Satyam Computer Services Limited

Country of

Extent of holding (%) as at

Sl. No.

Subsidiaries of Citisoft Plc.

Incorporation

September 30, 2006

Citisoft Inc.

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SjS7IbgN5puqA1gMjExt4UkShy2cAR9zXPQOhXDRTJ6a8ee69Pxn3Wqo274wbHMU +cCewPOmTbECDB+kST2s2g== 0001145549-06-001523.txt : 20061027 0001145549-06-001523.hdr.sgml : 20061027 20061027105559 ACCESSION NUMBER: 0001145549-06-001523 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061027 DATE AS OF CHANGE: 20061027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SATYAM COMPUTER SERVICES LTD CENTRAL INDEX KEY: 0001106056 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 000000000 STATE OF INCORPORATION: K7 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15190 FILM NUMBER: 061167663 BUSINESS ADDRESS: STREET 1: 271A ANNA SALAI, TEYNAMPET STREET 2: CHENNAI 600 018 CITY: INDIA STATE: K7 ZIP: 00000 BUSINESS PHONE: 9140784322 MAIL ADDRESS: STREET 1: 271A ANNA SALAI, TEYNAMPET STREET 2: CHENNAI 600 018 CITY: INDIA STATE: K7 ZIP: 00000 6-K 1 u92864e6vk.htm SATYAM COMPUTER SERVICES LIMITED Satyam Computer Services Limited

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934

For the quarter ended September 30, 2006

Commission File Number 001-15190

Satyam Computer Services Limited

(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant’s name into English)

Republic of India
(Jurisdiction of incorporation or organization)

Satyam Technology Center
Bahadurpally Village
Qutbullapur Mandal,
R.R.District — 500855
Hyderabad, Andhra Pradesh
India
(91) 40-3063-3535
(Address of principal executive offices)

Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F þ Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Indicate by check mark whether the Registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes o No þ

If “Yes” is marked, indicate below the file number assigned to Registrant- in connection with Rule 12g3-2(b) : Not applicable. The Company is incorporating by reference, the information and exhibits set forth in this Form 6-K into its registration statement on Form S-8 (Registration No. 333-13772).

TABLE OF CONTENTS


Currency of Presentation and Certain Defined Terms
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
PART I Financial information
	Item 1. Financial Statements
	Item 2. Operating and financial review and prospects
	Item 3: Quantitative and Qualitative Disclosure about Market Risk
	Item 4: Controls and Procedures
PART II Other information
	Item 1. Legal Proceedings
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3. Default Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6.Exhibits and Reports
SIGNATURE
Ex-99.1 Press Release of the Company concerning financial results dated October 20, 2006
Ex-99.2 Summary of Financial Results of the Company for the quarter and half-year ended September 30, 2006 dated October 20, 2006
Ex-99.3 Investor Link News Update of the Company dated October 20, 2006
Ex-99.4 Unconsolidated/standalone financial statements for the quarter and half-year ended September 30, 2006 under Indian GAAP (audited)
Ex-99.5 Consolidated financial statements for the quarter and half-year ended September 30, 2006 under Indian GAAP (unaudited)
Ex-99.6 Consolidated financial statements for the six months ended September 30, 2006 under US GAAP (unaudited)

Currency of Presentation and Certain Defined Terms

Unless otherwise stated in this Quarterly Report or unless the context otherwise requires, references herein to “we,” “our,” “us,” “Satyam” and “our company” are to Satyam Computer Services Limited and its consolidated subsidiaries and other consolidated entities.

In this Quarterly Report, references to “US”, “Dollars” or the “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. References to “$,” “Dollars” or “U.S. dollars” are to the legal currency of the United States, and references to “Rs.,” “rupees” or “Indian rupees” are to the legal currency of India. References to a particular “fiscal” year are to our fiscal year ended March 31 of such year.

For your convenience, this Quarterly Report contains translations of some Indian rupee amounts into U.S. dollars which should not be construed as a representation that those Indian rupee or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Indian rupees, as the case may be, at any particular rate, the rate stated below, or at all.

Except as otherwise stated in this Quarterly Report, all translations from Indian rupees to U.S. dollars contained in this Quarterly Report have been based on the noon buying rate in the City of New York on September 30, 2006 for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate on September 30, 2006 was Rs.45.95 per $1.00.

Information contained in our websites, including our corporate website, www.satyam.com, is not part of this Quarterly Report.

FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE

IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED “RISK FACTORS” AND ELSEWHERE IN THIS QUARTERLY REPORT. YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT’S ANALYSIS ONLY AS OF THE DATE OF THIS QUARTERLY REPORT. IN ADDITION, YOU SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS QUARTERLY REPORT AND IN OUR PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) FROM TIME TO TIME. OUR FILINGS WITH THE SEC ARE AVAILABLE ON ITS WEBSITE WWW.SEC.GOV.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Please see Exhibit 99.6 under Item 6 of this Form 6-K for our unaudited U.S. GAAP consolidated financial statements for the six months ended September 30, 2006.

Item 2. Operating and financial review and prospects

We are a global IT solutions provider, offering a comprehensive range of IT services to our customers, including application development and maintenance services, consulting and enterprise business solutions extended engineering solutions, infrastructure management services. We also offer BPO services through our wholly-owned subsidiary, Nipuna. We are the fourth largest Indian IT software and services company, based on the amount of export revenues generated during our fiscal year ended March 31, 2006. Our total revenues for fiscal 2006 were $1,096.3 million and over the past three fiscal years our revenues have grown at a compound annual growth rate of 33.7%.

On May 12, 2005, we acquired a 75% interest in Citisoft Plc or Citisoft, a specialist business and systems consulting firm that has focused on the investment management industry since 1986. Citisoft is a UK-based firm, with operating presences in London, Boston and New York. On June 29, 2006, we exercised the call option and acquired the remaining 25% equity interest in Citisoft, making Citisoft our wholly-owned subsidiary from that date. The operating results of Citisoft are evaluated by the management under IT services segment.

On August 21, 2006, the shareholders of Satyam Computer Services approved a two-for-one stock split (in the form of stock dividend) which was effective on October 10, 2006. Consequently, Satyam capitalized an amount of US$17.7 million from its retained earnings to common stock. All references to number of shares, per share amounts, stock option data, and market prices of Satyam Computer Services’ equity shares have been retroactively restated to reflect the stock split unless otherwise noted.

We believe customers are increasingly demanding full-service IT providers that have expertise in both existing systems and new technologies, access to a large pool of highly-skilled technical personnel and the ability to service customers globally at competitive rates. To meet these requirements, we offer our customers an integrated global delivery model, which we refer to as the “Right Sourcing Model,” to provide flexible delivery alternatives to our customers through our offshore centers located in India, offsite centers which we have established in our major markets, nearshore centers located geographically near our customers’ premises and through our onsite teams operating at our customers’ premises. In addition, we use the expertise resident in our focused industry groups to provide specialized services and solutions to our customers in the manufacturing, banking and financial services, insurance, TIMES, healthcare, retail and transportation industries.

Our revenues and profitability have grown rapidly in recent years. Our total revenues increased by 31.3% to $674.5 million during the six months ended September 30, 2006, as compared to $513.9 million during the six months ended September 30, 2005. Our net income grew to $141.0 million during the six months ended September 30, 2006 from $93.9 million during the six months ended September 30, 2005. Our revenue and profitability growth is attributable to a number of factors related to the expansion of our business, including increase in the volume of projects completed for our widening customer base, increase in our associate numbers, increased growth in our consulting and enterprise business solutions business and a strengthening of our customer base in North America and Europe. Our growth has continued despite increasing pressure for higher wages for our associates coupled with pressure for lower prices for our customers. In the six months ended September 30, 2006 and fiscal 2006, our five largest customers accounted for 21.3% and 24.2% respectively, of our total revenues. As of September 30, 2006, we had 34,405 employees (including employees of our subsidiaries), whom we refer to as associates, worldwide as compared to 28,624 associates as of March 31, 2006. With our continuing geographical expansion, we now have offshore facilities in India and overseas facilities located in Australia, Canada, China, Hungary, Japan, Malaysia, Singapore, United Arab Emirates, United Kingdom and United States. We also have sales and marketing offices located in Canada, Germany, Italy, the Netherlands, Spain, Sweden, United Kingdom and United States and sales and marketing offices in the rest of the world.

The executive management evaluates Satyam’s operating segments based on the following two-business groups:

•

IT services: We provide a comprehensive range of IT services, including application development and maintenance, consulting and enterprise business solutions, extended engineering solutions, and infrastructure management services. We seek to be the single service provider capable of servicing all of our customers’ IT requirements. Our consulting and

enterprise business solutions includes services in the area of enterprise resource planning, customer relationship management and supply chain management, data warehousing and business intelligence, knowledge management, document management and enterprise application integration. We also assist our customers in making their existing computing systems accessible over the Internet. The segment information includes the results of Citisoft and Knowledge Dynamics which were acquired during the last year.

•

BPO: We provide outsourced BPO services in areas such as human resources, finance and accounting, customer care (such as voice, email and chat) besides also providing industry-specific transaction processing services. We target our BPO services at the insurance, healthcare, banking and financial services, transportation, tourism, manufacturing, automotive, telecommunications, media, utilities and retail industries. Revenues from this business segment currently do not constitute a significant proportion of our total revenues; however, we anticipate that this proportion will increase over time. Our BPO services are offered through our wholly-owned subsidiary, Nipuna. As part of the investor rights and securities subscription agreements which we have entered into with Nipuna’s two other investors, we have agreed not to compete with Nipuna. Pursuant to these agreements, we and our affiliates are restricted from engaging in activities that are or could directly or indirectly be competitive with the business of Nipuna. Such activities include, among others, providing BPO, soliciting existing or prospective customers of Nipuna to obtain the services offered by Nipuna from other service providers and investing in companies engaged in the same or similar business as Nipuna. These non-compete restrictions apply until the investors redeem all of their preference shares in Nipuna or their equity interest in Nipuna falls below 5% after an initial public offering.

Revenues

We generate revenues through fees for professional services rendered in our two segments, namely, IT services and BPO services.

The following table sets forth the total revenues (excluding inter-segment revenues) for our business segments for the three months and six months ended September 30, 2006 and 2005:


	Three months ended September 30,										Six months ended September 30,
	2006					2005					2006					2005
	(unaudited)					(unaudited)					(unaudited)					(unaudited)
Segment	Amount		%			Amount		%			Amount		%			Amount		%
	(in millions, except percentages)
IT services	$	345.0		98.0	%	$	265.2		99.0	%	$	661.2		98.0	%	$	509.2		99.1	%
BPO		7.0		2.0			2.6		1.0			13.3		2.0			4.7		0.9

Total	$	352.0		100.0	%	$	267.8		100.0	%	$	674.5		100.0	%	$	513.9		100.0	%

We discuss below the components of our IT services revenues by technology type, contract type, offshore or onshore designation, top customers and customer geography:

Revenues by technology

The vast majority of our revenues are generated from our various IT service offerings. The following table presents our IT services revenues (excluding inter-segment revenues) by type of service offering for the periods indicated:


	Three months ended September 30,										Six months ended September 30,
	2006					2005					2006					2005
	(unaudited)					(unaudited)					(unaudited)					(unaudited)
Technology type	Amount		%			Amount		%			Amount		%			Amount		%
	(in millions, except percentages)
Application development and maintenance services	$	164.0		47.5	%	$	131.4		49.6	%	$	316.5		47.9	%	$	255.6		50.2	%
Consulting and enterprise business solutions		140.7		40.8			106.7		40.2			270.0		40.8			199.7		39.2
Extended engineering solutions		22.8		6.6			17.1		6.4			40.9		6.2			33.9		6.7
Infrastructure management services		17.5		5.1			10.0		3.8			33.8		5.1			20.0		3.9

Total	$	345.0		100.0	%	$	265.2		100.0	%	$	661.2		100.0	%	$	509.2		100.0	%

Revenues by contract type

Our IT services are provided on a time-and-material basis or on a fixed-price basis. Revenues from IT services provided on a time-and-material basis are recognized in the period that the services are performed. Revenues from IT services provided on a fixed-price basis are recognized under the percentage of completion method of accounting and are recorded when we can reasonably estimate the time period to complete the work. The percentage of completion estimates are subject to periodic revisions and the cumulative impact of any revision in the estimates of the percentage of completion is reflected in the period in which the changes become known to us. Although we have revised our project completion estimates from time to time, such revisions have not materially affected our reported revenues to date. In recent years, we have experienced some pricing pressure from our customers, which has had a negative impact on margins. In response to current market trends, we are considering the viability of introducing performance-based or variable-pricing contracts. In the near term, we expect that revenue from fixed-price contracts will continue to increase as current market trends indicate a customer preference towards fixed-price contracts.

The following table presents our IT services revenues (excluding inter-segment revenues) by type of contract for the periods indicated:


	Three months ended September 30,										Six months ended September 30,
	2006					2005					2006					2005
	(unaudited)					(unaudited)					(unaudited)					(unaudited)
Contract type	Amount		%			Amount		%			Amount		%			Amount		%
	(in millions, except percentages)
Time-and-material basis	$	210.3		61.0	%	$	174.0		65.6	%	$	380.6		57.6	%	$	324.4		63.7	%
Fixed-price basis		134.7		39.0			91.2		34.4			280.6		42.4			184.8		36.3

Total	$	345.0		100.0	%	$	265.2		100.0	%	$	661.2		100.0	%	$	509.2		100.0	%

Revenues based on offshore and onsite/offsite

We provide our IT services through a combination of (i) offshore centers located throughout India, (ii) teams working onsite at a customer’s location, (iii) nearshore centers located in Canada, China and Hungary to service U.S.-based, Asia Pacific based and Europe based customers, respectively, and (iv) offsite centers located in Australia, Canada, China, Hungary, Japan, Malaysia, Singapore, United Arab Emirates, United Kingdom and United States. Offshore IT services revenues consist of revenues earned both from IT services work conducted at our offshore centers in India as well as onsite work conducted at customers’ premises which is related to offshore work. Offshore IT services revenues do not include revenues from our offsite or nearshore centers located outside of India or revenues from onsite work which is not related to any offshore work. These latter revenues are included in onsite/offsite revenues.

We generally charge higher rates and incur higher compensation expenses for work performed by our onsite teams at our customer’s premises or at our offsite and nearshore centers, as compared to work performed at our offshore centers in India. Services performed by our onsite teams or at our offsite centers typically generate higher revenues per capita, but at a lower gross margin, than the same amount of services performed at our offshore centers in India.

The following table presents our IT services revenues (excluding inter-segment revenues) based on the location where services are performed for the periods indicated:


	Three months ended September 30,										Six months ended September 30,
	2006					2005					2006					2005
	(unaudited)					(unaudited)					(unaudited)					(unaudited)
Location	Amount		%			Amount		%			Amount		%			Amount		%
	(in millions, except percentages)
Offshore	$	164.5		47.7	%	$	120.9		45.6	%	$	313.6		47.4	%	$	227.8		44.7	%
Onsite/Offsite		180.5		52.3			144.3		54.4			347.6		52.6			281.4		55.3

Total	$	345.0		100.0	%	$	265.2		100.0	%	$	661.2		100.0	%	$	509.2		100.0	%

Revenues by top customers

Our top two customers accounted for 12.0% of our IT services’ revenues during the six months ended September 30, 2006, as compared to 14.4% of IT services revenues during the six months ended September 30, 2005. Our top five customers accounted for 21.8% of IT services’ revenues during the six months ended September 30, 2006, as compared to 25.4% of IT services’ revenues during the six months ended September 30, 2005.

Revenues based on customer location

We have experienced increasing volumes of business from customers located in North America and Europe, attributable to both new customers and additional business from existing customers. We expect that most of our revenues will be generated in North America followed by Europe in the remaining half of fiscal 2007.

The following table gives the composition of our IT services revenues (excluding inter-segment revenues) based on the location of our customers for the periods indicated:


	Three months ended September 30,										Six months ended September 30,
	2006					2005					2006					2005
	(unaudited)					(unaudited)					(unaudited)					(unaudited)
Geographic location	Amount		%			Amount		%			Amount		%			Amount		%
	(in millions, except percentages)
North America	$	221.7		64.3	%	$	173.5		65.4	%	$	427.5		64.7	%	$	338.2		66.4	%
Europe		65.1		18.9			51.2		19.3			122.2		18.5			93.4		18.3
Japan		5.5		1.5			3.1		1.2			9.0		1.4			6.6		1.3
India		16.4		4.8			10.7		4.0			30.1		4.6			19.0		3.7
Rest of the world		36.3		10.5			26.7		10.1			72.4		10.8			52.0		10.3

Total	$	345.0		100.0	%	$	265.2		100.0	%	$	661.2		100.0	%	$	509.2		100.0	%

Expenses

Cost of revenues

Our cost of revenues consists primarily of the compensation cost of technical staff, depreciation on dedicated assets and system and application software costs, amortization of intangibles, travel costs, data communication expenses and other expenses incurred that are related to the generation of revenue.

The principal component of our cost of revenues is the wage cost of our technical associates. Wage cost in India, including in the IT services industry, have historically been significantly lower than the wage cost in the United States and Europe for comparably skilled professionals. However, as wages in India increase at a faster rate than in the United States, we may experience increase in our costs of personnel, particularly project managers and other mid-level professionals.

The utilization levels of our technical associates also affect our revenue and gross profits. We calculate utilization levels on a monthly basis, based on the ratio of the actual number of hours billed by technical associates in such month to the total number of billable hours. For purposes of such calculation, we assume that an associate is 100.0% utilized if he or she works 157 hours per month. We manage utilization by monitoring project requirements and timetables. The number of associates assigned to a project will vary according to size, complexity, duration, and demands of the project. Associate utilization levels for IT services were 84.3% and 84.4% during the Six months ended September 30, 2006 and 2005 respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses generally include the compensation costs of sales, management and administrative personnel, travel costs, advertising, business promotion, depreciation on assets, rent, repairs, electricity and other general expenses not attributable to cost of revenues.

Subsidiaries

As of September 30, 2006, we have five wholly-owned subsidiaries, Nipuna Services Ltd., or Nipuna, Satyam Technologies Inc., or STI, Satyam Computer Services (Shanghai) Company Limited, or Satyam Shanghai, Citisoft Plc, or Citisoft and Knowledge Dynamics Pte Ltd, or Knowledge Dynamics. These five subsidiaries have been consolidated in our consolidated financial statements as of September 30, 2006.

Citisoft

On May 12, 2005, Satyam Computer Services acquired a 75% interest in Citisoft Plc or Citisoft, a specialist business and systems consulting firm located in the United Kingdom that has focused on the investment management industry since 1986. The results of Citisoft’s operations have been consolidated by Satyam Computer Services from the consummation date of May 12, 2005. The acquisition has been accounted for by following the purchase method of accounting.

The consideration for the 75% equity interest in Citisoft amounted to $17.4 million comprising of an initial consideration of $14.3 million (including direct acquisition costs of $0.9 million) and deferred consideration (non-contingent) of $3.1 million. The deferred consideration, accounted for as part of the purchase consideration, has been paid during the three months ended June 30, 2006. Satyam Computer Services is also required to pay a maximum earn out consideration amounting to $3.9 million on April 30, 2007 based on achievement of targeted revenues and profits. The earn-out consideration will be accounted for as purchase consideration when the contingency is resolved.

Satyam Computer Services is also required to fund an Employee Benefit Trust (“EBT”) formed by Citisoft for the purpose of providing additional incentive to employees to contribute to the success of Citisoft. Satyam is required to fund a maximum of $3.4 million and $1.7 million on April 30, 2007 and 2008 respectively, based on achievement of targeted revenues and profits. During the six months ended September 30, 2006, Satyam Computer Services has recognized EBT Contribution amounting to $0.9 million as part of cost of revenues in the statement of income and the unpaid EBT contribution as of September 30, 2006, amounting to $0.7 million has been recognized as a current liability.

The purchase consideration for acquisition of 75% interest has been allocated to the assets acquired and liabilities assumed as of the date of acquisition based on management’s estimates and a valuation done by an independent valuer in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. The goodwill has been allocated to the IT services segment. The purchase price allocation is as follows:


	$ in
	millions

Purchase price	$	17.4

Allocated to:
Net current assets	$	2.2
Tangible assets		0.3
Customer Contracts related intangibles		0.8
Customer relationship related intangibles		5.4
Trade name		0.7
Goodwill		10.3
Deferred tax liability		(2.3	)

Total	$	17.4

On June 29, 2006, Satyam Computer Services exercised the call option and acquired the remaining 25% equity interest for a deferred consideration of $5.9 million and a maximum earn-out consideration of $6.5 million based on achievement of targeted revenues and profits.

allocation. The preliminary allocation of the purchase price resulted in goodwill of $3.4 million and $1.8 million of intangible assets, which are subject to amortization. The goodwill has been allocated to the IT services segment.

Pro forma disclosure regarding this acquisition has not been provided because it is not material to the operations of the Company.

Knowledge Dynamics

On July 21 2005, Satyam Computer Services announced its intention to acquire 100% of the shares of Knowledge Dynamics Pte Ltd, Singapore, (“Knowledge Dynamics”), a leading Data Warehousing and Business Intelligence Solutions provider. The transaction was consummated on October 1, 2005, the date of transfer of shares to Satyam Computer Services and Satyam Computer Services has consolidated Knowledge Dynamics Pte Ltd, Singapore, from October 1, 2005. The acquisition has been accounted for by following the purchase method of accounting.

The consideration for this acquisition amounted to $3.3 million comprising of initial consideration of $1.8 million (including direct acquisition costs of $11 thousand) and deferred consideration (non-contingent) of $1.5 million. The total deferred consideration for the acquisition of $1.5 million has been accounted for as part of the purchase consideration out of which $0.8 million has been paid during the three months ended June 30, 2006 and $0.7 million as current liability in the balance sheet. Satyam Computer Services is also required to pay a maximum earn out consideration amounting to $1.1 million and $1.1 million on April 30, 2007 and 2008 respectively based on the achievement of targeted revenues and profits. The earn-out consideration will be accounted for as purchase consideration when the contingency is resolved.

The purchase consideration has been allocated to the assets acquired and liabilities assumed as of the date of acquisition based on management’s estimates and a valuation done by an independent valuer in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. The goodwill has been allocated to the IT services segment. The purchase price allocation is as follows:


	$ in millions

Purchase price	$	3.3

Allocated to:
Net current assets	$	0.5
Customer Contracts and Related Relationships		1.0
Trade name		0.1
Goodwill		2.1
Deferred tax liability		(0.4	)

Total	$	3.3

Pro forma disclosure regarding this acquisition has not been provided because it is not material to the operations of the Company.

Associate — Sify

On November 7, 2005, we offered to sell an aggregate of 11,182,600 equity shares, representing our entire investment of 31.6% of the outstanding equity shares of Sify. The sale transaction was consummated on November 9, 2005 at a sale price of $5.60 per equity share aggregating to $62.3 million.

We accounted for our share of equity in earnings/(losses) of Sify under the equity method of accounting up to November 9, 2005. The excess of sale proceeds (net of transaction costs) over the carrying value of investment in Sify as on the date of sale amounting to $43.6 million has been recognized as gain in the statement of income during year ended March 31, 2006.

Income Taxes

The statutory corporate income tax rate in India is currently 30.0%. This tax rate is presently subject to a 10.0% surcharge. The amount of tax and surcharge payable is further subject to a 2.0% education cess, resulting in an effective tax rate of 33.66%. The provision for foreign taxes is due to income taxes payable in overseas tax jurisdictions by our offsite, nearshore and onsite centers, principally in the United States. We benefit from tax incentives provided to software entities as an exemption from payment of Indian corporate income taxes until the earlier of fiscal 2009 or 10 consecutive years of operations of software development facilities designated as “Software Technology Parks,” or STP units. The benefits of this tax incentive have historically resulted in our effective tax rate being well below statutory rates. The exemption is expected to expire between fiscal 2006 and fiscal 2010. The exemption for two of our STP units in Hyderabad expired during fiscal 2006 and the exemption for one of our STP units in Bangalore expired in the six months ended September 30, 2006. We also earn certain other foreign income and domestic income, which are taxable irrespective of the tax holiday as stated above.

