we have not entered into any material
contracts in the two years preceding the date of this Annual Report, other
than contracts entered into in the ordinary course of business.  Exchange ControlsGeneral Prior to June 1, 2000, investment in Indian securities was regulated
by the Indian Foreign Exchange Regulation Act, 1973. Under Section 29(1)(b)
of the Indian Foreign Exchange Regulation Act, 1973, no person -68-




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or company resident outside India that is not incorporated in India
(other than a banking company) could purchase the shares of any company
carrying on any trading, commercial or industrial activity in India without
the permission of the Reserve Bank of India. Also, under Section 19(1)(d)
of the Indian Foreign Exchange Regulation Act, 1973, the transfer and
issuance of any security of any Indian company to a person resident outside
India required the permission of the Reserve Bank of India. Under Section
19(5) of the Indian Foreign Exchange Regulation Act, 1973, no transfer of
shares in a company registered in India by a non-resident to a resident of
India was valid unless the transfer was confirmed by the Reserve Bank of
India upon application filed by the transferor or the transferee.
Furthermore, the issuance of rights and other distributions of securities
to a non-resident also requires the prior consent of the Reserve Bank of
India. However, the Reserve Bank of India has issued notifications over the
past few years relaxing the restrictions on foreign investment in Indian
companies. As of June 1, 2000, the Indian Foreign Exchange Regulation Act, 1973
was replaced by the Indian Foreign Exchange Management Act, 1999. The
Indian Foreign Exchange Management Act, 1999 contains provisions regarding
current account convertibility and amendments to the definition of a
resident of India. However, some of the preexisting controls and
restrictions on capital account transactions remain in force. While many of
the restrictions imposed by the Indian Foreign Exchange Regulation Act,
1973 have been relaxed under this new legislation, the Notifications and
Guidelines issued by the Reserve Bank of India which are not inconsistent
with the Indian Foreign Exchange Management Act, 1999 continue to be in
force. The purchase and the transfer of shares of Indian companies
continues to be regulated by the RBI. Therefore, transaction involving
foreign investment in Indian securities is regulated by the provisions of
the Indian Foreign Exchange Management Act, 1999 and continues to be
regulated by the Reserve Bank of India.  ADR Guidelines Shares of Indian companies represented by ADSs are no longer required
to be approved for issuance to foreign investors by the either Ministry of
Finance or the Reserve Bank of India under the Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depositary Receipt
Mechanism) Scheme, 1993, as modified from time to time, notified by the
Government of India. This change was effected through the guidelines for
ADR and GDR issues by Indian companies issued by the Ministry of Finance on
January 19, 2000 and a notification issued by the Reserve Bank of India.
Hence we do not require the approval of the Ministry of Finance and the
Reserve Bank of India under the Issue of Foreign Currency Convertible Bonds
and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993.
However, we will be required to furnish full particulars of the issue,
including the underlying equity shares representing the ADRs, to the
Ministry of Finance and the Reserve Bank of India within 30 days of the
completion of an offering. The Issue of Foreign Currency Convertible Bonds and Ordinary Shares
Scheme is distinct from other policies or facilities, as described below,
relating to investments in Indian companies by foreign investors. The
issuance of ADSs pursuant to the Issue of Foreign Currency Convertible
Bonds and Ordinary Shares Scheme also affords to owners of ADSs the
benefits of Section 115AC of the Indian Income-tax Act, 1961 for purposes
of the application of Indian tax law. The Government of India does not
restrict the payment of dividends to the holders of our ADSs or equity
shares, whether or not such holders reside in India. For additional
information, please see Taxation  Indian Taxation. Foreign Direct Investment Currently, due to recent changes in Indian policy, subject to certain
exceptions, foreign direct investment and investment by individuals of
Indian nationality or origin residing outside India, or non-resident
Indians, and overseas corporate bodies at least 60% owned by such persons,
or overseas corporate bodies, in Indian companies do not require the
approval of the Foreign Investment Promotion Board, or FIPB, a body formed
by the Government of India to negotiate with large foreign companies
interested in making long-term investments in India. Furthermore,
henceforth no prior approval of the Reserve Bank of India is required
although a post-investment declaration in giving details of the foreign
investment in the company pursuant to the ADR issue must be filed with the
Reserve Bank of India within thirty days of an ADR offering. In cases where FIPB approval is obtained, no prior approval of the
Reserve Bank of India is required, although a declaration in the prescribed
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once the foreign investment is made in the Indian company. In cases
where no prior approval of the FIPB is required, prior approval of the
Reserve Bank of India would also not be required. However, a declaration in
the prescribed form giving details of the foreign investment must be filed
with the Reserve Bank of India once the foreign investment is made in the
Indian company. In May 1994, the Government of India announced that purchases by
foreign investors of ADSs and foreign currency convertible bonds of Indian
companies will be treated as foreign direct investment in the equity issued
by Indian companies for such offerings. In November 1998, the Reserve Bank of India issued a notification to
the effect that foreign investment in preferred shares will be considered
as part of the share capital of a company and the provisions relating to
foreign direct investment in the equity shares of a company discussed above
would apply. Investments in preferred shares are included as foreign direct
investment for the purposes of sectoral caps on foreign equity, if such
preferred shares carry a conversion option. If the preferred shares are
structured without a conversion option, they would fall outside the foreign
direct investment limit. The discussion on the foreign direct investment regime in India set
forth above applies only to a new issuance of shares made by Indian
companies, not to a transfer of shares. Investment by Non-Resident Indians and Overseas Corporate Bodies A variety of special facilities for making investments in India in
shares of Indian companies is available to individuals of Indian
nationality or origin residing outside India, or non-resident Indians, and
to overseas corporate bodies, at least 60% owned by such persons. These
facilities permit non-resident Indians and overseas corporate bodies to
make portfolio investments in shares and other securities of Indian
companies on a basis not generally available to other foreign investors.
These facilities are different and distinct from investments by foreign
direct investors described above. Apart from portfolio investments in Indian companies, non-resident
Indians and overseas corporate bodies may also invest in Indian companies
through foreign direct investments. For additional information, please see
"Foreign Direct Investment.. Under the foreign direct investment rules,
non-resident Indians and overseas corporate bodies may invest up to 100% in
high-priority industries in which other foreign investors are permitted to
invest only up to 50%, 51%, 74% or 100%, depending on the industry
category. Investment by Foreign Institutional Investors In September 1992, the Government of India issued guidelines which
enable Foreign Institutional Investors, or FIIs, including institutions
such as pension funds, investment trusts, asset management companies,
nominee companies and incorporated/institutional portfolio managers, to
invest in all the securities traded on the primary and secondary markets in
India. Under the guidelines, FIIs are required to obtain an initial
registration from the Securities and Exchange Board of India, or SEBI, and
a general permission from the Reserve Bank of India to engage in
transactions regulated under the Foreign Exchange Management Act. FIIs must
also comply with the provisions of the SEBI Foreign Institutional Investors
Regulations, 1995. When it receives the initial registration, the FII also
obtains general permission from the Reserve Bank of India to engage in
transactions regulated under the Foreign Exchange Management Act. Together,
the initial registration and the Reserve Bank of Indias general permission
enable the registered FII to: (i) buy (subject to the ownership
restrictions discussed below) and sell unrestricted securities issued by
Indian companies; (ii) realize capital gains on investments made through
the initial amount invested in India; (iii) participate in rights
offerings for shares; (iv) appoint a domestic custodian for custody of
investments held; and (v) repatriate the capital, capital gains, dividends,
interest income and any other compensation received pursuant to rights
offerings of shares. The current policy with respect to purchase/sale of
securities of an Indian company by an FII is enshrined in Schedule 2 and
Regulation 5(2) of the Foreign Exchange Management (Transfer or Issue of
Securities by a Person Resident Outside India) Regulations, 2000. Apart from making portfolio investments in Indian Companies as
described above, foreign institutional investors may direct foreign
investments in Indian Companies. For additional information, please see
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Ownership Restrictions The Securities and Exchange Board of India and Reserve Bank of India
regulations, restrict investments in Indian companies by FIIs, NRIs and
OCBs or collectively, Foreign Direct Investors. Under the current SEBI
regulations applicable to us, subject to the requisite approvals of the
shareholders in a general meeting, Foreign Direct Investors in aggregate
may hold no more than 49% of a companys equity shares, excluding the
equity shares underlying the ADSs. Pursuant to Notification No.
FEMA.45/2001-RB dated September 20, 2001 under Foreign Exchange Management
(Transfer or Issue of Securities by a Person Resident Outside India)
(Amendment) Regulations, 2001, upon obtaining the approval of the
shareholders by a special resolution, the limit of FII investment in a
company may be increased to 100% for companies in the IT industry.
Furthermore, SEBI regulations provide that no single FII may hold more than
10% of a companys total equity shares. There is uncertainty under Indian law about the tax regime applicable
to foreign institutional investors that hold and trade ADSs. Foreign
institutional investors are urged to consult with their Indian legal and
tax advisers about the relationship between the foreign institutional
investor regulations and the ADSs and any equity shares withdrawn upon
surrender of ADSs. Detailed provisions relating to FII investment have been introduced by
the SEBI with the introduction of the SEBI Foreign Institutional Investors
Regulations, 1995. These provisions relate to the registration of FIIs,
their general obligations and responsibilities, and certain investment
conditions and restrictions. One such restriction is that the total
investment in equity and equity-related instruments should not be less than
70% of the aggregate of all investments of an FII in India. The SEBI has
also permitted private placements of shares by listed companies with FIIs,
subject to the prior approval of the Reserve Bank of India under the
Foreign Exchange Management Act. Such private placements must be made at
the average of the weekly highs and lows of the closing price over the
preceding six months or the preceding two weeks, whichever is higher. Under the Takeover Code, which replaced the 1994 Takeover Code (as
defined herein), upon the acquisition of more than 5% or 10% or 14% of the
outstanding shares of a public Indian company, a purchaser is required to
notify the company and the company and the purchasers are required to
notify to all the stock exchanges on which the shares of the company are
listed. Upon the acquisition of 15% or more of such shares or a change in
control of the company, the purchaser is required to make an open offer to
the other shareholders offering to purchase at least 20% of all the
outstanding shares of the company at a minimum offer price as determined
pursuant to the rules of the Takeover Code. Upon conversion of ADSs into
equity shares, a holder of ADSs will be subject to the Takeover Code. Open market purchases of securities of Indian companies in India by
Foreign Direct Investors above the ownership levels set forth above require
Government of India approval on a case-by-case basis. Voting Rights of Deposited Equity Shares Represented by ADSs Holders of ADSs generally have the right under the deposit agreement
to instruct the depositary bank to exercise the voting rights for the
equity shares represented by the related ADSs. At our request, the depositary bank will mail to the holders of ADSs
any notice of stockholders meeting received from us together with
information explaining how to instruct the depositary bank to exercise the
voting rights of the securities represented by ADSs. If the depositary bank timely receives voting instructions from a
holder of ADSs, it will endeavor to vote the securities represented by the
holders ADSs in accordance with such voting instructions. In the event
that voting takes place by a show of hands, the depositary bank will cause
the custodian to vote all deposited securities in accordance with the
instructions received by holders of a majority of the ADSs for which the
depositary bank receives voting instructions. Please note that the ability of the depositary bank to carry out
voting instructions may be limited by practical and legal limitations and
the terms of the securities on deposit. We cannot assure you that ADS
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will receive voting materials in time to enable them to return voting
instructions to the depositary bank in a timely manner. Securities for
which no voting instructions have been received will not be voted. Taxation  Indian Taxation General. The following relates to the principal Indian tax
consequences for holders of ADSs and equity shares received upon withdrawal
of such equity shares who are not resident in India, whether of Indian
origin or not. We refer to these persons as non-resident holders. The
following is based on the provisions of the Income-tax Act, 1961, including
the special tax regime contained in Section 115AC and the Issue of Foreign
Currency Convertible Bonds and Ordinary Shares (through Depository Receipt
Mechanism) Scheme, 1993. The Income-tax Act is amended every year by the
Finance Act of the relevant year. Some or all of the tax consequences of
the Section 115AC may be amended or changed by future amendments of the
Income-tax Act. This section is not intended to constitute a complete analysis of the
individual tax consequences to non-resident holders under Indian law for
the acquisition, ownership and sale of ADSs and equity shares. Personal tax
consequences of an investment may vary for non-resident holders in various
circumstances, and potential investors should therefore consult their own
tax advisers on the tax consequences of such acquisition, ownership and
sale, including specifically the tax consequences under the law of the
jurisdiction of their residence and any tax treaty between India and their
country of residence. 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 182 days or more; or
    
    60 days or more and, in case of a citizen of India or a person of
Indian origin, who, being outside India, comes on a visit to India,
is in India for 182 days or more effective April 1, 1995 and in each
case 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 registered in India or the
control and the management of its affairs is situated wholly in India. A
firm or other association of persons is resident in India except where the
control and management of its affairs is situated wholly outside India.
Individuals, companies, firms and other associations of persons that are
not residents of India would be treated as non-residents for purposes of
the Income-tax Act. Taxation of Distributions. There is no withholding tax on dividends
paid to stockholders. However, the company paying the dividend is subject
to a dividend distribution tax of 12.5%, and surcharge of 2.5%, on the
total amount it distributes, declares or pays as a dividend. This dividend
distribution tax is in addition to the normal corporate tax of 35%, and
surcharge of 2.5%. Any distributions of additional ADSs, equity shares or rights to
subscribe for equity shares made to non-resident holders with respect to
ADSs or equity shares will not be subject to Indian tax. Similarly, the
acquisition by a non-resident holder of equity shares upon redemption of
ADSs will not constitute a taxable event for Indian income tax purposes.
Such acquisition will, however, give rise to a stamp duty as described
below under Stamp Duty and Transfer Tax. Taxation of Capital Gains. Any gain realized on the sale of ADSs or
equity shares by a non-resident holder to any non-resident outside India is
not subject to Indian capital gains tax. Since our ADS offerings were approved by the Government of India under
the Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme,
non-resident holders of the ADSs have the benefit of tax concessions
available under Section 115AC. As a result, gains realized on the sale of
ADSs will not be subject to Indian taxation. The effect of the Scheme in
the context of Section 115AC is unclear as to whether such tax treatment is
available 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 surrender of the ADSs. If concessional tax treatment is not -72-




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available, gains realized on the sale of such equity shares will be
subject to customary Indian taxation on capital gains as discussed below.
The Issue of Foreign Currency Convertible Bonds and Ordinary Shares 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 such concessional tax treatment. Subject to any relief provided pursuant to an applicable tax treaty,
any gain realized on the sale of equity shares to an Indian resident or
inside India generally will be subject to Indian capital gains tax which is
to be withheld at the source by the buyer. However, the acquisition by
non-resident holders of equity shares in exchange for ADSs will not be
subject to Indian capital gains tax. Under the Issue of Foreign Currency
Convertible Bonds and Ordinary Shares Scheme, the cost of acquisition of
equity shares received in exchange for ADSs will be the cost 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. In the case of companies listed in India, the cost of
acquisition of the equity shares would be the price of the equity shares
prevailing on the Stock Exchange, Mumbai or the National Stock Exchange on
the date the depositary gives notice to the custodian of the delivery of
the equity shares in exchange for the corresponding ADSs. However, the
Issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme and
Section 115AC do not provide for determination of the cost of acquisition
for the purposes of computing capital gains tax where the shares of the
Indian company are not listed on the Stock Exchange, Mumbai or the National
Stock Exchange in India. Therefore, in the case of our company, which is
not listed on either the Stock Exchange, Mumbai or the National Stock
Exchange, the mode of determination of the cost of acquisition of equity
shares is unclear. Therefore, the original cost of acquisition of the ADSs
may be treated as the cost of acquisition for the purposes of determining
the capital gains tax. According to the Issue of Foreign Currency
Convertible Bonds and Ordinary Shares Scheme, a non-resident holders
holding period for purposes of determining the applicable Indian capital
gains tax rate in respect of equity shares received in exchange for ADSs
commences on the date of the notice of the redemption by the depositary to
the custodian. The India-U.S. Treaty does not provide an exemption from the
imposition of Indian capital gains tax. The Finance Act, 2003 exempts long-term capital gains from tax when
they are derived from the transfer of equity shares in a company listed on
a recognized stock exchange in India and is a constituent of BSE 500
indices and purchased on or after March 1, 2003, but before March 1, 2004
and purchase and sale are entered into on a recognized stock exchange in
India. Taxable gain realized in respect of equity shares held for 12 months
or less, or short-term gain, is subject to tax at variable rates with a
maximum rate of 48%. The actual rate of tax on short-term gain depends on a
number of factors, including the residential status of the non-resident
holder and the type of income chargeable in India. Buy-back of Securities. Currently, Indian companies are not subject to
any tax in respect of the buy-back of their shares. However, the
stockholders will be taxed on any gain at the long-term or short-term, as
applicable, capital gains rates. For additional information, please see
"Taxation of Capital Gains. Stamp Duty and Transfer Tax. Upon issuance of the equity shares
underlying our ADSs, we are required to pay a stamp duty of Rs 0.30 per
share certificate. A transfer of ADSs is not subject to Indian stamp duty.
However, upon the acquisition of equity shares in physical form from the
depositary in exchange for ADSs, the non-resident holder will be liable for
Indian stamp duty at the rate of 0. 25% of the market value of the equity
shares on the redemption date. Similarly upon a sale of shares in physical
form, stamp duty at the rate of 0.25% of the market value of the equity
shares on the trade date is payable, although customarily such duty is
borne by the purchaser. Blocks of 500 or less of our equity shares may be
issued and traded in physical form, and are thus subject to Indian stamp
duty. Blocks of more than 500 of our equity shares must be issued and
traded in dematerialized form and are not subject to Indian stamp duty. Wealth Tax. The holding of the ADSs in the hands of non-resident
holders and the holding of the underlying equity shares by the depositary
as a fiduciary will be exempt from Indian wealth tax. Non-resident holders
are advised to consult their own tax advisers in this context. Gift Tax and Estate Duty. Indian gift tax was abolished in October
1998. In India, there is no estate duty law. As a result, no estate duty
would be applicable to non-resident holders. Non-resident holders are
advised to consult their own tax advisors in this context. -73-




