Infosys Technologies Annual Report 2009-2010

INFOSYS TECHNOLOGIES LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

To
The members,

We are delighted to present the report on our business and operations for
the year ended March 31, 2010.

1. Results of operations
in Rs. crore, except
per share data
2010 2009

Income from software services and
products 21,140 20,264

Software development expenses 11,559 11,145

Gross profit 9,581 9,119

Selling and marketing expenses 974 933

General and administration expenses 1,247 1,280

Operating profit before interest and
depreciation (PBIDTA) 7,360 6,906

Interest - -

Depreciation 807 694

Operating profit before tax 6,553 6,212

Other income, net 919 502

Net profit before tax 7,472 6,714

Provision for taxation 1,717 895

Net profit after tax and before
exceptional item 5,755 5,819

Income on sale of investments,
net of taxes(1) 48 -

Net profit after tax and after
exceptional item 5,803 5,819

Profit and Loss account balance
brought forward 10,305 6,642

Less : Residual dividend paid - 1

Dividend tax on the above - -

Amount available for appropriation 16,108 12,460

Dividend

Interim 573 572

Final 861 773

Total dividend 1,434 1,345

Dividend tax 240 228

Amount transferred to general reserve 580 582

Amount transferred to capital reserve 48 -

Balance in Profit and Loss account 13,806 10,305
EPS before exceptional item (2)

Basic 100.37 101.65

Diluted 100.26 101.48
EPS after exceptional item(2)

Basic 101.22 101.65

Diluted 101.10 101.48

Notes : 1 crore equals 10 million.

(1) Income from sale of investments in On Mobile Systems Inc, USA, net of
taxes and transaction costs.

(2) Equity shares are at par value of Rs. 5/- each.

2. Business

Our total income increased to Rs. 21,140 crore from Rs. 20,264 crore in the
previous year, at a growth rate of 4.3%. Our software export revenues
aggregated to Rs. 20,871 crore, up by 4.3% from Rs. 20,004 crore in the
previous year. Of these, 67.9% of the revenues came from North America,
22.2% from Europe and 9.9% from the Rest of the World.

Our revenues from the Rest of the World have increased from Rs. 1,821 crore
to Rs. 2,068 crore, with a growth rate of 13.6% which is higher than that
of the other regions. The share of fixed-price component of the business
was 40.8%, compared to 37.6% during the previous year. Our gross profit
amounted to Rs. 9,581 crore (45.3% of revenue) as against Rs. 9,119 crore
(45.0% of revenue) in the previous year. The onsite revenues decreased from
49.3% in the previous year to 48.7% in the current year. The onsite person-
months comprised 26.1% of the total billed efforts, compared to 28.4%
during the previous year. The Profit Before Interest, Depreciation, Taxes
and Amortization (PBIDTA) amounted to Rs. 7,360 crore (34.8% of revenue) as
against Rs. 6,906 crore (34.1% of revenue) in the previous year. Sales and
marketing costs were 4.6% of our revenue for the years ended March 31, 2010
and March 31, 2009. General and administration expenses decreased from 6.3%
in the previous year to 5.9% in the current year. We continue to reap the
benefits of economies of scale. The net profit after tax was Rs. 5,803
crore (27.5% of revenue) as against Rs. 5,819 crore (28.7% of revenue) in
the previous year. The net profit for the year includes income from sale of
investments in On Mobile Systems Inc, USA, of Rs. 48 crore, net of taxes
and transaction costs.

We seek long-term partnerships with clients while addressing their IT
requirements. Our customer-centric approach has resulted in high levels of
client satisfaction. We derived 97.3% of our revenues from repeat business.
This means that our valued and sustainable client partnerships have
contributed to revenues during the previous fiscal year also. We along with
our subsidiaries added 141 new clients, including a substantial number of
large global corporations. The total client base at the end of the year
stood at 575. Further, we have 338 million-dollar clients (327 in the
previous year), 159 five-million-dollar clients (151 in the previous year),
97 ten-million-dollar clients (101 in the previous year), 26 fifty-million-
dollar clients (20 in the previous year), and 6 hundred-million-dollar
clients (4 in the previous year).

During the year, we added 28.61 lakh sq. ft. of physical infrastructure
space. The total available space now stands at 255.04 lakh sq. ft.

The number of marketing offices as at March 31, 2010 was 65 as compared to
55 in the previous year.

3. Subsidiaries

We have eight subsidiaries:

Infosys BPO Limited, Infosys Technologies (Australia) Pty Limited, Infosys
Technologies (China) Co. Limited, Infosys Consulting Inc, Infosys
Technologies S. de R. L. de C.V., Infosys Technologies (Sweden) AB, Infosys
Tecnologia DO Brasil LTDA and Infosys Public Services Inc, USA. We have six
step-down subsidiaries : Infosys BPO s.r.o., Infosys BPO (Poland) Sp.Z.o.o,
Infosys BPO (Thailand) Limited, McCamish Systems LLC, Mainstream Software
Pty Limited and Infosys Consulting India Limited.

During the year, Infosys BPO acquired 100% voting interests in McCamish
Systems LLC (McCamish), a business process solutions provider based at
Atlanta, U.S. The business acquisition was conducted by entering into
Membership Interest Purchase Agreement for a cash consideration of Rs. 173
crore and a contingent consideration of Rs. 67 crore. The acquisition was
completed during the year and accounted as a business combination which
resulted in goodwill of Rs. 227 crore.

As per Section 212 of the Companies Act, 1956, we are required to attach
the Directors' report, Balance Sheet, and Profit and Loss account of our
subsidiaries. We had applied to the Government of India for an exemption
from such an attachment as we present the audited consolidated financial
statements in the Annual Report.

The Government of India has granted us an exemption from complying with
Section 212. Accordingly, the Annual Report does not contain the financial
statements of these subsidiaries. The audited annual accounts and related
information of subsidiaries, where applicable, will be made available upon
request. These documents will also be available for inspection during
business hours at our registered office in Bangalore, India. The same will
also be hosted on our website, www.infosys.com.

4. Finacle(TM)

Finacle(TM) from Infosys partners with banks across the globe to power
their innovation agenda, enabling them to differentiate their products and
services, enhance customer experience and achieve greater operational
efficiency. Finacle(TM) solutions address world-wide banking needs such as
core banking, wealth management, Customer Relationship Management (CRM),
Islamic banking and treasury requirements of retail, corporate and
universal banking. Finacle(TM) solutions also empower banks with multiple
sales, service and marketing channels including e-banking, mobile banking
and call centers. Recently, Finacle(TM) has launched a slew of innovative
offerings including Finacle Advizor, Finacle Treasury-in-a-box, Finacle
Core Banking for regional rural banks, and Finacle Financial Inclusion
solutions. These offerings make Finacle(TM) a strong innovation facilitator
enabling banks to accelerate growth, while maximizing value from their
large-scale business transformation.

Finacle(TM) is the chosen solution in over 130 banks across 65 countries,
helping them serve more than 30,000 branches. These include over 2,000
branches of regional rural banks in India which are leading the financial
inclusion initiative in the country. Independent reports by renowned
research firms have positioned Finacle(TM) among the leaders in the global
evaluation of retail core banking solution vendors. Finacle(TM) is one of
the most scalable core banking solutions in the world with an
unparalleled performance benchmark of 104 million effective transactions
per hour (29,010 ETPS).

5. Quality

We continue our journey toward excellence with a critical focus on Quality
and Productivity with significant investments in quality programs. In May
2009, Infosys BPO was certified for eSCM - SP ver 2.0 level 5, the
eSourcing Capability Model for Service Providers developed by a consortium
led by Carnegie Mellon University's Information Technology Services
Qualification Center. We were the fourth in the world to receive this
certification. We continue to focus on surveillance audits in ISO
certifications such as ISO 9001-TickIT, ISO 27001, ISO 20000, ISO 13485,
ISO 140001, OHSAS, TL 9000 and AS 9100.

Our quality department manages large change management initiatives to drive
Quality and Productivity improvements across the organization. The
institutionalization of these large initiatives are managed through the
balanced scorecard and Infosys Scaling Outstanding Performance (iSOP)
program.

The quality department in collaboration with multiple stakeholders across
the organization developed a framework called Business Value Articulation
which ensures alignment of our approaches to deliver value to our
customers. Some of the key improvement initiatives are:

* Infy Swift - Our differentiated methodology for Global Delivery Model
(GDM) enabled short-cycle delivery approach with Best Practices of
iterative' and Predictable Infosys Process' to achieve faster time to
market.

* ESTEEM (Estimation CoE) - Our drive to standardize estimation techniques
and models for various service lines and implementation of the same.

* TRANSCEED-Our initiative to enhance program management capabilities,
including development of integrated systems and tools, relevant enabling/
certification and ecosystem for collaboration/knowledge exchange.

* ASCENT-Our effort to provide a robust and integrated platform for account
management that further facilitates account planning, monitoring and
reviews.

* Prosper-A differentiated methodology for driving excellence in production
support services.

* TIDE - Total Integrated Delivery Environment which ensures robust way of
executing projects in various technologies.

* BrITe-We continue to focus on Business Results Impact @Infosys
Technologies that uniquely blends IT-specific Six Sigma approach with
statistical predictive modeling. This addresses diverse business critical
parameters and provides break through improvements.

6. Software Engineering and Technology Labs (SETLabs)

SETLabs at Infosys is the center for applied technology research in
software engineering and enterprise technology. SETLabs leverages emerging
technologies for improving engineering effectiveness and developing client-
focused business solutions. During the year. SETLabs built and enhanced
several solutions, frameworks, tools and methodologies in the areas of
software engineering, high performance and grid computing, cloud computing,
convergence technologies, knowledge-driven information systems and Web 2.0.

During the year, more than 60 articles were published by SETLabs
researchers in leading journals, magazines and conference proceedings.
SETLabs Briefings, a highly respected peer-reviewed journal, published
multiple issues related to areas like Next Generation Enterprise Packages,
Cloud Computing, Enterprise Level Business Architecture, Knowledge
Engineering and Management, Collaboration, Web 2.0, and Performance
Engineering in this fiscal year. SETLabs collaborated with leading national
and international universities such as the University of Southern
California, Indian Institute of Technology, Bombay, and Monash Research
Academy.

During the year, SETLabs' IP Cell filed 31 patent applications in the
United States Patent and Trademark Office (USPTO) and Indian Patent Office.
We now have an aggregate of 224 patent applications pending in India and
the U.S. and the USPTO has granted nine patents.

7. Branding

We believe that the Infosys' brand is one of the most important intangible
assets that we own. During this fiscal year, we have been appreciated by
the following bodies as a recognition of how we operate and conduct
business:

* Ranked as the most admired company in India according to the Wall Street
Journal survey.