Our subsidiaries are subject to income taxes of the countries in which they operate. Our subsidiaries’ operating loss carried forward for tax purposes amounted to approximately $38.5 million as of September 30, 2006, which is available as an offset against future taxable income of such entities. These carried forward amounts expire at various dates primarily over eight to twenty years. Realization is dependent on such subsidiaries generating sufficient taxable income prior to expiration of the loss carried forward. A valuation allowance is established attributable to deferred tax assets and losses carried forward in subsidiaries where, based on available evidence, it is more likely than not that they will not be realized. Currently, a full valuation allowance has been made for such losses.

Results of Operations

The following table sets forth operating data in dollars and as a percentage of revenues for the years indicated:


	Three months ended September 30,												Six months ended September 30,
	2006						2005						2006						2005
Statement of Operations data:	Amount			%			Amount			%			Amount			%			Amount			%
	(unaudited)						(unaudited)						(unaudited)						(unaudited)
	(in millions, except percentages)
Revenues:
IT services	$	345.2			98.1		$	265.3			99.1	%	$	661.5			98.1	%	$	509.5			99.1	%
BPO		9.0			2.5			4.2			1.5			17.0			2.5			7.5			1.5
Inter-segment		(2.2	)		(0.6	)		(1.7	)		(0.6	)		(4.0	)		(0.6	)		(3.1	)		(0.6	)

Total revenues		352.0			100.0			267.8			100.0			674.5			100.0			513.9			100.0

Cost of revenues: (1)
IT services		(225.9	)		(64.2	)		(168.2	)		(62.8	)		(427.4	)		(63.4	)		(324.9	)		(63.2	)
BPO		(6.4	)		(1.8	)		(4.0	)		(1.5	)		(12.2	)		(1.8	)		(7.7	)		(1.5	)
Inter-segment		2.0			0.6			1.5			0.6			3.8			0.6			2.8			0.6

Total cost of revenues		(230.3	)		(65.4	)		(170.7	)		(63.7	)		(435.8	)		(64.6	)		(329.8	)		(64.2	)

Gross profit:
IT services		119.3			33.9			97.2			36.3			234.1			34.7			184.5			35.9
BPO		2.6			0.7			0.2			0.1			4.8			0.7			(0.2	)		0.0
Inter-segment		(0.2	)		(0.1	)		(0.2	)		(0.1	)		(0.2	)		(0.0	)		(0.2	)		(0.0	)

Total gross profit		121.7			34.6			97.2			36.3			238.7			35.4			184.1			35.8

Operating expenses:
Selling, general and administrative expenses: (2)
IT services		(52.3	)		(14.9	)		(42.7	)		(16.0	)		(100.0	)		(14.8	)		(81.2	)		(15.8	)
BPO		(3.4	)		(1.0	)		(2.9	)		(1.1	)		(5.8	)		(0.9	)		(5.2	)		(1.0	)
Inter-segment		0.1			0.0			0.2			0.1			0.1			0.0			0.2			0.0

Total selling, general and administrative expenses		(55.6	)		(15.8	)		(45.4	)		(17.0	)		(105.7	)		(15.7	)		(86.2	)		(16.8	)

Operating income/(loss):
IT services		67.0			19.0			54.4			20.3			134.1			19.9			103.3			20.1
BPO		(0.8	)		(0.2	)		(2.7	)		(1.0	)		(1.0	)		(0.1	)		(5.4	)		(1.1	)
Inter-segment		(0.1	)		0.0			—			—			(0.1	)		(0.0	)		—			—

Total operating income/(loss)		66.1			18.8			51.7			19.3			133.0			19.7			97.9			19.0

Interest income		6.3			1.8			6.4			2.4			12.8			1.9			12.8			2.5
Interest expense		(0.6	)		(0.2	)		(0.2	)		(0.1	)		(1.2	)		(0.2	)		(0.3	)		(0.1	)
Gain/ (loss) on foreign exchange transactions		(1.9	)		(0.5	)		2.2			0.8			12.8			1.9			(0.6	)		(0.1	)
Other income/(expense), net		1.6			0.5			(1.6	)		(0.6	)		(3.3	)		(0.5	)		(0.1	)		0.0

Income before income taxes and equity in earnings/(losses) of associated companies		71.5			20.3			58.5			21.8			154.1			22.8			109.7			21.3


Income taxes		(6.2	)		(1.8	)		(6.7	)		(2.5	)		(13.5	)		(2.0	)		(15.2	)		(2.9	)
Minority interest		—			—			—			—			—			—			0.1			—
Equity in earnings/(losses) of associated companies, net of taxes		0.2			0.1			(0.2	)		(0.1	)		0.4			0.1			(0.7	)		(0.1	)

Net income	$	65.5			18.6		$	51.6			19.3		$	141.0			20.9		$	93.9			18.3

Depreciation	$	8.0			2.3		$	7.9			2.9		$	15.9			2.4		$	15.0			2.9
Stock-based compensation		3.5			1.0			0.2			0.1			7.1			1.1			0.3			0.1


(1)		Inclusive of stock-based compensation expenses of $3.3 million and $Nil million for the three months ended September 30, 2006 and 2005 respectively, and $6.7 million and $Nil million for the six months ended September 30, 2006 and 2005 respectively in the IT services segments.

(2)		Inclusive of stock-based compensation expenses of $0.2 million and $0.2 million for the three months ended September 30, 2006 and 2005 respectively, and $0.4 million and $0.3 million for the six months ended September 30, 2006 and 2005 respectively in the IT services segments.

Comparison of results for the six months ended September 30, 2006 and September 30, 2005.

Revenues. Our revenues increased by 31.3% to $674.5 million during the six months ended September 30 2006 from $513.9 million during the six months ended September 30, 2005. This revenue growth of $160.6 million during the six months ended September 30, 2006 was primarily the result of an increase in business both from existing customers and new customers. Revenues from existing customers increased by 23.2% to $577.2 million during the six months ended September 30, 2006 from $468.5 million during the six months ended September 30, 2005. Revenues from new customers increased by 114.3% to $97.3 million during the six months ended September 30, 2006 from $45.4 million during the six months ended September 30, 2005. We added 69 and 63 customers, including 1 and 5 from the Fortune Global 500 and Fortune U.S. 500 list, during the six months ended September 30, 2006 and 2005, respectively.

During the six months ended September 30, 2006, revenues (IT services excluding inter-segment revenues) from consulting and enterprise business solutions has grown by $70.3 million, revenues from application development and maintenance has increased by $60.9 million, followed by extended engineering solutions and infrastructure management services, which grew by $7.0 million and $13.8 million respectively. In terms of percentage growth during the six months ended September 30, 2006 over the six months ended September 30, 2005, revenues from consulting and enterprise solutions has grown by 35.2%, application development and maintenance services has grown by 23.8%, extended engineering solutions and infrastructure management services have grown by 20.6% and 69.0% respectively.

Revenues from IT services (excluding inter-segment revenues) provided on a time-and-materials basis decreased to 57.6% during the six months ended September 30, 2006 from 63.7% during the six months ended September 30, 2005. Revenues from IT services provided on a fixed-price basis increased to 42.4% during the six months ended September 30, 2006 from 36.3% during the six months ended September 30, 2005. The increase during the six months ended September 30, 2006 for fixed-price contracts is primarily due to the shift in customer preference regarding type of contracts from time-and-material to fixed-price.

The onsite revenues increased as a result of new engagements in consulting and enterprise business solutions during the six months ended September 30, 2006, and the need for extensive interactions with customers in the early stages of new engagements to understand their business needs and create the relevant processes before we move the appropriate portion of the work offshore.

Of the total increase of $160.6 million in total revenue during the six months ended September 30, 2006, $93.1 million increased in North America followed by $31.4 million in Europe, $20.4 million in rest of the world, $13.3 million in India and $2.4 million in Japan. Our increased business in North America and Europe was due to new customers and additional business from existing customers.

Cost of Revenues. Cost of revenues increased by 32.1% to $435.8 million during the six months ended September 30, 2006 from $329.8 million during the six months ended September 30, 2005. Cost of revenues represented 64.6% of revenues during the six months ended September 30, 2006 and 64.2% during the six months ended September 30, 2005. This increase by $106.0 million was attributable primarily to increases in associate compensation and benefits expenses, traveling expenses, communication expenses, depreciation and other expenses, attributable largely to an overall increase in our business during this period. Associate compensation and benefits expenses increased by 27.6% to $336.4 million, or 49.9% of revenues during the six months ended September 30, 2006 from $263.7 million, or 51.3% of revenues during the six months ended September 30, 2005. The increase in the associate compensation and benefits is due to: (i) revision of salaries for the associates during the six months ended September 30, 2006 (ii) increase in the total number of technical associates by 9,492 to 32,254 during the six months ended September 30, 2006 from 22,762 as of September 30, 2005. (iii) increase in number of onsite technical associates by 1,248 to 6,200 during the six months ended September 30, 2006 from 4,952 as of September 30, 2005, for which we pay a higher compensation and (iv) increase of approximately $0.9 million of the funding to Citisoft Employee Benefit Trust. Traveling expenses increased by 80.0% to $35.1 million, or 5.2% of revenues, during the six months ended September 30, 2006 from $19.5 million or 3.8% of revenues, during the six months ended September 30, 2005. This increase was primarily due to increase in the number of travels resulting from increase in the number of technical associates. Communication expenses increased by 12.6% to $7.4 million or 1.1% of revenues during the six months ended September 30, 2006 from $6.6 million, or 1.3% of revenues during the six months ended September 30, 2005. This increase was primarily due to increase in number of locations of operations, both in India and abroad. Stock-compensation expenses increased to $6.7 million, or 1.0% of revenues, during the six months ended September 30, 2006 from $Nil million during the six months ended September 30, 2005 due to adoption of SFAS 123R effective from April 1, 2006. Depreciation expense increased by 9.5% to $13.8 million, or 2.0% of revenues, during the six months ended September 30, 2006 from $12.6 million, or 2.5% of revenues during the six months ended September 30, 2005. Other expenses comprised mainly of rent, power and fuel and maintenance expenses. Other expenses increased by 32.7% to $36.5 million, or 5.4% of revenues, during the six months ended September 30, 2006 from $27.5 million, or 5.3% of revenues during the six months ended September 30, 2005.

Selling, general and administrative expenses. Selling, general and administrative expenses increased by 22.6% to $105.7 million during the six months ended September 30, 2006 from $86.2 million during the six months ended September 30, 2005. Selling, general and administrative expenses represented 15.7% of revenues during the six months ended September 30, 2006 and 16.8% of revenues during the six months ended September 30, 2005. This increase of $19.5 million during the six months ended September 30, 2006 was a result primarily of increase in associate compensation and benefits for non-technical associates, communication expenses, traveling expenses and sales and marketing expenses. Associate compensation and benefits increased by 26.2% to $58.8 million, or 8.7% of revenues, during the six months ended September 30, 2006 as compared to $46.6 million or 9.1% of revenues during the six months ended September 30, 2005 primarily on account of increase in number of non-technical associates by 507 to 2,151 as of September 30, 2006 from 1,644 as of September 30, 2005. and revision of salaries for the associates during the six months ended September 30, 2006. Communication expenses increased by 12.9% to $3.5 million or 0.5% of revenues during the six months ended September 30, 2006 as compared to $3.1 million or 0.6% of revenues during the six months ended September 30, 2005. Traveling expenses increased by 43.5% to $12.2 million or 1.8% of revenues during the six months ended September 30, 2006 from $8.5 million or 1.7% of revenues during the six months ended September 30, 2005. Traveling expenses increased primarily due to increase in travels by our non-technical associates. Professional charges increased by 13.8% to $6.6 million or 1.0% of revenues during the six months ended September 30, 2006 from $5.8 million or 1.1% of revenues during the six months ended September 30, 2005. Stock-based compensation expense increased by 27.0% to $0.4 million or 0.1% of revenues during the six months ended September 30, 2006 from $0.3 million or 0.1% of revenues during the six months ended September 30, 2005. Marketing expenses increased by 8.9% to $6.1 million or 0.9% of revenues during the six months ended September 30, 2006 from $5.6 million or 1.1% of revenues during the six months ended September 30, 2005. Other expenses comprised primarily of rent, power and fuel and maintenance expenses. Other expenses increased by 11.1% to $18.0 million or 2.7% of revenues during the six months ended September 30, 2006 from $16.2 million, or 3.2% of revenues during the six months ended September 30, 2005.

Operating income. Our operating income was $133.0 million during the six months ended September 30, 2006, representing an increase of 35.9% over the operating income of $97.8 million during the six months ended September 30, 2005. As a percentage of revenues, operating income increased to 19.7% during the six months ended September 30, 2006, from 19.0% during the six months ended September 30, 2005. This increase in operating income as a percentage of revenue was due to (i) decrease in the associate compensation and benefits expenses to 58.6% of revenue during the six months ended September 30, 2006 from 60.4% of revenues, during the six months ended September 30, 2005 (ii) decrease in the communication expenses to 1.6% revenues during the six months ended September 30, 2006 from 1.9% of revenues during the six months ended September 30, 2005 (iii) decrease in the depreciation expenses to 2.4% of revenues during the six months ended September 30, 2006 from 2.9% of revenues during the six months ended September 30, 2005 (iv) decrease in the other expenses to 9.7% of revenues during the six months ended September 30, 2006 from 10.2% of revenues during the six months ended September 30, 2005 and (iv) offset by increase in the traveling, stock-compensation as a percentage of revenues.

Interest income. Interest income was $12.8 million during the six months ended September 30, 2006 and 2005. interest income was same primarily due to maturity of bank deposits during the period.

Gain/(loss) on foreign exchange transactions. During the six months ended September 30, 2006 and the six months ended September 30, 2005, 77.7% and 78.5% respectively, of our revenues were generated in U.S. dollars. The average exchange rate of Indian rupee to U.S. dollar during the six months ended September 30, 2006 was Rs. 45.92 against Rs. 43.65 during the six months ended September 30, 2005. As at September 30, 2006, the Indian rupee depreciated to Rs. 45.94 against 44.02 at September 30, 2005. As at September 30, 2006, the Indian rupee depreciated to Rs. 45.94 against Rs. 44.62 as at March 31, 2006. As at September 30, 2005, the Indian rupee depreciated to Rs. 44.02 against Rs. 43.77 as at March 31, 2005. As a result of these fluctuations in exchange rates during the six months ended September 30, 2006 and September 30, 2005, gain on foreign exchange transactions was $12.8 million during the six months ended September 30, 2006 as compared to a loss of $0.5 million during the six months ended September 30, 2005.

Other income/(expenses), net. Other income/ (expenses), net were $(3.3) million during the six months ended September 30, 2006, as compared to other income /(expenses), net were $(0.2) million during the six months ended September 30, 2005. The decrease in the other income is primarily on account of loss on forward and options contracts amounting to $3.2 million during the six months ended September 30, 2006 as compared to a gain of $0.1 million during the six months ended September 30, 2005. The loss in forward and option contracts is because of rupee appreciation from Rs 44.62 as on March 31, 2006 to Rs 45.94 as on September 30, 2006.

Income taxes. Income taxes were $13.5 million during the six months ended September 30, 2006, representing a decrease of 11.2% from $15.2 million during the six months ended September 30, 2005. the decrease in income taxes is primarily on account of decrease in income of foreign branches which is offset by the expiry of tax exemption benefit for two of our STP units in Hyderabad and one unit in Bangalore resulted in increase in income taxes by $3.6 million during the six months ended September 30, 2006 as compared to $1.3 million during the six months ended September 30, 2005.

Equity in earnings/(losses) of associated companies, net of taxes. Equity in earnings/(losses) of associated companies was $0.4 million during the six months ended September 30, 2006 as compared to $(0.7) million during the six months ended September 30, 2005. During the six months ended September 30, 2006, equity in earnings/(losses) of associated companies comprised of equity in profit of Satyam Venture amounting to $0.4 million, partially offset by equity in losses of CA Satyam amounting to $41 thousand. During the six months ended September 30, 2005, the equity in earnings/(losses) of associated companies comprised of equity in profit of Satyam Venture amounting to $0.2 million, offset by equity in losses of CA Satyam and Sify amounting to $47 thousand and $0.9 million respectively.

Net income. As a result of the foregoing, our net income was $141.0 million during the six months ended September 30, 2006, representing an increase of 50.2% over net income of $93.9 million during the six months ended September 30, 2005. As a percentage of total revenues, net income increased to 20.9% during the six months ended September 30, 2006 from 18.3% during the six months ended September 30, 2005.

Comparison of results for the three months ended September 30, 2006 and September 30, 2005.

Revenues. Our revenues increased by 31.4% to $352.0 million during the three months ended September 30 2006 from $267.8 million during the three months ended September 30, 2005. This revenue growth of $84.2 million during the three months ended September 30, 2006 was primarily the result of an increase in business both from existing customers and new customers. Revenues from existing customers increased by 21.3% to $296.3 million during the three months ended September 30, 2006 from $244.3 million during the three months ended September 30, 2005. Revenues from new customers increased by 137.0% to $55.7 million during the three months ended September 30, 2006 from $23.5 million during the three months ended September 30, 2005. We added 35 and 32 customers including 1 and 1 from the Fortune Global 500 and Fortune U.S. 500 list during the three months ended September 30, 2006 and 2005, respectively

During the three months ended September 30, 2006, revenues (IT services excluding inter-segment revenues) from consulting and enterprise business solutions has grown by $34.0 million, revenues from application development and maintenance has increased by $32.6 million, followed by extended engineering solutions and infrastructure management services, which grew by $5.7 million and $7.5 million respectively. In terms of percentage growth during the three months ended September 30, 2006 over the three months ended September 30, 2005, revenues from consulting and enterprise solutions has grown by 31.9%, application development and maintenance services has grown by 24.8%, extended engineering solutions and infrastructure management services have grown by 33.3% and 75.0% respectively.

Revenues from IT services (excluding inter-segment revenues) provided on a time-and-materials basis decreased to 61.0% during the three months ended September 30, 2006 from 65.6% during the three months ended September 30, 2005. Revenues from IT services provided on a fixed-price basis increased to 39.0% during the three months ended September 30, 2006 from 34.4% during the three months ended September 30, 2005. The increase during the three months ended September 30, 2006 for fixed-price contracts is primarily due to the shift in customer preference regarding type of contracts from time-and-material to fixed-price.

The onsite revenues increased as a result of new engagements in consulting and enterprise business solutions during the three months ended September 30, 2006, and the need for extensive interactions with customers in the early stages of new engagements to understand their business needs and create the relevant processes before we move the appropriate portion of the work offshore.

Of the total increase of $84.2 million in total revenue during the three months ended September 30, 2006, $50.3 million increased in North America followed by $14.1 million in Europe, $9.7 million in rest of the world, $7.7 million in India and $2.4 million in Japan. Our increased business in North America and Europe was due to new customers and additional business from existing customers.

Cost of Revenues. Cost of revenues increased by 34.9% to $230.3 million during the three months ended September 30, 2006 from $170.7 million during the three months ended September 30, 2005. Cost of revenues represented 65.4% of revenues during the three months ended September 30, 2006 and 63.7% during the three months ended September 30, 2005. This increase by $59.6 million was attributable primarily to increases in associate compensation and benefits expenses, traveling expenses, communication expenses, depreciation and other expenses, attributable largely to an overall increase in our business during this period. Associate compensation and benefits expenses increased by 32.9% to $179.4 million, or 51.0% of revenues during the three months ended September 30, 2006 from $135.0 million, or 50.4% of revenues during the three months ended September 30, 2005. The increase in the associate

compensation and benefits is due to: (i) revision of salaries for the associates during the three months ended September 30, 2006 (i) increase in the total number of technical associates by 9,492 to 32,254 during the three months ended September 30, 2006 from 22,762 as of September 30, 2005 (ii) increase in number of onsite technical associates by 1,248 to 6,200 during the three months ended September 30, 2006 from 4,952 for which we pay a higher compensation and (iii) increase of approximately $0.4 million of the funding to Citisoft Employee Benefit Trust accounted as compensation expense relating to employees of Citisoft. Traveling expenses increased by 95.0% to $19.5million, or 5.6% of revenues, during the three months ended September 30, 2006 from $10.0 million or 3.7% of revenues, during the three months ended September 30, 2005. This increase was primarily due to increase in the number of travels resulting from increase in the number of technical associates. Communication expenses increased by 7.9% to $4.1 million or 1.2% of revenues during the three months ended September 30, 2006 from $3.8 million, or 1.4% of revenues during the three months ended September 30, 2005. This increase was primarily due to increase in number of locations of operations, both in India and abroad. Other expenses comprised mainly of rent, power and fuel and maintenance expenses. Other expenses increased by 11.2% to $16.9 million, or 4.8% of revenues, during the three months ended September 30, 2006 from $15.1 million, or 5.7% of revenues during the three months ended September 30, 2005. Depreciation expense increased by 4.5% to $7.0 million, or 2.0% of revenues, during the three months ended September 30, 2006 from $6.7 million, or 2.5% of revenues during the three months ended September 30, 2005. Stock-compensation expenses increased to $3.4 million, or 1.0% of revenues, during the three months ended September 30, 2006 from $nil million during the three months ended September 30, 2005. The increase was due to adoption of SFAS 123R.

Selling, general and administrative expenses. Selling, general and administrative expenses increased by 22.5% to $55.6 million during the three months ended September 30, 2006 from $45.4 million during the three months ended September 30, 2005. Selling, general and administrative expenses represented 15.8% of revenues during the three months ended September 30, 2006 and 17.0% of revenues during the three months ended September 30, 2005. This increase of $10.2 million during the three months ended September 30, 2006 was a result primarily of increase in associate compensation and benefits for non-technical associates, communication expenses, traveling expenses and sales and marketing expenses. Associate compensation and benefits increased by 38.5% to $32.0 million, or 9.1% of revenues, during the three months ended September 30, 2006 as compared to $23.1 million or 8.6% of revenues during the three months ended September 30, 2005 primarily on account of increase in number of non-technical associates by 507 to 2,151 as of September 30, 2006 from 1,644 as of September 30, 2005 and revision of salaries for the associates during the three months ended September 30, 2005. Communication expenses increased by 6.3% to $1.7 million or 0.5% of revenues during the three months ended September 30, 2006 as compared to $1.6 million or 0.6% of revenues during the three months ended September 30, 2005. Traveling expenses increased by 36.4% to $6.0 million or 1.7% of revenues during the three months ended September 30, 2006 from $4.4 million or 1.7% of revenues during the three months ended September 30, 2005. Traveling expenses increased primarily due to increase in travels by our non-technical associates. Other expenses comprised primarily of rent, marketing, professional charges, depreciation, power and fuel and maintenance expenses. Other expenses decreased by 2.5% to $15.6 million or 4.4% of revenues during the three months ended September 30, 2006 from $16.0 million, or 6.0% of revenues during the three months ended September 30, 2005.

Operating income. Our operating income was $66.1 million during the three months ended September 30, 2006, representing an increase of 27.9% over the operating income of $51.7 million during the three months ended September 30, 2005. As a percentage of revenues, operating income decreased to 18.8% during the three months ended September 30, 2006, from 19.3% during the three months ended September 30, 2005. This decrease in operating income as a percentage of revenue was due to (i) increase in the associate compensation and benefits expenses to 60.1% of revenue during the three months ended September 30, 2006 from 59.0% of revenues, during the three months ended September 30, 2005 (ii) increase in the traveling expenses to 7.3% of revenues during the three months ended September 30, 2006 from 5.4% of revenues during the three months ended September 30, 2005 (iii) increase in the stock-compensation expenses to 1.0% of revenues during the three months ended September 30, 2006 from 0.1% of revenues during the three months ended September 30, 2005 and (iv) offset by decrease in the depreciation, professional charges, and communication as a percentage of revenues.