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Service Tax. Brokerage or commissions paid to stockbrokers in
connection with the sale or purchase of shares is subject to a service tax
of 8%. The stockbroker is responsible for collecting the service tax and
paying it to the relevant authority. United States Federal Taxation The following is a summary of the material U.S. federal income and
estate tax consequences that may be relevant with respect to the
acquisition, ownership and disposition of equity shares or ADSs. This
summary addresses the U.S. federal income and estate tax considerations of
holders that are U.S. persons, i.e., citizens or residents of the United
States, partnerships or corporations 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 U.S. federal income taxation regardless of
its source and trusts for which a U.S. court exercises primary supervision
and a U.S. person has the authority to control all substantial decisions
and that will hold equity shares or ADSs as capital assets. We refer to
these persons as U.S. holders. This summary does not address tax
considerations applicable to holders that may be subject to special tax
rules, such as banks, insurance companies, dealers in securities or
currencies, tax-exempt entities, persons that 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 U.S. dollar or holders of 10% or more, by voting power or
value, of the stock 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 representations of the depositary and 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 U.S. Federal, state, local and foreign tax
consequences of acquiring, owning or disposing of equity shares or ADSs. Ownership of ADSs.For U.S. federal income tax purposes, holders of
ADSs should be treated as the owners of equity shares represented by such
ADSs. However, the United States Treasury had expressed concerns that
parties to whom ADSs are pre-released may be taking actions inconsistent
with the claiming of the reduced rate of tax applicable to dividends
received by certain non-corporate holders, as described below. Accordingly,
the availability of the lower rate of tax applicable to dividends could be
affected by actions that may be taken by the United States Treasury. Dividends.Subject to special rules discussed below governing passive
foreign investment companies, distributions of cash or property (other than
equity shares, if any, that are distributed pro rata to all stockholders of
our company, including holders of ADSs and also meet certain conditions)
with respect to equity shares will be includible in income by a U.S. holder
as foreign source dividend income at the time of receipt, which in the case
of a U.S. holder of ADSs generally will be the date of receipt by the
depositary, to the extent such distributions are made from the current or
accumulated earnings and profits of our company as determined under U.S.
federal income tax principles. Such dividends will not be eligible for the
dividends received deduction generally allowed to corporate U.S. 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, it will
be treated first as a tax-free return of the U.S. holders tax basis in the
equity shares or ADSs and thereafter as capital gain. With respect to
noncorporate taxpayers for taxable years beginning before January 1, 2009,
dividends may be taxed at the lower applicable capital gains rate provided
that (1) ADSs or equity shares are readily tradable on an established
securities market in the United States, (2) we are not a passive foreign
investment company (as discussed below) for either our taxable year in
which the dividend is paid or the preceding taxable year, and (3) certain
holding period requirements are met. It is not clear if any Indian tax imposed upon distributions paid to a
U.S. holder with respect to ADSs or equity shares would be eligible for
credit against the U.S. holders federal income tax liability (or
alternatively, a deduction in computing taxable income). Dividends paid by
our company generally will constitute passive income for purposes of the
foreign tax credit (or, in the case of certain holders, financial services
income). -74-




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If dividends are paid in Indian rupees, the amount of the dividend
distribution includible in the income of a U.S. holder will be in the U.S.
dollar value of the payments made in Indian rupees, determined at a spot
exchange rate between Indian rupees and U.S. dollars applicable to the date
of distribution, regardless of whether the payment is in fact converted
into U.S. 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 U.S. dollars will be treated as
ordinary income or loss. Sale or Exchange of equity shares or ADSs.A U.S. 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 U.S. holders tax basis in the equity shares or ADSs.
Subject to special rules described below governing passive foreign
investment companies, 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 were
held for more than one year. Gain or loss, if any, recognized by a U.S.
holder generally will be treated as U.S. source gain or loss for U.S.
foreign tax credit purposes. The deductibility of capital losses may be
subject to limitation. Estate Taxes.An individual stockholder who is a citizen or resident
of the United States for U.S. federal estate tax purposes will have the
value of the equity shares or ADSs owned by such holder included in his or
her gross estate for U.S. federal estate tax purposes. Passive Foreign Investment Company.A non-U.S. corporation will be
classified as a passive foreign investment company for U.S. Federal income
tax purposes if either:  
    
    75% or more of its gross income for the taxable year is passive
income; or
    
    on a quarterly average for the taxable year by value (or, if it
is not a publicly traded corporation and so elects, by adjusted
basis) 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. If we were to be a passive foreign
investment company for any taxable year, U.S. holders would be required to
either:  
    
    pay an interest charge together with tax calculated at maximum
ordinary income rates on excess distributions, which is defined to
include gain on a sale or other disposition of equity shares;
    
    if a qualified electing fund election is made, to 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, to 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. Backup Withholding Tax and Information Reporting Requirements.
Dividends paid on equity shares to a holder who is not an exempt
recipient, if any, may be subject to information reporting and, unless a
holder either furnishes its taxpayer identification number or otherwise
establishes an exemption, may also be subject to U.S. backup withholding
tax. In addition, information reporting will apply to payments of proceeds
from the sale or redemption of equity shares or ADSs by a paying agent,
including a broker, within the United States to a U.S. holder, other than
an exempt recipient. An exempt recipient includes a corporation. In
addition, a paying agent within the United States will be required to
withhold 31% of any payments of the proceeds from the sale or redemption of
equity shares or ADSs within the United States to a holder, other than an
exempt recipient, if such holder fails to furnish its correct taxpayer
identification number or otherwise fails to comply with such backup
withholding requirements. The above summary is not intended to constitute a complete analysis of
all tax consequences relating to ownership of equity shares or ADSs. You
should consult your own tax advisor concerning the tax consequences of your
particular situation. -75-




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Documents On Display Publicly filed documents concerning our company which are referred to
in this document may be inspected and copied at the public reference
facilities maintained by the SEC at: Judiciary Plaza
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549 Copies of these materials can also be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington D.C.
20549, at prescribed rates. The SEC maintains a website 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. Subsidiary Information Not applicable. 
 ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our currency, maturity and interest rate information relative to our
short-term and long-term debt are disclosed in Note Borrowings to our
consolidated financial statements. The table below provides information about our financial instruments
that are sensitive to changes in interest rates and foreign currencies as
of the dates shown. Weighted average variable rates were based on average
interest rates applicable to the loans. The information is presented in
U.S. dollar equivalents, which is our reporting currency, based on the
applicable exchange rates as of the relevant period end. Actual cash flows
are denominated in various currencies, including U.S. dollars and Indian
rupees. As of March 31, 2004
    
    As of March 31, 2003Total recorded
    
    Total recordedAmount
    
    Fair Value
    
    Amount
    
    Fair Value($ equivalent in thousands)Debt:Variable rate short-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Average interest rate
    
    
    
    Fixed rate long-term debt
    
    $
    4,182
    
    
    $
    4,189
    
    
    $
    4,074
    
    
    $
    4,081Average interest rate
    
    10.93%
    
    11.88%
 Limitations. Fair value estimates are made at a specific point in time
and are based on relevant market information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates. We also face market risk relating to foreign exchange rate
fluctuations, principally relating to the fluctuation of U.S. dollar to
Indian rupee exchange rate. Our foreign exchange risk principally arises
from accounts payable to overseas vendors. This risk is partially mitigated
as we have receipts in foreign currency from overseas customers and hold
balances in foreign currency with overseas banks. During fiscal 2004 and fiscal 2003, 97.1% and 93.9%, respectively, of
our revenues were generated outside of India. Using sensitivity analysis, a
hypothetical 10% increase in the value of the Indian rupee against all
other currencies would decrease revenue by 1.6% or $8.8 million in the
fiscal 2004 and 1.9%, or $8.6 million in fiscal 2003, while a hypothetical
10% decrease in the value of the Indian rupee against all other currency
would increase revenue by 1.6%, or $8.8 million, in the fiscal 2004 and
1.9%, or $8.6 million, in fiscal 2003. In the opinion of management, a
substantial portion of this fluctuation would be offset by expenses
incurred in local -76-




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currencies. As a result, a hypothetical 10% movement of the value of
the Indian rupee against all other currencies in either direction would
have impacted our earnings before interest and taxes by $8.8 million in the
fiscal 2004 and $8.6 million in fiscal 2003. This amount would be offset,
in part, from the impacts of local income taxes and local currency interest
expense. As at March 31, 2004, we had approximately $76.3 million of
non-Indian rupee denominated cash and cash equivalents. 
 ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. -77-




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PART II 
 ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. 
 ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS In May 2001, we completed an offering of 16,675,000 ADSs (representing
33,350,000 equity shares) at a price of $9.71 per ADS. We received
approximately $150.6 million in cash, net of underwriting discounts,
commissions and other offering costs. Our Securities Act registration
statement on Form F-1 with respect to the offering was declared effective
by the Securities and Exchange Commission on May 14, 2001 (Registration No.
333-13464). As of May 31, 2004, approximately $73.8 million of these
proceeds has been used for prepayment of loans ($26.9 million); strategic
investments in our subsidiaries ($14.1 million); development of facilities
and infrastructure ($7.2 million) and working capital and general corporate
purposes ($25.6 million). We intend to use the balance of the net proceeds
to fund expansion of our existing facilities and communication network in
different locations in India and outside India; to develop new facilities
within and outside India; to invest in joint ventures and other
strategic investments; and for working capital and general corporate
purposes. None of the net proceeds from our ADS offering were paid,
directly or indirectly, to any of our directors, officers or general
partners or any of their associates, or to any persons owning ten percent
or more of any class of our equity securities, or any affiliates. 
 ITEM 15.  CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time
periods specified in the U.S. Securities and Exchange Commissions rules
and forms, and that such information is accumulated and communicated to our
management, to allow timely decisions regarding required disclosures. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the
desired control objectives, and, in reaching a reasonable level of
assurance, management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures. Also, we have investments in certain unconsolidated entities.
As we do not control or manage these entities, our disclosure controls and
procedures with respect to such entities are necessarily substantially more
limited than those we maintain with respect to our consolidated
subsidiaries. We have carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer, Chief Financial Officer and
other management, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of March 31, 2004. There have been no significant changes in our internal controls or in
other factors that could significantly affect the internal controls
subsequent to the date we completed our evaluation. Nevertheless, during fiscal 2004 we identified a one time error in our
consolidated financial statements that required us to restate the results
of prior years under U.S. GAAP. In particular, we identified and restated
beginning shareholders equity as of March 31, 2001 and shareholders
equity and net income as of and for the years ended March 31, 2003 and
2002, to reflect the impact on deferred tax liabilities and income taxes of
Satyams equity in the losses of Sify. Such impact was not previously
recognized. In order to prevent errors in complex areas of US GAAP
from occurring in the future, we will dedicate additional resources
with expertise in complex US GAAP accounting areas, such as
deferred tax accounting, to assist with our US GAAP financial
reporting. -78-




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ITEM 16. A.  AUDIT COMMITTEE FINANCIAL EXPERT Our Audit Committee members (as of May 31, 2004) are V.P. Rama Rao,
Mangalam Srinivasan and Krishna G. Palepu, each of whom is an independent
director who does not meet all of the criteria required to be named as
Financial Expert, as defined in the applicable rules of the Securities
Exchange Commission. The Board has determined that the financial expertise
possessed by the current members of the Audit Committee is satisfactory,
particularly the financial expertise of Krishna G Palepu, a member of the
Audit Committee who is a Professor at Harvard Business School where he is a
recognized expert in the analysis of financial statements and accounting
matters. Please see Item 6. Directors, Senior Management and Employees
for the experience and qualifications of the members of the Audit
Committee. 
 ITEM 16. B.  CODE OF ETHICS We have adopted a written Code of Ethics that is applicable to all of
our directors, senior management and employees. We will make available a copy of
the Code of Ethics to any person, without charge, if a written request is
made to our Company Secretary at Mayfair Center, SP Road, Secunderabad 500
003, Andhra Pradesh, India. 
 ITEM 16. C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth the remuneration that we paid to our
Independent Auditors and its associated entities in each of our previous
two fiscal years: (Amounts in $)Fiscal Year Ended
    
    
    
    
    
    AuditMarch 31,
    
    Audit Fees
    
    Related Fees
    
    Tax Fees
    
    Others2003
    
    $
    191,659
    
    
    $
    78,068
    
    
    $
    33,388
    
    
    $
    234,6252004
    
    $
    161,530
    
    
    $
    68,295
    
    
    $
    76,935
    
    
    $
    143,265
 Audit fees Audit Fees represent fees for professional services rendered for the
audit of the standalone financial statements, consolidated financial
statements of the Company and its subsidiaries prepared in accordance with
Indian GAAP, US GAAP and other local GAAPs of the subsidiaries. Audit related fees Audit
related fees represent fees for advisory services and professional services rendered
in connection with Securities and Exchange Board of India
requirements and requirements related to Stock Exchanges. Tax fees Services provided primarily consist of routine corporate tax advisory
services, tax audit and compilation of corporate tax returns. Others -79-




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Others
represent consultation on matters related to professional fees in
respect of obtaining work permits/visas for employees deputed abroad
and other matters. During fiscal 2004, the Audit Committee pre-approved a list of
services that could be rendered by the principal accountant in fiscal 2004
pursuant to pre-approval policies and procedures established by the Audit
Committee. For services other than those specified, approval would need to
be obtained from the Audit Committee prior to the performance of such
services. Services provided by the principal accountant in fiscal 2004 were
allowable services that were approved by the Audit Committee. 
 ITEM 16. D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES None. -80-




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PART III 
 ITEM 17.  FINANCIAL STATEMENTS See Item 18 for a list of financial statements filed under Item 17. 
 ITEM 18.  FINANCIAL STATEMENTS  Financial Statement The following financial statements are filed as part of this document,
together with the report of the independent auditors:  
    
    Report of Price Waterhouse, Independent Auditors
    
    Consolidated Balance Sheets as of March 31, 2003 and 2004
    
    Consolidated Statements of Operations for the years ended
March 31, 2002, 2003 and 2004
    
    Consolidated Statements of Shareholders Equity and
Comprehensive Income for the years ended March 31, 2002, 2003
and 2004
    
    Consolidated Statements of Cash Flows for the years ended
March 31, 2002, 2003 and 2004
    
    Notes to the Consolidated Financial Statements
    
    Financial Statement Schedule  Valuation and qualifying accounts  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 Change in valuation allowance on deferred tax assets: ($ in thousands)Change dueOpening
    
    Change during
    
    to forex
    
    Other
    
    ClosingAs of March 31,
    
    Balance
    
    the period
    
    Fluctuation
    
    Adjustments*
    
    Balance2002
    
    
    24,756
    
    
    
    23,775
    
    
    
    984
    
    
    
    
    
    
    
    49,5152003
    
    
    49,515
    
    
    
    11,578
    
    
    
    546
    
    
    
    (46,374
    )
    
    
    15,2652004
    
    
    15,265
    
    
    
    824
    
    
    
    1,493
    
    
    
    
    
    
    
    17,582
 Allowance for doubtful accounts on trade accounts receivable ($ in thousands)Change dueOpening
    
    Change during
    
    to forex
    
    Other
    
    ClosingAs of March 31,
    
    Balance
    
    the period
    
    Fluctuation
    
    Adjustments*
    
    Balance2002
    
    
    2,748
    
    
    
    7,018
    
    
    
    (271
    )
    
    
    
    
    
    
    9,4952003
    
    
    9,495
    
    
    
    2,773
    
    
    
    248
    
    
    
    (3,336
    )
    
    
    9,1802004
    
    
    9,180
    
    
    
    3,644
    
    
    
    1,106
    
    
    
    
    
    
    
    13,930
   *
    
    other adjustments represents the changes due to change in
ownership interest in Sify. (Refer Item 3  Selected Financial
Data) -81-




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ITEM 19.  EXHIBITS Number
    
    Description1.1
    
    Memorandum and Articles of Association of Satyam Computer Services.(1)1.2
    
    Schedule 1  Table A: Regulations for Management of a Company Limited by Shares.(1)2.1
    
    Specimens of Share Certificates.(1)2.2
    
    Deposit Agreement dated May 14, 2001, by and among Satyam
Computer Services, Citibank, N.A. and the holders from time to time
of American Depositary Receipts issued thereunder (including as an
exhibit, the form of American Depositary Receipt).(2)4.1
    
    Associate Stock Option Plan (including Deed of Trust).(1)4.2
    
    Associate Stock Option Plan B.(1)4.3
    
    Associate Stock Option Plan ADR.(1)4.4
    
    Investor Rights Agreement, dated October 7, 2002, by and
among Sify Limited (formerly Satyam Infoway Limited), Satyam
Computer Services Limited, SAIF Investment Company Limited and
Venture Tech Solutions Pvt. Ltd.(3)8.1
    
    List of Subsidiaries.(4)10.1
    
    Consent of Price Waterhouse, Independent Auditors.(4)99.1
    
    Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act.(4)99.2
    
    Certification of Financial Officer under Section 906 of the Sarbanes-Oxley Act. (4)
   (1)
    
    Previously filed as an exhibit to our Registration
Statement on Form F-1 (File No. 333-13464) filed on May 7,
2001 and incorporated herein by reference.(2)
    
    Previously filed as an exhibit to our Form 20F (File No.
00115190) filed on August 13, 2001 and incorporated herein
by reference.(3)
    
    Previously furnished by Sify Limited to the Commission as
an exhibit to Form 6-K (file No. 00027-663) on October 10,
2002 and incorporated herein by reference.(4)
    
    Filed herewith. SIGNATURES The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and authorized the undersigned to sign this annual
report on its behalf. SATYAM COMPUTER SERVICES LIMITEDBy:
    /s/  B. Rama RajuName:
    B. Rama RajuTitle:
    Managing Director and Chief Executive OfficerBy:
    /s/  Srinivas VName:
    Srinivas VTitle:
    Director and Senior Vice President & Chief Financial Officer Date:  June 29, 2004 -82-




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##### Table of Contents



CHIEF EXECUTIVE OFFICER CERTIFICATION I, B. Rama Raju, certify that:  1.
    