* Ranked among the 50 most respected companies in the world by Reputation
Institute's Global Reputation Pulse 2009.

* Ranked among the top 25 companies in Business Week's InfoTech 100.

* Ranked among the top 25 companies in the world for developing leaders by
Fortune/Hewitt.

* Ranked as the best company to work for in India by Business Today's ninth
survey of Best Companies to Work For'.

Industry analysts rated us highly in reports on our key services and
markets. The services for which we were rated highly include, Service
Oriented Architecture, Oracle Service providers, Comprehensive Finance and
Accounting Business Process Outsourcing, and also for the Finacle(TM)
product suite.

We had over a million visits to our blogs on business and technology
related topics on our website www.infosys.com during the year. Our
employees contributed and published several thought leadership articles
across various industry for a and publications. We leveraged social media
platforms and engaged with our stakeholders and investors on YouTube,
SlideShare, Twitter and Facebook.

Leading global publications wrote about us, our leadership, our talent and
our performance. We continued to have leadership presence at premier
industry events like Oracle(R). Open World and Sapphire. Our annual client
events in the U.S. and Europe were well attended, and highly appreciated.
At the World Economic Forum in Davos, Switzerland, our lunch panel
discussion witnessed a full audience and the evening get-together hosted by
us was attended by some of the most influential and powerful global
business leaders.

8. Awards and recognition

As we pursue excellence relentlessly, we are delighted to receive several
global recognitions and awards. This fiscal year we were:

* Ranked among the best in investor relations in the APAC region.

* Received the Gold Award for Investor Relations in Technology in the U.S.
in the Asset Triple A Corporate Awards'.

* Ranked as the most sought-after company in India by Business Today
Survey.

* Received the award for excellence in inclusivity instituted by the
American Society for Training & Development (ASTD).

* Honored with the Oracle Titan Partner Award at Oracle(R) Open World 2009
event.

* Received the Excellence Award for Diversity Hiring Initiatives for
Infosys BPO.

* Listed on Forbes Asian Fabulous 50 for the fourth consecutive year.

* Recognized as one of India's Best Companies to Work For' in a survey
conducted by Great Place to Work(R) Institute.

* Listed in Fortune's 100 fastest-growing companies.

* Ranked as the Best Outsourcing Partner by the Waters Rankings 2009.

* Listed among best companies for leaders by Hay Group and Chief Executive
Magazine.

* The sole company from India to be featured in the Top 25 list of Business
Week's InfoTech 100.

* Received the distinction of having one of the Best Ranked Online Annual
Reports in Greater China & Asia/Pacific' at IR Global Rankings 2009.

9. Capital expenditure

During the year, we capitalized Rs. 787 crore to our gross block comprising
Rs. 140 crore for investment in computer equipment and the balance of
Rs.646 crore on infrastructure investment, besides Rs. 1 crore on vehicles.
We invested Rs. 43 crore to acquire 161 acres of land in Hyderabad, Jaipur,
Mysore and Mangalore.

During the previous year, we capitalized Rs. 1,822 crore to our gross
block, including investment in computer equipment of Rs. 273 crore,
Rs.1,536 crore on infrastructure investment and Rs. 12 crore toward
intangible asset acquisition.

10. Liquidity

We continue to be debt-free, and maintain sufficient cash to meet our
strategic objectives. We clearly understand that the liquidity in the
Balance Sheet has to balance between earning adequate returns and the need
to cover financial and business risks. Liquidity also enables us to make a
rapid shift in direction, should the market so demand. During fiscal 2010,
internal cash flows have more than adequately covered working capital
requirements, capital expenditure, investment in subsidiaries and dividend
payments, leaving a surplus of Rs. 4,515 crore. As at March 31, 2010, we
had liquid assets of Rs. 14,804 crore as against Rs. 10,289 crore at the
previous year-end.

These funds have been invested in deposits with banks, highly rated
financial institutions, certificate of deposits and liquid mutual funds.

11. Increase in share capital

During the year, we issued 9,95,149 shares on the exercise of stock options
under the 1998 and 1999 Employee Stock Option Plans. Due to this, the
outstanding issued, subscribed and paid-up equity share capital increased
from 57,28,30,043 shares to 57,38,25,192 shares as at March 31, 2010.

12. Appropriations

Dividend

Our policy is to pay dividend up to 30% of the net profit after tax of the
Company.

In October 2009, we paid an interim dividend of Rs. 10/- per share.

We recommended a final dividend of Rs. 15/- per share (par value of Rs. 5/-
each).

The total dividend amount paid out is Rs. 1,434 crore, as against Rs. 1,345
crore in the previous year. Dividend (including dividend tax) as a
percentage of profit after tax before exceptional items is 29.1% as
compared to 27.0% in the previous year.

The register of members and share transfer books will remain closed from
May 29, 2010 to June 12, 2010 (both days inclusive). Our Annual General
Meeting has been scheduled for June 12, 2010.

Transfer to reserves

We propose to transfer Rs. 580 crore (10% of the net profit for the year)
to the general reserve and another Rs. 48 crore to capital reserve. An
amount of Rs. 13,806 crore is proposed to be retained in the Profit and
Loss account.

13. Corporate governance

We continue to be a pioneer in benchmarking our corporate governance
policies with the best in the world. Our efforts are widely recognized by
investors in India and overseas. We have undergone the corporate governance
audit by ICRA and Credit Rating Information Services of India Limited
(CRISIL). ICRA has rated our corporate governance practices at CGR 1.
CRISIL has assigned CRISIL GVC Level 1 rating to us.

We have complied with the recommendations of the Narayana Murthy Committee
on Corporate Governance constituted by the Securities and Exchange Board of
India (SEBI). For fiscal year 2010, the compliance report is provided in
the Corporate Governance section of the Annual Report. The auditors'
certificate on compliance with the mandatory recommendations of the
committee is provided in the Annexure to the directors' report section.

We have documented our internal policies on corporate governance. In line
with the committee's recommendations, the Management's discussion and
analysis of the financial position of the Company is provided in this
Annual Report.

During the year, we continued to fully comply with the U.S. Sarbanes- Oxley
Act of 2002. Several aspects of the Act such as the Whistleblower Policy
and Code of Conduct for senior officers and executives have been
incorporated in our Company policy.

During fiscal 2009, we adopted the International Financial Reporting
Standards (IFRS) for our Securities and Exchange Commission (SEC), U.S.
filings.

On November 9, 2009, SEBI issued a press release permitting listed entities
having subsidiaries to voluntarily submit the consolidated financial
statements as per IFRS. Further, on April 5, 2010, SEBI issued a circular
amending the Listing Agreement to allow listed companies having
subsidiaries to prepare and publish consolidated financial statements as
per IFRS. Accordingly, for the quarter and year ended March 31, 2010, we
voluntarily prepared and published unaudited consolidated IFRS Financial
Statements (in Indian Rupees) in addition to preparing and publishing
audited standalone and consolidated financial statements in accordance with
Indian GAAP. The audited IFRS Financial Statements are available on our
website, www.infosys.com.

14. Conservation of energy, research and development, technology
absorption, foreign exchange earnings and outgo

The particulars as prescribed under Sub-section (1)(e) of Section 217 of
the Companies Act, 1956, read with the Companies (Disclosure of particulars
in the report of the Board of Directors) Rules, 1988, are provided in the
Annexure to the directors' report section.

15. Particulars of employees

In terms of provisions of Section 217 (2A) of the Companies Act, 1956, read
with the Companies (Particulars of Employees) Rules, 1975, the names and
other particulars of employees are set out in the Annexure to the
Directors' Report. However, having regard to the provisions of Section 219
(1)(b)(iv) of the Companies Act, 1956, the Annual Report excluding the
aforesaid information is being sent to all the members of the Company and
others entitled thereto. Any member interested in obtaining such
particulars may write to the Company Secretary at the Registered Office of
the Company.

16. Directors' responsibility statement as required under Section 217 (2AA)
of the Companies Act, 1956

The financial statements are prepared in accordance with the accounting
standards issued by the Institute of Chartered Accountants of India and the
requirements of the Companies Act, 1956, to the extent applicable to us;
and guidelines issued by SEBI on the historical cost convention; as a going
concern and on the accrual basis. There are no material departures from
prescribed accounting standards in the adoption of the accounting
standards.

The Board of Directors accepts responsibility for the integrity and
objectivity of these financial statements. The accounting policies used in
the preparation of the financial statements have been consistently applied
except as otherwise stated in the notes accompanying the respective tables.
The estimates and judgments related to the financial statements have been
made on a prudent and reasonable basis, in order that the financial
statements reflect in a true and fair manner the form and substance of
transactions, and reasonably present our state of affairs and profits for
the year.

We have taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act,
1956, to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.

17. Directors

During the year, we recommended the induction of K.V. Kamath to the Board.
A person of extraordinary capabilities, Kamath has had an illustrious
career in the banking industry. We thank you for your support in confirming
his appointment as director liable to retire by rotation in our Annual
General Meeting held on June 20, 2009.

The Board of Directors appointed Prof. Marti G. Subrahmanyam as the Lead
Independent Director. Prof. Subrahmanyam succeeds Deepak M. Satwalekar in
this role. Satwalekar became the first Lead Independent Director in India,
when he was appointed in May 2003.

Nandan M. Nilekani was invited by Honorable Prime Minister Dr. Manmohan
Singh to take charge as the Chairperson of the Unique Identification
Authority of India (UIDAI), in the rank of Cabinet Minister. Nandan
accepted the invitation and consequently relinquished the position of Co-
Chairman and Member of the Board.

The Board placed on record its deep sense of appreciation for the services
rendered by Nandan M. Nilekani as a co-founder, Chief Operating Officer,
Chief Executive Officer and Managing Director, and as the Co-Chairman of
the Board of Directors.

Rama Bijapurkar resigned as Independent Member of the Board.

The board placed on record its deep sense of appreciation for the services
rendered by Rama Bijapurkar as an Independent Member of the Board.

As per Article 122 of the Articles of Association, N.R. Narayana Murthy,
Prof. Marti G. Subrahmanyam, S. Gopalakrishnan, S.D. Shibulal and V.
Mohandas Pai retire by rotation in the forthcoming Annual General Meeting.
All of them, being eligible, seek re-appointment.

18. Auditors

The auditors, B S R & Co., Chartered Accountants, retire at the ensuing
Annual General Meeting and have confirmed their eligibility and willingness
to accept office, if re-appointed.

19. Fixed deposits

We have not accepted any fixed deposits and, as such, no amount of
principal or interest was outstanding as of the Balance Sheet date.