Interest income. Interest income decreased to $6.3 million during the three months ended September 30, 2006 representing a decrease of 1.6% from $6.4 million during the three months ended September 30, 2005.

Gain/(loss) on foreign exchange transactions. During the three months ended September 30, 2006 and the three months ended September 30, 2005, 77.5% and 76.1% respectively, of our revenues were generated in U.S. dollars. The average exchange rate of Indian rupee to U.S. dollar during the three months ended September 30, 2006 was Rs. 46.38 against Rs. 43.68 during the three months ended September 30, 2005. As at September 30, 2006, the Indian rupee appreciated to Rs. 45.94 against 46.09 at June 30, 2006. As at September 30, 2006, the Indian rupee depreciated to Rs. 45.94 against Rs. 44.62 as at March 31, 2006. As at September 30, 2005, the Indian rupee depreciated to Rs. 44.02 against Rs. 43.55 as at June 30, 2005. As at September 30, 2005, the Indian rupee depreciated to Rs. 44.02 against Rs. 43.77 as at March 31, 2005. As a result of these fluctuations in exchange rates during the three

months ended September 30, 2006 and September 30, 2005, loss on foreign exchange transactions was $1.9 million during the three months ended September 30, 2006 as compared to a gain of $2.2 million during the three months ended September 30, 2005.

Other income/(expenses), net. Other income/ (expenses), net were $1.6 million during the three months ended September 30, 2006, as compared to other income /(expenses), net were $(1.6) million during the three months ended September 30, 2005. The decrease in the other income is primarily on account of gain on forward and options contracts amounting to $1.5 million during the three months ended September 30, 2006 as compared to a loss of $1.6 million during the three months ended September 30, 2005. The gain in forward and option contracts is because of rupee appreciation from Rs 46.09 as on June 30, 2006 to Rs 45.94 as on September 30, 2006.

Income taxes. Income taxes were $6.2 million during the three months ended September 30, 2006, representing a decrease of 7.5% from $6.7 million during the three months ended September 30, 2005. the decrease in income taxes is primarily on account of decrease in income of foreign branches which is offset by the expiry of tax exemption benefit for two of our STP units in Hyderabad and one unit in Bangalore resulted in increase in income taxes by $1.9 million during the three months ended September 30, 2006 as compared to $0.8 million during the three months ended September 30, 2005.

Equity in earnings/(losses) of associated companies, net of taxes. Equity in earnings of associated companies was $0.2 million during the three months ended September 30, 2006 as compared to loss of $(0.2) million during the three months ended September 30, 2005. During the three months ended September 30, 2006, equity in earnings/(losses) of associated companies comprised of equity in profit of Satyam Venture amounting to $0.2 million, partially offset by equity in losses of CA Satyam amounting to $30 thousand. During the three months ended September 30, 2005, the equity in earnings/(losses) of associated companies comprised of equity in profit of Satyam Venture amounting to $0.2 million, offset by equity in losses of CA Satyam and Sify amounting to $26 thousand and $0.3 million respectively.

Net income. As a result of the foregoing, our net income was $65.5 million during the three months ended September 30, 2006, representing an increase of 26.9% over net income of $51.6 million during the three months ended September 30, 2005. As a percentage of total revenues, net income decreased to 18.6% during the three months ended September 30, 2006 from 19.3% during the three months ended September 30, 2005.

Liquidity and Capital Resources

Net cash provided by operating activities

Net cash provided by operating activities was $139.2 million and $94.1 million during the six months ended September 30, 2006 and 2005, respectively.

During the six months ended September 30, 2006, non-cash adjustments to reconcile the $141.0 million net income to net cash used in operating activities consisted primarily of depreciation and amortization expense of $16.4 million and increase in net accounts receivable and unbilled revenues. Net accounts receivable and unbilled revenues increased by $56.0 million primarily as a result of an increase in our revenues and increase in collection period. Accounts payable and accrued expenses increased by $48.8 million primarily on account of provision for gratuity and unutilized leave by $16.0 million, increase in accrued compensation and benefits by 10.8 million and increase in taxes by 4.4 million.

During the six months ended September 30, 2005, non-cash adjustments to reconcile the $93.9 million net income to net cash used in operating activities consisted primarily of depreciation and amortization expense of $15.3 million and increase in net accounts receivable and unbilled revenues. Net accounts receivable and unbilled revenues increased by $29.0 million primarily as a result of an increase in our revenues. Accounts payable and accrued expenses increased by $32.5 million primarily on account of accrued compensation and benefits of $11.8 million and increase in provision for gratuity and unutilized leave by $6.6 million.

Net cash used in investing activities

Net cash used in investing activities was $42.8 million and $39.9 million during the six months ended September 30, 2006 and 2005, respectively.

Net cash used in investing activities during the six months ended September 30, 2006 increased by $2.9 million to $42.8 million from $39.9 million during the six months ended September 30, 2005. This increase in net cash used in investing activities was primarily due to increase in purchases of premises, plant and equipment to $38.9 million during the six months ended September 30, 2006 from $26.2 million during the six months ended September 30, 2005 due to purchase of premises and equipment, primarily infrastructure, computers and other equipment associated with the expansion of new facilities at Bangalore, Chennai, Hyderabad and Visakhapatnam. The investing activities during the six months ended September 30, 2005 includes acquisition of Citisoft amounting to $12.1 million

Net cash provided by/ (used in) financing activities

Net cash provided by financing activities was $18.2 million and $3.4 million during the six months ended September 30, 2006 and 2005, respectively.

During the six months ended September 30, 2006, $22.8 million was raised from financing activities. We received cash from issuance of associate stock options of $17.1 million, $1.4 million from short term debt by Nipuna and $4.3 million from long term debts by Nipuna. We used cash in repayment of loans amounting to $0.9 million. Cash dividends paid amounted to $40.1 million during the three months ended September 30, 2006 as compared to $25.2 million during the six months ended September 30, 2005.

During the six months ended September 30, 2005, $24.2 million was raised from financing activities, primarily from issuance of associate stock options of $16.3 million and $6.8 million was raised from proceeds from long term debts by our subsidiary. Our subsidiary used cash in repayment of a short-term loan amounting to $1.3 million.

As of September 30, 2006, we had cash and cash equivalents of $363.0 million, rupee denominated loans from the Satyam Associate Trust of $1.3 million secured by our shares held by the Satyam Associate Trust, U.S. dollar denominated loans of Nipuna amounting to $20.0 million and other outstanding loans of $2.8 million with maturities ranging from one to three years. As of September 30, 2006, we had an unused working capital line of credit of $2.4 million from banks and unused non-funded lines of credit of $0.9 million from banks.

The following table describes our outstanding credit facilities as of September 30, 2006


		Amount		Interest	Computation
Loan Type	Lenders	outstanding		(per annum)	method
	(dollars in millions)
Rupee loan of Satyam Associates Trust	Cholamandalam	$	1.3	10.25%	Fixed
Working capital term loan	BNP Paribas		9.5	6 month LIBOR +0.95%	Floating
External commercial borrowing	BNP Paribas		10.5	6 month LIBOR +0.95%	Floating
Overdraft facility	BNP Paribas		5.3	6 month LIBOR +0.25%	Floating
Other loans	Various other parties		2.8	3.0%-14.5%	Fixed

Total		$	29.4

We anticipate capital expenditures of approximately $100.0 million during fiscal 2007, principally to finance construction of new facilities in our offshore centers, expand facilities in offshore centers in India and establish offsite centers outside India. We believe that existing cash and cash equivalents and funds generated from operations will be sufficient to meet these requirements. However, we may significantly alter our proposed capital expenditures plans and accordingly, may require additional financing to meet our requirements. In either case, we cannot assure you that additional financing will be available at all or, if available, that such financing will be obtained on terms favorable to us or that any additional financing will not be dilutive to our shareholders.

We have guaranteed payment of all sums payable by Nipuna to its two strategic investors, Olympus Capital and Intel Capital, upon redemption of the $20 million preference shares in Nipuna held by them. These preference shares are to be mandatorily redeemed or converted into equity shares no later than June 2006, if Nipuna achieves certain targets for revenues and profits by March 31, 2006. If these targeted revenues and profits are not achieved along with other triggering events, the investors have an option to either redeem the preference shares or convert them. Although certain triggering events for early redemption as per the agreement have occurred during the period January 2004 to December 2004, the investors waived their right of early redemption. Further Nipuna has not achieved the targeted revenues and profits upto March 31, 2006. If not earlier converted, these preference shares are redeemable on maturity in June 2007 at a redemption premium, which could range between 7.5% to 13.5% per annum. As of September 30, 2006, discussions for redemption/conversion of preference shares are in progress between Satyam management and the Investors.

In addition, depending upon certain triggering events, we may be required to subscribe to $20 million in convertible debentures of Nipuna which would be convertible upon the election of Nipuna into ordinary shares at any time. On January 6, 2005, Nipuna obtained approval from a bank for long-term borrowings up to $20 million with an interest of 0.95% above a six-month LIBOR. Satyam Computer Services has given a corporate guarantee to the bank for this borrowing. The borrowing is repayable in 3 years from each draw down of the borrowing. As of September 30, 2006, Nipuna has availed $20.0 million under the above arrangement. We expect that we will not be required to subscribe to the convertible debenture described above

The following table sets forth our contractual obligations and commitments to make future payments as of September 30, 2006. The following table excludes our accounts payable, accrued operating expenses and other current liabilities which are payable in normal course of operations. We believe that the conversion of the Nipuna preference shares is more probable than redemption and therefore have not included such redemption and the redemption premium payable, if redeemed as per the terms of the agreement, in the following table.


	Payments due as at September 30, 2006,
	Within 1		1-3		3-5		After 5		Total
	year		years		years		years
	(dollars in millions)
Long-term debt	$	2.8		1.4		19.9		—	$	24.1
Operating leases		5.1		4.6		0.6		0.5		10.8
Unconditional purchase obligations:
Other commercial commitments		37.9		—		—		—		37.9
Bank guarantees		4.7		1.3		6.3		3.7		16.0
Letters of credit		0.3		—		—		—		0.3
Gratuity Plan		1.5		3.9		10.5		7.0		22.9
Citisoft deferred, earn-out consideration and EBT funding (1)		11.5		8.8		—		—		20.3
Knowledge Dynamics deferred and earn-out consideration (2)		1.9		1.2		—		—		3.1

Total contractual cash obligations	$	65.7	$	21.2	$	37.3	$	11.2	$	135.4


(1)		The earn-out consideration and the further funding of EBT are based on fulfillment of certain conditions.

(2)		Earn-out consideration of Knowledge Dynamics is based on certain conditions.

Based on past performance and current expectations, we believe that our cash and cash equivalents, short-term investments, and cash generated from operations will satisfy our working capital needs, capital expenditures, investment requirements, stock repurchases, commitments, and other liquidity requirements associated with our existing operations through at least the next 12 months. In addition, there are no transactions, arrangements, and other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of our requirements for capital resources.

Stock-based Compensation

Effective April 1, 2006, Satyam adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). Prior to the adoption of SFAS 123R, Satyam recognized stock-based compensation using the intrinsic value-based method of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations including Financial Accounting Standards Board (FASB) Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25, issued in March 2000 to account for its employee stock-based compensation plan. Satyam has therefore adopted the pro-forma disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123. Pursuant to SFAS No. 123, all equity instruments issued to non-employees are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. In March 2005, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No.107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of share-based payments for public companies. Satyam has applied the provisions of SAB 107 in its adoption of SFAS 123R.

Satyam adopted SFAS 123R using the modified prospective transition method, which required the application of the accounting standard as of April 1, 2006, the first day of Satyam’s fiscal year 2007. Under this transition method, stock-based compensation expensed for the three months ended September 30, 2006 includes a) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of April 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, (“SFAS 123”) and b) Stock-based compensation expenses for all stock-based compensation awards granted after April 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified prospective transition method, Satyam’s Consolidated Financial Statements for the prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R.

We have three associate stock option plans: our Associated Stock Option Plan, or ASOP, established in May 1998; our Associated Stock Option Plan B, or ASOP B, established in May 1999; and our Associated Stock Option Plan ADS, or ASOP ADS, established in

May 1999. We also have the Employee Stock Option Plan, or ESOP, established by Nipuna in April 2004.

Satyam’s Consolidated Financial Statements as of and for the six months ended September 30, 2006 reflect the impact of SFAS 123R. In accordance with the modified prospective transition method, Satyam’s Consolidated Financial Statements for the prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. As required by SFAS 123(R), management has made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. There was no cumulative effect of initially adopting SFAS 123(R). During the three months ended September 30, 2006, Satyam recorded stock-based compensation related to stock options of $7.1 million on graded vesting basis for all unvested options granted prior to and options granted after the adoption of SFAS 123(R).

The fair value of each option award is estimated on the date of grant using the Black Scholes option-pricing model. The following table gives the weighted-average assumptions used to determine fair value:


	Six months ended
	September 30, 2006
	(unaudited)

Dividend yield		0.75	%
Expected volatility		56.15	%
Risk-free interest rate		7.00	%
Expected term (in years)	1.14 years

Expected Term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior.

Risk-Free Interest Rate: The risk-free interest rate is based on the applicable rates of government securities in effect at the time of grant.

Expected Volatility: The fair values of stock-based payments were valued using a volatility factor based on the Company’s historical stock prices.

Expected Dividend: The Black Scholes option-pricing model calls for a single expected dividend yield as an input.

Estimated Pre-vesting Forfeitures: When estimating forfeitures, the Company considers voluntary termination behavior. Estimated forfeiture rates are trued-up to actual forfeiture results as the stock-based awards vest.

ASOP

In May 1998, Satyam Computer Services established its Associate Stock Option Plan (the “ASOP plan”), which provided for the issue of 26,000,000 shares, as adjusted to eligible associates. Satyam Computer Services issued warrants to purchase these shares to a controlled associate welfare trust called the Satyam Associate Trust (the “SC-Trust”). In December 1999 the SC- Trust exercised all its warrants to purchase Satyam Computer Services shares prior to the stock split using the proceeds obtained from bank loans. As and when the SC- Trust issues warrants to eligible associates, the difference between the market price and the exercise price is accounted as deferred stock based compensation and amortized over the vesting period. The warrants vest immediately or vest over a period ranging from two to three years, depending on the associate’s length of service and performance. Upon vesting, associates have 30 days in which to exercise these warrants. As of September 30, 2006, warrants (net of lapsed and cancelled) to purchase 23,699,720 equity shares have been granted to associates pursuant to ASOP since inception.

ASOP B

In April 2000, Satyam Computer Services established its Associate Stock Option Plan B (the “ASOP B”) and reserved warrants for 83,454,280 shares to be issued to eligible associates with the intention to issue the warrants at the market price of the underlying equity shares on the date of the grant. These warrants vest over a period ranging from two to four years, starting with 20% in second year, 30% in the third year and 50% in the fourth year. Upon vesting, associates have 5 years to exercise these warrants. As of

September 30, 2006, options (net of lapsed and cancelled) to purchase 56,222,232 equity shares have been granted to associates under this plan since inception.

ASOP ADS

In May 2000, Satyam Computer Services established its Associate Stock Option Plan (ADS) (the ‘ASOP (ADS)’) to be administered by the Administrator of the ASOP (ADS) which is a committee appointed by the Board of Directors of Satyam Computer Services and reserved 5,149,330 ADSs (10,298,660 shares) to be issued to eligible associates with the intention to issue the warrants at a price per option which is not less than 90% of the value of one ADS as reported on NYSE on the date of grant converted into Indian Rupees at the rate of exchange prevalent on the grant date. These warrants vest over a period of 1-10 years from the grant date. As of September 30, 2006, warrants (net of lapsed and cancelled) for 3,226,790 ADSs representing 6,453,580 equity shares have been granted to associates under the ASOP ADS since inception

Nipuna ESOP

In April 2004, Nipuna established its Employee Stock Option Plan (the “ESOP”). As per the ESOP, the options are granted at fair value as determined by an independent valuer as on the date of the grant and hence no compensation cost has been recognized. These options vest starting with 33.33% at the end of the second year, 33.33% at the end of the third year and remaining 33.34% at the end of the fourth year from the date of grant.

Effect of recently issued accounting pronouncements

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). The Interpretation clarifies the accounting for uncertainty in income taxes recognized in a Company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006, which is April 1, 2007 for us. The differences, if any between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. We are in the process of evaluating the impact this new standard will have on our financial position, results of operations and liquidity.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 (“SAB 108”) to add Section N, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” to Topic 1, Financial Statements, of the Staff Accounting Bulletin Series. Section N provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. Registrants electing not to restate prior periods should reflect the effects of initially applying the guidance in Topic 1N in their annual financial statements covering the first fiscal year ending after November 15, 2006. The cumulative effect of the initial application should be reported in the carrying amounts of assets and liabilities as of the beginning of that fiscal year, and the offsetting adjustment should be made to the opening balance of retained earnings for that year. Registrants should disclose the nature and amount of each individual error being corrected in the cumulative adjustment. The disclosure should also include when and how each error being corrected arose and the fact that the errors had previously been considered immaterial. Early application of the guidance in Topic 1N is encouraged in any report for an interim period of the first fiscal year ending after November 15, 2006, filed after the publication of this Staff Accounting Bulletin. We are in the process of evaluating the impact SAB 108 will have on our financial position, results of operations and liquidity.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, which is fiscal year commending April 1, 2008 for us. We are in the process of evaluating the impact SFAS 157 will have on our financial position, results of operations, liquidity and its related disclosures.

recognition and disclosure provisions of SFAS 158 effective for fiscal years ending after December 15, 2006 which is fiscal year ending on March 31, 2007 for us. SFAS 158 does not permit retrospective application of its provisions. We are in the process of evaluating the impact SFAS 158 will have on our financial position, results of operations, liquidity and its related disclosures.

Effects of Inflation

India has experienced relatively high rates of inflation in the past however it has not had a significant effect on our results of operations and financial condition to date.

Exchange Rates

The following table sets forth, for each of the months indicated, information concerning the number of Indian rupees for which one U.S. dollar could be exchanged based on the average of the noon buying rate in the City of New York on the last day of each month during each of such months for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York:


Month	Month end		Average		High		Low
	(Rupees)
April-05		43.48		43.64		43.72		43.48
May-05		43.62		43.41		43.62		43.21
June-05		43.51		43.52		43.71		43.44
July-05		43.40		43.43		43.59		43.05
August-05		44.00		43.55		44.00		43.36
September-05		43.94		43.85		43.98		43.75
October-05		45.09		44.76		45.11		44.00
November-05		45.87		45.63		45.87		45.02
December-05		44.95		45.56		46.26		44.94
January-06		43.96		44.20		44.92		43.89
February-06		44.21		44.23		44.54		44.10
March-06		44.48		44.34		44.58		44.09
April-06		44.86		44.82		45.09		44.39
May-06		46.22		45.20		46.22		44.69
June-06		45.87		45.89		46.25		45.50
July-06		46.49		46.37		46.83		45.84
August-06		46.43		46.45		46.61		46.32
September-06		45.95		46.01		46.38		45.74

Risk Management Policy

Our functional currency is the Indian rupee, however we transact a major portion of our business in U.S. dollars and other currencies and accordingly face foreign currency exposure from our sales in the United States and elsewhere and from our purchases from overseas suppliers in U.S. dollars and other currencies. Accordingly, we are exposed to substantial risk on account of adverse currency movements in global foreign exchange markets. The exchange rate between the rupee and the U.S. dollar has changed substantially in recent years and may fluctuate substantially in the future.

We manage risk on account of foreign currency fluctuations through treasury operations. Our risk management strategy is to identify risks we are exposed to, evaluate and measure those risks, decide on managing those risks, regular monitoring and reporting to management. The objective of our risk management policy is to minimize risk arising from adverse currency movements by managing the uncertainty and volatility of foreign exchange fluctuations by hedging the risk to achieve greater predictability and stability. Our risk management policies are approved by senior management and include implementing hedging strategies for foreign currency exposures, specification of transaction limits; specifying authority and responsibility of the personnel involved in executing, monitoring and controlling such transactions.

We enter into foreign exchange forward and options contracts to mitigate the risk of changes in foreign exchange rates on cash flows denominated in U.S. dollars. We enter into foreign exchange forward and options contracts where the counter party is generally a bank. We consider the risks of non-performance by the counter party as non-material. These contracts mature between one and nine

months. These contracts do not qualify for hedge accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Any derivative that is either not a designated hedge, or is so designated but is ineffective per SFAS No. 133, is marked to market and recognized in earnings.

The following tables give details in respect of our outstanding foreign exchange forward and options contracts:


	As at September 30,
	2006			2005
	Amount			Amount
	(dollars in millions)
Aggregate contracted principal amounts of contracts outstanding:
Forward contracts	$	65.0		$	105.5
Options contracts		93.0			136.5

Total	$	158.0		$	242.0

Gains/(loss) on outstanding contracts:
Forward contracts	$	(0.5	)	$	—
Options contracts		(2.6	)		(0.9	)

Total	$	(3.1	)	$	(0.9	)

The outstanding foreign exchange forward and options contracts as of September 30, 2006 mature between one to seventeen months.

Gains/(losses) on foreign exchange forward and options contracts included under the head other income/(expense) in the statement of income are as stated below:


	Three months ended September 30,					Six months ended September 30,
	2006		2005			2006			2005
	Amount		Amount			Amount			Amount
	(unaudited)		(unaudited)			(unaudited)			(unaudited)
	(dollars in millions)
Forward contracts	$	0.4	$	(0.7	)	$	(1.3	)	$	0.2
Options contracts		1.1		(0.9	)		(1.9	)		(0.1	)

Total	$	1.5	$	(1.6	)	$	(3.2	)	$	0.1

Off-Balance Sheet Arrangements

We currently do not engage in any off-balance sheet arrangements.

Foreign Currency Transactions/ Translation

During the six months ended September 30, 2006 and 2005, 77.7% and 78.5%, respectively, of our total revenues were generated in U.S. dollars. A significant amount of our expenses were incurred in Indian rupees and the balance was primarily incurred in U.S. dollars, European currencies and Japanese yen. Our functional currency and the functional currency for our subsidiaries located in India is the Indian rupee; however, U.S. dollar, Pound Sterling, Singapore Dollar and Renminbi are the functional currencies of our foreign subsidiaries located in the United States, United Kingdom, Singapore and China respectively. The translation of such foreign currencies into U.S. dollars (our reporting currency) is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using monthly simple average exchange rates prevailing during the reporting periods. Adjustments resulting from the translation of functional currency financial statements to reporting currency are accumulated and reported as other comprehensive income, a separate component of shareholders’ equity.

We expect that a majority of our revenues will continue to be generated in U.S. dollars for the foreseeable future and that a significant portion of our expenses, including personnel costs as well as capital and operating expenditures, will continue to be denominated in Indian rupees. Consequently, our results of operations will be affected to the extent the rupee appreciates/ depreciates against the U.S. dollar.

The average exchange rate of rupee to U.S. dollar during the six months ended September 30, 2006 was Rs. 45.79 against Rs. 43.57 during the six months ended September 30, 2005. As at September 30, 2006, the rupee depreciated to Rs. 45.95 against Rs. 44.48 as at March 31, 2006. As at September 30, 2005, the rupee depreciated to Rs. 43.94 against Rs.43.62 as at March 31, 2005. As a result, gain on foreign exchange transactions was $12.8 million during the six months ended September 30, 2006 as compared to a loss of $0.6 million during the six months ended September 30, 2005.

Risk Factors

Any investment in our ADSs involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this Quarterly Report, before you decide to buy our ADSs. If any of the following risks actually occur, our company could be seriously harmed. In any such case, the market price of our ADSs could decline, and you may lose all or part of the money you paid to buy our ADSs.