    I have reviewed this annual report on Form 20-F of Satyam Computer
Services Limited;2.
    
    Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;3.
    
    Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the company as of, and for, the periods presented in
this report;4.
    
    The companys other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
company and have:  (a)
    
    Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;(b)
    
    Evaluated the effectiveness of the companys disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and(c)
    
    Disclosed in this report any change in the companys
internal control over financial reporting that occurred during
the period covered by the annual report that has materially
affected, or is reasonably likely to materially affect, the
companys internal control over financial reporting; and  5.
    
    The companys other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the companys auditors and the audit
committee of the companys board of directors (or persons performing
the equivalent functions):  (a)
    
    All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the companys
ability to record, process, summarize and report financial
information; and(b)
    
    Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
companys internal control over financial reporting. Dated this June 29, 2004. By:
    /s/  B. Rama RajuManaging Director and Chief Executive Officer -83-




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##### Table of Contents



CHIEF FINANCIAL OFFICER CERTIFICATION I, Srinivas V., certify that:  1.
    
    I have reviewed this annual report on Form 20-F of Satyam
Computer Services Limited;2.
    
    Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;3.
    
    Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the company as of, and for, the periods presented in
this report;4.
    
    The companys other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
company and have:  (a)
    
    Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;(b)
    
    Evaluated the effectiveness of the companys disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and(c)
    
    Disclosed in this report any change in the companys
internal control over financial reporting that occurred during
the period covered by the annual report that has materially
affected, or is reasonably likely to materially affect, the
companys internal control over financial reporting; and  5.
    
    The companys other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the companys auditors and the audit
committee of the companys board of directors (or persons performing
the equivalent functions):  (a)
    
    All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the companys
ability to record, process, summarize and report financial
information; and(b)
    
    Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
companys internal control over financial reporting. Dated this June 29, 2004. By:
    /s/  Srinivas V.Director and Senior Vice President &
Chief Financial Officer -84-




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##### Table of Contents



SATYAM COMPUTER SERVICES LIMITED INDEX TO THE U.S. GAAP CONSOLIDATED FINANCIAL STATEMENTS PageReport
of Price Waterhouse, Independent Auditors.
    
    
    F-2Consolidated Balance Sheets as of March 31, 2004 and 2003.
    
    
    F-3Consolidated Statements of Operations for the years ended March 31, 2004, 2003 and 2002.
    
    
    F-4Consolidated Statements of Shareholders Equity and Comprehensive Income for the years
ended March 31, 2004, 2003 and 2002.
    
    
    F-5Consolidated Statements of Cash Flows for the years ended March 31, 2004, 2003 and 2002.
    
    
    F-8Notes to the Consolidated Financial Statements.
    
    
    F-10
 F-1




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##### Table of Contents



Report of Independent Auditors To the Board of Directors of:
Satyam Computer Services Limited In our opinion, based upon our audits and the report of other independent
auditors, the accompanying consolidated balance sheets, the related
consolidated statements of operations, of cash flows and of shareholders
equity and comprehensive income after the restatement as discussed in Note 22,
present fairly, in all material respects, the financial position of Satyam
Computer Services Limited and its subsidiaries as at March 31, 2004, 2003 and
2002, and the results of their operations and their cash flows for each of the
three years in the period ended March 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. In
connection with our audits of the consolidated financial statements,
we also have audited the Financial Statement Schedule. These financial
statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Sify Limited, a 52.51%
owned subsidiary, as at March 31, 2002 and for the year then ended, which
statements reflect total assets of US$84,953 thousands as at March 31, 2002 and
total revenues of US$33,050 thousands for the year then ended. Those statements
were audited by other independent auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Sify Limited as at March 31, 2002 and for the year then
ended, is based solely on the report of the other independent auditors. We
conducted our audits of these statements 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. Price Waterhouse Secunderabad, India April 22, 2004 F-2




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##### Table of Contents






Satyam Computer Services Limited
Consolidated Balance Sheets(Thousands of US Dollars except per share data and as stated otherwise) As of March 312004
    
    2003AssetsCurrent assetsCash and cash equivalents
    
    $
    86,730
    
    
    $
    62,202Investments in bank deposits
    
    
    332,133
    
    
    
    Accounts receivable, net of allowance for doubtful debts
    
    
    133,827
    
    
    
    96,764Unbilled revenue on contracts
    
    
    2,749
    
    
    
    5,542Deferred income taxes
    
    
    6,081
    
    
    
    4,488Prepaid expenses and other receivables
    
    
    32,905
    
    
    
    9,041Total current assets
    
    
    594,425
    
    
    
    178,037Investments
    
    
    2,793
    
    
    
    210Investments in bank deposits
    
    
    
    
    
    
    259,359Investments in associated companies
    
    
    24,274
    
    
    
    29,578Premises and equipment, net
    
    
    68,466
    
    
    
    69,158Goodwill, net
    
    
    15,536
    
    
    
    14,186Other assets
    
    
    8,274
    
    
    
    11,166Total assets
    
    
    713,768
    
    
    
    561,694Liabilities and shareholders equityCurrent liabilitiesShort-term and current portion of long-term debts
    
    
    2,356
    
    
    
    4,836Accounts payable
    
    
    8,383
    
    
    
    10,946Accrued expenses and other current liabilities
    
    
    46,674
    
    
    
    44,044Unearned and deferred revenue
    
    
    1,883
    
    
    
    1,726Total current liabilities
    
    
    59,296
    
    
    
    61,552Long-term debts, excluding current portion
    
    
    1,826
    
    
    
    1,738Deferred income taxes
    
    
    8,757
    
    
    
    10,688Total liabilities
    
    
    69,879
    
    
    
    73,978Contingencies
and Commitments (Note No. 18)
    
    
    
    
    
    
    Preferred Stock of Subsidiary0.05% Cumulative convertible redeemable preference shares, par value Rs.10
(US$0.23*) per equity share,(100 million preference shares authorized, 45,669,999 and Nil preference shares
issued as of March 31, 2004 and 2003 respectively)
    
    
    10,000
    
    
    
    Shareholders equityCommon stock
 par value Rs.2 (US$0.046*) per equity share
(375 million equity shares authorized, 316,251,710 and 314,542,800 issued as of
March 31, 2004 and 2003 respectively)
    
    
    17,222
    
    
    
    17,146Additional paid-in capital
    
    
    416,176
    
    
    
    406,704Shares subscribed but unissued
    
    
    43
    
    
    
    Deferred stock-based compensation
    
    
    (13
    )
    
    
    (876
    )Retained earnings
    
    
    172,825
    
    
    
    87,138Accumulated other comprehensive income/(loss)
    
    
    29,380
    
    
    
    (20,113
    )635,633
    
    
    
    489,999Shares held
by the SC-Trust under associate stock option plan(1,687,680 and 2,210,820 equity shares as of March 31, 2004 and 2003 respectively)
    
    
    (1,744
    )
    
    
    (2,283
    )Total shareholders equity
    
    
    633,889
    
    
    
    487,716Total liabilities and shareholders equity
    
    $
    713,768
    
    
    $
    561,694
  * The par value in US$ has been converted at the closing rate as of March 31,
2004, 1US$ = Rs43.40
 The accompanying notes are an integral part of these consolidated financial
statements. F-3




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##### Table of Contents






Satyam Computer Services Limited
Consolidated Statements of Operations(Thousands of US Dollars except per share data and as stated otherwise) Year ended March 312004
    
    2003
    
    2002Revenues
    
    $
    566,372
    
    
    $
    459,207
    
    
    $
    414,491Cost of
revenues
(Includes deferred stock-based compensation of US$853, US$1,591,
US$7,212 for the years ended March 31, 2004, 2003 and 2002
respectively)
    
    
    (343,596
    )
    
    
    (275,219
    )
    
    
    (240,304
    )Gross profit
    
    
    222,776
    
    
    
    183,988
    
    
    
    174,187Selling,
general and administrative expenses(Includes deferred stock-based compensation of US$772, US$2,930
and US$3,582 for the years ended March 31, 2004, 2003 and 2002
respectively)
    
    
    (101,627
    )
    
    
    (116,893
    )
    
    
    (139,588
    )Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    (16,997
    )Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    (81,115
    )Impairment of other non marketable investments
    
    
    
    
    
    
    (3,299
    )
    
    
    Reversal of put option charge
    
    
    
    
    
    
    19,843
    
    
    
    Total operating expenses
    
    
    (101,627
    )
    
    
    (100,349
    )
    
    
    (237,700
    )Operating income/(loss)
    
    
    121,149
    
    
    
    83,639
    
    
    
    (63,513
    )Interest income
    
    
    20,309
    
    
    
    7,158
    
    
    
    3,806Interest expense
    
    
    (471
    )
    
    
    (800
    )
    
    
    (2,856
    )Gain on sale of shares in associated companies/others
    
    
    2,652
    
    
    
    830
    
    
    
    45,594Gain/(loss) on foreign exchange transactions
    
    
    (8,874
    )
    
    
    (4,757
    )
    
    
    10,813Other income/(expense), net
    
    
    2,270
    
    
    
    (1,746
    )
    
    
    1,277Income/(loss) before income taxes, minority interest and equity
in earnings/(losses) of associated companies
    
    
    137,035
    
    
    
    84,324
    
    
    
    (4,879
    )Income taxes
    
    
    (22,544
    )
    
    
    (9,769
    )
    
    
    (769
    )Minority Interest
    
    
    
    
    
    
    11,082
    
    
    
    73,406Income before equity in earnings/(losses) of associated companies
    
    
    114,491
    
    
    
    85,637
    
    
    
    67,758Equity in earnings/(losses) of associated companies, net of taxes
    
    
    (2,631
    )
    
    
    (3,339
    )
    
    
    (25,401
    )Net income
    
    $
    111,860
    
    
    $
    82,298
    
    
    $
    42,357Earnings per share:Basic
    
    $
    0.36
    
    
    $
    0.26
    
    
    $
    0.14Diluted
    
    
    0.35
    
    
    
    0.26
    
    
    
    0.14Weighted average number of shares used in computing earnings per
share  (in thousands)Basic
    
    
    313,155
    
    
    
    311,797
    
    
    
    305,751Diluted
    
    
    317,057
    
    
    
    318,658
    
    
    
    307,113
 The accompanying notes form an integral part of these consolidated financial statements. F-4




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##### Table of Contents



Satyam Computer Services Limited
Consolidated Statements of Shareholders Equity and Comprehensive Income(Thousands of US Dollars except per share data and as stated otherwise) AccumulatedCommon Stock
    
    Additional
    
    Deferred
    
    Retained
    
    other
    
    Shares held
    
    Totalpaid-in
    
    stock-based
    
    earnings /
    
    comprehensive
    
    by
    
    ShareholdersShares
    
    Par Value
    
    capital
    
    compensation
    
    (deficit)
    
    loss
    
    SC-Trust
    
    EquityBalance as of March 31, 2001
    
    
    281,190,000
    
    
    $
    15,726
    
    
    $
    253,409
    
    
    $
    (11,787
    )
    
    $
    (21,399
    )
    
    $
    (21,659
    )
    
    $
    (11,538
    )
    
    $
    202,752Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,357
    
    
    
    
    
    
    
    
    
    
    
    42,357Other comprehensive lossLoss on foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,063
    )
    
    
    
    
    
    
    (15,063
    )Unrealized losses on securities, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Total Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,289Gain on dilution of interest in Sify on its
issuance of new shares, net of taxes
    
    
    
    
    
    
    
    
    
    
    375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375Loss on sale of Sifys shares held by CricInfo
    
    
    
    
    
    
    
    
    
    
    (645
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (645
    )Issuance of common stock, net of issuance cost
    
    
    33,350,000
    
    
    
    1,418
    
    
    
    149,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,614Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,203
    
    
    
    (1,203
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,479Shares transferred by SC-Trust to employees
    
    
    
    
    
    
    
    
    
    
    1,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,940
    
    
    
    9,932Cash dividend paid at the rate of US$0.01 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,432
    )
    
    
    
    
    
    
    
    
    
    
    (6,432
    )Balance as of March 31, 2002
    
    
    314,540,000
    
    
    $
    17,144
    
    
    $
    405,530
    
    
    $
    (2,511
    )
    
    $
    14,526
    
    
    $
    (36,727
    )
    
    $
    (3,598
    )
    
    $
    394,364
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



Satyam Computer Services Limited
Consolidated Statements of Shareholders Equity and Comprehensive Income(Thousands of US Dollars except per share data and as stated otherwise) AccumulatedCommon Stock
    
    Additional
    
    Deferred
    
    Retained
    
    other
    
    Shares held
    
    Totalpaid-in
    
    stock-based
    
    earnings /
    
    comprehensive
    
    by
    
    Shareholders'Shares
    
    Par Value
    
    capital
    
    compensation
    
    (deficit)
    
    loss
    
    SC-Trust
    
    EquityBalance as of March 31, 2002
    
    
    314,540,000
    
    
    $
    17,144
    
    
    $
    405,530
    
    
    $
    (2,511
    )
    
    $
    14,526
    
    
    $
    (36,727
    )
    
    $
    (3,598
    )
    
    $
    394,364Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,298
    
    
    
    
    
    
    
    
    
    
    
    82,298Other comprehensive incomeGain on foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,612
    
    
    
    
    
    
    
    16,612Unrealized gains on securities, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Total Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,912Issuance of common stock, net of issuance cost
    
    
    2,800
    
    
    
    2
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Loss on dilution of interest in Sify on its
issuance of new shares, net of taxes
    
    
    
    
    
    
    
    
    
    
    (1,181
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,181
    )Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,745
    
    
    
    (1,745
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,380Shares transferred by SC-Trust to employees
    
    
    
    
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,315
    
    
    
    1,915Cash dividend paid at the rate of US$0.03 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,686
    )
    
    
    
    
    
    
    
    
    
    
    (9,686
    )Balance as of March 31, 2003
    
    
    314,542,800
    
    
    $
    17,146
    
    
    $
    406,704
    
    
    $
    (876
    )
    
    $
    87,138
    
    
    $
    (20,113
    )
    
    $
    (2,283
    )
    
    $
    487,716
 The accompanying notes are an integral part of these consolidated financial
statements. F-6




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##### Table of Contents



Satyam Computer Services Limited
Consolidated Statements of Shareholders Equity and Comprehensive Income(Thousands of US Dollars except per share data and as stated otherwise) AccumulatedCommon Stock
    
    Additional
    
    Shares
    
    Deferred
    
    Retained
    
    other
    
    Shares held
    
    Totalpaid-in
    
    subscribed but
    
    stock-based
    
    earnings /
    
    comprehensive
    
    by
    
    ShareholdersShares
    
    Par Value
    
    capital
    
    unissued
    
    compensation
    
    (deficit)
    
    loss
    
    SC-Trust
    
    EquityBalance as of March 31, 2003
    
    
    314,542,800
    
    
    $
    17,146
    
    
    $
    406,704
    
    
    
    
    
    
    
    $ (876
    )
    
    $
    87,138
    
    
    
    $ (20,113
    )
    
    $
    (2,283
    )
    
    $
    487,716Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,860
    
    
    
    
    
    
    
    
    
    
    
    111,860Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,493
    
    
    
    
    
    
    