20. Human resource management

Employees are our vital and most valuable assets. We have created a
favorable work environment that encourages innovation and meritocracy. We
have also set up a scalable recruitment and human resources management
process, which enables us to attract and retain high caliber employees. We
added 6,837 (net) and 18,905 (gross) mployees, taking our total strength
to 92,688 up from 85,851 at the end of the previous year. Our attrition
rate stands at 13.4% compared to 11.1% for the previous year. Over the last
year, we received 4,00,812 applications from prospective employees and we
continue to remain an employer of choice in the industry.

During the year, we implemented the Infosys Role and Career Enhancement
(iRACE) program. iRACE aligns talent management activities with client
priorities, business needs and employee aspirations. We are excited about
the influence iRACE will have on our future success.

21. Education & Research

We understand the significance of learning and continual education in
providing our employees with latest skills and technologies. We believe
this will help in creating a challenging, entrepreneurial and empowering
work environment that rewards dedication and a strong work ethic for our
employees. We have instituted two specialized units, Education & Research
and the Infosys Leadership Institute (ILI) to address the learning needs of
our Company.

The Infosys Global Education Center, a world-class training facility
established at our campus in Mysore, India, is aimed at consolidating the
learning requirements across the Company. With a total built-up area of
1.44 million square feet, the Infosys Global Education Center can
accommodate the training needs of approximately 14,000 employees at a time.

Our training, continuing education and career development programs are
designed to ensure that our technology professionals and leaders enhance
their skill-sets in alignment with their respective roles. Most of the
engineering graduates we hire complete an integrated on-the-job training
module of about 20 to 29 weeks before they are assigned to a business unit.

Our employees also undergo certification programs periodically to develop
the skills relevant for their roles. During the year, the total days of
training doubled to over two million person-days. In addition, we have been
working with several colleges across India through our Campus Connect
program, enabling their faculty to provide industry-related training to
their students.

As of March 31, 2010, the Education & Research unit employed around 610
full-time faculty members, including 208 with doctorate or master's degree.

During the year, the Education & Research unit published a compendium of
white papers. These are also shared with our partner CampusConnect
institutions. The compendium covers domains such as computing model and
systems, software architecture and information and theory application in
supply chain management. Researchers from the group have also published
papers in renowned international publications and conference proceedings.

Several world bodies have recognized our achievements in the fields of
knowledge management and continual learning programs.

Our Education & Research unit has received the following awards and
recognitions during the year:

* Golden Peacock National Training Award for the year 2009.

* The American Society for Training & Development (ASTD) BEST award in 2009
for the fifth consecutive year.

* The first Indian company inducted into the Global Most Admired Knowledge
Enterprise (MAKE) Hall of Fame, retaining our position for the fifth
consecutive year.

* The Asian MAKE Award 2009.

* Ranked at the top in the Indian MAKE Award 2009, for the second year
after 2005.

ILI focuses exclusively on developing leadership skills for our senior-most
and high potential tier leaders. Each tier leader is assigned an ILI
counselor for personalized coaching and for planning self-development
programs.

ILI members have published original research papers and made several
presentations at global conferences including the prestigious Society for
Industrial/Organizational Psychology's Leading Edge' forum and other
annual conferences. The research topics included succession forecasting,
virtual reality assessment, leadership due diligence and intangible asset
valuation.

22. Sustainability initiatives

Sustainability for us is a way of conducting business and is an integral
part of our Company strategy. Our sustainability journey has reached a
critical mass this fiscal year.

The Infosys Sustainability Executive Council (ISEC) oversees the strategic
implementation of our business, social, environmental and code of ethics
practices. Our sustainability policy complements various other policies in
existence across the organization, and is based on our philosophy of
maximizing value to our stakeholders - our clients, employees, investors,
vendor partners and the society.

As part of the Infosys Strategic Planning for fiscal 2011, sustainability
has emerged as one of the key tracks. Our sustainability agenda will focus
on the following strategic themes:

Social contract:

Social contract for us is the just pursuance of humanism in all spheres of
our business. Engaging stakeholders and ensuring that we create a
sustainable tomorrow are an important part of this journey. We support and
encourage employee participation across various corporate social
responsibility (CSR) initiatives. An organization-wide initiative called
Spark was envisaged as an employee-driven CSR in August 2008. This nation-
wide initiative has reached out to 1,00,000 students in India as at March
31, 2010. This program focuses on disseminating knowledge about
advancements in IT, and our role in its growth, thus helping students to
gain first-hand exposure to opportunities available for their studies and
career planning.

Resource Efficiency:

Resource efficiency for us translates as reducing the impact on our
environment. Our efforts in ensuring resource efficiency at all our
centers involve working toward green buildings, conserving energy, reducing
and reusing paper, reducing and recycling water and effective waste
management.

Green Innovation:

We are committed toward reducing the harmful impact on the environment
around us. Our efforts do not stop at re-engineering our processes to align
with green goals, but extend to any product/service/process that is new and
displaces traditional ways of doing business while optimizing resource
utilization and adhering to social contracts. Many of our business units
are innovating and building on ideas that achieve resource efficiency. Some
of the innovative green ideas that have been deployed for our clients
include reducing the weight of an aircraft and introducing smart grids
within the organization.

During the previous year, we started a sustainability initiative with
specific focus on reducing the carbon footprint involving our Annual
Reports. Toward this end, we had stated that commencing fiscal 2010, our
printed copy of the Annual Report to shareholders would contain only the
statutory details. Accordingly, the Annual Report for the year ended March
31, 2010, contains only those details that are statutorily required to be
published in the Annual Report along with Abridged Standalone Financial
Statements prepared in compliance with Section 219 of the Companies Act,
1956. Additional details are available on our website, www.infosys.com.
Through this initiative, we propose to reduce consumption of paper by about
100 tonnes.

For more details on our sustainability initiatives, refer to our website,
www. infosys.com.

23. Employee Stock Option Plan (ESOP)

We had introduced various stock option plans for our employees. The details
of options granted under the 1998 Stock Option Plan (the 1998 Plan) and
the 1999 Stock Option Plan (the 1999 Plan) are as follows:

1998 Plan 1999 Plan
Total grants authorized by
the plan (no.) 1,17,60,000 ADS 5,28,00,000 shares

Pricing formula on date of grant Not less than
90% of fair
market value Fair market value
Variation in terms NA NA

Ratio of ADS to equity shares 1 ADS=1 equity share NA

Options granted during
the year (no.) - -

Weighted average price per
option granted (Rs.) NA NA

Options vested as at
March 31, 2010 (no.) 2,42,264 1,84,759

Options exercised during the year (no.) 6,14,071 3,81,078

Total number of shares arising as 6,14,071 3,81,078
a result of exercise of options

Money raised on exercise 57 31
of options (Rs. crore)

Options forfeited and lapsed 60,424 3,40,264
during the year (no.)

Total number of options in force at
the end of the year (no.) 2,42,264 2,04,464

Grant to senior management - -

Employees receiving 5% or more of - -
the total number of options
granted during the year

Employees granted options equal to
or exceeding 1% of the issued capital - -

Diluted EPS before exceptional item
on issue of shares on exercise
calculated in accordance with AS 20 Rs. 100.26 Rs. 100.26

Diluted EPS after exceptional item
on issue of shares on exercise
calculated in accordance with AS 20 Rs. 101.10 Rs. 101.10

SEBI has issued the Employee Stock Option Scheme and Employee Stock
Purchase Scheme Guidelines, 1999. This is effective for all stock option
schemes established after June 19, 1999. In accordance with these
guidelines, the excess of the market price of the underlying equity shares
as of the date of the grant over the exercise price of the option,
including up-front payments, if any, is to be recognized and amortized on a
straight line basis over the vesting period.

We have the 1998 Stock Option Plan and 1999 Stock Option Plan, where the
options are issued to the employees at an exercise price not less than the
fair market value. If the compensation cost on account of stock options
granted after June 30, 2003 (as required by the amendment effective June
30, 2003) under 1998 and 1999 Plans was computed using the fair value
method, our compensation cost would have been higher by Rs. 1 crore and Rs.
7 crore and our profit would hence be less by Rs. 1 crore and Rs. 7 crore
for fiscal 2010 and 2009, respectively. The impact on EPS for fiscal 2010
and 2009 would be Rs. 0.01 and Rs. 0.13, respectively. During fiscal 2010
and 2009, stock options under the 1998 Plan and 1999 Plan have not been
granted. Hence, the weighted average fair values of grant during these
years are nil.

All stock options under the 1998 and 1999 Employees Stock Option Plans were
granted at the prevalent market price on the date of grant. Accordingly, we
have calculated the compensation cost arising on account of stock options
granted using the intrinsic value method. Hence, the disclosure in terms of
Clause 12.1(n) of SEBI (Employees Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999, is not applicable.

2010 2009
No. of options Weighted No. of Weighted
average options average
exercise exercise
price price
(Rs.) (Rs.)
1998 Plan:

Outstanding at the
beginning of the year 9,16,759 904 15,30,447 813

Forfeited (60,424) 1,550 (1,58,102) 1,785

Exercised (6,14,071) 854 (4,55,586) 890

Outstanding at the 2,42,264 613 9,16,759 904
end of the year

Vested at the end 2,42,264 613 9,16,759 904
of the year

1999 Plan:

Outstanding at the
beginning of the year 9,25,806 1,248 14,94,693 1,163

Forfeited (3,40,264) 1,968 (1,90,188) 1,814

Exercised (3,81,078) 821 (3,78,699) 620

Outstanding at the
end of the year 2,04,464 869 9,25,806 1,248

Vested at the end
of the year 1,84,759 735 8,51,301 1,177

24. Infosys Science Foundation

During fiscal 2009, we had set up Infosys Science Foundation, a not-for-
profit trust to promote research in pure and applied sciences in India.

The Infosys Prize endeavors to elevate the prestige of scientific research
in India and inspire young Indians to choose a vocation in scientific
research. It also seeks to boost the confidence of economists, social
scientists and other researchers who are already engaged in and committed
to advanced research in these areas.

The Infosys Prize categories include:

* Physical Sciences - Physics and Chemistry

* Mathematical Sciences - Mathematics and Statistics

* Engineering Sciences - All branches of Engineering

* Life Sciences - Biology and Medicine

* Social Sciences and Economics - Economics, History, Sociology.

Political Sciences and other Social Sciences.

The jury for each area consists of eminent international personalities
selected by the trustees of the Foundation.