Risks Related to Our Overall Operations

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

Our revenues and profitability have grown rapidly in recent years and may fluctuate significantly in the future from period to period. Therefore, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as an indication of our future performance. The quarterly fluctuation of revenues is primarily because we derive our revenues from fees for services generated on a project-by-project basis. Our projects vary in size, scope and duration. For example, we have some projects that employ several people for only a few weeks and we have other projects that employ over 100 people for six months or more. A customer that accounts for a significant portion of our revenue in a particular period may not account for a similar portion of our revenue in future periods. In addition, customers may cancel contracts or defer projects at any time for a number of different reasons. Furthermore, increasing wage pressures, employee attrition, pressure on billing rates, the time and expense needed to train and productively utilize new employees and changes in the proportion of services rendered offshore can affect our profitability in any period. There are also a number of factors, other than our performance, that are not within our control that could cause fluctuations in our operating results from period to period. These include (i) the duration of tax holidays or tax exemptions and the availability of other Government of India incentives; (ii) currency fluctuations, particularly when the rupee appreciates in value against the U.S. dollar, since the majority of our revenues are in U.S. dollars and a significant part of our costs are in rupees; and (iii) other general economic and political factors. As a result, our revenues and our operating results in a particular period are difficult to predict, may decline in comparison to corresponding prior periods regardless of the strength of our business. If this were to occur, the share price of our equity shares and our ADSs would likely decline significantly.

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

We have experienced significant growth in recent periods. Our total revenues for the six months ended September 30, 2006 increased by 31.3% as compared to the six months ended September 30, 2005, and in fiscal 2006 our total revenues increased by 38.1% as compared to fiscal 2005. As of September 30, 2006, we had 34,405 employees (including employees of Nipuna), whom we refer to as associates, worldwide as compared to 24,406 associates as of September 30, 2005. In addition, we are continuing our geographical expansion. We have offshore facilities in India and overseas facilities located in Australia, Canada, China, Hungary, Japan, Malaysia, Singapore, United Arab Emirates, United Kingdom and United States. In addition, we have sales and marketing offices located in Canada, Germany, Italy, the Netherlands, Spain, Sweden, United Kingdom and United States and sales and marketing offices located in the rest of the world.

We expect our growth to place significant demands on our management and other resources and to require us to continue to develop and improve our operational, financial and other internal controls, both in India and elsewhere. In particular, continued growth increases the challenges involved in:

	•		recruiting and retaining sufficiently skilled technical, marketing and management personnel;

	•		providing adequate training and supervision to maintain our high quality standards;

	•		preserving our culture and values and our entrepreneurial environment; and

	•		developing and improving our internal administrative infrastructure, particularly our financial, operational, communications and other internal systems.

Our inability to manage our growth effectively could disrupt our business and reduce our profitability.

The current economic environment, pricing pressure and rising wages in India have negatively impacted our revenues and operating results.

Spending on IT in most parts of the world has recently increased after a two-year decreasing trend due to a challenging global economic environment. We do experience pricing pressures from our customers, which can negatively impact our operating results. If economic growth slows, our utilization and billing rates for our associates could be adversely affected which may result in lower gross and operating profits.

Wage costs in India, including in the IT services industry, have historically been significantly lower than wage costs in the United States and Europe for comparably skilled professionals, which has been one of our competitive advantages. However, large companies are establishing offshore operations in India, resulting in wage pressures for Indian companies, which may prevent us from sustaining this competitive advantage and may negatively affect our profit margins. Wages in India are increasing at a faster rate than in the United States, which could result in increased cost of IT professionals, particularly project managers and other mid-level professionals. We may need to increase the levels of our associate compensation more rapidly than in the past to remain competitive with other employers, or seek to recruit in other low labor cost jurisdictions to keep our wage costs low. Compensation increases may result in a material adverse effect on our financial performance.

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

The IT services market is characterized by rapid technological change, evolving industry standards, changing customer preferences and new product and service introductions. Our future success will depend on our ability to anticipate these advances and develop new product and service offerings to meet customer needs and complement our offerings of end-to-end IT services. For example, we have invested significant resources in research and development efforts, such as in our enterprise business solution laboratory and grid computing laboratory, in order to continually develop capabilities to provide new services to our customers. Should we fail to develop such capabilities on a timely basis to keep pace with the rapidly changing IT market or if the services or technologies that we develop are not successful in the marketplace, our business and profitability will suffer and it is unlikely that we would be able to recover our research and development costs. Moreover, products, services or technologies that are developed by our competitors may render our services non-competitive or obsolete.

Our revenues are highly dependent on customers primarily located in the United States and customers concentrated in certain industries, and economic slowdowns or factors that affect the economic health of the United States and our customers’ industries may affect our business.

In the six months ended September 30, 2006 and in fiscal 2006 and 2005, approximately 64.5%, 64.9% and 68.3%, respectively, of our total revenues were derived from the United States. For the same periods, we earned 27.1%, 28.6% and 29.2% of our IT revenues from the manufacturing industry and 18.1%, 18.5% and 17.8%, of our IT revenues from the banking and finance industry respectively. If the current economic recovery in the United States does not continue, our customers may reduce or postpone their technology spending significantly, which may in turn lower the demand for our services and negatively affect our revenues and profitability. Further, any significant decrease in the growth of the manufacturing or banking and finance industries, or significant consolidation in these industries, or other industry segments on which we focus, may reduce the demand for our services and negatively affect our revenues and profitability.

Recently, some countries and organizations have expressed concerns about a perceived association between offshore outsourcing and the loss of jobs. In the United States, in particular, there has been increasing political and media attention on these issues following the growth of offshore outsourcing. Any changes in existing laws or the enactment of new legislation restricting offshore outsourcing may adversely impact our ability to do business in the United States, which is the largest market for our services. In the recent past, some U.S. states have proposed legislation restricting government agencies from outsourcing their back office processes and IT solutions work to companies outside the United States or have enacted laws that limit or to discourage such outsourcing. Such laws restrict our ability to do business with U.S. government — related entities. It is also possible that U.S. private sector companies working with these governmental entities may be restricted from outsourcing projects related to government contracts or may face disincentives if they outsource certain projects. Any of these events could adversely affect our revenues and profitability. Similarly, recent legislation has come into effect in the United Kingdom in April 2006 requiring in certain circumstances offshore outsourcing providers have to compensate U.K. employees for loss of jobs arising from the offshore migration of business processes.

We face intense competition in the IT services and BPO markets which could prevent us from attracting and retaining customers and could reduce our revenues.

The markets for IT services and BPO are rapidly evolving and highly competitive, and we expect that competition will continue to intensify. We face competition in India and elsewhere from a number of companies, including:

	•		consulting firms such as Accenture, BearingPoint, Capgemini and Deloitte Consulting;

	•		divisions of large multinational technology firms such as Hewlett-Packard and IBM;

	•		IT outsourcing firms such as Computer Sciences Corporation, Electronic Data Systems and IBM Global Services; and

	•		offshore IT services firms such as Infosys Technologies Limited, Tata Consultancy Services Limited and Wipro Limited.

We also compete with software firms such as Oracle and SAP, service groups of computer equipment companies, in-house IT departments of large corporations, programming companies and temporary staffing firms. Nipuna, through which we provide BPO services, faces competition from firms like Progeon Limited and Wipro BPO, formerly known as Wipro Spectramind.

In addition, we have agreed not to compete with Nipuna as part of the investor rights and securities subscription agreements which we have entered into with Nipuna’s two other investors. Pursuant to these agreements, we and our affiliates are restricted from engaging in activities that are or could directly or indirectly be competitive with the business of Nipuna. Such activities include among others providing BPO, soliciting existing or prospective customers of Nipuna to obtain the services offered by Nipuna from other service providers and investing in companies engaged in the same or similar business as Nipuna. These non-compete restrictions apply until the investors redeem all of their preference shares in Nipuna or their equity interest in Nipuna falls below 5% after an initial public offering. As a consequence, we currently offer and plan to continue to offer BPO services only through Nipuna. We cannot assure you that these non-compete restrictions will not adversely affect our ability to attract and retain customers in this competitive market or that they will not adversely affect our revenues.

A significant part of our competitive advantage has historically been the cost advantage relative to service providers in the United States and Europe. Since wage costs in this industry in India are presently increasing at a faster rate than those in the United States and Europe, our ability to compete effectively will become increasingly dependent on our reputation, the quality of our services and our expertise in specific markets. Many of our competitors have significantly greater financial, technical and marketing resources and generate greater revenues than us, and we cannot assure you that we will be able to compete successfully with such competitors and will not lose existing customers to such competitors. We believe that our ability to compete also depends in part on a number of factors outside our control, including the ability of our competitors to attract, train, motivate and retain highly skilled technical associates, the price at which our competitors offer comparable services and the extent of our competitors’ responsiveness to customer needs.

Our revenues are highly dependent upon a small number of customers.

We derive a significant portion of our revenues from a limited number of corporate customers. In the six months ended September 30, 2006 and in fiscal 2006 and 2005, our largest customer together with its affiliates, accounted for 6.7%, 8.8% and 10.8%, respectively, of our total revenues. In the six months ended September 30, 2006 and in fiscal 2006 and 2005, our second largest customer accounted for 5.1%, 5.1% and 7.4%, respectively, of our total revenues. In the six months ended September 30, 2006 and in fiscal 2006 and 2005, our five largest customers accounted for 21.3%, 24.2% and 29.2% respectively, of our total revenues. The volume of work performed for specific customers is likely to vary from year to year, particularly since we are usually not the exclusive outside service provider for our customers.

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

Our fixed-price contracts expose us to additional risks, many of which are beyond our control, which may reduce the profitability of these contracts.

As a core element of our business strategy, we offer a portion of our services on a fixed-price basis, along-with a time-and-materials basis. In the six months ended September 30, 2006 and in fiscal 2006 and 2005, we derived 42.4%, 35.1% and 34.2%, respectively, of our IT services revenues from fixed-price contracts. Although we use our software engineering processes and past project experience to reduce the risks associated with estimating, planning and performing fixed-price projects, we bear the risk of cost overruns, completion delays and wage inflation in connection with these projects. We may also have to pay damages to our customers for completion delays. Many of these project risks may be beyond our control. Our failure to accurately estimate the resources and time required for a project, future wage inflation and currency exchange rates, or our failure to complete our contractual obligations within the time frame committed could reduce the profitability of our fixed-price contracts.

Our customers may terminate projects before completion or choose not to renew contracts, many of which are terminable at will, which could adversely affect our profitability.

Our contracts with customers do not commit our customers to provide us with a specific volume of business and can typically be terminated by our customers with or without cause, with little or no advance notice and without penalty. Any failure to meet a customer’s expectations could result in a cancellation or non-renewal of a contract. Additionally, our contracts with customers are typically limited to a specific project and not any future work. Our multi-year contracts will be due for renewal from time to time, and we cannot assure you that our customers will choose to renew such contracts for a similar or longer duration, on terms as favorable as their current terms or at all. Other than our performance, there are also a number of factors not within our control that could cause the loss of a customer. Our customers may demand price reductions, change their outsourcing strategy by moving more work in-house or to one of our competitors, or replace their existing software with packaged software supported by licensors, any of which could reduce our revenue and profitability.

A number of our customer contracts are conditioned upon our performance, which, if unsatisfactory, could result in less revenues than previously anticipated.

We continue to consider the viability of introducing performance-based or variable-pricing contracts. Should we increase our use of value-based pricing terms, it will become more difficult for us to predict the revenues we will receive from our customer contracts, as such contracts would likely contain a higher number of contingent terms for payment of our fees by our customers. Our failure to meet contract goals or a customer’s expectations in such performance-based contracts may result in lower revenues, and a less profitable or an unprofitable engagement.

Some of our multi-year customer contracts contain certain provisions which, if triggered, could result in lower future revenues and profitability under the contract.

Some of our multi-year customer contracts contain benchmarking provisions, most favored customer clause and/or provisions restricting personnel from working on projects of our customers’ competitors. Benchmarking provisions allow a customer in certain circumstances to request a benchmark study prepared by an agreed upon third-party comparing our pricing, performance and efficiency gains for delivered contract services with that of an agreed list of other service providers for comparable services. Based on the results of the benchmarking study and depending on the reasons for any unfavorable variance, we may be required to make improvements in the services we provide or to reduce the pricing for services to be performed under the balance term of the contract, which may result in lower future revenues and profitability under the contract.

Most favored customer clauses generally provide that if, during the term of the contract, we were to offer similar services to any other customers on terms and conditions more favorable than those provided in such contract, we would be obligated to offer equally favorable terms and conditions to the customer. As pricing pressures increase, some customers may demand price reductions or other pricing incentives. Any pricing reduction agreed to in a subsequent contract may require us to offer equally favorable terms to other customers with whom we have a most favored contract under the remaining term of contracts with those customers which may result in lower future revenues and profitability.

A number of our customer contracts provide that, during the term of the contract and for a certain period thereafter ranging from six to twelve months, we may not provide similar services to any of their competitors using the same personnel. This restriction may hamper our ability to compete for and provide services to customers in the same industry, which may result in lower future revenues and profitability.

We may be unable to attract skilled professionals in the competitive labor market.

Our ability to execute projects and to obtain new customers depends largely on our ability to attract, train, motivate and retain highly skilled technical associates, particularly project managers, project leaders and other senior technical personnel. We believe that there is significant competition for technical associates who possess the skills needed to perform the services that we offer. An inability to hire and retain additional qualified personnel will impair our ability to bid for or obtain new projects and to continue to expand our business. Also, we cannot assure you that we will be able to assimilate and manage new technical associates effectively. In the six months ended September 30, 2006 and in fiscal 2006 and 2005, we experienced associate attrition in the IT services segment at a rate of 18.3%, 19.2% and 16.5%, respectively. Any increase in our attrition rates, particularly the attrition rate of experienced software engineers, project managers and project leaders, could harm our growth strategy. We cannot assure you that we will be successful in recruiting and retaining a sufficient number of replacement technical associates with the requisite skills to replace those technical associates who leave. Further, we cannot assure you that we will be able to redeploy and retrain our technical associates to keep pace with continuing changes in evolving technologies and changing customer preferences. Should we be unable to successfully recruit, retain, redeploy or retrain our technical associates, we may become less attractive to potential customers and may fail to satisfy the demands of existing customers, which would result in a decrease in revenues and profitability.

We dedicate significant resources to develop international operations which may be more difficult to manage and operate.

In addition to our offshore IT centers in India, we have established IT centers in Australia, Canada, China, Hungary, Japan, Malaysia, Singapore, United Arab Emirates, United Kingdom and United States and plan to open additional international facilities. Because of our limited experience in managing and operating facilities outside of India, we are subject to additional risks related to our international expansion strategy, including risks related to complying with a wide variety of national and local laws, restrictions on the import and export of certain technologies and multiple and possibly overlapping tax structures. In addition, we may face competition in other countries from companies that may have more experience with local conditions or with international operations generally. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture.

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

As of September 30, 2006, we had contractual commitments of approximately $37.9 million for capital expenditures, and we estimate spending a further 100.0 million until 2007. We may encounter cost overruns or project delays in connection with new facilities. These expansions will significantly increase our fixed costs. If we are unable to grow our business and revenues proportionately, our profitability will be reduced.

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

The vast majority of our associates are Indian nationals. Most of our projects require a portion of the work to be completed at the customer’s location which is typically outside India. The ability of our associates to work in the United States, Europe and in other countries outside India depends on the ability to obtain the necessary visas and work permits. As of September 30, 2006, the majority of our associates located outside India were in the United States and held either H-1B visas, allowing the employee to remain in the United States during the term of the work permit and work as long as he or she remains an employee of the sponsoring firm, or L-1 visas, allowing the employee to stay in the United States only temporarily. Although there is no limit to new L-1 visas, there is a limit to the aggregate number of new H-1B visas that the U.S. Citizenship and Immigration Services, or CIS, may approve in any government fiscal year. The recent 2005 Appropriations Bill further precludes foreign companies from obtaining L-1 visas for employees with specialized knowledge: (1) if such employees will be stationed primarily at the worksite of another company in the U.S. and the employee will not be controlled and supervised by his employer, or (2) if the placement is essentially an arrangement to provide labor for hire rather than in connection with the employee’s specialized knowledge. The CIS has also issued new guidelines to more closely verify the qualifying criteria to restrict the liberal usage of L1visas. Immigration laws in the United States may also require us to meet certain levels of compensation and to comply with other legal requirements including labor certifications as a condition to obtaining or maintaining work visas for our associates working in the United States. The CIS announced on June 1 2006 that it had received sufficient applications to fill up all 65,000 visas that were available for the year. The CIS announced that it was considering increasing the H1B by an additional 65,000 visas; however this proposal has not yet been enacted, and if it does it is likely to only occur for the next fiscal year 2007.

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

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

We may acquire or make strategic investments in complementary businesses, technologies, services or products, or enter into strategic partnerships or alliances with third parties in order to enhance our business. It is possible that we may not be able to identify suitable acquisitions targets and candidates for strategic investments or partnerships, or if we do identify such targets or candidates, we may not be able to complete those transactions on terms commercially acceptable to us, or at all. The inability to identify suitable acquisition targets or investments or the inability to complete such transactions may affect our competitiveness and our growth prospects. As of the date of this document, we have no agreements or understanding to enter into any material acquisition, investment, partnership, joint venture or alliance.

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

We may make strategic investments in early-stage technology start-up companies in order to gain experience in or exploit niche technologies. However, our investments may not be successful. The lack of profitability of any of our investments could have a material adverse effect on our operating results.

System failure could disrupt our business.

To deliver our services to our customers, we must maintain a high speed network of satellite, fiber optic and land lines and an active voice and data communications 24 hours a day between our main offices in Hyderabad, our other IT centers in India and globally and the offices of our customers worldwide. Any systems failure or a significant lapse in our ability to transmit voice and data through satellite and telephone communications could result in lost customers and curtailed operations which would reduce our revenue and profitability.

We may be liable to our customers for damages caused by disclosure of confidential information or system failure.

We are often required to collect and store sensitive or confidential customer and consumer data. Many of our customer agreements do not limit our potential liability for breaches of confidentiality. If any person, including any of our associates, penetrates our network security or misappropriates sensitive data, we could be subject to significant liability from our customers or from our customers’ clients for breaching contractual confidentiality provisions or privacy laws. Unauthorized disclosure of sensitive or confidential customer and consumer data, whether through breach of our computer systems, system failure or otherwise, could damage our reputation and cause us to lose customers. Many of our contracts involve projects that are critical to the operations of our customers’ businesses and provide benefits which may be difficult to quantify. Any failure in a customer’s system or breaches of security could result in a claim for substantial damages against us, regardless of our alleged responsibility for such failure. Generally, we attempt to limit our contractual liability for consequential damages in rendering our services; however these limitations on liability may be unenforceable in some cases, or may be insufficient to protect us from liability for damages. In respect of some of our contracts, we sub-contract a part of the work to certain sub-contractors. We are liable to our customers for any breach or non-performance by our sub-contractors under the sub-contracts. We maintain general liability insurance coverage, including coverage for errors and omissions; however this coverage may not continue to be available on reasonable terms and may be unavailable in sufficient amounts to cover one or more large claims. Further, an insurer might disclaim coverage as to any future claim. A successful assertion of one or more large claims against us that exceeds our available insurance coverage or results in changes in our insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirement, could adversely affect our operating results and profitability.

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

We are highly dependent on the senior members of our management team. Our future performance will be affected by any disruptions in the continued service of these persons. We do not maintain key man life insurance for any of the senior members of our management team or other key personnel, except for our chief executive officer. Competition for senior management in our industry is intense, and we may not be able to retain such senior management personnel or attract and retain new senior management personnel in the future. The loss of any member of our senior management team or other key personnel may have a material adverse effect on our business, results of operations and financial condition.

Our insiders are significant shareholders, are able to control the election of our board and may have interests which conflict with those of our shareholders or holders of our ADSs.

Our executive officers and directors, together with members of their immediate families and entities controlled by them, beneficially owned, in the aggregate approximately 8.78 % of our outstanding equity shares as of September 30, 2006. As a result, acting together, this group has the ability to exercise significant control over most matters requiring our shareholders’ approval, including the election and removal of directors and significant corporate transactions. These insider shareholders may exercise control even if they are opposed by our other shareholders. Without the consent of these insider shareholders, we could be delayed or prevented from entering into transactions (including the acquisition of our company by third parties) that may be viewed as beneficial to the Company and all of the shareholders.

Our financial results are impacted by the financial results of entities that we do not control.

As of September 30, 2006, we have a significant, non-controlling interests in Satyam Venture Engineering Services Private Limited, or Satyam Venture, and CA Satyam ASP Private Limited, or CA Satyam, that are accounted for under U.S. GAAP using the equity method of accounting. Under this method, we are obligated to report as “Equity in earnings (losses) of associated companies, net of taxes” a pro-rata portion of the financial results of any such company in our statement of operations even though we do not control such company but have the ability to exercise certain influence over their operating and financial policies. Thus, our reported results of operations can be significantly higher or lower depending on the results of Satyam Venture and CA Satyam or other companies in which we may make similar investments even though we may have only a limited ability to influence their activities. We may also be required to record additional impairment charges in their carrying value if we deem the investment to be impaired due to adverse events, many of which are outside of our control, on their business, results of operations and financial condition in future periods. Currently, we make estimates in the preparation of financial statements including the utility of goodwill. Changes in such estimates resulting from events, many of which are outside of our control, may result in the impairment of goodwill which would negatively impact our net income under U.S. GAAP. Such impact on net income may result in a reduction of the market value of our shares.

The value of our interest in our subsidiaries may decline.

Nipuna, our subsidiary, has experienced losses during each year since its inception and it is likely that it will continue to experience such losses in the future. Our recently acquired subsidiaries, Citisoft and Knowledge Dynamics have also experienced losses since our acquisition and they may also incur losses that might have an adverse effect on our operating results in future periods.

Stock-based compensation expenses may significantly reduce our net income under U.S. GAAP.

Although Satyam has suspended, except in certain cases, new grants of stock options as of April 1, 2005, our reported income under U.S. GAAP has been and will continue to be affected by the grant of warrants or options under our various associate benefit plans. Under the terms of our existing plans, some of which have outstanding obligations to grant options in future, associates are typically granted warrants or options to purchase equity shares at a substantial discount to the current market value. These grants require us to record non-cash compensation expenses under currently applicable U.S. GAAP, amortized over the vesting period of the warrants or options. Depending on the market value or fair value of our equity shares on the dates the outstanding grants were made and future grants are made, amortization of deferred stock-based compensation may contribute to reducing our operating income and net income under U.S. GAAP. Our subsidiaries also have stock option schemes which have and will continue to generate stock-based compensation expenses and have and will reduce our operating income and net income.

Our earnings will be adversely affected once we change our accounting policies with respect to the expensing of stock options.

On December 16, 2004, the FASB issued FAS 123R, Share-Based Payment, an amendment of FASB Statements No. 123 and 95, which requires that such transactions be accounted for using a fair-value-based method and recognized as expenses in our consolidated statement of operations. As of the required effective date, the standard requires that the modified prospective method be used, which requires that the fair value of new awards granted from the beginning of the year of adoption (plus unvested awards at the date of adoption) be expensed over the vesting period. In addition, the statement encourages the use of the “binomial” approach to value stock options, which differs from the Black-Scholes option pricing model that we currently use in the footnotes to our consolidated financial statements.

Satyam adopted SFAS 123R using the modified prospective transition method, which required the application of the accounting standard as of April 1, 2006, the first day of Satyam’s fiscal year 2007. Due to adoption of SFAS 123R, Stock-compensation expenses increased to $7.1 million, or 1.1% of revenues, during the six months ended September 30, 2006 from $0.3 million during the six months ended September 30, 2005.

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

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

In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors’ audit of that assessment requires the commitment of significant financial and managerial resources. We consistently assess the adequacy of our internal controls over financial reporting, remediate any control deficiencies that may be identified, and validate through testing that our controls are functioning as documented. While we do not anticipate any material weaknesses or significant deficiencies, our independent auditors may be unable to issue unqualified attestation reports on management’s assessment on the operating effectiveness of our internal controls over financial reporting.