    49,493Total Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,353Issuance of common stock, net of issuance cost
    
    
    1,708,910
    
    
    
    76
    
    
    
    8,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,385Shares subscribed but unissued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43Gain on dilution of interest in associate company
on its issuance of new shares, net of taxes
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    762
    
    
    
    
    
    
    
    (762
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,625Shares transferred by SC-Trust to employees
    
    
    
    
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    539
    
    
    
    925Cash
dividend paid at the rate of US $0.08 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,173
    )
    
    
    
    
    
    
    
    
    
    
    (26,173
    )Balance as of March 31, 2004
    
    
    316,251,710
    
    
    $
    17,222
    
    
    $
    416,176
    
    
    
    $ 43
    
    
    
    $ (13
    )
    
    $
    172,825
    
    
    
    $ 29,380
    
    
    $
    (1,744
    )
    
    $
    633,889
 The accompanying notes are an integral part of these consolidated financial
statements. F-7




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##### Table of Contents






Satyam Computer Services Limited
Consolidated Statements of Cash Flows(Thousands of US Dollars except per share data and as stated otherwise) Year ended March 312004
    
    2003
    
    2002Cash Flows From Operating ActivitiesNet income
    
    $
    111,860
    
    
    $
    82,298
    
    
    $
    42,357Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and impairment of premises and equipment
    
    
    24,397
    
    
    
    35,982
    
    
    
    37,486Impairment of other non marketable investments
    
    
    
    
    
    
    3,299
    
    
    
    Amortization and impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    98,112Amortization of license fees
    
    
    
    
    
    
    1,195
    
    
    
    720Deferred stock-based compensation
    
    
    1,625
    
    
    
    4,521
    
    
    
    10,794Deferred income taxes
    
    
    (1,016
    )
    
    
    (3,768
    )
    
    
    (16,892
    )Gain on sales of shares in associated companies/investments
    
    
    (2,652
    )
    
    
    (830
    )
    
    
    2Gain/(loss) on sale of premises and equipment
    
    
    265
    
    
    
    67
    
    
    
    (59
    )Foreign currency translation on excess of amount received
on sale of shares of Sify over its carrying value
    
    
    
    
    
    
    
    
    
    
    928Excess of cash received over carrying value of investment
in Sify, net of taxes
    
    
    
    
    
    
    
    
    
    
    (35,156
    )Amortization of discount on share warrants issued to TRW
and change in fair value of put option
    
    
    
    
    
    
    (11,898
    )
    
    
    10,144Minority Interest
    
    
    
    
    
    
    (11,082
    )
    
    
    (73,406
    )Equity in share of earnings/(losses) of associated
companies, net of taxes
    
    
    2,631
    
    
    
    3,339
    
    
    
    25,401Changes in assets and liabilities:Accounts receivable, net and unbilled revenue on contracts
    
    
    (22,510
    )
    
    
    (15,367
    )
    
    
    1,262Prepaid expenses, other receivables and inventory, net
    
    
    (24,710
    )
    
    
    (505
    )
    
    
    9,478Other assets, net
    
    
    4,974
    
    
    
    (2,673
    )
    
    
    1,718Accounts payable
    
    
    (4,151
    )
    
    
    (435
    )
    
    
    (4,363
    )Accrued expenses and other current liabilities
    
    
    (1,500
    )
    
    
    12,520
    
    
    
    8,342Unearned and deferred revenue
    
    
    (2
    )
    
    
    3,510
    
    
    
    (904
    )Other liabilities
    
    
    
    
    
    
    (1,633
    )
    
    
    407Net cash provided by operating activities
    
    
    89,211
    
    
    
    98,540
    
    
    
    116,371Cash Flows From Investing ActivitiesInvestments in bank deposits
    
    
    (45,406
    )
    
    
    (259,321
    )
    
    
    Purchase of premises and equipment
    
    
    (16,745
    )
    
    
    (10,989
    )
    
    
    (34,157
    )Proceeds from sale of premises and equipment
    
    
    156
    
    
    
    148
    
    
    
    503Expenditure on license fees
    
    
    
    
    
    
    (623
    )
    
    
    (1,238
    )Acquisitions and investments in associated companies
    
    
    
    
    
    
    (5,121
    )
    
    
    (4,608
    )Purchase of investments
    
    
    (4,181
    )
    
    
    (2,228
    )
    
    
    (3,131
    )Proceeds from sale of shares in associated
companies/investments
    
    
    6,024
    
    
    
    6,175
    
    
    
    2,271Net cash used in investing activities
    
    
    (60,152
    )
    
    
    (271,959
    )
    
    
    (40,360
    )
 F-8




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Satyam Computer Services Limited
Consolidated Statements of Cash Flows(Thousands of US Dollars except per share data and as stated otherwise) Cash Flows From Financing ActivitiesRepayments of short-term debts
    
    
    (2,500
    )
    
    
    (2,439
    )
    
    
    (35,725
    )Proceeds from long-term debts
    
    
    1,768
    
    
    
    1,410
    
    
    
    Repayment of long-term debts
    
    
    (3,350
    )
    
    
    (3,356
    )
    
    
    (7,642
    )Issuance of common stock, net of issuance cost
    
    
    9,310
    
    
    
    1,926
    
    
    
    160,546Shares subscribed but unissued
    
    
    43
    
    
    
    
    
    
    
    Issuance of Preferred stock by subsidiary, net of issuance cost
    
    
    9,441
    
    
    
    
    
    
    
    Cash dividends paid
    
    
    (26,173
    )
    
    
    (9,686
    )
    
    
    (6,432
    )Net cash provided by/(used in) financing activities
    
    
    (11,461
    )
    
    
    (12,145
    )
    
    
    110,747Effect of exchange rate changes on cash and cash equivalents
    
    
    6,930
    
    
    
    4,312
    
    
    
    (9,372
    )Net change in cash and cash equivalents
    
    
    24,528
    
    
    
    (181,252
    )
    
    
    177,386Cash and cash equivalents at beginning of the year
    
    
    62,202
    
    
    
    243,454
    
    
    
    66,068Cash and cash equivalents at end of the year
    
    $
    86,730
    
    
    $
    62,202
    
    
    $
    243,454Supplementary information:Cash paid during the year for:Income taxes
    
    $
    31,877
    
    
    $
    4,486
    
    
    $
    7,744Interest
    
    
    471
    
    
    
    553
    
    
    
    2,859Non-cash items:Capital leases and hire purchase
    
    $
    1,318
    
    
    $
    1,100
    
    
    $
    1,300
 The accompanying notes are an integral part of these consolidated financial
statements. F-9




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##### Table of Contents



Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   1.  Description of Business Satyam Computer Services Limited, its consolidated subsidiaries and associated
companies (hereinafter referred to as Satyam) are engaged in providing
Information Technology (IT) services, Internet services, Business Process
Outsourcing (BPO) services and developing software products. Satyam Computer
Services Limited (hereinafter referred to as Satyam Computer Services) is an
IT services provider that uses global infrastructure to deliver value-added
services to its customers, to address IT needs in specific industries and to
facilitate electronic business, or eBusiness, initiatives. Satyam Computer
Services was incorporated on June 24, 1987 in Hyderabad, Andhra Pradesh, India.
Satyam Computer Services has offshore development centers located throughout
India that enable it to provide high quality and cost-effective solutions to
clients. It also has offsite centers located in the United States, United
Kingdom, Japan, Australia, Singapore, Malaysia, Dubai and Germany. Satyam
offers a comprehensive range of IT services, including software development,
packaged software integration, system maintenance and engineering design
services. Satyam Computer Services has established a diversified base of
corporate customers in a wide range of industries including insurance, banking
and financial services, manufacturing, telecommunications, transportation and
engineering services. Sify Limited (formerly Satyam Infoway Limited hereinafter referred to as
Sify) a former subsidiary of Satyam Computer Services is engaged in providing
various services such as corporate network and technology services, internet
access services, online portal and content offerings. Nipuna Services Limited (Nipuna) a wholly owned subsidiary of Satyam Computer
Services is engaged in providing BPO services covering HR, Finance &
Accounting, Customer Contact (Voice, Mail and Chat), and Transaction Processing
(industry-specific offerings). 2.  Summary of Significant Accounting Policies a)  Principles of Consolidation and Basis of Presentation The consolidated financial statements of Satyam Computer Services and its
majority owned domestic and foreign subsidiaries are prepared in accordance
with generally accepted accounting principles applicable in the United States
(U.S. GAAP). All significant inter-company balances and transactions are
eliminated. The consolidated financial statements of Satyam include the financial
statements of Sify up to December 9, 2002. Subsequently, Satyam Computer
Services has accounted for its investment in Sify using the equity method. The
consolidated financial statements for the years ended March 31, 2004, 2003 and
2002 respectively are not comparable due to the above. Minority interest in subsidiaries represents the minority shareholders
proportionate share of the net assets and the results of operations of Satyams
majority owned subsidiaries. Satyams investments in business entities in which it does not have control,
but have the ability to exercise significant influence over operating and
financial policies (generally 20-50 percent ownership), are referred to as
associated companies and are accounted for by the equity method. On occasion, a subsidiary or associated company accounted for by the equity
method (offering company) may issue its shares to third parties as either a
public offering or private placement at per share amounts in excess of or less
than Satyams average per share carrying value. With respect to such
transactions, the resulting gains or losses arising from the change in interest
are recorded in additional paid-in capital. Gains or losses arising on the
direct sales by Satyam of its investment in its subsidiaries or associated
companies to third parties are recognized as income/(loss) in the statement of
operations. Such gains or losses are the difference between the sale proceeds
and net carrying value of investments. The excess of the cost over the underlying net equity of investments in
subsidiaries and associated companies accounted for on an equity basis is
allocated to identifiable assets based on fair values at the date of
acquisition. The unassigned residual value of the excess of the cost over the
underlying net equity is recognized as goodwill. F-10




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   b)  Use of Estimates The preparation of the consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities as of the date of the financial statements and the reported amount
of revenues and expenses during the reported period. Examples of such estimates
include: estimates of expected contract costs to be incurred to complete
software development, allowance for doubtful debts, future obligations under
employee benefit plans, valuation allowances for deferred taxes, impairment of
goodwill and useful lives of premises and equipment (fixed assets). Actual
results could differ materially from those estimates. c)  Foreign Currency Translation The accompanying consolidated financial statements are reported in U.S.
dollars. The Indian rupee is the functional currency for Satyam Computer
Services, its domestic subsidiaries and associated companies. However, the U.S.
Dollar, Pound Sterling, Singapore Dollar and Yuan are the functional currencies
for its foreign subsidiaries located in U.S., UK, Singapore and China
respectively. The translation of the functional currencies into U.S. dollars
is performed for assets and liabilities using the current exchange rates in
effect at the balance sheet date and for revenues, costs and expenses using
average exchange rates prevailing during the reporting periods. Adjustments
resulting from the translation of functional currency financial statements to
reporting currency are accumulated and reported as other comprehensive
income/(loss), a separate component of shareholders equity. Transactions in foreign currency are recorded at the exchange rate prevailing
on the date of transaction. Monetary assets and liabilities denominated in
foreign currencies are expressed in the functional currency at the exchange
rates in effect at the balance sheet date. Revenues, costs and expenses are
recorded using average exchange rates prevailing during the reporting periods.
Gains or losses resulting from foreign currency transactions are included in
the statement of operations. d)  Revenue Recognition Revenues from IT services, which includes software development, system
maintenance, package software implementation, engineering design services and
e-Business consist of revenues earned from services performed either on a
time-and-material basis or time bound fixed price engagements. Revenues earned from services performed on a time-and-material basis are
recognized as the services are performed. IT services performed on time bound
fixed-price engagements, require accurate estimation of the costs which include
salaries and related expenses of technical associates, related communication
expenses, travel costs, scope and duration of each engagement. Revenue and the
related costs for these projects are recognized on percentage of completion
basis, with revisions to estimates reflected in the period in which changes
become known. Provisions for estimated losses on such engagements are made
during the period in which a loss becomes probable and can be reasonably
estimated. Amounts included in the financial statements, which relate to recoverable costs
and accrued profits not yet billed on contracts, are classified in current
assets as Unbilled revenue on contracts. Billings on uncompleted contracts
in excess of accrued cost and accrued profit are classified in current
liabilities under the heading Unearned and deferred revenue. Satyam provides
its clients with one to three months warranty as post-sale support for its
fixed price engagements. Costs associated with such services are accrued at the
time the related revenues are recorded. Satyam has not provided for any
warranty costs for the years ended March 31, 2004 and March 31, 2003 as
historically Satyam has not incurred any expenditure on account of warranties
and since the customer is required to formally sign off on the work performed,
any subsequent work is usually covered by an additional contract. In accordance with EITF Topic D 103, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred, Satyam has
accounted for reimbursements received for out-of-pocket expenses incurred as
revenues in the statement of operations. e)  Cash and Cash Equivalents Satyam considers all highly liquid investments with an original maturity or
remaining maturity of three months or less at the date of purchase to be cash
equivalents. Cash equivalents are stated at cost, which approximates their fair
value due to the short maturity of the investments. Cash and claims to cash
that are restricted as to withdrawal or use in the ordinary course of business
are classified as other receivables under current assets, unless they are to be
utilized for other than current operations in which case they are classified as
other assets, non-current. F-11




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   f)  Premises, Equipment and Depreciation Premises and equipment are stated at actual cost less accumulated depreciation.
Assets under capital leases are stated at the present value of minimum lease
payments. Depreciation is computed using the straight-line method over the
estimated useful lives. Assets under capital leases and leasehold improvements
are amortized straight-line over their estimated useful life or the lease term,
as appropriate. Costs of application software for internal use are generally
charged to income as incurred due to its estimated useful lives being
relatively short, usually less than one year. The cost and the accumulated depreciation for premises and equipment sold,
retired or otherwise disposed off are removed from the stated values and the
resulting gains and losses are included in the statement of operations.
Interest related to the construction of qualifying assets is capitalized.
Advances paid towards the acquisition of premises and equipment outstanding at
each balance sheet date and the cost of premises and equipment not put to use
before such date are disclosed as Assets under Construction. g)  Software Development Costs Satyam capitalizes internally generated software development costs under the
provisions of Statement of Financial Accounting (SFAS) 86, Accounting for
Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
Capitalization of computer software development cost begins upon the
establishment of technological feasibility, which Satyam has defined as the
completion of a prototype. Costs incurred prior to establishment of
technological feasibility and other research and development expenses are
charged to income as incurred. Costs incurred by Satyam between completion of
the prototype and the point at which the product is ready for general release
have been insignificant. Research and development expenses charged to income amounted to US$633
thousand, US$1,365 thousand and US$2,156 thousand for the years ended March 31,
2004, 2003 and 2002 respectively. h)  Goodwill and Other Intangible Assets Goodwill represents the difference between either a) the purchase price and the
fair value of assets and liabilities acquired and/or b) the purchase price and
additional interest in subsidiaries acquired from minority shareholders. Up to
March 31, 2002, goodwill and other intangible assets including license fees
were amortized over the useful lives principally over a period of 5 years based
on managements estimate. Satyam has adopted SFAS 142 Goodwill and Other
Intangible Assetson April 1, 2002 and accordingly goodwill is tested for
impairment under certain circumstances, and written down when impaired, rather
than being amortized as required by previous standards. Further in accordance
with SFAS 142 purchased intangible assets other than goodwill are amortized
over their useful lives unless these lives are determined to be indefinite. i)  Impairment of Long-lived Assets Satyam has adopted the provisions of SFAS 144 Accounting for the Impairment or
Disposal of Long-Lived Assets on April 1, 2002. Satyam reviews long-lived
assets, for impairment whenever events or changes in business circumstances
indicate the carrying amount of assets may not be fully recoverable. Each
impairment test is based on a comparison of the undiscounted cash flows
expected to be generated from the use of the asset to its recorded value. If
impairment is indicated, the asset is written down to its fair value. Assets to
be disposed are reported at the lower of the carrying value or the fair value
less cost to sell. j)  Investments Satyam has evaluated its investment policies consistent with the provisions of
SFAS 115, Accounting for Certain Investments in Debt and
Equity Securities,
and determined that all of its marketable investment securities are to be
classified as available-for-sale. Accordingly, such securities are carried at
fair value with unrealized gains and losses, net of taxes, reported as a
separate component of other comprehensive income/(loss) until realized.
Realized gains and losses and decline in value judged to be
other-than-temporary are included in other income. The cost of securities sold
is based on the first-in-first-out (FIFO) method. Interest and dividends on
securities classified as available-for-sale are recognized when earned and
included in other income. Other investments that are not marketable are carried
at cost, subject to tests of other than temporary impairment. F-12