The inaugural Infosys Prize laureates were felicitated and awarded prizes
at a grand ceremony in New Delhi on January 4, 2010, by Honorable Vice
President of India Mohammad Hamid Ansari. The prize in each category
comprised a special gold medallion, a citation expounding the laureate's
work and Rs. 50 lakh as prize money.

For more details on the Infosys Science Foundation, refer to the website,
www.infosys-science-foundation.com.

Acknowledgments

We thank our customers, vendors, investors and bankers for their continued
support during the year. We place on record our appreciation of the
contribution made by our employees at all levels. Our consistent growth was
made possible by their hard work, solidarity, cooperation and support.

We thank the governments of various countries where we have operations. We
also thank the Government of India, particularly the Ministry of
Communication and Information Technology, the Customs and Excise
Departments, the Income Tax Department, the Ministry of Commerce, the
Ministry of Finance, the Reserve Bank of India, the state governments, the
Software Technology Parks (STPs)-Bangalore, Bhubaneswar, Chandigarh,
Chennai, Gurgaon, Hyderabad, Jaipur, Mangalore, Mysore, Pune, and
Thiruvananthapuram and other government agencies for their support, and
look forward to their continued support in the future.

For and on behalf of the Board of Directors

S. Gopalakrishnan
Chief Executive Officer and Managing Director

S.D. Shibulal
Chief Operating Officer and Director
Place: Bangalore
Date : April 13, 2010

a) Particulars pursuant to Companies (Disclosure of particulars in the
report of the Board of Directors) Rules, 1988

Conservation of energy

Building infrastructure

Furthering our commitment to growing responsibly, we are working on
reducing the ecological impact of our operations. We are committed to
minimizing the consumption of energy and fresh water, preserving natural
habitat and reducing waste. Our Green Initiatives team focuses on
developing infrastructure directed at conservation of resources.

It not only caters to our internal needs but also supports initiatives at
the local and global levels. In the last two years, we have been able to
achieve more than 17% reduction in per capita energy consumption, thereby
cutting down emissions considerably. The new projects in our campuses in
India, such as Mysore, Thiruvananthapuram, Mangalore and Hyderabad are
being designed as per the Leadership in Energy and Environmental Design
(LEED) gold standard. We are also working on providing environment-friendly
products and solutions for our clients. Our employees are engaging
themselves in various eco-friendly practices through eco-groups formed for
raising environmental awareness. We are also working with policy makers to
promote renewable energy in India. From services and solutions that reduce
our clients' carbon footprint to converting our employees into
environmental change agents, we are working toward all round conservation
initiatives.

IT infrastructure

Taking Green IT initiatives forward, during the year we have replaced over
7,000 desktops with newer models that have a maximum power rating of 91W,
compared to the older models which were at 120W. We have extended the
optimized power management configuration for over 69,000 desktops. This has
brought about an estimated 25% reduction in power demand by desktops. An
in-house application named Terminator' has been developed and rolled out
on all desktops. This application is designed to ensure that the desktop is
shut down either by the user or automatically at a pre-defined time after
working hours.

Continuing our efforts toward restructuring the existing data centers and
server rooms, we have remodeled eight large and medium-sized server rooms
and four dedicated Offshore Development Centers (ODCs) in order to increase
the cooling efficiency and effectiveness, using less power. The steps
involved have been consolidation of servers, re-modeling of the racks as
per cold and hot aisle designs, replacement of older systems with newer
ones, room re-sizing and usage of overhead cable trays which ensure better
airflow under the floor. As a result, a number of air conditioning units
have been de-commissioned to save power in each room, while the usage of
newer systems for consolidation led to considerable power savings.

Moving away from dedicated computing infrastructure used for software
development and testing, to a shared, secure and virtualized environment,
we have built an internal enterprise cloud. This infrastructure is capable
of hosting around 3,000 virtual machines and has an easy-to-use Self-
Service' portal with template-based agile provisioning and simplified
management of virtual machines. We are targeting the substitution of
additional desktops and servers physically installed in our server rooms
and labs with these virtual machines. In addition to enabling faster
provisioning, reduction in build/re-build time and optimal resource
utilization, this implementation would save power and cooling since it
requires just around 20% of the total power demanded by additional desktops
and servers.

Research and Development (R & D)

We continue to invest in the research and development of new technology-
driven business solutions and services. Intellectual property creation
along with the development of new frameworks, processes and methodologies
has led to enhanced quality and productivity and has delivered business
value.

SETLabs

Our R&D and innovation unit, SETLabs is at the forefront of research and is
organized into various Labs and Centers of Excellence:

* The Software Engineering Lab focuses on software evolution and
distributed software development, large system maintenance, software
metrics and performance engineering.

* The Digital Convergence Lab in conjunction with the Communications, Media
and Entertainment Business Unit focuses on the convergence of services,
networks and applications including wireless sensor networks.

* The Center for Knowledge Driven Information Systems (C-KDIS) focuses on
the areas of symbolic reasoning and quantitative methods for decision
making, text analytics, machine learning, and task-oriented knowledge
management systems.

* The Distributed and High Performance Computing Lab focuses on compute and
data optimization grids, multi-core architecture programming environments,
cloud computing and next-generation data centers.

* The Security and Privacy Lab focuses on areas such as secure application
development lifecycle methodology and network vulnerability.

* The Innovation Lab focuses on leveraging Information Communication and
Technology (ICT) to foster an environment to innovate and co-create with
our clients.

The Maintenance Center of Excellence at SETLabs focuses on the development
of IP for efficient and effective preventive maintenance, transformation
and business impact of large software systems.

It continues to leverage its platform-based, knowledge-centric,
collaborative process to significantly differentiate our maintenance
offering and help us win large deals.

The Microsoft Technology Center, housed within SETLabs, is an innovation
incubator, that fosters an environment for early technology adoption and
evangelization of solutions based on Microsoft (and related) technologies.
The Center anchors the Catalytic IT initiative for modernization of legacy
systems. The Center has also developed collaboration tools such as Infosys
Buzz that non-intrusively searches, organizes and shares information across
groups within an enterprise. Another platform developed by the Center,
Infosys Active Desk, is now being used to help Contact Center agents to
deliver a consistently superior customer service experience.

We have established an NVIDIA Technology Center at the Bangalore
Development Center to develop NVIDIA CUDAT technology-enabled software
solutions.

SETLabs anchored an Infosys-wide innovation challenge event, Ignite', that
provided a platform for all our employees to submit innovative ideas. A
brand new Infosys Innovation Co-Creation Platform (ICCP) was used to create
an idea pool. The submitted ideas were evaluated by a team of experts and a
jury shortlisted 13 innovative ideas for further investment by the Company.

Collaborations with academia

We continue to collaborate with leading national and international
universities, product vendors and technology start-up companies to leverage
synergies in solution offerings. These collaborations are leveraged toward
the creation of platforms and solutions in the areas of distributed
software development, infrastructure virtualization, text analytics and
wireless sensor networks. We are associated with various universities
globally including, Purdue University, IIIT-Hyderabad, IIIT-Bangalore, IIT-
Bombay, Monash Research Academy, University of Southern California and the
University of Cambridge. We also associate with several industry consortia
including the IU-ATC in the United Kingdom (U.K.) and the Smart Services
CRC in Australia.

SETLabs organized a thought sharing and collaboration event, Infosys
Aurora', that brought together some of the best academicians, researchers,
practitioners and thought leaders at the University of Southern
California's Viterbi School of Engineering. The event was a continuing
effort to bring together early adopters and visionaries to identify new
emerging technologies and the associated engineering challenges.

Benefits

Our efforts in R&D have helped us offer new services to clients in the
areas of digital convergence, information management, cloud computing, high
performance and grid computing and software engineering. We are developing
client-focused business solutions based on the intellectual property
developed by multiple research groups. Our R&D efforts have helped us win
large deals across industry verticals.
Future plan of action

We will continue to focus on and collaborate with leading national and
international universities, product vendors and technology start-up
companies. We are creating an ecosystem to co-create business solutions on
client-specific business themes.

These collaborations will be leveraged toward the creation of platforms and
solutions that enhance the GDM principles of automation, collaboration and
assembly. We will continue to focus on research areas such as software
engineering, network and device convergence, mobility, grid computing,
cloud computing, knowledge engineering, information management, and
security and privacy.

Expenditure on R & D Rs. in crore
2010 2009

Revenue expenditure 437 236
Capital expenditure 3 31
Total 440 267
R&D expenditure/total revenue 2.1% 1.3%

Foreign exchange earnings and outgo

Activities relating to exports, initiatives taken to increase exports,
development of new export markets for products and services, and export
plans

During the year, 98.7% of our revenues were derived from exports.

We have established a substantial direct marketing network around the
world, including North America, Europe and Asia Pacific.

These offices are staffed with sales and marketing specialists, who sell
our services to large international clients.

Foreign exchange earned and used:
Rs. in crore
2010 2009

Earnings 21,075 19,836
Outflow (including capital imports) 8,490 8,258
Net foreign exchange earnings (NFE) 12,585 11,578
NFE/Earnings 59.7% 58.4%

For and on behalf of the Board of Directors

S. Gopalakrishnan
Chief Executive Officer and Managing Director

S.D. Shibulal
Chief Operating Officer and Director
Place: Bangalore
Date : April 13, 2010

MANAGEMENT DISCUSSION AND ANALYSIS

Overview

The financial statements have been prepared in compliance with the
requirements of the Companies Act, 1956, guidelines issued by Securities
and Exchange Board of India (SEBI) and Generally Accepted Accounting
Principles (GAAP) in India. Our Management accepts responsibility for the
integrity and objectivity of these financial statements, as well as for
various estimates and judgments used therein. The estimates and judgments
relating to the financial statements have been made on a prudent and
reasonable basis, so that the financial statements reflect in a true and
fair manner the form and substance of transactions, and reasonably present
our state of affairs, profits and cash flows for the year.

A. Industry structure and developments

Changing economic and business conditions and rapid technological
innovation are creating an increasingly competitive market environment that
is driving corporations to transform their operations. Consumers of
products and services are increasingly demanding accelerated delivery times
and lower prices. Companies are focusing on their core competencies and are
using outsourced technology service providers to adequately address these
needs.

The role of technology has evolved from supporting corporations to
transforming them. There is an increasing need for highly skilled
technology professionals in the markets in which we operate. At the same
time, corporations are reluctant to expand their internal IT departments
and increase costs. These factors have increased corporations' reliance on
their outsourced technology service providers and are expected to continue
to drive future growth for outsourced technology services.