Additionally, under revised corporate governance standards adopted by Bombay Stock Exchange Ltd., or the BSE, and The National Stock Exchange of India Limited, or the NSE, which we collectively refer to as the Indian Stock Exchanges, we are required to comply with additional standards from December 31, 2005. These standards include a certification by our chief executive officer and chief financial officer that they have evaluated the effectiveness of our internal control systems and that they have disclosed to our auditors and our audit committee any deficiencies in the design or operation of our internal controls of which they may become aware, as well as any steps taken or proposed to resolve the deficiencies.

We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In addition, the new laws, regulations and standards regarding corporate governance may make it more difficult for us to obtain director and officer liability insurance. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with their performance of duties. As a result, we may face difficulties attracting and retaining qualified board members and executive officers, which could harm our business. If we fail to comply with new or changed laws, regulations or standards of corporate governance, our business and reputation may be harmed.

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic issuer, which may, among other things, limit the information available to holders of our securities.

As a foreign private issuer, we are subject to requirements under the Securities Act of 1933, as amended, or Securities Act, and the Securities Exchange Act of 1934, as amended, or Exchange Act, which are different from the requirements applicable to domestic U.S. issuers. For example, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit

recovery provisions of Section 16 of the Exchange Act and the rules there under with respect to their purchases and sales of our ordinary shares and/or ADSs. The periodic disclosure required of foreign private issuers is more limited than the periodic disclosure required of domestic U.S. issuers and therefore there may be less publicly available information about us than is regularly published by or about U.S. public companies in the United States.

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

Terrorist attacks, such as the attacks of September 11, 2001 in the United States, and other acts of violence or war, such as the continuing conflict in Iraq, have the potential to have a direct impact on our customers. To the extent that such attacks affect or involve the United States, our business may be significantly impacted, as the majority of our revenues are derived from customers located in the United States. In addition, such attacks may make travel more difficult, may make it more difficult to obtain work visas for many of our associates who are required to work in the United States, and may effectively curtail our ability to deliver our services to our customers. Such obstacles to operate our business may increase our expenses and negatively affect the results of our operations. Many of our customers visit several IT services firms, including their offshore facilities, prior to reaching a decision on vendor selection. Terrorist threats, attacks or war could make travel to our facilities more difficult for our customers and may delay, postpone or cancel decisions to use our services.

Risks Related to Investments in Indian Companies

We are incorporated in India, and a substantial portion of our assets and our associates are located in India. Consequently, our financial performance and the market price of our ADSs will be affected by changes in exchange rates and controls, interest rates, Government of India policies, including taxation policies, as well as political, social and economic developments affecting India.

The Government of India has recently taken actions to curtail or eliminate tax benefits that we have historically benefited from.

The statutory corporate income tax rate in India is currently 30.0%. This tax rate is presently subject to a 10.0% surcharge. The amount of tax and surcharge payable is further subject to a 2.0% education cess, resulting in an effective tax rate of 33.66%. We benefit from tax incentives provided to software entities such as an exemption from payment of Indian corporate income taxes until the earlier of fiscal 2009 or 10 consecutive years of operations for software development facilities designated as “Software Technology Parks,” or STP units. The benefits of this tax incentive have historically resulted in our effective tax rate being well below statutory rates. The exemption for our STP units was reduced from 100% to 90% for the fiscal 2003, and is expected to expire between fiscal 2006 and fiscal 2010. Exemption for two of our STP units in Hyderabad expired during fiscal 2006 and the exemption for one of our STP units in Bangalore expired in the six months ended September 30, 2006. We also earn certain other foreign income and domestic income, which is taxable irrespective of the above tax exemption.

All facilities registered in the exemption program before March 31, 2001, which include all of our existing facilities in India and registrations for two new facilities which have not yet been constructed, will continue to benefit from this program under present law. Over time, as we construct additional facilities, however, the overall benefits of this tax program to our company will decrease with a consequential increase in our effective tax rate. When our tax holidays expire or terminate, our tax expense will materially increase, reducing our profitability. We cannot assure you as to what action the present or future governments of India will take regarding tax incentives for the IT industry.

Foreign investment restrictions under Indian law may adversely impact the value of our ADSs, including, for example, restrictions that limit your ability to reconvert equity shares into ADSs, which may cause our equity shares to trade at a discount or premium to the market price of our ADSs.

Our equity shares are listed and traded on the Indian Stock Exchanges, and they may trade on these stock exchanges at a discount or premium to the ADSs traded on the NYSE, in part because of restrictions on foreign ownership of the underlying shares.

Our ADSs are freely convertible into our equity shares under the deposit agreement governing their issuance, or the Deposit Agreement. The Reserve Bank of India, or RBI, prescribes fungibility regulations permitting, subject to compliance with certain terms and conditions, the reconversion of equity shares to ADSs provided that such equity shares are purchased from an Indian Stock Exchange through stock brokers and the actual number of ADSs outstanding after such reconversion is not greater than the original number of ADSs outstanding. If you elect to surrender your ADSs and receive equity shares, you will only be able to trade those equity shares on an Indian Stock Exchange and, under present law, it is unlikely you will be permitted to reconvert those equity shares to ADSs. Additionally, investors who exchange ADSs for the underlying equity shares and are not holders of record will be required

to declare to us details of the holder of record, and the holder of record will be required to disclose the details of the beneficial owner. Any investor who fails to comply with this requirement may be liable for a fine of up to Rs.1,000 for each day such failure continues. Such restrictions on fungibility of the underlying equity shares to ADSs may cause our equity shares to trade at a discount or premium to the ADSs.

The sale of equity shares underlying the ADSs by a person not resident in India to a resident of India does not require the prior approval of the RBI, provided such sales are effected through the Indian Stock Exchanges. Any sale of such underlying equity shares by a person not resident in India to a resident of India outside of the Indian Stock Exchanges can, however, be completed without prior RBI approval, provided such equity shares are transferred based on a pricing formula established by the Indian foreign exchange laws which set a maximum price requirement for sale of such equity shares.

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

South Asia has from time to time experienced instances of civil unrest and hostilities among neighboring countries, including between India and Pakistan. In recent years there have been military confrontations between India and Pakistan that have occurred in the region of Kashmir and along the India-Pakistan border. There has also been a recent increase in the incidence of terrorist attacks in India, including various bombings in Delhi earlier this year and the train bombings in Mumbai on July 11, 2006. Military activity or terrorist attacks in the future could influence the Indian economy by disrupting communications and making travel more difficult and such political tensions could create a perception that investments in Indian companies involve higher degrees of risk. This, in turn, could have a material adverse effect on the market for securities of Indian companies, including our equity shares and our ADSs, and on the market for our services. In addition, as an international company, our offshore and onsite operations may be impacted by natural disasters such as earthquakes, tsunamis, floods, disease and health epidemics. In December 2004, certain parts of India were severely affected by a tsunami triggered by an earthquake in the Indian Ocean, and in October 2005, certain parts of northern India, Pakistan and Afghanistan were severely devastated by a major earthquake. Though our operations were not affected by these disasters, we cannot guarantee that in the future our operations will not be affected by the effect such natural disasters may have on the economies of India and other countries in the region.

Political instability could seriously harm business and economic conditions in India generally and our business in particular.

During the past decade, the Government of India has pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant. The general elections in 2004 for the lower house of the Indian Parliament resulted in no party winning an absolute majority and a coalition government has been formed. We cannot assure you that these liberalization policies will continue in the future. Government corruption scandals and protests against privatization could slow down the pace of liberalization and deregulation. The rate of economic liberalization could change, and specific laws and policies affecting technology companies, foreign investment, currency exchange rates and other matters affecting investment in our securities could change as well. A significant change in India’s economic liberalization and deregulation policies could disrupt business and economic conditions in India generally and our business in particular.

Currency exchange rate fluctuations may affect the value of our ADSs and our financial condition.

Our functional currency is the Indian rupee, although we transact a major portion of our business in U.S. dollars and several other currencies and accordingly face foreign currency exposure through our sales in the United States and elsewhere and purchases from overseas suppliers in U.S. dollars and other currencies. Historically, we have held a substantial majority of our cash funds in rupees. Accordingly, changes in exchange rates may have a material adverse effect on our revenues, other income, cost of services sold, gross margin and net income, which may in turn have a negative impact on our business, operating results and financial condition.

The exchange rate between the rupee and the U.S. dollar has changed substantially in recent years and may fluctuate substantially in the future. In the six months ended September 30, 2006 and in fiscal 2006 and 2005, our U.S. dollar-denominated revenues represented 77.7%, 77.6% and 81.8%, respectively, of our total revenues. We expect that a majority of our revenues will continue to be generated in U.S. dollars for the foreseeable future and that a significant portion of our expenses, including personnel costs as well as capital and operating expenditures, will continue to be denominated in rupees. Consequently, our results of operations will be adversely affected to the extent that the rupee appreciates against the U.S. dollar. Depreciation of the rupee will result in foreign currency translation losses in respect of foreign currency borrowings, if any.

We have sought to reduce the effect of exchange rate fluctuations on our operating results by entering into foreign exchange forward and options contracts to cover a portion of outstanding accounts receivable of Satyam Computer Services. As of September 30, 2006 and 2005, we had outstanding forward and options contracts in the amount of $158.0 million and $242.0 million, respectively. We may not be able to purchase contracts adequate to insulate ourselves from foreign exchange currency risks. Additionally, the policies of the RBI may change from time to time which may limit our ability to hedge our foreign currency exposures adequately.

Fluctuations in the exchange rate between the rupee and the U.S. dollar will also affect the U.S. dollar conversion by our Depositary of any cash dividends paid in rupees on the equity shares represented by the ADSs. In addition, fluctuations in the exchange rate between the Indian rupee and the U.S. dollar will affect the U.S. dollar equivalent of the Indian rupee price of our equity shares on the Indian Stock Exchanges. As a result, these fluctuations are likely to affect the prices of our ADSs. These fluctuations will also affect the dollar value of the proceeds a holder would receive upon the sale in India of any equity shares withdrawn from our Depositary under the deposit agreement. We cannot assure you that holders of ADSs will be able to convert rupee proceeds into U.S. dollars or any other currency or with respect to the rate at which any such conversion could occur. In addition, our market valuation could be seriously harmed by the devaluation of the rupee if U.S. investors analyze our value based on the U.S. dollar equivalent of our financial condition and results of operations.

Our ability to acquire companies organized outside India as part of our growth strategy depends on the approval of the Government of India and/or the RBI and failure to obtain this approval could negatively impact our business.

We have developed a growth strategy based on, among other things, expanding our presence in existing and new markets and selectively pursuing joint venture and acquisition opportunities. Foreign exchange laws in India presently permit Indian companies to acquire or invest in foreign companies without any prior governmental approval if the transaction amount does not exceed 200% of the net worth of the foreign company as of the date of its most recent audited balance sheet. If consideration for the transaction is paid out of the proceeds of an American Depositary Receipt, or ADR, or Global Depositary Receipt, or GDR sale, Indian exchange control laws do not impose any investment limits. Acquisitions in excess of the 200% net worth threshold require prior RBI approval. It is possible that any required approval from the RBI may not be obtained. Our failure to obtain approvals for acquisitions of companies organized outside India may restrict our international growth, which could negatively affect our business and prospects.

If we are unable to protect our intellectual property rights, or if we infringe on the intellectual property rights of others, our business may be harmed.

The laws of India do not protect intellectual property rights to the same extent as the laws in the United States. Further, the global nature of our business makes it difficult for us to control the ultimate destination of our products and services. The misappropriation or duplication of our intellectual property could curtail our operations or reduce our profitability.

We rely upon a combination of non-disclosure and other contractual arrangements and copyright, trade secret and trademark laws to protect our intellectual property rights. Ownership of software and associated deliverables created for customers is generally retained by or assigned to our customers, and we do not retain an interest in such software and deliverables.

We have applied for the registration of “Satyam” and other related marks as trademarks in India, the United States and in other jurisdictions where we carry on business. We currently require our technical associates to enter into non-disclosure and assignment of rights agreements to limit use of, access to and distribution of confidential and proprietary information. We cannot assure you that the steps taken by us in this regard will be adequate to prevent misappropriation of confidential and proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights.

Although we believe that our services and products do not infringe upon the intellectual property rights of others, we cannot assure you that such a claim will not be asserted against us in the future. Assertion of such claims against us could result in litigation, and we cannot assure you that we would prevail in such litigation or be able to obtain a license for the use of any infringed intellectual property from a third party on reasonable commercial terms.

We expect that the risk of infringement claims against us will increase if more of our competitors are able to obtain patents for software products and processes. Any such claims, regardless of their outcome, could result in substantial cost to us and divert management’s attention from our operations. In the future, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any infringement claim or litigation against us could therefore result in substantial costs and diversion of resources.

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

Presently, Indian technology companies such as ours are able to raise capital outside of India without the prior approval of any Indian governmental authority through an ADR or GDR issuance or an issuance of convertible debt securities, subject with respect to convertible debt issuances to a limit of $500 million in any fiscal year. Changes to Indian foreign exchange laws may create restrictions on our capital raising abilities. For example, a limit on the foreign equity ownership of Indian technology companies may constrain our ability to seek and obtain additional equity investment by foreign investors. In addition, these restrictions, if applied to us, may prevent us from entering into certain transactions, such as an acquisition by a non-Indian company, which might otherwise be beneficial for us and the holders of our equity shares and ADSs.

Conditions in the Indian securities market may affect the price or liquidity of our equity shares and our ADSs.

The Indian securities markets are smaller and more volatile than securities markets in more developed economies. The Indian stock exchanges have in the past experienced substantial fluctuations in the prices of listed securities and the price of our equity shares has been especially volatile. The high and low prices of our shares on the BSE from fiscal 2002 until the latest practicable date are set forth in the table below.


	High				Low
Fiscal Year	Rs		$ equivalent		Rs.		$ equivalent
2002		331.2		6.8		111.0		2.3
2003		291.9		6.1		175.1		3.7
2004		391.0		9.0		127.3		2.9
2005		442.0		10.1		250.0		5.7
2006		862.0		19.4		364.4		8.4
2007 (through October 20, 2006)		890.0		19.4		396.0		8.6

On October 20, 2006, the closing price of our shares on the BSE was Rs. 428.4 ($9.3) For comparison purposes, these prices have been adjusted to give effect to our October 10, 2006 two-for-one stock split. The prices of our shares have been translated into U.S. dollars based on the noon-buying rate as certified by the Federal Reserve Bank of New York on the last date of each period presented.

The Indian Stock Exchanges have also experienced problems that have affected the market price and liquidity of the securities of Indian companies. These problems have included temporary exchange closures, the suspension of stock exchange administration, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of the Indian Stock Exchanges have, from time to time, restricted securities from trading, limited price movements and restricted margin requirements. Moreover, from time to time, disputes have occurred between listed companies and stock exchanges and other regulatory bodies, which in some cases may have had a negative effect on market sentiment. Similar problems could occur in the future and, if they do, they could harm the market price and liquidity of our equity shares and our ADSs.

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

We are incorporated under the laws of the Republic of India. Many of our directors and key managerial personnel and some of the experts named in this document reside outside the United States. In addition, virtually all of our assets and the assets of many of these persons are located outside the United States. As a result, you may be unable to:

	(i)		effect service of process upon us outside India or these persons outside the jurisdiction of their residence; or

	(ii)		enforce against us in courts outside of India or these persons outside the jurisdiction of their residence, judgments obtained in United States courts, including judgments predicated solely upon the federal securities laws of the United States.

Currently the United States and India do not have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States on civil liability, whether or not predicated solely upon the federal securities laws of the United States, would not be enforceable in India. However, the party in whose favor such final judgment is rendered may bring a new

suit in a competent court in India based on a final judgment which has been obtained in the United States. If and to the extent Indian courts were of the opinion that fairness and good faith so required, it would, under current practice, give binding effect to the final judgment which had been rendered in the United States unless such a judgment was founded on a claim which breached the laws of India.

You may be subject to Indian taxes arising out of capital gains on the sale of the underlying equity shares.

Generally, capital gains, whether short-term or long-term, arising from the sale of the underlying equity shares in India are subject to Indian capital gains tax. For the purpose of computing the amount of capital gains subject to tax, Indian law specifies that the cost of acquisition of the equity shares will be deemed to be the share price prevailing on the BSE or the NSE on the date the Depositary advises the custodian to redeem receipts in exchange for underlying equity shares. The period of holding of such equity shares, for determining whether the gain is long-term or short-term, commences on the date of the giving of such notice by our Depositary to the custodian. With effect from October 1, 2004, any gains realized on the sale of listed equity shares held for more than 12 months to an Indian resident, or a non-resident investor in India, will not be subject to Indian capital gains tax if the securities transaction tax has been paid on the transaction. Investors are advised to consult their own tax advisors and to consider carefully the potential tax consequences of an investment in our ADSs.

There may be less company information available in Indian securities markets than securities markets in other countries.

There is a difference between the level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants and that of markets in the United States and other developed economies. SEBI is responsible for improving disclosure and other regulatory standards for the Indian securities markets. SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in developed economies.

Risk Related to our ADSs and our Trading Market

Historically, our ADSs have traded at a significant premium to the trading prices of our underlying equity shares, a situation which may not continue.

Historically, our ADSs have traded on the NYSE at a substantial premium to the trading prices of our underlying equity shares on the Indian Stock Exchanges. We believe that this price premium has resulted from the relatively small portion of our market capitalization represented by ADSs, restrictions imposed by Indian law on the conversion of equity shares into ADSs, and an apparent preference for some investors to trade U.S. dollar-denominated securities. Further, over time, some of the restrictions on the issuance of the ADSs imposed by Indian law have been relaxed and we expect that other restrictions may be relaxed in the future. As a result, the historical premium enjoyed by ADSs as compared to equity shares may be reduced or eliminated due to our sponsored ADS offering or similar transactions in the future, a change in Indian law permitting further conversion of equity shares into ADSs or changes in investor preferences.

You may be restricted in your ability to exercise preemptive rights under Indian law and thereby may suffer future dilution of your ownership position.

Under the Companies Act, 1956 of India, or the Companies Act, a company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages before the issuance of any new equity shares, unless the preemptive rights have been waived by adopting a special resolution by holders of three-fourths of the shares which are voted on the resolution. As U.S. holders of ADSs represent 19.80% of our outstanding equity shares as at September 30, 2006, you may be unable to exercise preemptive rights for equity shares underlying ADSs unless a registration statement under the Securities Act of 1933, as amended, or the Securities Act, is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with any given registration statement as well as the perceived benefits of enabling the holders of our ADSs to exercise their preemptive rights and any other factors that we deem appropriate to consider at the time the decision must be made. We may elect not to file a registration statement relating to preemptive rights otherwise available by law to you. In the case of future issuances, the new securities may be issued to our Depositary, which may sell the securities for your benefit. The value, if any, our Depositary would receive upon the sale of such securities cannot be predicted. To the extent that you are unable to exercise preemptive rights granted in respect of the equity shares represented by your ADSs, your proportional interests in our company would be reduced.

Holders of ADSs may be restricted in their ability to exercise voting rights.

At our request, our Depositary will mail to you any notice of shareholders’ meeting received from us together with information explaining how to instruct our Depositary to exercise the voting rights of the securities represented by ADSs. If our Depositary timely receives voting instructions from you, it will endeavor to vote the securities represented by your ADSs in accordance with such voting instructions. However, the ability of our Depositary to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to our Depositary in a timely manner. Securities for which no voting instructions have been received will not be voted.

Under Indian law, subject to the presence in person at a shareholder meeting of persons holding equity shares representing a quorum, all resolutions proposed to be approved at that meeting are voted on by a show of hands unless a shareholder present in person and holding at least 10% of the total voting power or on which an aggregate sum of not less than Rs.50,000 has been paid-up, at the meeting demands that a poll be taken. Equity shares not represented in person at the meeting, including equity shares underlying ADSs for which a holder has provided voting instructions to our Depositary, are not counted in a vote by show of hands. As a result, only in the event that a shareholder present at the meeting demands that a poll be taken will the votes of ADS holders be counted. Securities for which no voting instructions have been received will not be voted on a poll.

As a foreign private issuer, we are not subject to the SEC’s proxy rules, which regulate the form and content of solicitations by U.S.- based issuers of proxies from their shareholders. To-date, our practice has been to provide advance notice to our ADS holders of all shareholder meetings and to solicit their vote on such matters through our Depositary, and we expect to continue this practice. The form of notice and proxy statement that we have been using does not include all of the information that would be provided under the SEC’s proxy rules.

An active or liquid trading market for our ADSs is not assured.

We cannot predict the extent to which an active, liquid public trading market for our ADSs will exist. Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. The lack of an active, liquid trading market could result in the loss of market makers, media attention and analyst coverage. If there is no longer a market for our equity shares, or if we fail to continue to meet eligibility requirements, we may be required to delist from the NYSE and this may cause our share prices to decrease significantly. In addition, if there is a prolonged decline in the price of our equity shares, we may not be able to issue equity securities to fund our growth, which would cause us to limit our growth or to incur higher cost funding, such as short-term or long-term debt.

Liquidity of a securities market is often a function of the volume of the underlying shares that are publicly held by unrelated parties. Although you are entitled to withdraw the equity shares underlying the ADSs from our Depositary at any time, there is no public market for our equity shares in the United States.

The future sales of securities by our company or existing shareholders may harm the price of our ADSs or our equity shares.

The market price of our ADSs or our equity shares could decline as a result of sales of a large number of ADSs or equity shares or the perception that such sales could occur. Such sales also might make it more difficult for us to sell ADSs or equity securities in the future at a time and at a price that we deem appropriate. As of September 30, 2006, we had an aggregate of equity shares outstanding of 652,265,628 (excluding 2,368,680 equity shares held by the Satyam Associate Trust), which includes underlying equity shares of 129,600,640 represented by 64,800,320 ADSs. In addition, as of September 30, 2006 we had outstanding options to purchase approximately 37,210,504 of our equity shares. All ADSs are freely tradable, other than ADSs purchased by our affiliates. The remaining equity shares outstanding may be sold in the United States only pursuant to a registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, including Regulation S.

Forward-looking statements contained in this Quarterly Report may not be realized.

We have included statements in this Quarterly Report which contain words or phrases such as “may,” “will, “ “will likely result,” “believe,” “expect,” “will continue,” “anticipate,” “estimate,” “intend,” “plan,” “contemplate,” “seek to,” “future,” “objective,” “goal,” “project,” “should” and similar expressions or variations of such expressions, that are “forward-looking statements.” Actual results may differ materially from those suggested by the forward-looking statements due to risks or uncertainties associated with our expectations with respect to, but not limited to, our ability to implement our strategy and our growth and expansion.

In addition, other factors that could cause results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to, general economic and political conditions in India, Southeast Asia, and other countries which have an impact on our business activities, changes in Indian and foreign laws, regulations and taxes, changes in competition and other factors beyond our control, including the factors described in this “Risk Factors” section.

We do not intend to update any of the forward-looking statements after the date of this Quarterly Report to conform such statements to actual results.

Item 3: Quantitative and Qualitative Disclosure about Market Risk

Our currency, maturity and interest rate information relative to our short-term and long-term debt are disclosed in Note. 12 “Borrowings” to our consolidated financial statements.

The table below provides information about our financial instruments that are sensitive to changes in interest rates and foreign currencies as of the dates shown. Weighted average variable rates were based on average interest rates applicable to the loans. The information is presented in U.S. dollars, which is our reporting currency, based on the applicable exchange rates as of the relevant period end. Actual cash flows are denominated in various currencies, including U.S. dollars and Indian rupees.


	As at September 30,
	2006						2005
	Total recorded						Total recorded
	Amount				Fair value		Amount				Fair value
	(dollars in thousands)
Debt:
Variable rate short term debt		5.3				5.3	$	1.5			$	1.5
Average interest rate			5.58	%					5.55	%
Variable rate long term debt		20.0				20.0	$	6.7			$	6.7
Average interest rate			7.59	%					7.55	%
Fixed rate long-term debt		4.2				4.4	$	4.4			$	4.5
Average interest rate			7.60	%					8.21	%

Limitations: Fair value estimates are made at a specific point in time and are based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

We also face market risk relating to foreign exchange rate fluctuations, principally relating to the fluctuation of U.S. dollar to Indian rupee exchange rate. Our foreign exchange risk principally arises from accounts payable to overseas vendors. This risk is partially mitigated as we have receipts in foreign currency from overseas customers and hold balances in foreign currency with overseas banks.