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   k)  Cost of Revenues and Selling, General and Administrative Expenses Cost of revenues primarily include the compensation cost of technical staff,
depreciation on dedicated assets and system software, travel costs, data
communication expenses and other expenses incurred that are related to the
generation of revenue. Selling, general and administrative expenses generally include the compensation
costs of sales, management and administrative personnel, travel costs, research
and development costs, advertising, business promotion, depreciation on assets,
application software costs, rent, repairs, electricity and other general
expenses not attributable to cost of revenues. l)  Advertising Costs Satyam expenses all advertising costs as incurred. Advertising costs charged to
income amounted to US$957 thousand, US$1,914 thousand and US$1,008 thousand for
the years ended March 31, 2004, 2003 and 2002 respectively. m)  Employee Benefits i)  Provident Fund In accordance with Indian law, all employees in India are entitled to
receive benefits under the Provident Fund, which is a defined contribution
plan. Both the employee and the employer make monthly contributions to the plan
at a predetermined rate (presently 12.0%) of the employees basic salary.
Satyam has no further obligations under the plan beyond its monthly
contributions. These contributions are made to the fund administered and
managed by the Government of India. Satyams monthly contributions are charged
to income in the period they are incurred. ii)  Gratuity Plan Satyam has a defined benefit retirement plan (the Gratuity Plan)
covering all its employees in India. The Gratuity Plan provides a lump sum
payment to vested employees at retirement or termination of employment based on
the respective employees salary and years of employment with Satyam. Satyam provides for the Gratuity Plan on the basis of actuarial
valuations. The entire Gratuity Plan of Satyam Computer Services is unfunded. iii)  Superannuation Plan In addition to the above benefits, the senior employees of Satyam Computer
Services in India are entitled to receive benefits under the Superannuation
Plan, a defined contribution plan. Satyam Computer Services makes yearly
contributions under the Superannuation plan administered and managed by LIC,
based on a specified percentage (presently 10.0%) of each covered employees
basic salary. Satyam Computer Services has no further obligations under the
plan beyond its contributions. iv)  Other Benefit Plans Satyam maintains a 401(k) retirement plan (the 401(k) Plan) covering all
its employees in the United States. Each participant in the 401(k) Plan may
elect to contribute up to 15.0% of his or her annual compensation to the 401(k)
Plan. Satyam matches 50.0% of employee contributions, subject to a maximum of
3.0% of gross salary for all employees participating in the 401(k) plan.
Effective October 1, 2003, Satyam Computer Services has discontinued its
matching contribution under this plan. n)  Income Taxes In accordance with the provisions of SFAS 109, Accounting for Income Taxes,
income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statements carrying amounts
of existing assets and liabilities and their respective tax bases and operating
loss carry forwards. 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
on deferred tax assets and liabilities of a change in tax rates is recognized
in the statement of operations in the period of change. Based on managements
judgment, the measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits for which it is more likely than not
that some portion or all of such benefits will not be realized. F-13




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   o)  Earnings Per Share In accordance with the provisions of SFAS 128, Earnings Per Share, basic
earnings per share is computed on the basis of the weighted average number of
shares outstanding during the period. Diluted earnings per share is computed
on the basis of the weighted average number of common and dilutive common
equivalent shares outstanding during the period, using the treasury stock
method for options and warrants, except where the results will be
anti-dilutive. p)  Stock-Based Compensation Satyam uses the intrinsic value-based method of 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 employee stock-based compensation
plan. Satyam has therefore adopted the pro-forma disclosure
requirements of SFAS No. 123, Accounting for Stock-Based Compensationand
SFAS 148, Accounting for Stock-Based Compensation  Transition and Disclosure,
an amendment of FASB Statement No. 123. Pursuant to SFAS No. 123, all equity
instruments issued to non-employees are accounted for based on the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. q)  Derivative financial instruments Satyam has adopted the provisions of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities as amended. Satyam enters into forward
foreign exchange contracts where the counter party is generally a bank. Satyam
purchases forward foreign exchange contracts to mitigate the risk of changes in
foreign exchange rates on cash flows denominated in certain foreign currencies.
These contracts do not qualify for hedge accounting under SFAS 133, as
amended. Any derivative that is either not a designated hedge, or is so
designated but is ineffective per SFAS 133, as amended is marked to market and
recognized in earnings immediately. r)  Recently Issued Accounting Pronouncements Derivative Instruments Effective April 1, 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. This statement amends
SFAS No. 133 for certain decisions made by the Board as part of the Derivatives
Implementation Group (DIG) process and further clarifies the accounting and
reporting standards for derivative instruments including derivatives embedded
in other contracts and for hedging activities. The adoption of this statement
does not have a material impact on Satyams operating results or financial
position. Financial Instruments Effective, May 1, 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. SFAS 150 is
effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The
adoption of this statement has not had a material impact on Satyam's
operating results or financial position. Guarantors Accounting and Disclosure Requirements In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees Including Indirect Guarantees of
Indebtedness of Others. The adoption of the Interpretation did not have a
material impact on Satyams accounting or disclosure policies. F-14




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Variable Interest Entities In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities.FIN 46 requires unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse the risk and rewards of ownership
among their owners and other parties involved. The provisions of FIN 46 are
effective immediately to all variable entities created after January 1, 2003,
and variable interest entities in which an enterprise obtains an interest in
after that date. For variable interest entities created before this date, the
provisions are effective July 31, 2003. On October 8, 2003, the FASB issued
FASB Staff Position No. 46-e, which allows public entities, who meet certain
criteria, to defer the effective date for applying the provisions of FIN No. 46
to interests held by the public entity in certain variable interest entities or
potential variable interest entities until the end of the first interim or
annual period ending after December 15, 2003. On December 24, 2003, the FASB
extended the effective date to periods ending after March 15, 2004. The
adoption of this interpretation did not have a material impact on Satyams
operating results or financial position. Revenue Arrangements In January 2003, the EITF released Issue No. 00-21 (EITF 00-21), Revenue
Arrangements with Multiple Deliverables,which addresses certain aspects of the
accounting by a vendor for arrangements under which it will perform multiple
revenue-generating activities. Specifically, EITF 00-21 addresses whether an
arrangement contains more than one unit of accounting and the measurement and
allocation to the separate units of accounting in the arrangement. EITF 00-21
is effective for revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The adoption of the consensus does not have a material
impact on Satyams revenue recognition policies. s)  Reclassifications Certain items previously reported in specific financial statement captions have
been reclassified to conform to the current periods presentation. 3.  Share capital of Nipuna In October 2003 Nipuna issued 45,669,999 0.05% convertible redeemable
cumulative preference shares of par value Rs 10 ($0.22) per share to the
investors at an issue price of $0.22 (equivalent to Rs.10) per share to both
the Investors, in exchange for an aggregate consideration of $10 million. A
similar amount will be invested in the second phase, which is expected to close
by April 2004, making a total investment of US$20 Million. These Preference
shares are to be mandatorily converted / redeemed into such number of equity
shares latest by June 2007 based on certain provisions in the agreement
relating to revenues and profits earned up to March 31, 2006. If not
converted or early convert at the option of the investors based on certain
triggering events, these convertible preference shares are redeemable on
maturity in June 2007 at a redemption premium, which could range in between
7.5% to 13.5%p.a. The Investors are entitled to receive dividends at the rate of 0.05% per cent
per annum, on the face value of Rs. 10 from the date of issuance of such
Preference Shares. The dividends shall be fully cumulative, accumulate and
payable in cash at the rate indicated above, whether or not they have been
declared and whether or not there are profits, surplus or other funds of Nipuna
legally available for the payment of dividends. These preference shares rank
senior to all classes of Nipunas currently existing capital stock or
established hereafter with respect to dividend distributions and repayment of
capital and premium upon a Bankruptcy Event or Change in Control with respect
to Nipuna, unless the terms and conditions of such class expressly provide that
such class will rank senior to or on parity with the convertible redeemable
cumulative preference shares. The dividend on the preference shares for the
period ended March 31, 2004 is payable. 4.  Acquisition of Minority Interest On March 28, 2003, in accordance with the share purchase and joint venture
termination agreement, Satyam Computer Services acquired the remaining 24%
equity shares of Satyam Manufacturing Technologies Inc.(SMTI) for a
consideration of US$3,500 thousand. The acquisition has been accounted using
the purchase method and the allocation of the purchase price was almost
entirely related to goodwill. Satyam Computer Services recognized goodwill of
US$3,365 thousand on this acquisition equal to the excess of the consideration
paid of US$3,500 thousand over the fair value of that portion of the net assets
acquired as of March 28, 2003. In accordance with the provisions of SFAS 142,
the goodwill has not been amortized post acquisition. F-15




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Joint Venture and warrant agreement In June 2000, Satyam Computer Services signed a non-binding framework agreement
to form a non-exclusive joint venture with TRW Inc. (TRW) to be managed by
Satyam Computer Services and issued warrants for a consideration of US$5
million to TRW that were convertible into equity shares of Satyam Computer
Services in eighteenth month after issuance. These warrants were
non-forfeitable as of the date of grant. On August 22, 2000, Satyam Computer Services issued 63,896 warrants (each
warrant exercisable to purchase five equity shares) to ESL Inc., an affiliate
of TRW in exchange of Rs.71.6 (US$1.6) per share totaling to US$500 thousand in
cash representing 10.0% of the total consideration to acquire the underlying
equity shares in accordance with applicable Indian regulations. These warrants
were convertible into 319,480 equity shares of Satyam Computer Services for
Rs.644.4 (US$14.1) per share totaling US$4.5 million during the period from
January 22, 2002 to February 21, 2002. The excess of the fair value of the
warrants, as determined at the date of grant, over the consideration of
warrants paid by ESL Inc., amounted to US$1,157 thousand. It was amortized
ratably over five years and three months i.e starting from the date of signing
of the joint venture agreement (September 26, 2000) to December 31, 2005. The
amortization is classified as a reduction of the revenues recognized under the
agreements. However, if the amortization exceeds the amount of revenue
recognized in any period, the excess amortization is recorded as an expense.
The fair value of the warrants had been determined on the grant date by
reference to the prevailing market price of Satyam Computer Services equity
shares on the Indian exchanges using the Black Scholes model and the following
assumptions: volatility of 90.0% and a risk free interest rate of 10.672%. The
amortization classified as a deduction of the revenues amounted to US$113
thousand and US$221 thousand for the years ended March 31, 2001 and 2002
respectively. On September 26, 2000, the joint venture agreement was signed with equity
participation in the ratio of 76:24 between Satyam Computer Services and TRW,
respectively. After December 31, 2003, TRW had the option, on meeting certain
specified minimum levels of revenues, to require Satyam Computer Services to
purchase its 24.0% interest (put option). The buyout price of TRWs interest
in the joint venture depended on the aggregate amount of revenue, which TRW
would provide to the joint venture from June 1, 2000 to December 31, 2005. Satyam Computer Services recorded the put option at fair value at each balance
sheet date, with the initial fair value of the put option included as part of
the consideration for its 76.0% interest in the joint venture. The difference
between the fair values of the put option at each valuation date was charged to
selling, general and administration expenses in the statement of operations.
Based on the terms of the agreement the value of put option was US$12,495
thousand as of March 31, 2002. Share Purchase and Joint Venture Termination agreement Northrop Grumman Corporation acquired TRW in October 2002 and subsequently TRW
Inc. name was changed to the Northrop Grumman Space & Mission Systems
Corporation (NGSM). Pursuant to the restructuring in TRW, Satyam Computer
Services entered into a share purchase and joint venture termination agreement
with NGSM and BDM International Inc. (hereinafter referred to as NGSM
Parties) on February 28, 2003 whereby it agreed to purchase the 24% holding of
NGSM Parties in the joint venture on the closing date for a mutually agreed
consideration of US$3,500 thousand based on business prospects and synergies on
account of the acquisition to Satyam. Upon completion of the agreement all the
existing agreements between Satyam Computer Services and NGSM Parties have been
terminated and have no further effect. The transaction was subsequently
effected on March 28, 2003 with the transfer of shares and purchase
consideration. Satyam Computer Services has issued a non interest bearing unsecured promissory
note of US$3,500 thousand for the share purchase to BDMI which is payable in
four installments at quarterly rests from April 1, 2003 to January 1, 2004 as
per the agreement. Due to the share purchase and joint venture termination agreement the
unamortized cost on warrants as at December 31, 2002 amounting to US$ 657
thousand has been fully amortized in the year ended March 31, 2003 as a
reduction of the revenues and the value of put option as of December 31, 2002
amounting to US$19,843 thousand has been accounted for as operating income in
the year ended March 31, 2003. F-16




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   5.  Premises, Equipment and Depreciation Premises and equipment at cost less accumulated depreciation consist of: As of March 312004
    
    2003(US$ in thousands)Freehold land
    
    $
    4,179
    
    
    $
    3,816Leasehold land
    
    
    1,874
    
    
    
    1,711Premises
    
    
    12,680
    
    
    
    9,196Computers including servers
    
    
    82,279
    
    
    
    69,417System software
    
    
    13,594
    
    
    
    10,988Office equipment
    
    
    47,254
    
    
    
    39,975Furniture and fixtures
    
    
    29,830
    
    
    
    25,888Vehicles
    
    
    4,501
    
    
    
    3,618Assets under construction
    
    
    7,393
    
    
    
    6,233Total
    
    
    203,584
    
    
    
    170,842Less: Accumulated depreciation
    
    
    (135,118
    )
    
    
    (101,684
    )Premises and equipment, net
    
    $
    68,466
    
    
    $
    69,158
 Satyam has established the estimated useful lives of assets for depreciation
purposes as follows: Premises
    
    28 yearsComputers including servers
    
    2-5 yearsSystem Software
    
    3 yearsOffice equipment
    
    5 yearsFurniture and fixtures
    
    5 yearsVehicles
    
    5 years
 Depreciation expense amounted to US$24,397 thousand, US$33,576 thousand and
US$37,486 thousand for the years ended March 31, 2004, 2003 and 2002
respectively. 6.  Investments Investments of Satyam consist of available-for-sale securities (AFS) and
other non-marketable securities. As of March 312004
    
    2003(US$ in thousands)Available-for-sale securitiesCost
    
    $
    2,793
    
    
    $
    208Gross unrealized holding gains
    
    
    
    
    
    
    2Gross unrealized holding losses
    
    
    
    
    
    
    AFS  Fair Value
    
    $
    2,793
    
    
    $
    210Other investments, at cost
    
    $
    3,633
    
    
    $
    3,317Less: Provision for impairment
    
    
    (3,633
    )
    
    
    (3,317
    )Investments  Non current
    
    $
    2,793
    
    
    $
    210
 Aggregate proceeds from the sale of available-for-sale securities amounted to
US$1,772 thousand (purchased and sold during the year ended March 31, 2004 for
US$1,554 thousand and US$1,535 thousand respectively), US$2,175 thousand
(purchased during the year ended March 31, 2003 for US$2,175 thousand) and
US$2,263 thousand (purchased during the year ended March 31, 2002 for US$2,263
thousand) for the years ended March 31, 2004, 2003 and 2002 respectively. Satyam records an investment impairment charge on other non-marketable
investments, which are carried at cost, when management believes an investment
has experienced a decline in value that is judged to be other than temporary.
Satyam monitors its investments for impairment by considering current factors
including economic environment, market conditions and the operational
performance and other specific factors relating to the business underlying the
investment. Based on its assessment of its carrying values of investments,
Satyam impaired the entire carrying value of other non-marketable investments
as at March 31, 2003 due to adverse changes in the above factors. F-17




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   7.  Sale of shares by Sify Satyam Computer Services ownership reduced from 52.51% as of March 31, 2002 to
37.15% as of March 31, 2003 and to 32.04% as of March 31, 2004 due to issue of
new shares by Sify to third parties and sale of 1 million Indian equity shares
by Satyam Computer Services as per the sponsored ADS program of Sify. Sifys shareholders approved the issue of shares to an affiliate of Softbank
Asia Infrastructure Fund (SAIF) and VentureTech Solutions Private Ltd.
(VentureTech) in a pending financing transaction at the Extraordinary General
Meeting held on December 9, 2002. On December 16, 2002, SAIF and VentureTech
invested US$13,000 thousand and US$3,500 thousand respectively into Sify. Sify
issued 7,558,140 shares to shareholders of SAIF and 2,034,884 shares to
shareholders of VentureTech at amounts per share less than Satyams average per
share carrying value. With respect to this transaction, the resulting loss of
US$1,181 thousand, net of taxes, during the year ended March 31, 2003 arising
from the change in interest has been recorded as a reduction in additional
paid-in capital. In accordance with the shareholders agreement, VentureTech invested additional
US$1,750 thousand and US$1,750 thousand in Sify on April 30, 2003 and July 4,
2003, respectively. Sify issued 1,017,442 shares and 1,017,441 shares on April
30, 2003 and July 4, 2003 to shareholders of VentureTech. Subsequent to these
transactions, Satyam Computer Services ownership interest in Sify was reduced
from 37.15% to 34.95%. With respect to this transaction, the resulting gain of
US$15 thousand, net of taxes, during the year ended March 31, 2004 arising from
the change in interest has been recorded as an increase in additional paid in
capital. On June 23, 2003 Sifys shareholders approved sponsoring the sale of its
4,600,200 unlisted Indian equity shares through a secondary issue of American
Depository Shares (ADS). On September 1, 2003 an invitation to offer was
made by Sify to the existing holders of Indian equity shares to participate in
its sponsored ADS program. On September 17, 2003, Satyam Computer Services
offered to sell its 1 million Indian equity shares out of its total holding of
12,182,600 Indian equity shares in Sify. In September 2003, the sale
transaction was privately negotiated and closed at a sale price of US$4.35
(Rs.198.90) per share as determined by Sify based on the recommendation of the
lead manager to the sponsored ADS program. The difference between the carrying value of the investment in Sify as of
September 30, 2003 and the sales proceeds amounting to US$2,606 thousand has
been accounted for as a gain during the year ended March 31, 2004 in the
statement of operations. Subsequent to this transaction, Satyam Computer
Services ownership interest in Sify was reduced from 34.95% to 32.08%. 8.  Investments in associated companies The carrying values of investments in various associated companies of Satyam
are as follows: As of March 31,2004
    