1. Increasing trend toward offshore technology services

Outsourcing the development, management and ongoing maintenance of
technology platforms and solutions has become increasingly important. The
effective use of offshore technology services offers a variety of benefits,
including lower cost of ownership of IT infrastructure, lower labor costs,
improved quality and innovation, faster delivery of technology solutions
and more flexibility in scheduling. In addition, technology companies are
also recognizing the benefits of offshore technology service providers in
software research and development, and related support functions and are
outsourcing a greater portion of these activities. This has also increased
diversification in the range of services delivered offshore.

2. The India advantage

India is widely recognized as the premier destination for offshore
technology services. According to the NASSCOM Strategic Review 2010, IT
services exports (excluding exports relating to business process
outsourcing (BPO), hardware, engineering design and product development)
from India are estimated to grow by 5.8% in fiscal 2010, to record revenues
of US $27.3 billion. This review also estimates BPO exports from India to
have grown by 6% in fiscal 2010 to record revenues of US $12.4 billion.
There are several key factors contributing to the growth of IT and IT-
enabled services (ITES) in India and by Indian companies. Some of these
factors are high-quality delivery, significant cost benefits and abundant
skilled resources.

3. Evolution of technology outsourcing

The realm of technology outsourcing is changing. In an environment of rapid
technological change, globalization and regulatory changes, companies are
looking at outsourcing approaches that require their technology service
providers to develop specialized systems, processes and solutions along
with cost-effective delivery capabilities.

4. Global Delivery Model (GDM)

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

Our GDM mitigates risks associated with providing offshore technology
services to our clients. Speedy and effective communication being the key,
we use multiple service providers and a mix of terrestrial and optical
fiber links with alternate routing. In India, we rely on two
telecommunication carriers to provide high-speed links interconnecting our
global development centers. We rely on multiple links on submarine cable
paths provided by several service providers to interconnect our development
centers with network hubs in other parts of the world.

5. Our end-to-end solutions

We complement our industry expertise with specialized support for our
clients. We also leverage the expertise of our various Centers of
Excellence and our software engineering group and technology lab to create
customized solutions for our clients. In addition, we continually evaluate
and train our professionals in new technologies and methodologies. Finally,
we ensure the integrity of our service delivery by utilizing a scalable and
secure infrastructure.

We generally assume full project management responsibility in each of our
solution offerings. We strictly adhere to our SEI-CMMI Level 5 internal
quality and project management processes. Our project delivery focus is
supplemented by a robust knowledge management system that enables us to
leverage existing solutions across our Company. We use in-house tools for
project management and software lifecycle support. We believe that our
processes, methodologies, knowledge management systems and tools reduce the
overall cost to the client, mitigate risks, enhance the quality of our
offerings and allow clients to improve time-to-market for their solutions.
Revenues attributable to custom application development, maintenance and
production support, product engineering, package-enabled consulting and
implementation and technology consulting services represented a majority of
our total revenues in fiscal 2010.

B. Financial condition

Sources of funds

1. Share capital

At present, we have only one class of shares-equity shares of par value
Rs.5/- each. Our authorized share capital is Rs. 300 crore, divided into 60
crore equity shares of Rs. 5/- each. The issued, subscribed and paid up
capitals as at March 31, 2010 and March 31, 2009 were Rs. 287 crore and 286
crore respectively.

During the year, employees exercised 6,14,071 equity shares issued under
the 1998 Stock Option Plan and 3,81,078 equity shares issued under the 1999
Stock Option Plan. Consequently, the issued, subscribed and outstanding
shares increased by 9,95,149 and share capital increased by Rs. 1 crore.
The details of options granted, outstanding and vested as at March 31,
2010, are provided in the Notes to the consolidated financial statements in
this Annual Report.

2. Reserves and surplus

2. a Capital reserve

The balance as at March 31, 2010 amounted to Rs. 54 crore.

The addition to capital reserve account of Rs. 48 crore during the year is
on account of transfer of profit on sale of investments in OnMobile Systems
Inc, U.S. of Rs. 48 crore, which is included in the net profit.

2.b Share premium

The addition to the share premium account of Rs. 97 crore during the year
is primarily on account of premium received on issue of 9,95,149 equity
shares, on exercise of options under the 1998 and 1999 Stock Option Plans
of Rs. 87 crore.

An amount of Rs. 10 crore (Rs. 10 crore in the previous year) was credited
to the share premium account arising due to tax benefits in overseas
jurisdiction of deductions earned on exercise of employees' stock options,
in excess of compensation charged to the Profit and Loss account.

2.c General reserves

An amount of Rs. 580 crore representing 10% of the profits for the year
ended March 31, 2010 (previous year Rs. 582 crore) was transferred to the
general reserves account from the Profit and Loss account.

2.d Profit and Loss account

The balance retained in the Profit and Loss account as at March 31, 2010 is
Rs. 13,806 crore, after providing the interim and final dividend for the
year of Rs. 573 crore and Rs. 861 crore and dividend tax of Rs. 240 crore
thereon. The total amount of profits appropriated to dividend including
dividend tax was Rs. 1,674 crore, as compared to Rs. 1,573 crore in the
previous year.

2.e Shareholder funds

The total shareholder funds increased to Rs. 22,036 crore as at March 31,
2010 from Rs. 17,809 crore as of the previous year end. The book value per
share increased to Rs. 384.01 as at March 31, 2010, compared to Rs. 310.90
as of the previous year-end. Application of funds

3. Fixed assets

3.a Capital expenditure

We incurred a capital expenditure of Rs. 581 crore (Rs. 1,177 crore in the
previous year) comprising additions to gross block of Rs. 787 crore offset
by a decrease of Rs. 206 crore on account of decrease in capital work-in-
progress. The entire capital expenditure was funded out of internal
accruals.

3.b Additions to gross block

During the year, we capitalized Rs. 787 crore to our gross block comprising
Rs. 140 crore for investment in computer equipment and the balance of
Rs.646 crore on infrastructure investment and Rs. 1 crore on vehicles. We
invested Rs. 43 crore to acquire 161 acres of land in Hyderabad, Jaipur,
Mysore and Mangalore.

The expenditure on buildings, computer equipment, plant and machinery,
furniture and fixtures and vehicles increased by Rs. 346 crore, Rs. 140
crore, Rs. 177 crore, Rs. 80 crore and Rs. 1 crore respectively. During the
previous year, we capitalized Rs. 1,822 crore to our gross block, including
investment in computer equipment of Rs. 273 crore, Rs. 1,536 crore on
infrastructure investment and Rs. 12 crore toward
intangible assets.

3. c Deductions to gross block

During the year, we deducted Rs. 416 crore (net book value of Rs. 1 crore)
from the gross block comprising Rs. 387 crore on retirement of assets, Rs.8
crore on donation of computer systems and Rs. 21 crore on disposal of
various assets. During the previous year, we retired/transferred various
assets with a gross block of Rs. 334 crore (net book value of zero).

3.d Capital expenditure commitments

We have a capital expenditure commitment of Rs. 267 crore, as at March 31,
2010 as compared to Rs. 344 crore as at March 31, 2009.

4. Investments

We made several strategic investments aimed at procuring business benefits
and operational efficiency for us. During the year, the Company sold
32,31,151 shares of OnMobile Systems Inc, U.S., for a total consideration
of Rs. 53 crore, net of taxes and transaction cost.

4.a Majority-owned subsidiary

Infosys BPO Limited

We established Infosys BPO Limited as a majority-owned and controlled
subsidiary on April 3, 2002, to provide business process management
services. Infosys BPO seeks to leverage the benefits of service delivery
globalization, process redesign and technology to drive efficiency and cost
effectiveness in customer business processes.

On December 4, 2009, Infosys BPO acquired 100% of voting interest in
McCamish Systems LLC, a business process solutions provider based at
Atlanta, U.S., for a cash consideration of Rs. 173 crore and a contingent
consideration of Rs. 67 crore.

4.b Wholly-owned subsidiaries

During the year, the investments in our subsidiaries are as follows:

Subsidiary In foreign currency Rs. crore

Infosys Consulting Inc US $10 million 50.0
Infosys Public Services US $5 million 24.0
Infosys Technologies S.de R.L.
de C. V., Mexico MXN 50 million 18.0
Infosys Technologies (Sweden) AB SEK 100,000 0.1
Infosys Tecnologia DO Brasil LTDA BRL 10.72 million 28.0

During the year, Infosys Consulting Inc incorporated a wholly-owned
subsidiary, Infosys Consulting India Limited and invested Rs. 1 crore in
the subsidiary.

5. Deferred tax assets/liabilities

We recorded deferred tax assets of Rs. 313 crore as at March 31, 2010
(Rs.139 crore as at March 31, 2009) and deferred tax liability of Rs. 232
crore as at March 31, 2010 (Rs. 37 crore as at March 31, 2009).

We assess the likelihood that our deferred tax assets will be recovered
from future taxable income. We believe it is more likely than not that we
will realize the benefits of these deductible differences.

6. Sundry debtors

Sundry debtors amounted to Rs. 3,244 crore (net of provision for doubtful
debts amounting to Rs. 100 crore) as at March 31, 2010, compared to
Rs.3,390 crore (net of provision for doubtful debts amounting to Rs. 105
crore) as at March 31, 2009. These debts are considered good and
realizable. Debtors are at 15.3% of revenues for the year ended March 31,
2010, compared to 16.7% for the previous year, representing a Days Sales
Outstanding (DSO) of 56 days and 61 days for the respective years.

Our largest client constituted 2.8% of sundry debtors as at March 31, 2010.
The age profile of debtors is as follows:

in %
Days 2010 2009

0-30 60.7 58.5
31-60 31.9 32.8
61-90 3.8 4.7
Above 91 3.6 4.0
100.0 100.0

Provisions are generally made for all debtors' outstanding for more than
180 days as also for others, depending on the Management's perception of
the risk. The need for provisions is assessed based on various factors,
including collectability of specific dues, risk perceptions of the industry
in which the customer operates and general economic factors that could
affect the customer's ability to settle.

The movement in provisions for doubtful debts during the year is as
follows:
in Rs. crore
2010 2009

Opening balance 105 40
Add : Amount provided (1) 74
Less: Amount written-off 4 9
Closing balance 100 105

Provision for bad and doubtful debts as a percentage of revenue is nil for
the year ended March 31, 2010, as against 0.37% for the year ended March
31, 2009.

The unbilled revenues as at March 31, 2010 and March 31, 2009, amounted to
Rs. 789 crore and Rs. 738 crore respectively.

7. Cash and cash equivalents

The bank balances in India include both Rupee accounts and foreign currency
accounts. The bank balances in overseas current accounts are maintained to
meet the expenditure of the overseas branches and project-related
expenditure overseas. The deposit account represents deposits of maturity
up to 365 days.