During the six months ended September 30, 2006 and fiscal 2006, 95.2% and 98.6%, respectively, of our revenues were generated outside of India. Using sensitivity analysis, a hypothetical 10% increase in the value of the Indian rupee against all other currencies would decrease revenue by 2.2%, or $15.1 million, in the six months ended September 30, 2006, 2.3%, or $24.9 million, in fiscal 2006 while a hypothetical 10% decrease in the value of the Indian rupee against all other currency would increase revenue by 2.2% or $15.1 million during the six months ended September 30, 2006 and 2.3% or $24.9 million in fiscal 2006.

We had outstanding forward and options contract amounting to $158.0 million and $216.0 million as at September 30, 2006 and fiscal 2006, respectively. Gains/ (losses) on outstanding forward and options contracts amounted to $(3.1) million and $(1.4) million during the six months ended September 30, 2006 and fiscal 2006 respectively. Using sensitivity analysis, a hypothetical 1% increase in the value of the Indian rupee against all other currencies would decrease these gains by $0.6 million in the six months ended

September, 30 2006 and by $0.8 million in fiscal 2006 while a hypothetical 1% decrease in the value of the Indian rupee against all other currency would increase these gains by $0.6 million in the six months ended September 30, 2006 and $0.8 million in fiscal 2006.

In the opinion of management, a substantial portion of this fluctuation would be offset by expenses incurred in local currencies. As a result, the aggregate of the hypothetical movement described above of the value of the Indian rupee against all other currencies in either direction would have impacted our earnings before interest and taxes by $15.7 million during the six months ended September 30, 2006 and $11.0 million during the six months ended September 30, 2005. This amount would be offset, in part, from the impacts of local income taxes and local currency interest expense. As of September 30, 2006, we had approximately $337.5 million of non-Indian rupee denominated cash and cash equivalents.

Item 4: Controls and Procedures

Not applicable.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Satyam and its subsidiaries on a consolidated basis are not currently a party to any material legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In May 2001, we completed an offering of 16,675,000 ADSs (representing 33,350,000 equity shares) at a price of $9.71 per ADS. We received approximately $150.6 million in cash, net of underwriting discounts, commissions and other offering costs. Our Securities Act registration statement on Form F-1 with respect to the offering was declared effective by the Securities and Exchange Commission on May 14, 2001 (Registration No. 333-13464). As of September 30, 2006 approximately $149.9 million of these proceeds has been used for prepayment of loans ($26.9 million); strategic investments in our subsidiaries ($38.9 million); development of facilities and infrastructure ($58.2 million) and working capital and general corporate purposes ($25.9 million). We intend to use the balance of the net proceeds to fund expansion of our existing facilities and communication network in different locations in India and outside India; to develop new facilities within and outside India; to invest in joint ventures and other strategic investments; and for working capital and general corporate purposes. None of the net proceeds from our ADS offering were paid, directly or indirectly, to any of our directors, officers or general partners or any of their associates, or to any persons owning ten percent or more of any class of our equity securities, or any affiliates. The number of ADSs referenced in this paragraph are prior to the adjustment of stock split approved on August 21, 2006 and effected on October 10, 2006.

Item 3. Default Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

The following actions were approved by our shareholders at our 2006 Annual General Meeting held on August 21, 2006:

	•		the adoption of the Audited Balance Sheet as at March 31, 2006 and the Audited Profit & Loss Account for the year March 31, 2006, and the Directors’ Report and the Auditors’ Report for the year ended March 31, 2006;

	•		the declaration of final dividend on equity shares;

	•		the re-appointment of Mr.Vinod K Dham as director;

	•		the re-appointment of M/s Price Waterhouse as auditors of our company for the period commencing from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and fixing their remuneration.;

	•		the appointment of Prof. Rammohan Rao Mendu, Director;

	•		the appointment of Mr. Ram Mohan Rao Mynampati, as Director in Whole-time employment;

	•		the payment of remuneration to Krishna G Palepu, Non-executive Director;

	•		the increase in authorized share capital from 375 million equity shares of Rs. 2 each aggregating Rs.750 million to 800 million equity shares of Rs. 2 each aggregating Rs.1600 million;

	•		the issue of Bonus shares in the ratio of one for every one existing equity share held;

	•		the Issue of Restricted Stock Units – for permanent employees and directors of Satyam;

	•		the Issue of Restricted Stock Units – for permanent employees and directors of Subsidiaries;

Item 5. Other Information

None

Item 6. Exhibits and Reports

	99.1		Press Release of the Company concerning financial results dated October 20, 2006.

	99.2		Summary of Financial Results of the Company for the quarter and half-year ended September 30, 2006 dated October 20, 2006

	99.3		Investor Link News Update of the Company dated October 20, 2006

	99.4		Unconsolidated/standalone financial statements for the quarter and half-year ended September 30, 2006 under Indian GAAP (audited).

	99.5		Consolidated financial statements for the quarter and half-year ended September 30, 2006 under Indian GAAP (unaudited).

	99.6		Consolidated financial statements for the six months ended September 30, 2006 under US GAAP (unaudited).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there under duly authorized.


		Satyam Computer Services Ltd.

		/s/ G.Jayaraman Name: G. Jayaraman
		Title: Sr.Vice President — Corp. Governance &
		Company Secretary
Date: October 27, 2006.

EX-99.1 2 u92864exv99w1.htm EX-99.1 PRESS RELEASE OF THE COMPANY CONCERNING FINANCIAL RESULTS DATED OCTOBER 20, 2006 Ex-99.1

Exhibit 99.1

Satyam posts 39% YoY revenue growth

- Highest sequential growth of 11% in the last five years

- Added 4025 employees, which is the highest ever quarterly
recruitment

Hyderabad, India, October 20, 2006: Satyam (NYSE: SAY), the leading global consulting and IT services company, today announced the audited results of the company for the quarter ended September 30, 2006 (Q2 2007).

Indian GAAP Consolidated

Revenue from software services stood at Rs. 1601.88 crore, up 11.02% sequentially and 38.69%, compared to the same quarter last year. The revenue was significantly higher than the guidance of Rs.1521 crore to Rs.1529 crore. The revenue guidance for the current year is revised upwards and is expected to be in the range of Rs. 6452 crore and Rs. 6476 crore. The corresponding annual growth rate is expected to be 34.6% — 35.1%. The earlier forecast for annual revenue was Rs. 6190 crore to Rs. 6290 crore.

Net Profit, at Rs. 319.81 crore, indicates a YoY growth of 34.75%.

EPS for the quarter at Rs. 4.89 shows a YoY growth of 32.52%. EPS guidance for the year is revised upwards to Rs. 20.73 to Rs. 20.81, from the earlier estimates of Rs. 19.45 to Rs. 19.75.

Commenting on the results, B. Ramalinga Raju, founder & chairman — Satyam, said “The revenue and earnings per share for Q2 have exceeded the forecasted range on the back of strong volume growth of 9.5%. Q2 witnessed accelerated growth in select verticals such as TIMES, Healthcare and Retail in addition to inline growth in staple verticals. Increase in the contribution of consulting and enterprise business solutions to 40.4% of revenue is a result of our sustained investments and favorable reviews from industry analysts about the maturity of our services in this space.”

“We are observing a healthy demand environment signifying greater adaptation of the global delivery model, and we believe, based on our interactions with key decision makers, that this positive trend will continue in the near term. We are also pleased to note that a greater portion of discretionary spending is being directed towards leveraging the global delivery model”, Raju added further.

Page 1 of 4

Srinivas Vadlamani, Chief Financial Officer — Satyam, said “Q2 continued to witness the benefits of operational efficiency which helped us to mitigate the impact of salary hikes on margins. In addition, subsidiaries, for the first time, contributed positively to the margin. While this is along expected lines, it gives us greater confidence to manage margins for fiscal 2007.”

US GAAP

Revenue from software services stood at US$ 352.0 mn., up 9.1% sequentially and 31.4% compared to the same quarter last year. Net Profit, at US$ 65.5 mn., here indicates a growth of 26.9% YoY.

Key Business Achievements

Satyam added 35 customers, including a leading airline, a Korean auto major and a European confectionary giant. The number of Fortune 500 customers increased by one.

Satyam has been awarded a project for an end-to-end implementation of a Customer Care & Billing Solution for one of the largest domestic telecom service providers in the fixed line and mobile space, across multiple cities.

Satyam has won a large order to implement a comprehensive Core Banking System, hosting a Data Center and Disaster Recovery Center, Networking and Facility Management, for a large Indian commercial bank. This is one of the leading system integration engagements that the company will perform on such a large scale.

Satyam has been engaged by a global automotive giant for the transition and support of PeopleSoft application at multiple facilities in the US, Canada and Mexico for a period of five years.

A global top 3 pharmaceutical company has selected Satyam to implement iDecisions^TM, the Satyam IP Business Intelligence (BI) framework. This implementation is expected to deliver significant cost benefits as well as other benefits including speed-to-market, compliance and improved decision-making.

Satyam and Microsoft have launched two state-of-the-art Business Intelligence (BI) facilities in Singapore and Shanghai. The two sites will be centers of excellence, where researchers will use real-life scenarios and data to test, develop, and implement innovative solutions for the Financial Services sector. These labs will also enable Satyam and Microsoft to study customers’ requirements more quickly to ensure faster and more cost-effective implementation of BI solutions.

Page 2 of 4

Citisoft, a Satyam subsidiary, is working with the offshore operations centre of an Anglo-American asset manager, in helping them set up an Hedge Fund administration environment.

Citisoft will be helping the investment management arm of a major Pan-European bank assurance company in defining its strategy for investing in and supporting OTC Derivatives.

Satyam added 4025 associates in the quarter, taking the total employee strength to 31659. Total resources, including those of subsidiaries and joint ventures, increased to 34908.

Nipuna Highlights

Nipuna, Satyam’s BPO subsidiary, recorded revenue of Rs. 41.6 crore (US$ 8.99 mn.) in Q2 2007. Nipuna’s revenue guidance for fiscal 2007 stands at Rs. 162 crore (US$ 36 mn.) Nipuna added 441 employees this quarter, taking its resource strength to 2446 associates.

During the second quarter, Nipuna added two new customers, including one of the world’s leading telecom carriers. The company is now handling 60 processes for 29 customers in engineering, healthcare, insurance, artwork management, IT helpdesk, finance and accounts animation, customer support, KPO and data management areas. A new delivery facility, setup in Hyderabad in this quarter, has increased the number Nipuna’s onsite and offshore facilities to five – three in Hyderabad, one each in Bangalore and Chennai.

Key Awards and Recognitions in this Quarter

Satyam wins Asian MAKE Award

Satyam has been recognized by the Asian Most Admired Knowledge Enterprise (MAKE) as a TOP Asian knowledge organization. The MAKE Study is an established benchmark to recognize organizations for their ability to leverage enterprise knowledge to deliver superior performance in the areas of innovation, operational effectiveness and excellence in products and services.

Satyam wins ASTD’s BEST Award

Satyam was ranked 15^th among 78 organizations in the American Society for Training & Development’s (ASTD) 2006 BEST Awards program, which recognizes organizational commitment to employee learning.

Page 3 of 4

About Satyam Computer Services Limited

Satyam (NYSE: SAY), the leading global consulting and IT services company, offers a range of expertise aimed at helping customers re-engineer and re-invent their businesses to compete successfully in an ever-changing market. Around 35,000* highly-skilled professionals in Satyam work Onsite, Offsite, Offshore and Nearshore, to provide customized IT solutions for companies in several industry sectors.

Satyam’s ideas and products have resulted in technology-intensive transformations that have met the most stringent of international quality standards. Satyam Development Centers in India, the USA, the UK, the UAE, Canada, Hungary, Malaysia, Singapore, China, Japan and Australia serve 521* global companies, of which 157* are Fortune Global 500 and Fortune US 500 corporations. Satyam’s presence spans 55 countries, across six continents. For more information visit: www.satyam.com

*Figures as per quarter ended September 30, 2006
Customer nos are including those of Nipuna and Citisoft

Satyam Contacts

For further information, contact: corporate_communications@satyam.com


India		Rajesh, rajesh@perfectrelations.com, +91 40 55316861, +91 98490 42184

US		Ivette Almeida, ialmeida@hfgcg.com 1-646-284-9455\| + 1-201-232-0128

Europe		Priti Thakker, priti_thakker@satyam.com, +1 973 753 1858, +1 973 997 1149

Asia- Pacific		Reshma Wad Jain, reshma@wer1.net, +65 6737 4844, +65 98140507 or Amber Dale, a.dale@polaris-me.com, Jiang Ying, Jiang_Ying@satyam.com, +86 21 5080 7600 extn 4015, +86 13816686084

Safe Harbor

This press release contains forward-looking statements within the meaning of section 27A of Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Satyam undertakes no duty to update any forward-looking statements. For a discussion of the risks associated with our business, please see the discussions under the heading “Risk Factors” in our report on Form 6 - K concerning the quarter ended June 30, 2006, furnished to the United States Securities Exchange Commission on July 28, 2006 and the other reports filed with the Securities Exchange Commission from time to time. These filings are available at http://www.sec.gov.

Page 4 of 4

EX-99.2 3 u92864exv99w2.htm EX-99.2 SUMMARY OF FINANCIAL RESULTS OF THE COMPANY FOR THE QUARTER AND HALF-YEAR ENDED SEPTEMBER 30, 2006 DATED OCTOBER 20, 2006 Ex-99.2

Exhibit 99.2

Satyam Computer Services Limited
Regd. Office: Mayfair Centre, I Floor, 1-8-303/36, S.P.Road, Secunderabad — 500 003.

Audited financial results for the quarter and half-year ended September 30, 2006


														Growth
								Growth						over									Growth
								over quarter			Quarter			quarter									over half-
		Quarter ended						ended			ended			ended			Half - year ended						year ended			year ended
SL.		September 30,						September 30,			June 30,			June 30,			September 30,						September 30,			March 31,
No.	Particulars	2006			2005			2005			2006			2006			2006			2005			2005			2006
		Rs. in crores						%			Rs. in crores			%			Rs. in crores						%			Rs. in crores
1	Income from Services
	- Exports		1,465.42			1,076.17			36.17			1,332.42			9.98			2,797.84			2,077.90			34.65			4,461.64
	- Domestic		72.29			41.10			75.89			54.44			32.79			126.73			73.81			71.70			172.67
	Total		1,537.71			1,117.27			37.63			1,386.86			10.88			2,924.57			2,151.71			35.92			4,634.31
2	Other Income		28.13			31.12			(9.61	)		74.38			(62.18	)		102.51			54.50			88.09			377.91
3	Total Income		1,565.84			1,148.39			36.35			1,461.24			7.16			3,027.08			2,206.21			37.21			5,012.22
4	Personnel Expenses		945.49			651.38			45.15			795.13			18.91			1,740.62			1,275.10			36.51			2,700.67
5	Operating & Administration Expenses		234.86			182.00			29.04			236.08			(0.52	)		470.94			343.23			37.21			740.13
6	Total Expenditure		1,180.35			833.38			41.63			1,031.21			14.46			2,211.56			1,618.33			36.66			3,440.80
7	Profit before interest, depreciation & taxation (PBIDT)		385.49			315.01			22.37			430.03			(10.36	)		815.52			587.88			38.72			1,571.42
8	PBIDT margin		24.62	%		27.43	%		—			29.43	%		—			26.94	%		26.65	%		—			31.35	%
9	Operating profit (PBIDT without Other income)		357.36			283.89			25.88			355.65			0.48			713.01			533.38			33.68			1,193.51
10	Operating Profit margin		23.24	%		25.41	%		—			25.64	%		—			24.38	%		24.79	%		—			25.75	%
11	Financial Expenses		0.26			0.20			30.00			1.07			(75.70	)		1.33			0.40			232.50			2.72
12	Depreciation		32.81			30.93			6.08			32.30			1.58			65.11			59.08			10.21			122.81
13	Profit before taxation [7-(11+12)]		352.42			283.88			24.14			396.66			(11.15	)		749.08			528.40			41.76			1,445.89
14	Provision for Taxation		30.08			33.16			(9.29	)		36.57			(17.75	)		66.65			71.63			(6.95	)		206.14
15	Profit after Taxation (PAT)		322.34			250.72			28.57			360.09			(10.48	)		682.43			456.77			49.40			1,239.75
16	PAT to Total Income		20.59	%		21.83	%		—			24.64	%		—			22.54	%		20.70	%		—			24.73	%
17	Paid-up equity share capital (Par value of Rs.2 per share)		130.93			64.39			—			65.26			—			130.93			64.39			—			64.89
18	Reserves excluding revaluation reserves		4,881.26			3,603.89			—			4,668.35			—			4,881.26			3,603.89			—			4,268.75
19	EPS – basic (On par value of Rs. 2 per share)*		4.93			3.90			26.41			5.53			(10.85	)		10.46			7.12			46.91			19.26
20	EPS – diluted (On par value of Rs. 2 per share)*		4.78			3.79			26.12			5.33			(10.32	)		10.14			6.92			46.53			18.51
21	Dividend per share (Rs) (on par value of Rs.2/- per share)		1.00			2.00			—			—			—			1.00			2.00			—			7.00
22	Aggregate of public shareholding
	- Number of Shares**		232,564,311			211,177,904			—			231,585,714			—			232,564,311			211,177,904			—			214,288,735
	- Percentage of shareholding		71.05			65.59			—			70.97			—			71.05			65.59			—			66.04


*		All basic and diluted shares used in determining earnings per share are after considering the effect of bonus issue in the ratio of 1:1.

**		Not adjusted for Bonus issue.

Segment Reporting:


1	Segment revenue
	Information technology services	1,537.71	1,117.27	37.63		1,386.86	10.88		2,924.57	2,151.71	35.92	4,634.31
	Less: Inter segment revenue	—	—	—		—	—		—	—	—	—
	Net Sales / Income from operations	1,537.71	1,117.27	37.63		1,386.86	10.88		2,924.57	2,151.71	35.92	4,634.31
2	Segment profit / (loss) before tax and interest
	Information technology services	324.55	252.96	28.30		323.35	0.37		647.90	474.30	36.60	1,070.70
	Less : Financial expenses	0.26	0.20	30.00		1.07	(75.70	)	1.33	0.40	232.50	2.72
	Add: Other income	28.13	31.12	(9.61	)	74.38	(62.18	)	102.51	54.50	88.09	377.91
	Total profit before tax	352.42	283.88	24.14		396.66	(11.15	)	749.08	528.40	41.76	1,445.89
3	Capital employed
	Information technology services	2,966.62	1,699.40	74.57		2,572.67	15.31		2,966.62	1,699.40	74.57	2,202.75

Notes :


1.		The results for the quarter and half-year ended September 30, 2006 have been taken on record by the Board of Directors at its meeting held today.

2.		The Board of Directors has declared an interim dividend of Re. 1/- per share (50 % on par value of Rs. 2 per share). The record date for payment of interim dividend will be November 10, 2006.

3.		The bonus issue in the ratio of 1-for-1 as recommended by the Board of Directors was approved by the Shareholders in the Annual General Meeting (AGM) held on August 21, 2006. Consequently, the Board of Directors fixed the record date for bonus issue as October 10, 2006. Accordingly, the Board of Directors has allotted 32,76,94,738 equity shares of Rs. 2/- each as bonus shares on October 11, 2006 and issue of bonus shares was completed on October 12, 2006.

4.		In the AGM referred above, Mr. Ram Mynampati, President — Commercial & Healthcare business, has been appointed as member of the Board and whole time director of the Company.

5.		The total manpower strength as on September 30, 2006 stood at 31,659 associates as against 27,634 associates as on June 30, 2006 signifying an increase of 4,025 associates. The number of technical associates increased by 3,977 to close the quarter at 29,830 (25,853 associates as on June 30, 2006).

6.		During the quarter ended September 30, 2006, the Company allotted 1,007,113 equity shares of Rs. 2 each, consequent to exercise of stock options by the associates.

7.		Details of investor complaints for the quarter ended September 30, 2006:


	Pending as on		During the quarter				Pending as on
Nature	01-07-2006		Received		Disposed off		30-09-2006
Transfer / Demat / Others		0		9		9		0
Dividends		0		4		4		0
Non-receipt of Annual Report		0		36		36		0
Total		0		49		49		0


8.		Figures of the earlier periods, wherever necessary, have been regrouped and rearranged to conform to those of the current period.

Consolidated financial results as per Indian GAAP


															Growth
									Growth over			Quarter			over									Growth over
			Quarter ended						quarter			ended			quarter			Half-year ended						half-year			Year ended
			September 30,						ended			June 30,			ended			September 30,						ended			March 31,
			(unaudited)						September			(unaudited)			June 30,			(unaudited)						September			(audited)
Sl.			2006			2005			30, 2005			2006			2006			2006			2005			30, 2005			2006
No.		Particulars	Rs. in crores						%			Rs. in crores			%			Rs. in crores						%			Rs. in crores
	1	Income from Services
		-Exports		1,525.25			1,114.54			36.85			1,376.66			10.79			2,901.91			2,131.36			36.15			4,596.74
		-Domestic		76.63			40.43			89.54			66.27			15.63			142.90			82.31			73.61			195.85
		Total		1,601.88			1,154.97			38.69			1,442.93			11.02			3,044.81			2,213.67			37.55			4,792.59
	2	Other Income		28.23			31.55			(10.52	)		74.48			(62.10	)		102.71			54.97			86.85			333.25
	3	Total Income		1,630.11			1,186.52			37.39			1,517.41			7.43			3,147.52			2,268.64			38.74			5,125.84
	4	Personnel Expenses		982.71			677.85			44.97			831.61			18.17			1,814.32			1,317.23			37.74			2,804.70
	5	Cost of Software and Hardware sold		0.35			0.26			34.62			0.68			(48.53	)		1.03			0.46			123.91			2.00
	6	Operating & Administration Expenses		256.33			200.47			27.86			255.63			0.27			511.96			378.87			35.13			819.71
	7	Total Expenditure		1,239.39			878.58			41.07			1,087.92			13.92			2,327.31			1,696.56			37.18			3,626.41
	8	Profit before interest, depreciation, taxation & miscellaneous expenses written off		390.72			307.94			26.88			429.49			(9.03	)		820.21			572.08			43.37			1,499.43
	9	PBIDT margin		23.97	%		25.95	%		—			28.30	%		—			26.06	%		25.22	%		—			29.25	%
	10	Operating Profit (PBIDT without other income)		362.49			276.39			31.15			355.01			2.11			717.50			517.11			38.75			1,166.18
	11	Operating profit margin		22.63	%		23.93	%		—			24.60	%		—			23.56	%		23.36	%		—			24.33	%
	12	Financial Expenses		2.72			0.77			253.25			2.55			6.67			5.27			1.24			325.00			5.54
	13	Depreciation		37.51			34.70			8.10			36.17			3.70			73.68			66.01			11.62			137.28
	14	Miscellaneous expenditure written off		—			0.03			—			—			—			—			0.08			—			0.07
	15	Profit before taxation [8-(12+13+14)]		350.49			272.44			28.65			390.77			(10.31	)		741.26			504.75			46.86			1,356.54
	16	Provision for Taxation		30.68			33.28			(7.81	)		36.77			(16.56	)		67.45			72.49			(6.95	)		207.48
	17	Profit After Taxation, and before share of loss in associate company and minority interest		319.81			239.16			33.72			354.00			(9.66	)		673.81			432.26			(55.88	)		1,149.06
	18	Share of Loss in associate company		—			(1.92	)		—			—			—			—			(4.98	)		—			(7.88	)
	19	Minority interest		—			0.10			—			0.12			—			0.12			0.26			(53.85	)		0.55
	20	Profit After Taxation, and share of loss in associate company and minority interest		319.81			237.34			34.75			354.12			(9.69	)		673.93			427.54			57.63			1,141.73
	21	PAT to Total Income		19.62	%		20.00	%		—			23.34	%		—			21.41	%		18.85	%		—			22.27	%
	22	Paid-up equity share capital (Par value of Rs. 2 per share)		130.93			64.39			—			65.26			—			130.93			64.39			—			64.89
	23	Reserves excluding revaluation reserves		4,764.70			3,563.56			—			4,552.34			—			4,764.70			3,563.56			—			4,159.57
	24	Preference shares of Rs. 10 each issued by Subsidiary Company		91.01			91.01			—			91.01			—			91.01			91.01			—			91.01


											Growth
							Growth over		Quarter		over							Growth over
			Quarter ended				quarter		ended		quarter			Half-year ended				half-year		Year ended
			September 30,				ended		June 30,		ended			September 30,				ended		March 31,
			(unaudited)				September		(unaudited)		June 30,			(unaudited)				September		(audited)
Sl.			2006		2005		30, 2005		2006		2006			2006		2005		30, 2005		2006
No.		Particulars	Rs. in crores				%		Rs. in crores		%			Rs. in crores				%		Rs. in crores
	25	EPS — basic (On par value of Rs. 2 per share)*		4.89		3.69		32.52		5.44		(10.11	)		10.33		6.67		54.87		17.73
	26	EPS — diluted (On par value of Rs. 2 per share)*		4.75		3.59		32.31		5.24		(9.35	)		10.02		6.48		54.63		17.05
	27	Aggregate of public shareholding
		- Number of Shares**		232,564,311		211,177,904		—		231,585,714		—			232,564,311		211,177,904		—		214,288,735
		- Percentage of shareholding		71.05		65.59		—		70.97		—			71.05		65.59		—		66.04


*		All basic and diluted shares used in determining earnings per share are after considering the effect of bonus issue in the ratio of 1:1.
**		Not adjusted for Bonus issue.