    2003(US$ in thousands)Sify
    
    $
    22,258
    
    
    $
    27,058Satyam Venture
    
    
    1,182
    
    
    
    1,185CA Satyam
    
    
    834
    
    
    
    1,335Total
    
    $
    24,274
    
    
    $
    29,578
 Sify During the year ended March 31, 2003, due to the sale of new shares by Sify to
SAIF and VentureTech, Satyam Computer Services ownership interest in Sify
reduced from 52.51% to 37.15%. Subsequent to December 9, 2002, Satyam Computer
Services has accounted for its interest in Sify under the equity method of
accounting, primarily due to lack of controlling interest in Sify. In addition,
Satyam Computer Services will have no future obligation to fund additional
operating or financing requirements of Sify. Further, during the year ended
March 31, 2004, due to the sale of new shares by Sify to VentureTech and sale
of one million Indian equity shares by Satyam Computer Services as per the
sponsored ADS program of Sify, Satyam Computer Services ownership interest in
Sify reduced from 37.15% to 32.04%. F-18




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   The summarized financial information as to assets, liabilities and results of
operations of Sify is presented below: As of March 31,2004
    
    2003(US$ in thousands)Balance sheetCurrent assets
    
    $
    49,304
    
    
    $
    36,451Non-current assets
    
    
    38,232
    
    
    
    41,351Current liabilities
    
    
    23,630
    
    
    
    15,219Net current asset
    
    
    25,675
    
    
    
    21,232Shareholders equity
    
    
    62,573
    
    
    
    60,776
 For the periodYear ended
    
    December 10, 2002March 31, 2004
    
    to March 31, 2003(US$ in thousands)Statement of operationsRevenues
    
    
    $61,067
    
    
    
    $15,286Gross profit
    
    
    28,873
    
    
    
    7,178Operating loss
    
    
    12,903
    
    
    
    5,116Net loss
    
    
    7,984
    
    
    
    4,452
 Satyam Computer Services equity in the loss of Sify, net of taxes amounted to
US$2,230 thousand for the year ended March 31, 2004 and US$1,307 for period
from December 10, 2002 to March 31, 2003 respectively. Satyam Venture On October 28, 2000, Satyam Computer Services entered into an agreement with
Venture Industries, USA (Venture) to form an equally held joint venture
company Satyam Venture Engineering Services Private Limited. (Satyam
Venture). Satyam Computer Services holds 50% in Satyam Venture. The joint
venture was formed on January 3, 2000 at Hyderabad, India. Satyam Venture is
engaged in providing engineering solutions, software development and
customization services specifically for the automotive industries worldwide.
Satyam Computer Services equity in the profit / (loss) of Satyam Venture, net
of taxes amounted to US$(3) thousand, US$179 thousand and US$323 for the years
ended March 31, 2004, 2003 and 2002 respectively . CA Satyam On December 29, 2000, Satyam Computer Services entered into an agreement with
Computer Associates International, Inc. (CA) to form an equally held joint
venture company CA Satyam ASP Private Limited (CA Satyam). Satyam Computer
Services holds 50% in CA Satyam. The joint venture was formed in January 2001,
at Mumbai, India. As per the agreement, both Satyam Computer Services and CA
have invested US$1,500 thousand each in the joint venture. Satyam Computer
Services equity in the loss of CA Satyam, net of taxes amounted to US$398
thousand, US$ 126 thousand and US$4 thousand for the years ended March 31,
2004, 2003 and 2002 respectively . Satyam GE In January 2002, Satyam Computer Services initiated the process of transfer of
its 50% shareholding in Satyam GE Software Services Private Limited (Satyam
GE) to GE Pacific (Mauritius) Limited, Mauritius (GEPL) in accordance with
the shareholders agreement for a consideration of approximately US$4,000
thousand. The transfer was subject to fulfillment of terms and conditions
specified in the agreement and obtaining necessary approvals from appropriate
authorities. Satyam Computer Services continued to have the ability to
exercise significant influence over the operating and financial policies of
Satyam GE and hence accounted for its 50% interest in Satyam GE using the
equity method up to June 30, 2002. During the year ended March 31, 2003 the
necessary approvals were received and Satyam recorded a gain of US$830 thousand
in the statement of operations, the excess of sales consideration received over
the carrying value as of June 30, 2002. F-19




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   9.  Income Taxes The provision for income taxes consists of: Year ended March 312004
    
    2003
    
    2002(US$ in thousands)Foreign taxesCurrent
    
    $
    20,205
    
    
    $
    10,491
    
    
    $
    4,596Deferred
    
    
    279
    
    
    
    433
    
    
    
    (3,709
    )Domestic taxesCurrent
    
    
    3,355
    
    
    
    3,046
    
    
    
    2,627Deferred
    
    
    (1,295
    )
    
    
    (4,201
    )
    
    
    (2,745
    )Aggregate taxes
    
    $
    22,544
    
    
    $
    9,769
    
    
    $
    769
 A reconciliation between the provision for income taxes to the amount computed
by applying the statutory income tax rate to income before provision for income
taxes is summarized below: Year ended March 312004
    
    2003
    
    2002(US$ in thousands)Net income/(losses) before taxes
    
    $
    137,035
    
    
    $
    84,324
    
    
    $
    (4,879
    )Enacted tax rates in India
    
    
    35.88
    %
    
    
    36.75
    %
    
    
    35.70
    %Computed tax expense
    
    $
    49,162
    
    
    $
    30,989
    
    
    $
    (1,742
    )Tax effect due to non-taxable export income
    
    
    (38,218
    )
    
    
    (31,089
    )
    
    
    (37,688
    )Difference arising from different tax rates in other tax jurisdictions
    
    
    6,985
    
    
    
    3,363
    
    
    
    1,119Difference arising from different tax rates on gain on sale of investments
    
    
    (562
    )
    
    
    (2,478
    )
    
    
    (22,304
    )Deferred stock based compensation (non-deductible)
    
    
    583
    
    
    
    1,662
    
    
    
    3,854Goodwill (non-deductible)
    
    
    
    
    
    
    
    
    
    
    35,026Changes in valuation allowance, including losses of subsidiaries
    
    
    824
    
    
    
    11,578
    
    
    
    23,775Effect of tax rate change
    
    
    22
    
    
    
    (9
    )
    
    
    (246
    )Others
    
    
    3,748
    
    
    
    (4,259
    )
    
    
    (1,971
    )Income taxes
    
    
    22,544
    
    
    
    9,757
    
    
    
    (177
    )Tax for earlier years
    
    
    
    
    
    
    12
    
    
    
    946Income taxes recognized in the statement of operations
    
    $
    22,544
    
    
    $
    9,769
    
    
    $
    769
 The current provisions for income taxes, net of payments, were US$8,630
thousand and US$16,086 thousand as of March 31, 2004 and 2003 respectively.
The provision for foreign taxes is due to income taxes payable in overseas tax
jurisdictions by its offsite and onsite centers, principally in the United
States. Satyam Computer Services benefits from certain significant tax
incentives provided to software entities under Indian tax laws. These
incentives presently include: (i) an exemption from payment of Indian corporate
income taxes for a period of ten consecutive years of operations of software
development facilities designated as Software Technology Parks (STP units);
and (ii) a tax deduction of 50% of profits from exporting computer software
progressively reduced to Nil by the year 2004-05. The benefits of these tax
incentives have historically resulted in an effective tax rate for Satyam
Computer Services well below statutory rates. In case of Satyam Computer
Services for various registered STP units these exemptions expire starting from
fiscal 2006 through fiscal 2010. However, Satyam Computer Services earns
certain other income and domestic income, which are taxable irrespective of the
tax holiday as stated above. Satyam Computer Services subsidiaries are subject
to income taxes of the countries in which they operate. F-20




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Significant components of activities that gave rise to deferred tax assets and
liabilities included in the financial statements are as follows: As of March 312004
    
    2003(US$ in thousands)Deferred tax assets:Operating loss carry forwards
    
    $
    17,582
    
    
    $
    15,265Provision for accounts receivable, advances and investments
    
    
    4,016
    
    
    
    3,354Premises and equipment
    
    
    443
    
    
    
    698Others
    
    
    2,065
    
    
    
    3,132Gross deferred tax assets
    
    
    24,106
    
    
    
    22,449Less: Valuation allowance
    
    
    (17,582
    )
    
    
    (15,265
    )Total deferred tax assets
    
    
    6,524
    
    
    
    7,184Deferred tax liabilities:Premises and equipment
    
    
    (3,023
    )
    
    
    (2,581
    )Provision for accounts receivable and advances
    
    
    (1,975
    )
    
    
    (1,686
    )Investments in associated companies and gain on dilution of interest in a subsidiary
    
    
    (5,734
    )
    
    
    (8,107
    )Total deferred tax liabilities
    
    
    (10,732
    )
    
    
    (12,374
    )Net deferred tax liabilities
    
    $
    (4,208
    )
    
    $
    (5,190
    )
 Satyam has not provided for any deferred income taxes on undistributed earnings
of foreign subsidiaries due to the losses incurred by them since their
inception. These losses aggregated to approximately US$37,173 thousand and
US$36,782 thousand as of March 31, 2004 and 2003 respectively. Satyam has not recognized deferred income taxes arising on income of Satyam
Computer Services due to the tax benefit available to it in the form of a
deduction from taxable income, except to the extent of timing differences which
reverse after the tax holiday period or unless they reverse under foreign
taxes. Operating loss carry forwards for tax purposes of Satyam Computer Services and
its consolidated subsidiaries amount to approximately US$17,582 thousand and
US$15,265 thousand as of March 31, 2004 and 2003 respectively and are available
as an offset against future taxable income of such entities. These carry
forwards expire at various dates primarily over 8 to 20 years. Realization is
dependent on such subsidiaries generating sufficient taxable income prior to
expiration of the loss carry forwards. A valuation allowance is established
attributable to deferred tax assets and loss carry forwards in subsidiaries
where, based on available evidence, it is more likely than not that they will
not be realized. Net deferred tax liabilities included in the consolidated balance sheets are as
follows: As of March 312004
    
    2003(US$ in thousands)Current assets  deferred income taxes
    
    $
    6,081
    
    
    $
    4,488Non-current assets  other assets*
    
    
    443
    
    
    
    2,696Current liabilities  accrued expenses and other liabilities*
    
    
    (1,975
    )
    
    
    (1,686
    )Long-term liabilities  Deferred income taxes
    
    
    (8,757
    )
    
    
    (10,688
    )Net deferred tax liabilities
    
    $
    (4,208
    )
    
    $
    (5,190
    )
   *
    
    Included in other assets and accrued expenses and other liabilities
respectively. 10.  Borrowings Short-term debts Short-term debts amounted to US$Nil and US$2,500 thousand as of March 31, 2004
and 2003 respectively. Short-term debt as of March 31, 2003 is represented by a
non-interest bearing unsecured promissory note issued by Satyam Computer
Services for acquisition of minority interest in SMTI amounting to US$3,500
thousand. The promissory note was payable in four installments at quarterly
rests, from April 1, 2003 to January 1, 2004. Satyam Computer Services has
repaid the full amount in four installments amounting to US$1,000 thousand each
in March 2003, June 2003 and September 2003 and US$500 thousand in December
2003. F-21




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Long-term debts Long-term debts outstanding comprise of: As of March 312004
    
    2003(US$ in thousands)Secured debts,representing obligation principally to banks and
financial institutions 10.75% Rupee loans of SC-Trust, maturing serially through fiscal 2006
    
    $
    2,428
    
    
    $
    2,675Hire Purchase Loans
    
    
    1,754
    
    
    
    1,399Total Debt
    
    
    4,182
    
    
    
    4,074Less: Current portion of long-term debts
    
    
    (2,356
    )
    
    
    (2,336
    )Long-term debts, net of current portion
    
    $
    1,826
    
    
    $
    1,738
  Aggregate maturities of long-term debts subsequent to March 31, 2004, are
US$2,356 thousand in fiscal 2005, US$1,631 thousand in fiscal 2006, US$195
thousand in fiscal 2007. Unused lines of credit Unused lines of credit comprise of: As of March 312004
    
    2003(US$ in thousands)Cash credit and short term debts
    
    $
    8,065
    
    
    $
    7,364Non-fund facilities
    
    
    4,877
    
    
    
    8,005Total Unused lines of credits
    
    $
    12,942
    
    
    $
    15,369
 11. Employee
Benefits
 The Gratuity Plan The following table sets forth the funded status of the Gratuity Plan of
Satyam, and the amounts recognized in Satyams consolidated balance sheets and
statements of operations. Year ended March 312004
    
    2003
    
    2002*(US$ in thousands)Accumulated benefit obligation
    
    $
    1,948
    
    
    $
    1,257
    
    
    $
    652Change in
    projected benefit obligation
    Projected benefit obligation at beginning of the period
    
    
    2,481
    
    
    
    1,536
    
    
    
    1,179Service cost
    
    
    889
    
    
    
    623
    
    
    
    609Interest cost
    
    
    203
    
    
    
    156
    
    
    
    124Actuarial loss (gain)
    
    
    300
    
    
    
    144
    
    
    
    (41
    )Benefits paid
    
    
    (155
    )
    
    
    (25
    )
    
    
    (12
    )Effect of exchange rate changes
    
    
    307
    
    
    
    47
    
    
    
    (63
    )Projected benefit obligation at end of the period
    
    
    4,025
    
    
    
    2,481
    
    
    
    1,796Change in plan assetsFair value of plan assets at beginning of the period
    
    
    
    
    
    
    
    
    
    
    39Actual return on plan assets
    
    
    
    
    
    
    
    
    
    
    6Employer contribution
    
    
    162
    
    
    
    24
    
    
    
    46Benefits paid from plan assets
    
    
    (162
    )
    
    
    (24
    )
    
    
    (19
    )Fair value of plan assets at end of the period
    
    
    
    
    
    
    
    
    
    
    72




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Year ended March 312004
    
    2003
    
    2002*(US$ in thousands)Funded status of the plans
    
    
    (4,025
    )
    
    
    (2,481
    )
    
    
    (1,724
    )Unrecognized transition obligation
    
    
    3
    
    
    
    11
    
    
    
    22Unrecognized net actuarial loss (gain)
    
    
    1,221
    
    
    
    339
    
    
    
    211Amount recognized during the period
    
    
    (4
    )
    
    
    (3
    )
    
    
    (11
    )Accrued benefit cost
    
    $
    (2,805
    )
    
    $
    (2,134
    )
    
    $
    (1,502
    )
 
 *
    
    The financial information above includes Sify for fiscal 2002 only. The components of net gratuity costs are reflected below: Service cost
    
    
    889
    
    
    $
    623
    
    
    $
    609Interest cost
    
    
    203
    
    
    
    156
    
    
    
    124Expected returns on plan assets
    
    
    
    
    
    
    
    
    
    
    5Amortization
    
    
    12
    
    
    
    11
    
    
    
    11Amount recognized during the period
    
    
    8
    
    
    
    3
    
    
    
    11Net gratuity costs
    
    $
    1,112
    
    
    $
    793
    
    
    $
    760
 Weighted-average assumptions used to determine benefit obligations:
 As of March 31,2004
    
    2003
    
    2002Discount rate
    
    
    7.0
    %
    
    
    8.0
    %
    
    
    10.0
    %Long-term rate of compensation increase
    
    
    7.0
    %
    
    
    7.0
    %
    
    
    9.0
    %
 Weighted-average assumptions used to determine net periodic benefit cost: For the year ended March 31,2004
    
    2003
    
    2002Discount rate
    
    
    7.0
    %
    
    
    8.0
    %
    
    
    10.0
    %Long-term rate of compensation increase
    
    
    7.0
    %
    
    
    7.0
    %
    
    
    9.0
    %Long-term rate of return on plan assets
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Cash Flows Satyam expects to contribute US$186 thousand to its Gratuity plan during the
year ending March 31, 2005. The following benefit payments, which reflect
expected future service, as appropriate, are expected to be paid: Expected contribution(US$ in thousands)For the financial year ended March 31,2006
    
    
    3202007
    
    
    4252008
    
    
    5692009
    
    
    8362010 - 2014
    
    
    5,753
 Provident Fund Satyams contribution towards the Provident Fund amounted to US$3,360 thousand,
US$ 2,633 thousand and US$2,201 thousand for the years ended March 31, 2004,
2003 and 2002 respectively. Superannuation Plan Satyam Computer Services contribution towards the Superannuation Plan
maintained by LIC amounted to US$421 thousand, US$26 thousand and US$35
thousand for the years ended March 31, 2004, 2003 and 2002 respectively. 401(k) Plan Satyams matching contribution under 401(k) Plan amounted to US$403 thousand,
US$569 thousand and US$345 for the years ended March 31, 2004, 2003 and 2002
respectively. Effective October 1, 2003, Satyam Computer Services has
discontinued its matching contribution under this plan. F-23