Our treasury policy calls for investing surpluses with highly-rated
companies, banks and financial institutions for maturities up to 365 days,
as also with liquid mutual funds with a limit on investments in individual
entities.

8. Loans and advances
in Rs. crore
2010 2009
Unsecured, considered good
Loans to subsidiary 46 51
Advances
Pre-paid expenses 25 27
Interest accrued but not due 4 1
Advance to Gratuity Fund Trust 2 -
For supply of goods and services 5 6
Withholding and other taxes receivable 321 149
Others 13 4
Sub-total 416 238
Unbilled revenues 789 738
Advance income tax 641 268
MAT credit entitlement - 262
Loans and advances to employees 100 105
Electricity and other deposits 60 37
Rental deposits 13 13
Deposits with financial institutions and
body corporate(1) 1,781 1,503
Mark-to-market gain on forward and
options contracts 88 -
Total 3,888 3,164

(1) An amount of Rs. 281 crore (Rs. 253 crore as at March 31, 2009)
deposited with the Life Insurance Corporation of India to settle leave
obligations as and when they arise during the normal course of business.
This amount is considered as restricted cash and hence not considered as
cash and cash equivalents'.

As at March 31, 2010, the total outstanding loan to Infosys Technologies
(China) Co. Limited was Rs. 46 crore (US $10 million), the total
outstanding loan as at March 31, 2009 was Rs. 51 crore (US $10 million).
The loan is repayable within five years from the date of disbursement at
the discretion of the subsidiary.

The withholding and other taxes receivable represents transaction taxes
paid in various domestic and overseas jurisdictions which are recoverable.

Unbilled revenues consist primarily of costs and earnings in excess of
billings to the client on fixed-price, and fixed-timeframe contracts.

The details of advance income taxes are as follows:

in Rs. crore
2010 2009

Domestic tax 635 267
Overseas tax 6 1
641 268

Our loan schemes provide for personal loans and salary advances that are
provided primarily to employees in India who are not executive officers or
directors. The loans and advances are recoverable within 24 months.

Electricity and other deposits represent electricity deposits, telephone
deposits, insurance deposits and advances of a similar nature. The rent
deposits are for buildings taken on lease by us for our software
development centers and marketing offices in locations across the world.

Deposits with financial institutions and corporate bodies represent surplus
money deployed in the form of short-term deposits.

9. Current liabilities

in Rs. crore
2010 2009
Sundry creditors
For goods and services 96 35
For accrued salaries and benefits 446 383
For other liabilities
Provision for expenses 375 381
Retention monies 66 50
Withholding and other taxes 235 206
Mark-to-market on options/forward
contracts - 98
Gratuity obligations - unamortized amount 26 29
Others 8 6
Sub-total 1,252 1,188
Advances received from clients 7 5
Unearned revenue 502 312
Unclaimed dividend 2 2
Total 1,763 1,507

Sundry creditors for accrued salaries and benefits include the provision
for bonus and incentive payable to the staff. Sundry creditors for other
liabilities represent amounts accrued for other operational expenses.
Retention monies represent monies withheld on contractor payments pending
final acceptance of their work. Withholding and other taxes payable
represent local taxes payable in various countries in which we operate and
the same will be paid in due course.

Effective July 1, 2007, we revised the employee death benefits provided
under the gratuity plan, and included all eligible employees under a
consolidated term insurance cover. Accordingly, the obligations under the
gratuity plan reduced by Rs. 37 crore, which is being amortized on a
straight line basis to the Profit and Loss account over ten years,
representing the average future service period of employees. An amount of
Rs. 3 crore was amortized during the year. The unamortized balance as at
March 31, 2010 was Rs. 26 crore.

Advances received from clients represent monies received for the delivery
of future services. Unearned revenue consists primarily of advance client
billing on fixed-price, and fixed-timeframe contracts for which related
costs were not yet incurred. Unclaimed dividends represent dividends paid,
but not encashed by shareholders, and are represented by a bank balance of
the equivalent amount.

10. Provisions
in Rs. crore
2010 2009

Proposed dividend 861 773
Tax on dividend 143 131
Income taxes 719 575
Unavailed leave 239 244
Post-sales client support and warranties 73 75
Total 2,035 1,798

Proposed dividend represents the final dividend we recommended to our
shareholders. Upon approval by our shareholders, this will be paid after
the Annual General Meeting. Provision for tax on dividend denotes taxes
payable on dividends declared for the year.

Provisions for taxation represent estimated income tax liabilities, both in
India and overseas. The details are as follows:

in Rs. crore
2010 2009

Domestic tax 37 91
Overseas tax 682 484
Total 719 575

Provisions for unavailed leave is toward our liability for leave encashment
valued on an actuarial basis. The provision for post-sales client support
and warranties is toward likely expenses for providing post-sales client
support on fixed-price contracts.

C. Results of operations

1. Income

Of the total revenues for the years ended March 31, 2010 and March 31,
2009, approximately 98.7% were derived from our overseas operations whereas
1.3% were derived from domestic operations.

Our revenues are generated primarily on fixed-timeframe or time-and-
material basis. Revenue from software services on fixed-price and fixed-
timeframe contracts are recognized as per the proportionatecompletion
method. On time-and-material contracts, revenue is recognized as the
related services rendered. Revenue from the sale of user licenses for
software applications is recognized on transfer of the title in the user
license, except in multiple arrangement contracts, where revenue is
recognized as per the proportionate-completion method.

The segmentation of software services by project type is as follows:

in %
2010 2009

Fixed-price 40.8 37.6
Time-and-material 59.2 62.4
Total 100.0 100.0

Our revenues are also segmented into onsite and offshore revenues.

Onsite revenues are for those services which are performed at our client
locations or at our global development centers, as part of software
projects, while offshore revenues are for services which are performed at
our software development centers located in India.

The segmentation of revenues by location (including product revenue) is as
follows:
in %
2010 2009

Onsite 48.7 49.3
Offshore 51.3 50.7
Total 100.0 100.0

The services performed onsite typically generate higher revenues per-
capita, but at lower gross margins in percentage as compared to the
services performed at our own facilities. Therefore, any increase in the
onsite effort impacts our margins.

The details of effort mix for software services and products in person-
months are as follows:
in %
2010 2009

Onsite 26.1 28.4
Offshore 73.9 71.6
Total 100.0 100.0

The growth in software services and product revenues is due to an all-round
growth in various segments of the business mix and is mainly due to growth
in business volumes.

The details of the same are as follows:

2010 2009
Income (in Rs. crore)

Software services 20,215 19,416
Software products 925 848
Total 21,140 20,264
Person-months
Software services
Onsite 1,75,581 1,79,329
Offshore 4,42,336 4,07,977
Billed-total 6,17,917 5,87,306
Software products 54,772 44,934
Non-billable 2,31,186 2,19,351
Training 92,081 62,019
Sub-total 9,95,956 9,13,610
Support 54,032 46,779
Total 10,49,988 960,389
Increase/(Decrease) in billed
person-months
Onsite (3,748) 15,664
% change (2.1) 9.6
Offshore 34,359 55,654
% change 8.4 15.8
Total 30,611 71,318
% change 5.2 13.8
Support/total (%) 5.1 4.9

1.a Software services

During the year, the volume of software services grew by 5.2% compared to
13.8% in the previous year. The onsite and offshore volume growth were
(2.1)% and 8.4% respectively during the year, compared to 9.6% and 15.8% in
the previous year. In US Dollar terms, onsite per capita revenues increased
by 3.4% during the year, offshore per capita revenues decreased by 4.7% and
blended per capita revenues decreased by 2.8%. During the previous year,
onsite per capita revenues decreased by 1.5%, offshore per capita revenues
decreased by 1.4% and blended per capita revenues decreased by 2.6% in US
Dollar terms.

1.b Software products

The revenues from software products grew 9.1% compared to 42% in the
previous year. Of the software products revenue, 82.1% came from exports
compared to 75.7% in the previous year.

2. Expenditure

2.a Software development expenses
in Rs. crore
2010 % 2009 % Growth %

Revenues 21,140 100.0 20,264 100.0 4.3

Software
development
expenses

Salaries and bonus 9,216 43.6 8,935 44.1 3.1

Technical subcontractors 1,479 7.0 1,166 5.8 26.8

Overseas travel
expenses 401 1.9 506 2.5 (20.8)

Cost of software
packages 326 1.5 315 1.6 3.5

Communication
expenses 45 0.2 56 0.3 (19.6)

Post-sales
customer support
and warranties (2) - 39 0.2 (105.1)

Other expenses 94 0.5 128 0.5 (26.6)

Total 11,559 54.7 11,145 55.0 3.7

We incurred software development expenses at 54.7% of revenues, compared to
55.0% during the previous year. Employee costs relate to salaries paid to
employees in India and include overseas staff expenses. The total software
professionals person-months increased to 9,95,956 for the year ended March
31, 2010, from 9,13,610 person-months during the previous year, an increase
of 9.0%. Of this, the onsite and offshore billed person-months (including
software products) are 1,75,581 and 4,97,108 for the year ended March 31,
2010, as compared to 1,79,329 and 4,52,911 for the previous year. The non-
billable and trainees person-months were 3,23,267 and 2,81,370 during the
current and previous year respectively. The non-billable and trainees
person-months were 32.5% and 30.8% of the total software professional
person-months for the current and previous year respectively. We added
18,905 employees (gross) and 6,837 employees (net) during the year as
compared to 21,196 employees (gross) and 12,361 employees (net) during the
previous year.

The utilization rates of billable employees for the years ended March 31,
2010 and March 31, 2009 are as follows:
in %
2010 2009

Including trainees 67.5 69.2
Excluding trainees 74.4 74.2

The cost of technical sub-contractors includes Rs. 1,210 crore toward
purchase of services from subsidiaries for the year ended March 31, 2010,
as against Rs. 861 crore in the previous year. The details of such related
party transactions are available in the Notes to Accounts. The balance
amount was utilized toward availing the services of external consultants to
augment skill sets that were required in various projects. We continue to
engage the services of these consultants on a need basis.

The overseas travel expenses representing cost of travel overseas for
software development constituted approximately 1.9% and 2.5% respectively
of total revenue for the years ended March 31, 2010 and March 31, 2009.
Overseas travel expenses include visa charges of Rs. 92 crore (0.4% of
revenues) for the year, compared to Rs. 116 crore (0.6% revenues) in the
previous year.

Cost of software packages primarily represents the cost of software
packages and tools procured for our internal use. These packages and tools
enhance the quality of our services and also meet the needs of software
development. It also includes software procured from third parties for
resale with our banking product suite, Finacle(TM). The cost of software
packages was 1.5% and 1.6% respectively of the revenues for the years
ending March 31, 2010 and March 31, 2009. Our accounting policy is to
charge such purchases to the Profit and Loss accounts in the year of
purchase.