Notes:

1.		The consolidated financial statements of Satyam Computer Services Ltd (Satyam) and its majority owned domestic and foreign subsidiaries are prepared in accordance with Accounting Standard (AS) 21 on Consolidated Financial Statements issued by the Institute of Chartered Accountants of India. All significant intra-group balances and intra-group transactions and resulting unrealised profits have been eliminated. Investment in business entities in which Satyam does not have control, but has the ability to exercise significant influence over operating and financial policies (generally 20%-50% ownership), are accounted for by equity method in accordance with AS 23 on Accounting for Investments in Associates in Consolidated Financial Statements. The financial statements also include the results of our joint ventures consolidated on proportionate consolidation method in accordance with AS 27 on Financial Reporting of Interest in Joint Ventures.

2.		The results of business entities, which have been consolidated, with the results of Satyam, include subsidiaries as on September 30, 2006 Nipuna Services Limited, Satyam Technologies, Inc., Satyam Computer Services (Shanghai) Co. Ltd., Citisoft Plc and its subsidiary (from May 12, 2005) and Knowledge Dynamics Pte. Ltd. and its subsidiaries (from October 01, 2005). The results also include the results of our joint ventures Satyam Venture Engineering Services Pvt. Ltd. and CA Satyam ASP Pvt. Ltd., which have been accounted using proportionate consolidation method and our associated company Sify Ltd., (ceased to be an associate from November 09, 2005) which has been accounted for by equity method. Satyam sold its entire 31.61% share holding in Sify Ltd. during the year 2005-06.

3.		Figures of the earlier periods, wherever necessary, have been regrouped and rearranged to conform to those of the current period


				For and on behalf of the Board of Directors

		Place: Hyderabad		B. Rama Raju
		Date: October 20, 2006		Managing Director

Consolidated financial results as per US GAAP


								Growth
								over three					Growth over									Growth over		Year
		Three months ended						months		Three months			three months			Six months ended						Six-months		ended
		September 30,						ended		ended June 30,			ended			September 30,						ended		March 31,
		(unaudited)						September		(unaudited)			June 30,			(unaudited)						September 30,		(audited)
Sl.		2006			2005			30, 2005		2006			2006			2006			2005			2005		2006
No.	Particulars	US$ million			US$ million			%		US$ million			%			US$ million			US$ million			%		US$ million
1	Revenues	$	352.0		$	267.8			31.44	$	322.5			9.1		$	674.5		$	513.9			31.25	$	1,096.3
2	Gross profit		121.7			97.1			25.33		117.0			4.0			238.7			184.1			29.66		407.3
3	Operating Income		66.1			51.7			27.85		66.9			(1.20	)		133.0			97.9			35.85		219.7
4	Operating Income Margin		18.78	%		19.31	%		—		20.74	%		—			19.72	%		19.05	%		—		20.04	%
5	Income / (loss) before taxes, minority interest and equity in earnings / (losses) of associated companies		71.5			58.5			22.22		82.6			(13.44	)		154.10			109.7			40.47		287.8
6	Net income	$	65.5		$	51.6			26.94	$	75.5			(13.25	)	$	141.0		$	93.9			50.16	$	249.4
7	EPS — Basic (US$)*		0.10			0.08			25.00		0.12			(16.67	)		0.22			0.15			46.67		0.39
8	EPS — Diluted (US$)*		0.10			0.08			25.00		0.11			(9.09	)		0.21			0.14			50.00		0.38


*		All basic and diluted shares used in determining earnings per share are after considering the effect of bonus issue in the ratio of 1:1

Notes:

1.		The consolidated financial statements of Satyam Computer Services Ltd (Satyam) and its majority owned domestic and foreign subsidiaries are prepared in accordance with generally accepted accounting principles applicable in the United States (US GAAP). All significant inter-company balances and transactions have been eliminated.

2.		The results of business entities, which have been consolidated, with the results of Satyam include subsidiaries, as on September 30, 2006, Nipuna Services Ltd., Satyam Computer Services (Shanghai) Co. Ltd., Satyam Technologies, Inc., Citisoft Plc and its subsidiary (from May 12, 2005) and Knowledge Dynamics Pte. Ltd. and its subsidiaries (from October 01, 2005). The results also include Satyam Associate Trust and the results of our associated companies Satyam Venture Engineering Services Pvt. Ltd., CA Satyam ASP Pvt. Ltd. and Sify Ltd. (ceased to be an associate from November 09, 2005). Satyam sold its entire 31.61% share holding in Sify Ltd. during the year 2005-06.

3.		Figures of the earlier periods, wherever necessary, have been regrouped and rearranged to conform to those of the current periods.

4.		Statement showing reconciliation between net profit as per Indian GAAP and US GAAP consolidated financial statements for the quarter and half-year ended September 30, 2006 is as follows:


In million US$
											Half-year ended						Year ended
Sl.		Quarter ended (Unaudited)									(Unaudited)						(Audited)
No.	Particulars	30-09-2006			30-09-2005			30-06-2006			30-09-2006			30-09-2005			31-03-2006
1	Profit as per Indian GAAP Consolidated Financial Statements	$	69.1		$	54.4		$	78.2		$	147.3		$	98.1		$	257.2
2	Profit / (Loss) of subsidiaries and associated companies		—			—			—			—			—			(0.2	)
3	Stock-based compensation		(3.5	)		(0.2	)		(3.7	)		(7.2	)		(0.3	)		(0.8	)
4	Sale of shares in Sify Ltd.		—			—			—			—			—			0.6
5	Others, net		(0.1	)		(2.6	)		1.0			0.9			(3.9	)		(7.4	)
6	Total adjustments (2 to 5)		(3.6	)		(2.8	)		(2.7	)		(6.3	)		(4.2	)		(7.8	)
7	Net income as per US GAAP Financial Statements	$	65.5		$	51.6		$	75.5		$	141.0		$	93.9		$	249.4

Safe Harbor :

This release contains forward-looking statements within the meaning of section 27A of Securities Act of 1933, as amended and section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Satyam undertakes no duty to update any forward-looking statements.

For a discussion of the risks associated with our business, please see the discussions under the heading “Risk Factors” in our report on Form 6-K concerning the fiscal quarter ended June 30, 2006 furnished to the United States Securities and Exchange Commission on July 28, 2006 and the other reports filed with the Securities and Exchange Commission from time to time. These filings are available at www.sec.gov.

EX-99.3 4 u92864exv99w3.htm EX-99.3 INVESTOR LINK NEWS UPDATE OF THE COMPANY DATED OCTOBER 20, 2006 Ex-99.3

Exhibit 99.3

Dear Investor,

A noteworthy highlight of a positive performance in Q2 is the 11% sequential growth in revenue which not only betters the guidance substantially but also is the highest growth witnessed by the company in the last five years. This growth was driven by a very strong volume growth of 9.5%. In addition, EPS at Rs. 4.89 was higher than the guided figure of Rs. 4.43.

On the back of this performance, we are pleased to revise our revenue guidance upwards for the whole year. We now expect revenue as per Indian GAAP consolidated financials to grow between 34.6% and 35.1%. The corresponding EPS growth for fiscal 2007 is expected to be between 35.9% and 36.4%.

Q2 witnessed accelerated growth in select verticals such as TIMES, Healthcare and Retail in addition to inline growth in staple verticals. Increase in the contribution of consulting and enterprise business solutions, which currently stands at 40.4% of revenue is a result of our continued investments and favorable reviews from industry analysts about the maturity of our services in this space.

We observe a healthy demand environment signifying greater adaptation of the global delivery model and we believe, based on our interactions with key decision makers, that this positive trend will continue in the near term. We are also pleased to note that a greater portion of discretionary spending is being directed towards leveraging the global delivery model. Increasingly, we are participating in engagements that are strategic in nature dealing with business transformation issues. This qualitative change is evident across all market segments giving rise to potential for a broad based growth. Satyam s continued focus on building a diversified business model stands to benefit greatly from this development.

To support our anticipated growth in the near term, we have added 4025 associates in Q2, which is the highest ever quarterly recruitment. Q2 also saw a reversal in attrition, a key focus area in the past few quarters. As a direct consequence of the aggressive measures taken on the compensation front, attrition has come down from 19.6% to 18.3% (TTM). (Annualized attrition stands at 15.9%.) With the impending introduction of restricted stock units in Q3 and continuing focus on non-monetary measures, we are hopeful that this would improve further in the near term.

We continue to notice a strong pipeline of deals that in addition to being significant in size, also require us to take accountability for integrated solutions. An example of this is our recent win from a leading Australian airline for managing their enterprise applications support and maintenance.

There is increased consolidation, redefining market segments in the enterprise business solutions space. On the demand side, there is a greater acceptability amongst user organizations to go for market-ready solutions driving the need for integration and customization. Given our leadership in this space, we are in a strong position to address this growing market. In addition, we are particularly excited about engineering services and opportunities to participate in innovation-led solutions.

I am pleased to inform that Satyam has won the American Society for Training and Development s (ASTD) 2006 BEST award for its commitment to provide world-class learning to associates.

The Board has approved an interim dividend of 50% for fiscal 2007.

B. Ramalinga Raju

Q2 Table of Contents


Indian GAAP Consolidated P&L			2
Indian GAAP Consolidated Balance Sheet			3
Indian GAAP Standalone P&L			4
Indian GAAP Standalone Balance Sheet			5
Financial Highlights — US GAAP			6
Subsidiaries and Joint Ventures			7
Business Outlook			7
Business Highlights			8
Nipuna Services Limited			8
Awards & Recognition			9
Operational Parameters for Q2, fiscal 2007			10


• Q2 revenue up 11% sequentially		• 4025 Associates added in Q2

Satyam Computer Services Limited

Financial Highlights — Indian GAAP Consolidated
Profit and Loss Account Summary for the quarter ended

In Rs. crore, except per share data


							Growth over						Growth over
							September						June
	September						2005 Quarter			June			2006 Quarter
	2006			2005			(%)			2006			(%)
Income
Services
- Exports		1,525.25			1,114.54			36.85			1,376.66			10.79
- Domestic		76.63			40.43			89.54			66.27			15.63
Total Services Income		1,601.88			1,154.97			38.69			1,442.93			11.02


Expenditure
Personnel Expenses		982.71			677.85			44.97			831.61			18.17
Cost of Software & Hardware sold		0.35			0.26			34.62			0.68			(48.53	)
Operating and Administration Expenses		256.33			200.47			27.86			255.63			0.27
		1,239.39			878.58			41.07			1,087.92			13.92

Operating Profit (EBITDA)		362.49			276.39			31.15			355.01			2.11
*EBITDA Margin*		*22.63*	%		*23.93*	%					*24.60*	%

Financial Expenses		2.72			0.77			253.25			2.55			6.67
Depreciation		37.51			34.70			8.10			36.17			3.70
Miscellaneous Expenditure Written Off		—			0.03						—

Operating Profit after Interest, Depreciation & Miscellaneous Expenses		322.26			240.89			33.78			316.29			1.89
Other Income		28.23			31.55			(10.52	)		74.48			(62.10	)
Profit Before Tax		350.49			272.44			28.65			390.77			(10.31	)
Provision for Taxation		30.68			33.28			(7.81	)		36.77			(16.56	)
Profit After Taxation and Before share of loss in Associate Company & Minority Interest		319.81			239.16			33.72			354.00			(9.66	)
Share of loss in Associate Company		—			(1.92	)					—
Minority Interest					0.10						0.12
Profit After Taxation and share of loss in Associate Company & Minority Interest		319.81			237.34			34.74			354.12			(9.69	)
Earnings Per Share — (Rs. per equity share of Rs. 2 each)
Basic		4.89			3.69			32.52			5.44			(10.11	)
Diluted		4.75			3.59			32.31			5.24			(9.35	)


*		All basic and diluted shares used in determining earnings per share are after considering the effect of bonus issue in the ratio of 1:1

Q2: Performance Against Guidance


Parameters	Projected	Actuals
Income from Software Services (Rs. crore)	Rs. 1,521 - Rs. 1,529		Rs. 1601.88
EPS (Rs.)	Rs. 4.42 - Rs. 4.44		Rs. 4.89

“Q2 continued to witness the benefits of operational efficiency, which helped us to mitigate the impact of salary increases on margins. In addition, subsidiaries, for the first time, contributed positively to the margin. While this is along expected lines, it gives us greater confidence to manage margins for fiscal 2007.”

V. Srinivas, CFO


		Satyam Computer Services Limited

Indian GAAP Consolidated
Balance Sheet as at

In Rs. crore


	September 30				June 30
	2006		2005		2006
Sources of Funds
Shareholders Funds
(a) Share Capital		221.94		155.40		155.90
(b) Share Application Money, Pending Allotment		1.86		1.07		1.78
(c) Reserves and Surplus		4,764.70		3,563.56		4,159.57

		4,988.50		3,720.03		4,317.25

Minority Interest		—		4.44		4.15

Loan Funds
(a) Secured Loans		129.18		49.89		102.71

		5,117.68		3,774.36		4,424.11


Application of Funds
Fixed Assets
(a) Gross Block		1,433.29		1,182.51		1,317.21
(b) Less: Depreciation		911.98		771.79		840.21

(c) Net Block		521.31		410.72		477.00
(d) Capital Work in Progress		184.51		74.16		80.25

		705.82		484.88		557.25

Investments		—		71.33		—

Deferred Tax Asset (Net)		40.82		10.18		4.62

Current Assets, Loans and Advances
(a) Inventories		0.18		0.19		0.19
(b) Sundry Debtors		1,425.96		925.19		1,168.42
(c) Cash and Bank Balances		3,483.78		2,594.83		3,111.70
(d) Loans and Advances		205.75		156.33		184.32
(e) Other Current Assets		153.58		67.59		110.60

		5,269.25		3,744.13		4,575.23

Less: Current Liabilities and Provisions
(a) Current Liabilities		608.78		377.24		437.04
(b) Provisions		289.43		158.92		275.95

		898.21		536.16		712.99


Net Current Assets		4,371.04		3,207.97		3,862.24

		5,117.68		3,774.36		4,424.11


Satyam Computer Services Limited

Financial Highlights — Indian GAAP Standalone

Standalone Profit and Loss Account Summary for the quarter ended


	In Rs. crore, except per share data
							Growth over						Growth over
							September						June
	September						2005 Quarter			June			2006 Quarter
	2006			2005			(%)			2006			(%)

Income
Services
- Exports		1,465.42			1,076.17			36.17			1,332.42			9.98
- Domestic		72.29			41.10			75.89			54.44			32.79
Total Services Income		1,537.71			1,117.27			37.63			1,386.86			10.88


Expenditure
Personnel Expenses		945.49			651.38			45.15			795.13			18.91
Operating and Administration Expenses		234.86			182.00			29.04			236.08			(0.52	)
		1,180.35			833.38			41.63			1,031.21			14.46

Operating Profit (EBITDA)		357.36			283.89			25.88			355.65			0.48
*EBITDA Margin*		*23.24*	%		*25.41*	%					*25.64*	%

Financial Expenses		0.26			0.20			30.00			1.07			(75.70	)
Depreciation		32.81			30.93			6.08			32.30			1.58

Operating Profit after Interest and Depreciation		324.29			252.76			28.30			322.28			0.62
Other Income		28.13			31.12			(9.61	)		74.38			(62.18	)
Profit Before Tax		352.42			283.88			24.14			396.66			(11.15	)
Provision for Taxation		30.08			33.16			(9.29	)		36.57			(17.75	)
Profit After Taxation (PAT)		322.34			250.72			28.57			360.09			(10.48	)

Earnings Per Share — (Rs. per equity share of Rs. 2 each)
Basic		4.93			3.90			26.41			5.53			(10.85	)
Diluted		4.78			3.79			26.12			5.33			(10.32	)


*		All basic and diluted shares used in determining earnings per share are after considering the effect of bonus issue in the ratio of 1:1



4		Satyam Computer Services Limited

Indian GAAP Standalone

Balance Sheet as at


	In Rs. Crore
	September 30				June 30
	2006		2005		2006
Sources of Funds
Shareholders’ Funds
(a) Share Capital		130.93		64.39		64.89
(b) Share Application Money, Pending Allotment		1.86		1.07		1.78
(c) Reserves and Surplus		4,881.26		3,603.89		4,268.75

		5,014.05		3,669.35		4,335.42

Loan Funds
(a) Secured Loans		13.38		11.88		12.57

		5,027.43		3,681.23		4,347.99


Application of Funds
Fixed Assets
(a) Gross Block		1,218.79		1,046.28		1,153.16
(b) Less: Depreciation		866.75		743.23		803.74
(c) Net Block		352.04		303.05		349.42
(d) Capital Work in Progress		177.83		71.60		76.84
		529.87		374.65		426.26

Investments		193.39		144.91		155.74

Deferred Tax Asset (Net)		40.54		10.17		4.29

Current Assets, Loans and Advances
(a) Sundry Debtors		1,350.04		897.34		1,122.81
(b) Cash and Bank Balances		3,442.07		2,572.74		3,052.33
(c) Loans and Advances		209.81		164.92		183.24
(d) Other Current Assets		153.53		67.56		110.59

		5,155.45		3,702.56		4,468.97

Less: Current Liabilities and Provisions
(a) Current Liabilities		605.88		390.72		435.71
(b) Provisions		285.94		160.34		271.56

		891.82		551.06		707.27


Net Current Assets		4,263.63		3,151.50		3,761.70

		5,027.43		3,681.23		4,347.99



Satyam Computer Services Limited		5

Financial Highlights — US GAAP

Unaudited Consolidated Statement of Operations Summary for the quarter ended


	In million US dollars, except per share data and as stated otherwise
							Growth over						Growth over
							September						June
	September						2005 Quarter			June			2006 Quarter
	2006			2005			(%)			2006			%

Revenues	$	352.0		$	267.9			31.4		$	322.5			9.1
Gross Profit	$	121.7		$	97.2			25.2		$	117.0			4.0
Operating Income	$	66.1		$	51.8			27.6		$	66.9			(1.2	)
Operating Margin		18.78	%		19.33	%					20.74	%
Income Before Income Taxes, Minority Interest and Equity in Earnings / (Losses) of Associated Companies	$	71.5		$	58.5			22.2		$	82.6			(13.4	)
Income Taxes	$	(6.2	)	$	(6.7	)		(7.5	)	$	(7.3	)		(15.1	)
Income Before Equity in Earnings / (Losses) of Associated Companies	$	65.3		$	51.8			26.1		$	75.3			(13.3	)
Equity in Earnings / (Losses) of Associated Companies, net of taxes	$	0.2		$	(0.2	)		—		$	0.2			0.0
Net Income	$	65.5		$	51.6			26.9		$	75.5			(13.2	)

Earnings Per Share:
Basic	$	0.10		$	0.08			25.00		$	0.12			(13.50	)
Diluted	$	0.10		$	0.08			25.00		$	0.11			(13.10	)


*		All basic and diluted shares used in determining earnings per share are after considering the effect of bonus issue in the ratio of 1:1

Reconciliation Between Net Profit As Per Indian GAAP Consolidated Financials and US GAAP


							In million US dollars
	Quarter Ended September						Quarter ended
	2006			2005			June 2006
Profit as per Indian GAAP Financial Statements	$	69.1		$	54.4		$	78.2
Add / (Deduct)
1 Profit / (Loss) of Subsidiaries and Associated Companies		—		$	(0.0	)	$	—
2 Deferred Stock Compensation Charge	$	(3.5	)	$	(0.2	)	$	(3.7	)
3 Others, net	$	(0.1	)	$	(2.5	)		1.0

Net Income as per US GAAP Financial Statements	$	65.5		$	51.6		$	75.5



6		Satyam Computer Services Limited

Subsidiaries and Joint Ventures

Subsidiaries

Satyam’s BPO subsidiary, Nipuna Services Limited, recorded a revenue of Rs. 41.63 crore (US$ 8.99 million) and a net loss of Rs. 4.77 crore (US$ 1.03 million) for the quarter ended September 30, 2006.

Satyam Technologies Inc. (STI), a wholly owned subsidiary of Satyam, recorded net revenue of US$ 0.41 million and a net profit of US$ 0.004 million for the quarter ended September 30, 2006.

Satyam Computer Services (Shanghai) Company Limited, Satyam’s wholly owned subsidiary in China, recorded net revenue of RMB 14.99 million (US$ 1.88 million) and a net loss of RMB 3.06 million (US$ 0.39 million) for the quarter ended September 30, 2006.

Citisoft Plc., a wholly owned subsidiary of Satyam, recorded net revenue of US$ 4.56 million and a net profit of US$ 0.38 million for the quarter ended September 30, 2006.

Joint Ventures

CA Satyam ASP Pvt. Ltd., a joint venture between Satyam and Computer Associates, recorded revenue of Rs. 1.20 crore (US$ 0.26 million) and a net loss of Rs 0.34 crore (US$ 0.07 million) for the quarter ended September 30, 2006.

Satyam Venture Engineering Services., a joint venture between Satyam and Venture Corporation, US earned a revenue of Rs. 18.42 crore (US$ 3.98 million) and a net profit of Rs. 2.64 crore (US$ 0.57 million) for the quarter ended September 30, 2006.

Business Outlook

(Outlook is based on exchange rate of Rs. 45.30 / US$)

EPS and EPADS is adjusted for the issue of bonus shares in the ratio 1:1 in October 2006.


	Q2 2007		Q3 2007		Growth			FY 2006 ^#		FY 2007		Growth

Indian GAAP Consolidated Financials
Revenue (Rs. Crore)		1,602		1,666 – 1,674	4.0% to 4.5%				4,793		6,452 – 6,476		34.6% – 35.1	%
EPS (Rs. per share)		4.89		5.09 – 5.11	4.0% to 4.5%				15.25		20.73 – 20.81		35.9% – 36.4	%
EPS excluding stock compensation charge (Rs. per share)@		4.89		5.38 – 5.40	9.9% to 10.4%				15.25		21.31 – 21.39		39.7% – 40.2	%
US GAAP
Revenue (US$ mn)		352.0		371.7– 373.4	5.6% to 6.1%				1,096		1,434 – 1,440		30.8% – 31.3	%
EPADS excluding stock compensation charge (US$ per ADS) *		0.21		0.23		9.0	%		0.67		0.93		39	%
Proforma EPADS including stock compensation charge (US$ per ADS) *		0.20		0.21		4.0	%		0.60		0.86		44	%


#		Figures for FY 2006 are after excluding profit on sale of stake in Sify Ltd.

@		Stock compensation charge under Indian GAAP includes charges on account of proposed Restricted Stock Unit scheme with effect from October 2006

*		Stock compensation charge under US GAAP includes charges on account of proposed Restricted Stock Unit scheme with effect from October 2006 and FAS 123R



Satyam Computer Services Limited		7

Business Highlights

Satyam added 35 customers in Q2 including a leading airline, a Korean auto major and a European confectionary giant. The number of Fortune 500 customers increased by one.