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##### Table of Contents



Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   12.  Earnings Per Share Basic earning per share is computed on the basis of the weighted average number
of shares outstanding (weighted average number of shares issued less
unallocated, unvested and unexercised shares held by the SC  Trust).
Allocated but unvested or unexercised shares not included in the calculation of
weighted-average shares outstanding for basic earnings per share were 58,200
and 1,167,380 as of March 31, 2004 and 2003. Diluted earnings per share is
computed on the basis of the weighted average number of shares outstanding plus
the effect of outstanding stock options using the treasury stock method. In addition to the above, the unallocated shares held by SC  Trust, which are
by definition unvested, have been excluded from all earnings per share
calculations. Such shares amounted to 1,629,480 and 1,043,440 as of March 31,
2004 and 2003 respectively. The components of basic and diluted earnings per share were as follows: Year ended March 312004
    
    2003
    
    2002(US$ in thousands except share data)Net income
    
    $
    111,860
    
    
    $
    82,298
    
    
    $
    42,357Equity Shares:Average outstanding shares (in thousands)
    
    
    313,155
    
    
    
    311,797
    
    
    
    305,751Dilutive effect of: Associate Stock Options (in thousands)
    
    
    3,902
    
    
    
    6,861
    
    
    
    1,362Share and share equivalents (in thousands)
    
    
    317,057
    
    
    
    318,658
    
    
    
    307,113Earnings per shareBasic
    
    $
    0.36
    
    
    $
    0.26
    
    
    $
    0.14Diluted
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    0.14
 13.  Stock-based Compensation Plans ASOP plan In May 1998, Satyam Computer Services established its Associate Stock Option
Plan (the ASOP plan). Satyam Computer Services subsequently established a
controlled associate welfare trust called the Satyam Associate Trust (the
SC-Trust), to administer the ASOP and issued warrants to purchase 13,000,000
shares of Satyam Computer Services. In turn, the SC-Trust periodically grants
warrants to eligible associates to purchase equity shares held by or reserved
for the issuance to the SC-Trust. The warrants may vest immediately or may vest
over a period ranging from two to three years, depending on the associates
length of service and performance. Upon vesting, associates have 30 days in
which to exercise these warrants. In order to ensure all its associates
received the benefits of the Satyam Computer Services stock split in December
1999, the SC-Trust exercised all its warrants to purchase Satyam Computer
Services shares prior to the split using the proceeds obtained from bank loans
amounting to US$13,226 thousand. Prior to August 31, 1999, the exercise price
of the remaining SC-Trust warrants was Rupees (Rs.) 450 per warrant.
Subsequent to August 31, 1999, each warrant entitles the holder to purchase ten
shares (adjusted for stock splits) of Satyam Computer Services at a price of
Rs.450 per warrant plus an interest component, associated with the loan which
the SC-Trust assumed, for conversion of the warrants it held. The interest
component is computed based on fixed vesting period and a fixed interest rate.
This stock bonus had been treated as an equity restructuring and
correspondingly no additional compensation cost had been recognized as a result
of the conversion of warrants held by the SC-Trust. ASOP B plan In April 2000, Satyam Computer Services established its Associate Stock Option
Plan B (the ASOP B) and reserved warrants for 41,727,140 equity shares to be
issued to eligible associates with the intention to issue the warrants at the
market price of the underlying equity shares on the date of the grant. These
warrants vest over a period ranging from two to four years, starting with 20%
in second year, 30% in the third year and 50% in the fourth year. Upon vesting,
associates have 5 years to exercise these warrants. No equity shares have been
issued by Satyam Computer Services to the SC-Trust under the ASOP B. F-24




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##### Table of Contents



Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   ASOP ADS plan In May 2000, Satyam Computer Services established its Associate Stock Option
Plan (ADS) (the ASOP (ADS)) to be administered by the Administrator of the
ASOP (ADS) which is a committee appointed by the Board of Directors of Satyam
Computer Services and reserved 2,574,665 ADSs (5,149,330 shares) to be issued
to eligible associates with the intention to issue the warrants at a price per
option which is not less than 90% of the value of one ADS as reported on NYSE
(fair market value) on the date of grant converted into Indian Rupees at the
rate of exchange prevalent on the day of grant as decided by the Administrator
of the ASOP(ADS) . These warrants vest over a period of 1-10 years from the
date of the grant. The time available to exercise the warrants upon vesting is
as decided by the Administrator of the ASOP (ADS). No equity shares underlying
the ADS (options) have been issued by Satyam Computer Services to the SC-Trust. Warrant grants During the year ended March 31, 2004, the SC-Trust issued immediately vesting
warrants for 92,500 and warrants for 89,500 (net of 11,700 shares forfeited)
shares with longer vesting periods to the associates under the ASOP plan.
Further, during the same period, under the ASOP B plan, Satyam Computer
Services issued warrants for 44,65,271 (net of 645,528 shares forfeited) shares
to the associates. During the same period, under the ASOP (ADS), Satyam
Computer Services issued warrants for 63,143 ADS representing 126,286 (net of
128,400 shares cancelled) shares to associates under the ASOP (ADS) plan. During the year ended March 31, 2003, the SC-Trust issued immediately vesting
warrants for 526,900 shares and warrants for 128,750 (net of 38,750 shares
forfeited) shares with longer vesting periods to the associates under the ASOP
plan. Further, during the same period, under the ASOP B plan, Satyam Computer
Services issued warrants for 4,269,621 (net of 1,133,723 shares forfeited)
shares to the associates. During the same period warrants for 93,850 ADS
representing 187,700 (net of 232,300 shares forfeited) shares to associates
under the ASOP (ADS) plan. During the year ended March 31, 2002, the SC-Trust issued immediately vesting
warrants for 702,010 (net of 60,000 forfeited) shares and warrants for 80,050
(net of 49,620 forfeited) shares with longer vesting periods to the associates
under the ASOP plan. Further, during the same period, under the ASOP B plan,
Satyam Computer Services issued warrants for 4,438,118 (net of 598,563
forfeited) shares to the associates and warrants for 1,169,425 ADS representing
2,338,850 equity shares to associates under the ASOP(ADS) plan. Changes in number of shares representing stock options outstanding for each of
the plans were as follows: Year ended March 312004
    
    2003
    
    2002Weighted
    
    
    
    Weighted
    
    
    
    WeightedAverage
    
    
    
    Average
    
    
    
    AverageNumber of
    
    Exercise
    
    Number of
    
    Exercise
    
    Number of
    
    ExerciseASOP Plan
    
    shares
    
    Price
    
    shares
    
    Price
    
    shares
    
    PriceBalance at the beginning of the
period
    
    
    1,167,380
    
    
    $
    1.31
    
    
    
    1,924,890
    
    
    $
    1.28
    
    
    
    9,454,140
    
    
    $
    1.24Granted
    
    
    193,700
    
    
    $
    1.68
    
    
    
    694,400
    
    
    $
    1.52
    
    
    
    891,680
    
    
    $
    1.29Exercised
    
    
    (523,140
    )
    
    $
    1.81
    
    
    
    (1,273,000
    )
    
    $
    1.42
    
    
    
    (7,686,250
    )
    
    $
    1.17Cancelled
    
    
    (11,700
    )
    
    $
    1.90
    
    
    
    (38,750
    )
    
    $
    1.72
    
    
    
    (109,620
    )
    
    $
    1.40Lapsed
    
    
    (768,040
    )
    
    $
    1.18
    
    
    
    (140,160
    )
    
    $
    1.28
    
    
    
    (625,060
    )
    
    $
    1.28Balance at the end of the period
    
    
    58,200
    
    
    $
    1.99
    
    
    
    1,167,380
    
    
    $
    1.31
    
    
    
    1,924,890
    
    
    $
    1.28
 F-25




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Year ended March 312004
    
    2003
    
    2002Number of
    
    Weighted Average
    
    Number of
    
    Weighted Average
    
    Number of
    
    Weighted AverageASOP B
    
    shares
    
    Exercise Price
    
    shares
    
    Exercise Price
    
    shares
    
    Exercise PriceBalance at the beginning of the period
    
    
    14,464,148
    
    
    $
    5.33
    
    
    
    10,197,327
    
    
    $
    5.60
    
    
    
    5,759,209
    
    
    $
    7.17Granted
    
    
    5,110,799
    
    
    $
    6.33
    
    
    
    5,403,344
    
    
    $
    4.78
    
    
    
    5,036,681
    
    
    $
    4.41Exercised
    
    
    (1,418,938
    )
    
    $
    5.09
    
    
    
    (2,800
    )
    
    $
    3.75
    
    
    
    
    
    
    
    Cancelled
    
    
    (645,528
    )
    
    $
    5.53
    
    
    
    (1,133,723
    )
    
    $
    6.50
    
    
    
    (598,563
    )
    
    $
    7.87Lapsed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at the end of the period
    
    
    17,510,481
    
    
    $
    6.05
    
    
    
    14,464,148
    
    
    $
    5.33
    
    
    
    10,197,327
    
    
    $
    5.60
 Year ended March 312004
    
    2003
    
    2002Number of
    
    Weighted Average
    
    Number of
    
    Weighted Average
    
    Number of
    
    Weighted AverageASOP (ADS)
    
    shares
    
    Exercise Price
    
    shares
    
    Exercise Price
    
    shares
    
    Exercise PriceBalance at the beginning of the period
    
    
    2,526,550
    
    
    $
    5.08
    
    
    
    2,338,850
    
    
    $
    4.97
    
    
    
    
    
    
    
    Granted
    
    
    254,686
    
    
    $
    8.65
    
    
    
    420,000
    
    
    $
    5.23
    
    
    
    2,338,850
    
    
    $
    4.97Exercised
    
    
    (289,972
    )
    
    $
    5.42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    (128,400
    )
    
    $
    5.41
    
    
    
    (232,300
    )
    
    $
    5.01
    
    
    
    
    
    
    
    Lapsed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at the end of the period
    
    
    2,362,864
    
    
    $
    5.92
    
    
    
    2,526,550
    
    
    $
    5.08
    
    
    
    2,338,850
    
    
    $
    4.97
 Information about number of shares representing stock options outstanding: Outstanding
    
    ExercisableWeighted Average
    
    Weighted Average
    
    Number of shares
    
    Weighted Average
    
    Number of sharesRange of Exercise Price
    
    Exercise Price (per
    
    remaining
    
    arising out of
    
    Exercise Price (per
    
    arising out ofPeriod
    
    (per share)
    
    share)
    
    contractual Life
    
    options
    
    share)
    
    optionsFiscal 2004
    
    Rs.84.78
Rs.655.61
    
    US$1.95
US$15.11
    
    Rs.261.51US $6.03
    
    1.35 years
    
    
    19,931,545
    
    
    Rs.79.28US$1.83
    
    
    92,500Fiscal 2003
    
    Rs.73.80
Rs.665.61
    
    US$1.70
US$15.34
    
    Rs.239.36US$5.52
    
    1.28 years
    
    
    18,158,078
    
    
    Rs.71.19US$1.64
    
    
    526,900
 The US$ numbers in the above tables have been translated using the closing
exchange rate as of March 31, 2004 1US$= Rs.43.40 Deferred stock-based compensation Satyam Computer Services recognized deferred stock-based compensation of US$762
thousand, US$1,745 thousand and US$1,203 thousand for the years ended March 31, 2004,
2003 and 2002 respectively. Satyam Computer Services amortized and charged to
income US$1,625 thousand, US$3,380 thousand and US$10,479 thousand for the
years ended March 31, 2004, 2003 and 2002 respectively. Pursuant to APB 25, deferred-stock compensation has been computed as of grant
date based on the difference between the exercise price of the warrants and the
fair value of underlying shares of Satyam Computer Services. Deferred stock
compensation is amortized on a straight-line basis over the vesting period of
the related warrants. F-26




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##### Table of Contents



Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   The weighted-average grant-date fair value of options granted was US$6.03,
US$5.04 and US$4.21 for the years ended March 31, 2004, 2003 and 2002
respectively. Additional Disclosure Had compensation cost been recognized based on the fair value at the date of
grant in accordance with SFAS 123, the pro-forma amounts of Satyams net income
and earnings per share would have been as follows for the years ended March 31,
2004, 2003 and 2002 respectively. Year ended March 312004
    
    2003
    
    2002(US$ in thousands except per share data)Net Income- As reported
    
    $
    111,860
    
    
    $
    82,298
    
    
    $
    42,357Add: Charge under APB 25
    
    
    1,625
    
    
    
    3,380
    
    
    
    10,794Less: Charge under FAS 123
    
    
    (25,231
    )
    
    
    (23,249
    )
    
    
    (36,410
    )- Pro forma
    
    $
    88,254
    
    
    $
    62,429
    
    
    $
    16,741Earnings Per Share:Basic- As reported
    
    $
    0.36
    
    
    $
    0.26
    
    
    $
    0.14- Pro forma
    
    
    0.28
    
    
    $
    0.20
    
    
    $
    0.05Diluted- As reported
    
    $
    0.35
    
    
    $
    0.26
    
    
    $
    0.14- Pro forma
    
    
    0.28
    
    
    $
    0.20
    
    
    $
    0.05
 Note: The pro forma disclosures shown above are not representative of the
effects on net income and earnings per share in future years. The fair value of Satyam Computer Services stock options used to compute pro
forma net income and earnings per share disclosures is the estimated present
value at grant date using the Black-Scholes option-pricing model. The following assumptions were used: Year ended March 312004
    
    2003
    
    2002Dividend yield
    
    
    0.61
    %
    
    
    0.86
    %
    
    
    0.52
    %Expected volatility
    
    
    69.00
    %
    
    
    69.00
    %
    
    
    75.00
    %Risk-free interest rate
    
    
    7.00
    %
    
    
    9.00
    %
    
    
    10.32
    %Expected term (in years)
    
    
    2.69
    
    
    
    2.77
    
    
    
    3.47
 14. Segmental Reporting Satyam has adopted SFAS 131; Disclosures about Segments of an Enterprise and
Related Informationwhich requires disclosure of financial and descriptive
information about Satyams reportable operating segments. The operating
segments reported below are the segments of Satyam for which separate financial
information is available and for which operating profit/loss amounts are
evaluated regularly by executive management in deciding how to allocate
resources and in assessing performance. Management evaluates performance based
on stand-alone revenues and net income for the companies in Satyam.
Up to March
31, 2003 Satyam provided segmental disclosures based on three business groups:
IT services, Internet services and Products. Subsequent to March 31, 2003
executive management evaluates Satyams operating segments based on the
following three-business groups:  
    
    IT services, providing a comprehensive range of services, including software development, packaged software integration,
system maintenance and engineering design services. Satyam provides its customers the ability to meet all of their
information technology needs from one service provider. Satyams eBusiness services include designing, developing
integrating and maintaining Internet-based applications, such as eCommerce websites, and implementing packaged software
applications, such as customer or supply chain management software applications. Satyam also assists its customers in
making their existing computing systems accessible over the Internet.
    
    Business Process Outsourcing,providing BPO services covering HR, Finance & Accounting, Customer Contact (Voice, Mail and
Chat), and Transaction Processing (industry-specific offerings).
    