A major part of our revenues is generated from offshore software
development. We use high-end communication tools in order to establish
real-time connections with our clients. The communication expenses
represent approximately 0.2% and 0.3% of revenues for the years ending
March 31, 2010 and March 31, 2009 respectively. The provision for post-sale
customer support and warranties saw a reversal of Rs. 2 crore against the
charge of Rs. 39 crore for the years ended March 31, 2010 and March 31,
2009 respectively.

Other expenses representing staff welfare, computer maintenance,
consumables and rent approximate to 0.5% of revenues during the year (same
as the previous year).

2.b Gross profit

The gross profit during the year was Rs. 9,581 crore representing 45.3% of
revenues compared to Rs. 9,119 crore representing 45.0% of revenues in the
previous year.

2.c Selling and marketing expenses

We incurred selling and marketing expenses at 4.6% of our total revenues,
same as the previous year. Selling and marketing expenses primarily consist
of employee costs which include bonus payment.

All other expenses excluding the employee cost were 1.0% of revenues during
the year as compared to 1.2% in the previous year.

The number of sales and marketing personnel increased from 747 as at March
31, 2009 to 800 as at March 31, 2010.

We and our subsidiaries added 141 new customers as compared to 156 during
the previous year.

2.d General and administration expenses

We incurred general and administration expenses amounting to 5.9% of our
total revenues, compared to 6.3% during the previous year.

All other expenses excluding the employee cost were 4.3% of revenues during
the year as compared to 4.9% in the previous year.

Employee costs increased as the number of administration personnel
increased from 3,427 as at March 31, 2009 to 3,922 as at March 31, 2010.

3. Operating profits

We earned an operating profit (PBIDTA) of Rs. 7,360 crore, representing
34.8% of total revenues compared to Rs. 6,906 crore, representing 34.0% of
total revenues, during the previous year.

4. Depreciation

We provided Rs. 807 crore and Rs. 694 crore toward depreciation for the
years ended March 31, 2010 and March 31, 2009 representing 3.8% and 3.4% of
total revenues. The depreciation for the years ended March 31, 2010 and
March 31, 2009 includes an amount of Rs. 86 crore and Rs. 71 crore, toward
100% depreciation on assets costing less than Rs. 5,000 each. The
depreciation as a percentage of average gross block (excluding land) is
13.7% and 13.9% for the years ending March 31, 2010 and 2009 respectively.

5. Other income, net

Our treasury policy allows us to invest in short-term instruments with a
maturity of up to 365 days, with a limit on individual fund/bank. The
increase in interest income during the year was on account of higher cash
generation in the business and increase in the average yield during the
year.

We use foreign exchange forward contracts and options to hedge our exposure
to movements in foreign exchange rates. The use of these foreign exchange
forward contracts and options reduces our risks/costs. We do not use
foreign exchange forward contracts or options for trading or speculation
purposes.

Foreign exchange gain/(losses) include transaction and translation losses
of Rs. 237 crore and a gain of Rs. 294 crore for the years ended March 31,
2010 and March 31, 2009 respectively and option/forward contracts-gain of
Rs. 276 crore and a loss of Rs. 666 crore for the years ended March 31,
2010 and March 31, 2009 respectively.

The composition of currency-wise revenues for the years ended March 31,
2010 and March 31, 2009 is as follows:

in %
Currency 2010 2009

US Dollar (US $) 74.4 72.3
UK Pound (GBP) 8.5 11.8
Euro (EUR) 6.7 6.9
Australian Dollar (AUD) 5.8 4.4
Others 4.6 4.6
Total 100.0 100.0

6. Sensitivity to Rupee movement

Every 1% movement in the Rupee against the US Dollar has an impact of
approximately 40 basis points on operating margin.

7. Provision for tax

We have provided for our tax liability both in India and overseas. For the
year ended March 31, 2008 and 2009, the Company had calculated its tax
liability under Minimum Alternate Tax (MAT). The MAT liability can be
carried forward and set off against the future tax liabilities. In the
current year, the Company has calculated its tax liability under normal
provisions of the Income Tax Act and utilized the brought forward MAT
Credit.

7.a Software Technology Parks (STPs):

The profits attributable to operations under the STP scheme are exempted
from income tax for a consecutive period of ten years from the financial
year in which the unit starts producing computer software, or March 31,
2011, whichever is earlier.

The details regarding the commencement of operations at our STP locations
and the year upto which the deduction under the STP scheme is available are
as follows:

Software Technology Year of Tax exemption Available
Park Commencement(1) Claimed upto(1)
from(1)
Electronics City,
Bangalore 1995 1997 2004
Mangalore 1996 1999 2005
Pune 1997 1999 2006
Bhubaneswar 1997 1999 2006
Chennai 1997 1999 2006
Phase I, Electronics
City, Bangalore 1999 1999 2008
Phase II, Electronics
City, Bangalore 2000 2000 2009
Hinjawadi, Pune 2000 2000 2009
Mysore 2000 2000 2009
Hyderabad 2000 2000 2009
Chandigarh 2000 2000 2009
Sholinganallur, Chennai 2001 2001 2010
Konark, Bhubaneswar 2001 2001 2010
Mangala, Mangalore 2001 2001 2010
Thiruvananthapuram 2004 2004 2011

(1) Financial year

7.b Special Economic Zones (SEZs)

During the financial year one more SEZ at Thiruvananthapuram, with an
approved area of about 50 acres, commenced production.

As per the SEZ Act, the unit will be eligible for a deduction of 100% of
profits or gains derived from the export of services for the first five
years from commencement of provision of services and 50% of such profits or
gains for a further five years. Certain tax benefits are also available for
a further five years subject to the unit meeting defined conditions.

The details regarding the commencement of operations at our SEZ locations
and the year upto which the deduction under the SEZ scheme is available are
as follows:

Special Economic Year of Tax exemption Available
Zone Commencement(1) Claimed upto(1)

Mahindra City, Chennai 2006 2006 2020
Chandigarh 2007 2007 2021
Mangalore 2008 2008 2022
Pune 2008 2008 2022
Thiruvananthapuram 2010 2010 2024

(1) Financial year

Other fiscal benefits, including indirect tax waivers are being extended
for setting up, operating and maintaining the unit.

For the current year, approximately 13% of our revenues came from STP
operations which are under tax holiday, 17% of revenues came from SEZ
operations and 70% of our revenues are subject to full tax in India. We pay
taxes in various countries in which we operate, on the income that is
sourced to those countries. The details of provision for taxes are as
follows:

in Rs. crore
Year ended March 31, 2010 2009

Overseas tax 433 322
Domestic tax 1,551 669
1,984 991
MAT Credit (288) (93)
Deferred taxes 21 (3)
1,717 895

Tax provision for the year ended March 31, 2010, includes a reversal of
Rs.316 crore, relating to SEZ units for the previous years as the
provisions are no longer required. The provision for deferred taxes
includes an amount of Rs. 232 crore provided toward branch profit tax
pertaining to certain overseas tax jurisdictions.

The effective tax rate increased to 23.0% in fiscal 2010 as compared to
13.3% in fiscal 2009.

8. Net profit after tax

Our net profit declined by 0.3% to Rs. 5,803 crore for the year ended March
31, 2010 from Rs. 5,819 crore in the previous year.

This represents 27.5% and 28.7% of total revenue for the year ended March
31, 2010 and March 31, 2009 respectively.

9. Earnings Per Share (EPS)

Our basic EPS declined by 1.3% during the year to Rs. 100.37 per share from
Rs. 101.65 per share in the previous year. The outstanding shares used in
computing basic EPS increased from 57,24,90,211 for the year ended March
31, 2009 to 57,33,09,523 for the year ended March 31, 2010, an increase of
0.1%.

10. Segmental profitability

Our operations predominantly relate to providing end-to-end business
solutions that leverage technology, thereby enabling clients to enhance
business performance, delivered to customers globally operating in various
industry segments. Accordingly, revenues represented along industry classes
comprise the primary basis of segmental information set out in these
financial statements. Secondary segmental reporting is performed on the
basis of the geographical location of customers.

The income and operating income by industry and geographical segments are
provided in this section.

10.a Industry segments
in Rs. crore
Financial Manufac Telecom Retail Others Total
services -turing
Segmental
revenues:

2010 7,354 3,988 3,234 2,989 3,575 21,140
2009 7,020 3,876 3,450 2,699 3,219 20,264
Growth % 4.7 2.9 (6.3) 10.7 11.1 4.3

Segmental
operating income

2010 2,644 1,258 1,167 1,065 1,226 7,360
2009 2,374 1,296 1,198 929 1,109 6,906
Growth % 11.3 (2.9) (2.6) 14.6 10.6 6.6
Segmental
operating
profit (%)

2010 35.9 31.5 36.1 35.6 34.3 34.8
2009 33.8 33.4 34.7 34.4 34.5 34.1

10.b Geographical segments in Rs. crore

North Europe India Rest Total
America of the
World
Segmental
revenues:

2010 14,170 4,633 269 2,068 21,140
2009 13,123 5,060 260 1,821 20,264
Growth % 8.0 (8.4) 3.5 13.6 4.3

Segmental
operating income

2010 5,028 1,650 133 549 7,360
2009 4,437 1,795 136 538 6,906
Growth % 13.3 (8.1) (2.2) 2.0 6.6

Segmental operating
profit (%):

2010 35.5 35.6 49.4 26.5 34.8
2009 33.8 35.5 52.3 29.5 34.1

11. Liquidity

Our growth has been financed largely through cash generated from
operations.

Net cash generated from operations was Rs. 5,876 crore and Rs. 5,152 crore
for the years ended March 31, 2010 and March 31, 2009 respectively. Net
cash used in investing activities was Rs. 3,314 crore and Rs. 195 crore for
the years ended March 31, 2010 and March 31, 2009 respectively. Net cash
used in financing activities was Rs. 1,486 crore and Rs. 2,430 crore for
the years ended March 31, 2010 and March 31, 2009, respectively.

12. Related party transactions

These have been discussed in detail in the Notes to the Abridged financial
statements section of this report.

13. Events occurring after the Balance Sheet date

There were no significant events occurring after the Balance Sheet date.