    Software Products, product development and creation of propriety software. F-27




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##### Table of Contents



Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Satyams operating segment information for the years ended March 31, 2004, 2003
and 2002 based on its new segments are as follows: Business Segments IT Services
    
    BPO
    
    Software Products
    
    Elimination
    
    Consolidated totals(US$ in thousands)For the year ended March 31, 2004Revenue  External customers
    
    $
    565,028
    
    
    $
    1,293
    
    
    $
    51
    
    
    
    
    
    
    $
    566,372Revenue  Inter-segment
    
    
    405
    
    
    
    1,097
    
    
    
    72
    
    
    $
    (1,574
    )
    
    
    Total Revenues
    
    
    565,433
    
    
    
    2,390
    
    
    
    123
    
    
    
    (1,574
    )
    
    
    566,372Operating income / (loss)
    
    
    125,402
    
    
    
    (4,055
    )
    
    
    (198
    )
    
    
    
    
    
    
    121,149Equity in earnings / (losses) of
associated companies, net of taxes
    
    
    (2,631
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,631
    )Net income / (loss)
    
    
    116,195
    
    
    
    (4,140
    )
    
    
    (195
    )
    
    
    
    
    
    
    111,860Segment assets
    
    
    719,262
    
    
    
    9,897
    
    
    
    34
    
    
    
    (15,425
    )
    
    
    713,768Depreciation, amortization and impairment
of goodwill
    
    
    24,006
    
    
    
    388
    
    
    
    3
    
    
    
    
    
    
    
    24,397Capital expenditures for long-lived assets
    
    
    15,628
    
    
    
    2,436
    
    
    
    
    
    
    
    
    
    
    
    18,064For the year ended March 31, 2003Revenue  External customers
    
    $
    458,336
    
    
    
    
    
    
    $
    871
    
    
    
    
    
    
    $
    459,207Revenue  Inter-segment
    
    
    
    
    
    
    
    
    
    
    253
    
    
    $
    (253
    )
    
    
    Total Revenues
    
    
    458,336
    
    
    
    
    
    
    
    1,124
    
    
    
    (253
    )
    
    
    459,207Operating income / (loss)
    
    
    83,407
    
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    83,639Equity in earnings / (losses) of
associated companies, net of taxes
    
    
    (3,339
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,339
    )Net income / (loss)
    
    
    82,066
    
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    82,298Segment assets
    
    
    590,432
    
    
    
    
    
    
    
    1,036
    
    
    
    (29,774
    )
    
    
    561,694Depreciation and amortization of other
intangible assets
    
    
    37,102
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    37,177Capital expenditures for long-lived assets
    
    
    11,015
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    11,016For the year ended March 31, 2002Revenue  External customers
    
    $
    413,906
    
    
    
    
    
    
    $
    585
    
    
    
    
    
    
    $
    414,491Revenue  Inter-segment
    
    
    18
    
    
    
    
    
    
    
    284
    
    
    $
    (302
    )
    
    
    Total Revenues
    
    
    413,924
    
    
    
    
    
    
    
    869
    
    
    
    (302
    )
    
    
    414,491Operating income / (loss)
    
    
    (60,883
    )
    
    
    
    
    
    
    (2,630
    )
    
    
    
    
    
    
    (63,513
    )Equity in earnings / (losses) of
associated companies, net of taxes
    
    
    (25,401
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,401
    )Net income / (loss)
    
    
    44,987
    
    
    
    
    
    
    
    (2,630
    )
    
    
    
    
    
    
    42,357Segment assets
    
    
    548,831
    
    
    
    
    
    
    
    754
    
    
    
    (34,083
    )
    
    
    515,502Depreciation and amortization of other
intangible assets
    
    
    135,933
    
    
    
    
    
    
    
    385
    
    
    
    
    
    
    
    136,318Capital expenditures for long-lived assets
    
    
    30,665
    
    
    
    
    
    
    
    (1,001
    )
    
    
    
    
    
    
    29,664
 The capital expenditures for long-lived assets in the above table represent the
additions to premises and equipment (fixed assets) of each segment. F-28




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Geographic Information The revenues that are attributable to countries based on location of customers
and long-lived assets are as follows: Year ended March 31,2004
    
    2003
    
    2002Revenues from
    
    Long-lived
    
    Revenues from
    
    Long-lived
    
    Revenues from
    
    Long-livedexternal customers
    
    assets
    
    external customers
    
    assets
    
    external customers
    
    assets(US$ in thousands)North America
    
    $
    414,944
    
    
    $
    3,973
    
    
    $
    335,930
    
    
    $
    3,939
    
    
    $
    298,458
    
    
    $
    4,280Europe
    
    
    77,790
    
    
    
    531
    
    
    
    53,265
    
    
    
    579
    
    
    
    39,202
    
    
    
    657India
    
    
    16,050
    
    
    
    77,446
    
    
    
    27,911
    
    
    
    77,785
    
    
    
    32,089
    
    
    
    132,428Japan
    
    
    11,108
    
    
    
    227
    
    
    
    10,473
    
    
    
    348
    
    
    
    9,152
    
    
    
    348Rest of the World
    
    
    46,480
    
    
    
    1,825
    
    
    
    31,628
    
    
    
    693
    
    
    
    35,590
    
    
    
    491Total
    
    $
    566,372
    
    
    $
    84,002
    
    
    $
    459,207
    
    
    $
    83,344
    
    
    $
    414,491
    
    
    $
    138,204
 The long-lived assets in the above table represent premises and equipment and
intangible assets of each segment. 15. Related Party Transactions Related party transactions comprise of Year ended March 312004
    
    2003
    
    2002(US$ in thousands)Infrastructure and other services provided
by Satyam toSify, its subsidiaries and associated companies
    
    $
    72
    
    
    $
    68
    
    
    $
    1,078Satyam Venture
    
    
    1,225
    
    
    
    875
    
    
    
    928Satyam GE
    
    
    
    
    
    
    9
    
    
    
    142Total
    
    $
    1,297
    
    
    $
    952
    
    
    $
    2,148Services/Interest received by Satyam fromSify, its subsidiaries and associated companies
    
    $
    1,439
    
    
    $
    245
    
    
    $
    47Satyam Venture
    
    
    5,338
    
    
    
    357
    
    
    
    Total
    
    $
    6,777
    
    
    $
    602
    
    
    $
    47
 The balances receivable from and payable to related parties are as follows: As of March 31Amount due from/(to) associated companies
    
    2004
    
    2003(US$ in thousands)Sify, its subsidiaries and associated companies
    
    $
    (257
    )
    
    $
    (78
    )Satyam Venture
    
    
    (1,345
    )
    
    
    (69
    )Total
    
    $
    (1,602
    )
    
    $
    (147
    )
 16. Shareholders Equity and Dividends a) Issuance of common stock In May 2001, Satyam Computer Services listed its American Depository Shares
(ADS) for trading on the New York Stock Exchange (NYSE ticker symbol
SAY). Satyam Computer Services issued 16,675,000 ADS (representing
33,350,000 equity shares of Rs. 2 each fully paid up) at a price of US$9.71 per
ADS, including ADS issued on exercise of 15% Greenshoe option by the
Underwriters. Each ADS represents two equity shares of Rs 2 each fully paid
up. b) Dividends Final dividends proposed by the Board of Directors are payable when formally
declared by the shareholders, who have the right to decrease but not increase
the amount of the dividend recommended by the Board of Directors. The Board of
Directors declares interim dividends without the need for shareholders
approval. Dividends payable to equity shareholders are based on the net income available
for distribution as reported in Satyam Computer Services unconsolidated
financial statements prepared in accordance with Indian GAAP. As such,
dividends are declared and paid in Indian Rupees. The net income in accordance
with U.S. GAAP may, in certain years, either not be fully available or will be
additionally available for distribution to equity shareholders. F-29




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Under Indian GAAP the net income available for distribution to equity
shareholders was US$128,063 thousand, US$64,680 thousand and US$92,029 thousand
for the years ended March 31, 2004, 2003 and 2002 respectively. Under the Indian Companies Act, dividends may be paid out of the profits of a
company in the year in which the dividend is declared or out of the
undistributed profits of previous fiscal years. Before declaring a dividend
greater than 10.0% 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 10.0%, depending on the dividend percentage to be declared
in such year. 17. Goodwill Goodwill consists of: As of March 312004
    
    2003(US$ in thousands)GoodwillAcquisition of minority interest inSatyam Enterprise Solutions Limited
    
    $
    23,702
    
    
    $
    21,642Satyam Manufacturing Technologies Inc.
    
    
    3,685
    
    
    
    3,365Total
    
    
    27,387
    
    
    
    25,007Less: Accumulated amortization
    
    
    (11,851
    )
    
    
    (10,821
    )Goodwill, net
    
    $
    15,536
    
    
    $
    14,186
 Goodwill represents the excess of amount paid towards purchase price and
non-refundable deposit over the fair value of assets acquired, and currently
primarily relates to the acquisition of the minority interest in Satyam
Enterprise Solutions Limited by Satyam Computer Services. Goodwill is tested when circumstances indicate that the carrying amount may not
be recoverable as provided under FAS 142. Based on these tests there is no
impairment of goodwill during the years ended March 31, 2004 and 2003. However
there can be no assurance that future goodwill impairment tests will not result
in a charge to earnings. 18. Contingencies and Commitments a) Funding and Warrant commitments  Nipuna Satyam Computer Services has guaranteed payment of all sums payable by Nipuna
to the Investors on redemption of the Preference Shares. Further Satyam
Computer Services is required to subscribe to Convertible Debentures amounting
to US$20 million based on certain provisions in the agreement. These
convertible debentures shall bear an interest rate equal to the prime lending
rate of the State Bank of India prevailing at that time and are convertible
upon the election of Nipuna into Ordinary Shares at any time after issuance. Satyam Computer Services, Nipuna and the Investors have also entered into a
Warrant Agreement whereby Nipuna agrees to issue to the Investors warrants in
consideration of and based upon the referral revenues received by Nipuna or its
Subsidiaries at any time during the period commencing from the date of initial
closing and ending in June 2007 from business referred to Nipuna or its
Subsidiaries by an Investor or its Affiliates. The Investors have rights to
purchase from Nipuna Ordinary Shares which, upon issuance, would constitute
7.5% of the then outstanding equity share capital of the Company on a fully
diluted basis during the exercise period at the price per share then in effect
and subject to other terms and conditions set forth in the agreement. b) Bank guarantees Bank guarantees outstanding are US$5,344 thousand and US$3,503 thousand as of
March 31, 2004 and 2003 respectively. Bank guarantees are generally provided to
government agencies, primarily to the Telegraph Authorities as security for
compliance with and performance of terms and conditions contained in the
Internet Service Provider license granted to Sify and Videsh Sanchar Nigam
Limited, towards the supply and installation of an electronic commerce platform
respectively. Satyam also provides guarantees to Excise and Customs authorities
for the purposes of maintaining a bonded warehouse. These guarantees may be
revoked by the governmental agencies if they suffer any losses or damage
through the breach of any of the covenants contained in the agreements. F-30




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   c) Capital commitments Contractual commitments for capital expenditure pending execution were US$4,414
thousand and US$4,441 thousand as of March 31, 2004 and 2003 respectively. Contractual commitments for capital expenditures are relating to acquisition of
premises, equipment and new network infrastructure. d) Operating lease Satyam has certain operating leases for office premises and guesthouses. Most
of the operating leases provide for increased rent through increases in general
price levels. Rental expense for operating leases amounted to US$9,110
thousand, US$8,735 thousand and US$9,243 thousand for the years ended March 31,
2004, 2003 and 2002 respectively. Future minimum annual lease commitments, including those leases for which
renewal options may be exercised as of March 31, 2004 are US$1,877 thousand in
fiscal 2005, US$1,756 thousand in fiscal 2006, US$1,798 thousand in fiscal
2007, US$1,091 thousand in fiscal 2008 and US$1,333 thousand thereafter. 19. Concentration of Credit Risk Accounts receivable balances are typically unsecured and are derived from
revenues earned from customers primarily located in the United States. Satyam
monitors the creditworthiness of its customers to which it grants credit terms
in the normal course of business. The following table gives details in respect
of percentage of revenues generated from top two and top five customers: Year ended March 312004
    
    2003
    
    2002Revenues generated from top two customersCustomer I
    
    
    14.28
    %
    
    
    16.14
    %
    
    
    18.26
    %Customer II
    
    
    9.92
    %
    
    
    8.71
    %
    
    
    6.93
    %Total revenues from top five customers
    
    
    36.45
    %
    
    
    38.41
    %
    
    
    38.40
    %
 20. Financial Instruments Forward Contracts Satyam Computer Services enters into forward foreign exchange contracts where
the counter party is generally a bank. Satyam Computer Services considers the
risks of non-performance by the counter party as non-material. The aggregate
contracted principal amounts of Satyam Computer Servicess foreign exchange
forward contracts (sell) outstanding amounted to US$44,500 thousand and
US$4,000 thousand as of March 31, 2004 and 2003. Gains on foreign exchange
forward contracts which are included under the head other income/expense in the
statement of operations amounted to US$2,361 thousand (US$435 thousand on
outstanding forward contracts), US$56 thousand (US$43 thousand on outstanding
forward contracts)and US$Nil for the years ended March 31, 2004, 2003 and 2002
respectively. The outstanding forward exchange contracts as of March 31, 2004
mature between one to nine months. Fair value The carrying amounts reported in the balance sheets for cash and cash
equivalents, investments in bank deposits trade and other receivables,
investments, amounts due to or from related parties, accounts payable and other
liabilities approximate their respective fair values due to their short
maturity. The approximate fair value of long-term debts, as determined by using
current interest rates was US$4,189 thousand and US$4,081 thousand as of March
31, 2004 and 2003 respectively as compared to the carrying amounts of US$4,182
thousand and US$4,074 thousand as of March 31, 2004 and 2003 respectively. F-31




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   21. Schedules of Balance sheet a) Cash and Cash Equivalents The cash and cash equivalents consist of: As of March 312004
    
    2003(US$ in thousands)Cash and bank balances
    
    $
    80,676
    
    
    $
    53,133Cash equivalents
    
    
    6,054
    
    
    
    9,069Cash and cash equivalents
    
    $
    86,730
    
    
    $
    62,202
 b) Accounts Receivable
 Accounts receivable consist of: As of March 312004
    
    2003(US$ in thousands)Customers (trade)
    
    $
    147,142
    
    
    $
    105,477Related parties
    
    
    615
    
    
    
    467Less: Allowance for doubtful debts
    
    
    (13,930
    )
    
    
    (9,180
    )Accounts receivable
    
    $
    133,827
    
    
    $
    96,764
  c) Prepaid Expenses and Other Receivables Prepaid expenses and other receivables consist of: As of March 312004
    
    2003(US$ in thousands)Interest accrued on bank deposits
    
    $
    21,074
    
    
    
    Prepaid expenses
    
    $
    3,887
    
    
    $
    2,725Directors liability insurance
    
    
    418
    
    
    
    608Advance for expenses
    
    
    4,614
    
    
    
    2,707Loans and advance to employees
    
    
    2,892
    
    
    
    2,183Other advances and receivables
    
    
    1,616
    
    
    
    2,019Less: Allowance for doubtful advances
    
    
    (1,596
    )
    
    
    (1,201
    )Prepaid expenses and other receivables
    
    $
    32,905
    
    
    $
    9,041
  d) Other Assets Other assets consist of: As of March 312004
    
    2003(US$ in thousands)Interest accrued on bank deposits
    
    
    
    
    
    $
    3,891Deposits
    
    
    6,901
    
    
    
    4,396Loans and advances to employees due after one year
    
    
    902
    
    
    
    866Deferred taxes on income
    
    
    443
    
    
    
    2,696Others
    
    
    1,599
    
    
    
    751Less: Allowance for doubtful deposits/advances
    
    
    (1,571
    )
    
    
    (1,434
    )Other Assets
    
    $
    8,274
    
    
    $
    11,166
 F-32




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Satyam Computer Services Limited
Notes to the Consolidated Financial Statements   Others include the non-current portion of the restricted cash in the form of
deposits placed with banks to obtain bank guarantees amounted to US$294
thousand and US$81 thousand as of March 31, 2004 and 2003 respectively.
Telephone and other deposits are primarily attributable to deposits with
government organizations principally to obtain leased telephone lines and
electricity supplies and advance payments to vendors for the supply of goods
and rendering of services. e) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of: As of March 312004
    
    2003(US$ in thousands)Accrued expenses
    
    $
    21,791
    
    
    $
    17,181Unclaimed dividend
    
    
    827
    
    
    
    567Provision for taxation, net of payments
    
    
    8,630
    
    
    
    16,086Provision for gratuity and leave encashment
    
    
    4,935
    
    
    
    2,737Deferred taxes on income
    
    
    1,975
    
    
    
    1,686Others
    
    
    8,516
    
    
    
    5,787Accrued expenses and other current liabilities
    
    $
    46,674
    
    
    $
    44,044
 22. Restatement of financial statements Satyam has restated beginning shareholders equity as of March 31, 2001 and
shareholders equity and net income as of and for the years ended March 31,
2003 and 2002, to reflect the impact on deferred tax liabilities and income
taxes of Satyams equity in the losses of Sify. Such impact was not previously
recognized. The effects of these adjustments are as follows: As of March 31,2003
    
    2002
    
    2001(US$ in thousands)Shareholders equity as previously reported
    
    $
    460,668
    
    
    $
    369,842
    
    
    $
    194,695Reduction in deferred tax liabilities
    
    
    27,048
    
    
    
    24,522
    
    
    
    8,057Shareholders equity as restated
    
    $
    487,716
    
    
    $
    394,364
    
    
    $
    202,752
 For the year ended March 31,2003
    
    2002(US$ in thousands except per share data)Net income as previously reported
    
    $
    79,772
    
    
    $
    25,892Income tax benefit
    
    
    2,526
    
    
    
    16,465Net income as restated
    
    $
    82,298
    
    
    $
    42,357Basic Earning per Share as previously reported
    
    
    0.26
    
    
    
    0.08Income tax benefit
    
    
    0.01
    
    
    
    0.06Basic Earning per Share as restated
    
    
    0.27
    
    
    
    0.14Diluted Earning per Share as previously reported
    
    
    0.25
    
    
    
    0.08Income tax benefit
    
    
    0.01
    
    
    
    0.06Diluted Earning per Share as restated
    
    
    0.26
    
    
    
    0.14
 Satyam recognized a deferred tax liability of US$ 36,920 thousand as at March
31, 2001 for the outside basis difference between the book carrying value and
tax basis of its investment in Sify. This outside basis difference was
generated from the increase in the book carrying value of Satyams investment
in Sify resulting from Sifys issuance of its shares to third parties. In
subsequent periods, Satyam recognized its equity in the losses of Sify as a
reduction in the book carrying value of its investment and as a charge to the
income statement. However, Satyam did not recognize the tax benefit resulting
from the decrease in the outside basis difference deferred tax liability. F-33