D. Opportunities and threats

We believe our competitive strengths include:

* Leadership in sophisticated solutions that enable our clients to optimize
the efficiency of their business

* Proven GDM

* Commitment to superior quality and process execution

* Strong brand and long-standing client relationships

* Status as an employer of choice

* Ability to scale

* Innovation and leadership

1. Our Strategy

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

* Increase business from existing and new clients

* Expand geographically

* Continue to invest in infrastructure and employees

* Continue to enhance our engagement models and offerings

* Continue to develop deep industry knowledge

* Enhance brand visibility

* Pursue alliances and strategic acquisitions

2. Competition

We operate in a highly competitive and rapidly changing market and compete
with consulting firms such as Accenture Limited, Atos Origin S.A., Cap
Gemini S.A., and Deloitte Consulting LLP; divisions of large multinational
technology firms such as Hewlett-Packard Company and International Business
Machines Corporation; IT outsourcing firms such as Computer Sciences
Corporation, Keane Inc., Logica Plc and Dell Perot Systems; offshore
technology services firms such as Cognizant Technology Solutions
Corporation, Tata Consultancy Services Limited and Wipro Technologies
Limited; software firms such as Oracle Corporation and SAP A.G.; business
process outsourcing firms such as Genpact Limited and WNS Global Services
and in-house IT departments of large corporations.

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

We believe we compete favorably with respect to these factors.

E. Outlook, risks and concerns

This section contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these statements as a result of certain factors.

The following lists our outlook, risks and concerns:

* Our revenues and expenses are difficult to predict and can vary
significantly from period to period, which could cause our share price to
decline. We may not be able to sustain our previous profit margins or
levels of profitability.

* Our revenues are highly dependent on clients primarily located in the
U.S. and Europe, as well as in certain industries, and an economic slowdown
or other factors that affect the economic health of the U.S., Europe or
these industries may affect our business.

* Currency fluctuations may affect the results or our operations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* Wage pressures in India and the hiring of employees outside India may
prevent us from sustaining our competitive advantage and may reduce our
profit margins.

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

* Changes in immigration laws may affect our ability to compete and provide
services to our clients in various countries. This could hamper our growth
and may have an impact on our revenues.

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

For more details on risk factors, refer to our quarterly and annual filings
with the Securities and Exchange Commission (SEC), USA, available on our
website www.infosys.com.

F. Internal control systems and their adequacy

The CEO and CFO certification provided in the CEO and CFO

Certification section of the Annual Report discusses the adequacy of our
internal control systems and procedures.

G. Material developments in human resources/industrial relations, including
number of people employed.

Our culture and reputation as a leader in the technology services industry
enables us to recruit and retain some of the best available talent in
India.

1. Human capital

Our employees are our most important and valuable assets. During fiscal
2010, we received approximately 4,00,800 applications, around 77,000
applicants underwent written tests. Approximately 61,000 were interviewed
and 26,200 job offers were made. As of March 31, 2010, Infosys and its
subsidiaries had employed approximately 1,13,800 employees, of which
approximately 1,06,900 are technology professionals, including trainees.
The key elements that define our culture include:

1. a Recruitment

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

1.b Training and development

With a total built-up area of 1.44 million square feet, the Infosys Global
Education Center in Mysore, India can train approximately 14,000 employees
at a time.

As of March 31, 2010, we employed 610 full-time employees as faculty,
including 208 with doctorate or masters degrees. Our faculty conducts
integrated training for our new employees. We also have our employees
undergo certification programs each year to develop the skills relevant for
their roles.

Leadership development is a core part of our training program. We
established the Infosys Leadership Institute in our Mysore campus to
enhance leadership skills required to manage the complexities of the
rapidly changing marketplace and to further instill our culture. We also
have been working with several colleges across India through our Campus
Connect program, enabling their faculty to provide industry related
training to students.

1.c Compensation

Our technology professionals receive competitive salaries and benefits.

We have also adopted a performance-linked compensation program that links
compensation to individual performance, as well as our performance.

Risk management report

The following section discusses the various aspects of enterprise-wide risk
management. Readers are cautioned that the risk related information
outlined here is not exhaustive and is for information purpose only. The
discussion may contain statements, which may be forward-looking in nature.
Our business model is subject to uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking
statements. Readers are requested to exercise their own judgment in
assessing the risks associated with the Company and to refer to the
discussions of risks in the Company's previous Annual Reports and the
filings with the Securities and Exchange Commission, USA.

A. Overview

The Enterprise Risk Management (ERM) at Infosys encompasses practices
relating to identification, assessment, monitoring and mitigation of
various risks to our business. ERM at Infosys seeks to minimize adverse
impact on our business objectives and enhance stakeholder value. Further,
our risk management practices seek to sustain and enhance long-term
competitive advantage of the Company. Risk management is integral to our
business model, described as Predictable, Sustainable, Profitable and De-
risked' (PSPD) model.

Our core values and ethics provide the platform for our risk management
practices.

B. Our Risk Management Framework

Our risk management framework encompasses the following key components.

1. Risk management structure

Our risk management occurs across the enterprise at various levels.

These levels also form the various lines of defense in our risk management.

The key roles and responsibilities regarding risk management in the Company
are as follows:

Level Key roles and responsibilities

Board of * Corporate governance oversight of risk
Directors management performed by the Executive Management
(Board)
* Review the performance of Risk Management Committee
Risk Management
Committee (RMC)(1) * Comprises four independent directors
* David L. Boyles, Chairperson
* Jeffrey S. Lehman
* Dr. Omkar Goswami
* Sridar A. Iyengar

* Assisting the Board in fulfilling its corporate
governance oversight responsibilities with regard to
identification, evaluation and mitigation of
operational, strategic and external environment risks.

* Monitoring and reviewing risk management practices
of the Company.

* Reviewing and approving risk-related disclosures.

Risk Council (RC) * Comprises Chief Executive Officer,Chief Operating
Officer and Chief Financial Officer

* Reviewing enterprise risks from time to time,
initiating mitigation actions, identifying owners and
reviewing progress.

* Formulating and deploying risk management policies

* Deploying practices for identification, assessment,
monitoring, mitigation and reporting of risks

* Providing updates to RMC and the Board from time to
time on the enterprise risks and actions taken
Office of Risk
Management (ORM) * Comprises the network of risk managers from units
and our group companies an is led by Chief Risk Officer

* Facilitating the execution of risk management
practices in the enterprise as mandated, in the areas
of risk identification, assessment, monitoring,
mitigation and reporting.

* Deploying mechanisms to monitor compliance with
policies

* Providing periodic updates to RC and quarterly
updates to RMC on top risks and their mitigation

* Working closely with owners of risk in deploying
mitigation measures

Unit Heads * Managing their functions as per company risk
management philosophy

* Managing risks concomitant to the business decisions
relating to their unit, span of control or area of
operations

* Managing risks at the unit level that may arise from
time to time, in consultation with the Risk Council.

The Infoscion * Adhering to risk management policies
and procedures
* Implementing prescribed risk mitigation actions.

* Reporting risk events and incidents in a
timely manner (1) As of April 13, 2010.
2. Risk categories

The following broad categories of risks have been considered in our risk
management framework:

* Strategy:

Risks emanating out of the choices we make on markets, resources and
delivery model that can potentially impact our long-term competitive

advantage.

* Industry:

Risks relating to inherent characteristics of our industry including
competitive structure, technological landscape, extent of linkage to
economic environment and regulatory structure.

* Counterparty:

Risks arising from our association with entities for conducting business.
These include clients, vendors, alliance partners and their respective
industries.

* Resources:

Risks arising from inappropriate sourcing or sub-optimal utilization of key
organizational resources such as talent, capital and infrastructure.

* Operations:

Risks inherent to business operations including those relating to client
acquisition, service delivery to clients, business support activities,
information security, physical security and business activity disruptions.

* Regulations and compliance:

Risks due to inadequate compliance to regulations, contractual obligations
and intellectual property violations leading to litigation and loss of
reputation.

3. Key risk management practices

The key risk management practices include those relating to risk
assessment, measurement, mitigation, monitoring, reporting and integration
with strategy and business planning.

* Risk identification and assessment:

Periodic assessment to identify significant risks for the Company and
prioritizing the risks for action. Mechanisms for identification and
prioritization of risks include risk survey, business risk environment
scanning and focused discussions in RC and RMC. Risk survey of executives
across units, functions and subsidiaries is conducted before the annual
strategy exercise. Risk register and internal audit findings also provide
pointers for risk identification.

* Risk measurement, mitigation and monitoring:

For top risks, dashboards are created that track external and internal
indicators relevant for risks, so as to indicate the risk level. The trend
line assessment of top risks, analysis of exposure and potential impact are
carried out. Mitigation plans are finalized, owners are identified and
progress of mitigation actions are monitored and reviewed.

* Risk Reporting:

Top risks report outlining the risk level, trend line, exposure, potential
impact and status of mitigation actions is discussed in RC and RMC on a
periodic basis. In addition, risk update is provided to the Board. Entity
level risks such as project risks, account level risks are reported to and
discussed at appropriate levels of the organization.

* Integration with strategy and business planning:

Identified risks are used as one of the key inputs for the development of
strategy and business plan.

C. Overview of risk environment and key risk management activities of the
year

Business risk environment was challenging for most part of the year,
primarily driven by the prolonged impact of global economic slowdown on our
clients and the resultant impact on our business. Financial position of
several key clients who were impacted by the global economic slowdown,
gradually improved during the year. Regulatory environment relating to
immigration/visa and taxation required close monitoring and assessment.
Global currencies from which we derive our revenues showed high volatility.
Physical security environment in India called for increased vigilance
measures.

Our continued emphasis on credit risk management through periodic credit
quality assessments and focused collection mechanisms resulted in further
improvement of credit risk indicators. Our active management of currency
risks minimized the impact in a volatile currency market. We further
strengthened operational risk mitigation mechanisms in areas including
physical security, service delivery, information security and contracts
management. Our periodic assessment and monitoring of business risk and
regulatory environment resulted in deployment of appropriate mitigation
measures.

We carried out various risk management activities described as follows, to
monitor and mitigate risks:

1. Top risk identification, tracking and review

* Annual risk survey across functions and subsidiaries to get inputs on key
risks and prioritization. Subsequent discussions in RC and RMC for
finalization of top risks.

* Review of top risks in RC and RMC covering risk level, trend line,
exposure, potential impact and progress of key mitigation actions.

* Review discussions on key items from risk register by RC and RMC.

2. Risk assessments and review

* Periodic assessment of business risk environment including top clients
analysis, counterparty exposures and sovereign risk.

* Risk assessment of regulatory environment especially those relating to
immigration/visa and taxation.

* Assessment and review of financial risks such as currency risk, credit
risk and liquidity.

* Review of risk management practices relating to information security,
physical security and service delivery.

* Review of rollout of account risk management framework in business units.

* Review of progress of ERM implementation in subsidiaries.