Satyam signed a 10-year contract with a leading domestic bank for implementation and maintenance of its comprehensive core banking system (CBS). The assignment also requires Satyam to provide networking for 500 branches, host its Data Center and Disaster Recovery Center, and provide facility management. This is the company’s first CBS implementation, and one of its largest multi-year facilities management project from the domestic market.

For a successful start-up company, providing Telecom OSS platforms, Satyam has set up dedicated ODC for developing and testing of key components in the Element Management System. The key benefit is quick, efficient and cost-effective deployment of new features and support for many of their installations in different parts of Europe.

Satyam has been engaged by a global automotive giant for the transition and support of PeopleSoft application at multiple facilities in the US, Canada and Mexico for a period of five years.

iDecisions^TM, a Business Intelligence (BI) Framework, is part of Satyam’s intellectual property post the acquisition of Knowledge Dynamics in 2005. A global top 3 pharmaceutical company has selected Satyam to implement iDecisions^TM. This implementation is expected to deliver significant cost benefits as well as other benefits including speed-to-market, compliance and improved decision-making.

Citisoft, a Satyam subsidiary, is working with the offshore operations center of an Anglo-American asset manager, in helping them set up an Hedge Fund and Fund of Hedge Funds administration environment.

Citisoft will be helping the investment management arm of a major Pan-European bank assurance company in defining its strategy for investing in and supporting OTC Derivatives.



8		Satyam Computer Services Limited

Awards & Recognition

Satyam wins Asian MAKE Award

Satyam has won the prestigious Asian Most Admired Knowledge Enterprise (MAKE) Award. The MAKE Study is an established benchmark to recognize organizations for their ability to leverage enterprise knowledge to deliver superior performance in the areas of innovation, operational effectiveness and excellence in products and services.

Satyam wins ASTD’s BEST Award

Satyam was ranked 15^th among 78 organizations, in the American Society for Training & Development’s (ASTD) 2006 BEST Awards program, which recognizes organizational commitment to employee learning. Satyam is among 39 organizations from India, South Africa, and the United States to receive the ASTD BEST Award.

Nipuna Services Limited
(BPO Subsidiary)

During the second quarter, Nipuna added two customers including one of the world’s leading telecom carriers. The company’s drive to build business through partnerships is beginning to show traction.

The company is now handling 60 processes for 29 customers in engineering, healthcare, insurance, artwork management, IT helpdesk, finance and accounts, animation, customer support, KPO and data management areas.

Nipuna continues to enhance its portfolio of service offerings in the areas of Clinical Data Management, Procure to Pay, KPO and Integrated Global Enterprise Management Support in its go-to-market strategy.

The focus on differentiated service offerings is helping the company penetrate newer clients in value-added BPO areas.

During the quarter, Nipuna added another delivery facility in Hyderabad. Nipuna delivers services to customers from onsite facilities and from five facilities in India – three in Hyderabad, and one each in Bangalore and Chennai. The associate count as at the end of Q2 is 2446.

Nipuna reported revenues of US$ 8.99 million (Rs. 41.6 crore), a sequential growth of 13.5% and a net loss of US$1.03 million (Rs. 4.77 crore) for Q2 FY07.



Satyam Computer Services Limited		9

Operational parameters for Q2, Fiscal 2007

(Please note that all metrics are based on Indian GAAP Standalone numbers only)

A. Revenue Analysis

Analysis of Revenue Growth (%)


Particulars	Q2 2007		Q1 2007		Q2 2006		FY 2006

Increase/(Decrease) in revenue in US$ terms		9.82		6.62		7.27		35.23
*Increase/(Decrease) in revenue due to change in:*
- Volume (Hours billed)		9.41		6.42		7.11		34.47
- Billing rate		0.41		0.21		0.16		0.75
- US$ exchange rate		1.06		3.44		0.73		(1.45	)
Increase/(Decrease) in revenue in Rupee terms		10.88		10.09		8.01		33.78

Analysis of Volume Growth (%)


Particulars	Q2 2007		Q1 2007		Q2 2006		FY 2006

Change in Volume (Manhours billed)		9.52		7.24		8.69		38.05

Break up of export revenue between offshore and onsite (%)


Location	Q2 2007		Q1 2007		Q2 2006		FY 2006

Offshore		47.58		47.17		44.22		44.34
Onsite		52.42		52.83		55.78		55.66

Total		100.00		100.00		100.00		100.00

Revenue by region (%)


Region	Q2 2007		Q1 2007		Q2 2006		FY 2006

North America		65.87		65.91		66.80		65.63
Japan		1.65		1.13		1.20		1.45
Europe		18.00		17.59		18.34		18.20
Rest of World		14.48		15.37		13.66		14.72

Total		100.00		100.00		100.00		100.00

Revenue by service offerings (%)


Technology	Q2 2007		Q1 2007		Q2 2006		FY 2006

Application Development & Maintenance Service		47.98		48.49		50.13		50.53
Consulting and Enterprise Business Solutions		40.42		40.26		39.41		38.92
Extended Engineering Solutions		6.40		6.01		6.57		6.61
Infrastructure Management Services		5.20		5.24		3.89		3.94

Total		100.00		100.00		100.00		100.00



10		Satyam Computer Services Limited

Operational parameters for Q2, fiscal 2007 (contd.)

Revenue by line of business (%)


Line of business	Q2 2007		Q1 2007		Q2 2006		FY 2006

Banking, Financial Services & Insurance		28.59		29.65		28.74		28.18
Manufacturing		26.69		27.84		29.17		28.60
TIMES (Telecom, Infrastructure, Media, Entertainment, Semiconductor)		20.36		19.12		19.17		18.82
Health & Pharma		7.33		6.53		5.59		6.24
Retail, Tranportation & Logistics		5.20		5.35		5.39		5.79
Others		11.83		11.51		11.94		12.36

Total		100.00		100.00		100.00		100.00

Revenue by contract type (%)


Contract	Q2 2007		Q1 2007		Q2 2006		FY 2006

Time & Material		60.65		62.14		65.08		64.44
Fixed Bid		39.35		37.86		34.92		35.56

Total		100.00		100.00		100.00		100.00

Changes in billing rates (%)


	For the Quarter
Particulars	Sequential		Year on Year		FY 2006

Onsite		0.45		0.90		0.31
Offshore		0.21		0.60		0.57
Domestic		2.04		5.30		6.78

B. Associate Data

Location-wise break up of associates


Particulars	Q2 2007		Q1 2007		Q2 2006

Onsite		6,428		5,967		5,276
Offshore		21,835		18,831		14,673
Domestic		1,567		1,055		941
Total Technical		29,830		25,853		20,890
Support		1,829		1,781		1,592

Total		31,659		27,634		22,482

Total number of associates including those of subsidiaries and joint ventures is 34,908

Attrition

Particulars

Q2 2007

Q1 2007

Q2 2006

Attrition Rate (TTM)

18.27

19.62

16.21



Satyam Computer Services Limited		11

Operational parameters for Q2, fiscal 2007 (contd.)

Utilization/Loading rates (in %)


Particulars	Q2 2007		Q1 2007		Q2 2006		FY 2006

Onsite		96.99		97.03		96.98		97.38
Offshore		78.75		79.56		79.43		79.03
Domestic		95.60		96.06		94.77		96.13
Offshore with trainees		71.11		71.24		74.70		73.77

C. Customer Information

Revenue contribution (in %)


Revenues from	Q2 2007		Q1 2007		Q2 2006		FY 2006

Top customer		6.68		7.12		8.95		9.02
Top 5 customers		22.26		22.68		25.66		24.94
Top 10 customers		33.93		34.43		38.66		37.25

Number of customers with annualized billing exceeding:


Revenues of	Q2 2007		Q1 2007		Q2 2006

US$1 million		154		142		137
US$5 million		54		51		43
US$10 million		32		33		22

Revenue from existing business and new business (%)


	Q2 2007		Q1 2007		Q2 2006

Existing business		86.12		87.70		92.39
New business		13.88		12.30		7.61

Total		100.00		100.00		100.00

Other Information


Particulars	Q2 2007		Q1 2007		Q2 2006

New customers added		35		34		32
Number of active customers		504		489		429
Receivable days		80		77		72

Total number of customers including those of Citisoft and Nipuna is 521



12		Satyam Computer Services Limited

About Satyam Computer Services Limited

Satyam Computer Services Ltd. (NYSE: SAY) is a global IT consulting and services provider, offering a range of expertise aimed at helping customers re-engineer and re-invent their businesses to compete successfully in an ever-changing market. Around 35,000* highly-skilled professionals in Satyam work Onsite, Offsite, Offshore and Nearshore, to provide customized IT solutions for companies in several industry sectors.


*		Figures as per quarter ended September 30, 2006

For more information visit: www.satyam.com

Safe Harbor

Contact Information

Diwakar Pingle
Mayfair Centre, S.P. Road, Secunderabad — 500 003.
Ph: +91-40-30654105 Fax: +91-40-27840058
Email: Diwakar_Pingle@satyam.com



Satyam Computer Services Limited		13

EX-99.4 5 u92864exv99w4.htm EX-99.4 UNCONSOLIDATED/STANDALONE FINANCIAL STATEMENTS FOR THE QUARTER AND HALF-YEAR ENDED SEPTEMBER 30, 2006 UNDER INDIAN GAAP (AUDITED) Ex-99.4

Exhibit 99.4

Satyam Computer Services Limited

Description of Business

The Company is an information technology (“IT”) services provider that uses a global infrastructure to deliver value-added services to its customers, to address IT needs in specific industries and to facilitate electronic business, or eBusiness, initiatives. The Company was incorporated on June 24, 1987 in Hyderabad, Andhra Pradesh, India. The Company has offshore development centers located throughout India that enable it to provide high quality and cost-effective solutions to clients. It also has offsite centers located in Australia, Canada, China, Dubai, Germany, Hungary, Japan, Malaysia, Singapore, United Kingdom and United States,. The range of services offered by it, either on a “time and material” basis or “fixed price”, includes consulting, systems design, software development, system integration and application maintenance. The Company offers a comprehensive range of IT services, including software development, packaged software integration, system maintenance and engineering design services. The Company has established a diversified base of corporate customers in a wide range of industries including insurance, banking and financial services, manufacturing, telecommunications, transportation and engineering services.

Statement on Significant Accounting Policies

a)		Basis of Presentation

		The financial statements of the Company are prepared under historical cost convention in accordance with the Generally Accepted Accounting Principles (GAAP) applicable in India and the provisions of the Indian Companies Act, 1956.

b)		Use of Estimates

		The preparation of the financial statements in conformity with the GAAP requires that the management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities as at the date of the financial statements, and the reported amounts of revenue and expenses during the reported year. Actual results could differ from those estimates.

c)		Revenue Recognition

		Revenue from professional services consist primarily of revenue earned from services performed on a “time and material” basis. The related revenue is recognized as and when the services are performed.

		The Company also performs time bound fixed-price engagements, under which revenue is recognized using the percentage of completion method of accounting. The cumulative impact of any revision in estimates of the percentage of work completed is reflected in the year in which the change becomes known. Provisions for estimated losses on such engagements are made during the year in which a loss becomes probable and can be reasonably estimated.

		Amounts received or billed in advance of services performed are recorded as advance from customers/unearned revenue. Unbilled revenue, included in debtors, represents amounts recognized based on services performed in advance of billing in accordance with contract terms.

d)		Fixed Assets

		Fixed assets are stated at actual cost less accumulated depreciation. The actual cost capitalized includes material cost, freight, installation cost, duties and taxes, finance charges and other incidental expenses incurred during the construction/installation stage.

		Gain/Loss arising on foreign exchange liabilities incurred for the purpose of acquiring fixed assets are adjusted in the carrying amount of the respective fixed assets.

		Depreciation on fixed assets is computed on the straight line method over their estimated useful lives at the rates which are higher than the rates prescribed under Schedule XIV of the Companies Act, 1956. Individual assets acquired for less than Rs.5,000 are entirely depreciated in the year of acquisition.

Satyam Computer Services Limited

		The cost of and the accumulated depreciation for fixed assets sold, retired or otherwise disposed off are removed from the stated values and the resulting gains and losses are included in the profit and loss account.

		Costs of application software for internal use are generally charged to revenue as incurred due to its estimated useful lives being relatively short, usually less than one year.

		The estimated useful lives are as follows:


		Estimated useful lives
Buildings		28 years
Computers		2 years
Plant and Machinery (Other than Computers)		5 years
Software — used in Development for Projects		3 years
Office Equipment		5 years
Furniture, Fixtures and Interiors		5 years
Vehicles		5 years

		Capital work in progress

		Assets under installation or under construction as at the Balance sheet date are shown as Capital work in progress. Advances paid towards acquisition of assets are also included under Capital work in progress.

e)		Goodwill

		Goodwill represents the difference between the purchase price and the book value of assets and liabilities acquired. Goodwill is amortized over the useful life of the asset. The goodwill is reviewed for impairment whenever events or changes in business circumstances indicate the carrying amount of assets may not be fully recoverable. If impairment is indicated, the asset is written down to its fair value.

f)		Investments

		Investments are classified into current investments and long-term investments. Current investments are carried at the lower of cost or market value. Any reduction in carrying amount and any reversals of such reductions are charged or credited to the profit and loss account. Long-term investments are carried at cost less provision made to recognize any decline, other than temporary, in the value of such investments.

g)		Foreign Currency Translation

		Transactions in foreign currency are recorded at exchange rate prevailing on the date of transaction. Monetary assets and liabilities denominated in foreign currency are translated at the rate of exchange at the balance sheet date and resultant gain or loss is recognized in the profit and loss account.

		Non-monetary assets and liabilities are translated at the rate prevailing on the date of transaction.

		The operations of foreign branches of the company are of integral in nature and the financial statements of these branches are translated using the same principles and procedures of head office.

		In case of forward exchange contract or any other financial instruments that is in substance a forward exchange contract to hedge the foreign currency risk which is on account of firm commitment and/or is a highly probable forecast transaction, the premium or discount arising at the inception of the contract is amortized as expense or income over the life of the contract.

Satyam Computer Services Limited

		Gain/Loss on settlement of transaction arising on cancellation or renewal of such a forward exchange contract is recognized as income or as expense for the period.

		In all other cases the gain or loss on contract is computed by multiplying the foreign currency amount of the forward exchange contract by the difference between the forward rate available at the reporting date for the remaining maturity of the contract and the contracted forward rate (or the forward rate last used to measure a gain or loss on that contract for an earlier period), is recognized in the profit and loss account for the period.

h)		Employee Benefits

		Contributions to defined Schemes such as Provident Fund, Employee State Insurance Scheme and Superannuation are charged as incurred on accrual basis. The Company also provides for gratuity and leave encashment in accordance with the requirements of revised Accounting Standard – 15 “Employee Benefits”.

i)		Taxes on Income

		Tax expense for the year comprises of current tax and deferred tax. Current taxes are measured at the amounts expected to be paid using the applicable tax rates and tax laws. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the profit and loss account in the year of change. Deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards.

j)		Earnings Per Share

		The earnings considered in ascertaining the Company’s Earnings Per Share (EPS) comprises the net profit after tax (and includes the post tax effect of any extra ordinary items). The number of shares used in computing Basic EPS is the weighted average number of shares outstanding during the year. The number of shares used in computing Diluted EPS comprises of weighted average shares considered for deriving Basic EPS, and also the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the year, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). The number of shares and potentially dilutive shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.

k)		Associate Stock Option Scheme

		Stock options granted to the associates under the stock option schemes established after June 19, 1999 are evaluated as per the accounting treatment prescribed by Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 issued by Securities and Exchange Board of India. Accordingly the excess of market value of the stock options as on the date of grant over the exercise price of the options is recognized as deferred employee compensation and is charged to profit and loss account on graded vesting basis over the vesting period of the options. The un-amortized portion of the deferred employee compensation is shown under Reserves and Surplus.

l)		Research and Development

		Revenue expenditure incurred on research and development is charged to revenue in the year/period in which it is incurred. Assets used for research and development activities are included in fixed assets.

Satyam Computer Services Limited

Balance Sheet as at September 30, 2006


							Rs. in Crores
	Schedule		As at		As at		As at
	Reference		30.09.2006		30.09.2005		31.03.2006
I. Sources of Funds :
1. Shareholders’ Funds
(a) Share Capital		1		130.93		64.39		64.89
(b) Share application money, pending allotment				1.86		1.07		1.78
(c) Reserves and Surplus		2		4,881.26		3,603.89		4,268.75

				5,014.05		3,669.35		4,335.42

2. Loan Funds
(a) Secured Loans		3		13.38		11.88		12.57

				5,027.43		3,681.23		4,347.99


II. Application of Funds :
1. Fixed Assets		4
(a) Gross Block				1,218.79		1,046.28		1,153.16
(b) Less: Depreciation				866.75		743.23		803.74

(c) Net Block				352.04		303.05		349.42
(d) Capital Work in Progress				177.83		71.60		76.84

				529.87		374.65		426.26

2. Investments		5		193.39		144.91		155.74

3. Deferred Tax Assets (net)		6		40.54		10.17		4.29

4. Current Assets, Loans and Advances
(a) Sundry Debtors		7		1,350.04		897.34		1,122.81
(b) Cash and Bank Balances		8		3,442.07		2,572.74		3,052.33
(c) Loans and Advances		9		209.81		164.92		183.24
(d) Other Current Assets
- - Interest Accrued on Fixed Deposits				153.53		67.56		110.59

				5,155.45		3,702.56		4,468.97

Less: Current Liabilities and Provisions
(a) Liabilities		10		605.88		390.72		435.71
(b) Provisions		11		285.94		160.34		271.56

				891.82		551.06		707.27

Net Current Assets				4,263.63		3,151.50		3,761.70


				5,027.43		3,681.23		4,347.99

Notes to Accounts		15

The Schedules referred to above and the Statement on Significant Accounting Policies form an integral part of the Balance Sheet.


This is the Balance Sheet referred to in our report of even date.		for and on behalf of the Board of Directors


S. Gopalakrishnan	B. Ramalinga Raju	B. Rama Raju
Partner	Chairman	Managing Director
for and on behalf of
Price Waterhouse
Chartered Accountants

	V. Srinivas	G. Jayaraman
	Director	Sr. Vice President (Corp. Governance)
	& Sr. Vice President — Finance	& Company Secretary

Place : Secunderabad		Place : Secunderabad
Date : October 20, 2006		Date : October 20, 2006

Satyam Computer Services Limited

Profit and Loss Account for the Quarter and Half Year ended September 30, 2006


														Rs. in Crores
			Quarter			Quarter			Half Year			Half Year		Year
	Schedule		Ended			Ended			Ended			Ended		Ended
	Reference		30.09.2006			30.09.2005			30.09.2006			30.09.2005		31.03.2006
Income

Services
- - Exports				1,465.42			1,076.17			2,797.84			2,077.90		4,461.64
- Domestic				72.29			41.10			126.73			73.81		172.67
Other Income		12		28.13			31.12			102.51			54.50		377.91

				1,565.84			1,148.39			3,027.08			2,206.21		5,012.22


Expenditure

Personnel Expenses		13		945.49			651.38			1,740.62			1,275.10		2,700.67
Operating and Administration Expenses		14		234.86			182.00			470.94			343.23		740.13
Financial Expenses				0.26			0.20			1.33			0.40		2.72
Depreciation				32.81			30.93			65.11			59.08		122.81

				1,213.42			864.51			2,278.00			1,677.81		3,566.33


Profit Before Taxation				352.42			283.88			749.08			528.40		1,445.89
Provision for Taxation - Current				43.00			32.57			88.65			66.07		190.92
- Fringe Benefit				2.70			1.75			5.40			5.02		8.80
- Deferred				(15.62	)		(1.16	)		(27.40	)		0.54		6.42

Profit After Taxation				322.34			250.72			682.43			456.77		1,239.75
Add: Balance brought forward from previous period / year				3,196.90			2,188.69			2,836.81			1,982.64		1,982.64
Less: Residual dividend and additional dividend tax				(0.56	)		1.23			(0.56	)		1.23		1.23

Profit Available for Appropriation				3,519.80			2,438.18			3,519.80			2,438.18		3,221.16

Appropriations :
Interim Dividend @ Re. 1.00 per Equity Share of Rs. 2.00 each (2005 - Rs. 2.00 per Equity Share)				65.61			64.46			65.61			64.46		64.46
Final Dividend (2006 - Rs. 5.00 per Equity Share)				—			—			—			—		163.87
Tax on distributed profits				9.20			9.04			9.20			9.04		32.02
Transfer to General Reserve				—			—			—			—		124.00

Balance carried to Balance Sheet				3,444.99			2,364.68			3,444.99			2,364.68		2,836.81


Earnings Per Share (Rs. per equity share of Rs. 2 each)

Basic				4.93			3.90			10.46			7.12		19.26
Diluted				4.78			3.79			10.14			6.92		18.51

No. of Shares used in computing Earnings Per Share
Basic				653,538,584			642,686,564			652,502,120			641,206,164		643,784,984
Diluted				673,862,942			661,223,670			672,826,478			659,634,740		669,626,864

Notes to Accounts		15

The Schedules referred to above and the Statement on Significant Accounting Policies form an integral part of the Profit and Loss Account.


This is the Profit and Loss Account referred to in our report of even date.		for and on behalf of the Board of Directors


S. Gopalakrishnan	B. Ramalinga Raju	B. Rama Raju
Partner	Chairman	Managing Director
for and on behalf of
Price Waterhouse
Chartered Accountants

	V. Srinivas	G. Jayaraman
	Director	Sr. Vice President (Corp. Governance)
	& Sr. Vice President — Finance	& Company Secretary

Place : Secunderabad		Place : Secunderabad
Date : October 20, 2006		Date : October 20, 2006

Satyam Computer Services Limited

Schedules forming part of the Balance Sheet


					Rs. in Crores
	As at		As at		As at
	30.09.2006		30.09.2005		31.03.2006
1. Share Capital
Authorised:		160.00		75.00		75.00

800,000,000 (September 30, 2005 - 375,000,000; March 31, 2006 - 375,000,000) Equity Shares of Rs. 2 each

Issued and Subscribed:		130.93		64.39		64.89

654,634,308 (September 30, 2005 - 321,965,342; March 31, 2006 - 324,449,539) Equity Shares of Rs. 2 each fully paid-up

Out of the above:
4,000,000 Equity Shares of Rs. 2 each were allotted as fully paid-up Equity Shares for a consideration other than cash pursuant to the Scheme of Amalgamation with Satyam Enterprise Solutions Limited

467,912,154 (140,595,000) Equity Shares of Rs. 2 each were allotted as fully paid-up by way of Bonus Shares by capitalising free reserves of the Company

129,600,640 ( September 30, 2005 - 64,300,704; March 31, 2006 - 64,680,600 ) Equity Shares of Rs. 2 each fully paid-up represent 64,800,320 ( September 30, 2005 - 32,150,352; March 31, 2006 - 32,340,300 ) American Depository Shares

25,554,308 ( September 30, 2005 - 7,425,342; March 31, 2006 - 9,909,539 ) Equity Shares of Rs. 2 each fully paid-up were alloted to associates of the Company pursuant to the Associate Stock Option Plan — B and Associate Stock Option Plan (ADS)

2. Reserves and Surplus

Share Premium Account
As at the commencement of the year		1,028.63		890.94		890.94
Add: Received on account of issue of ADS / ASOP		87.48		68.72		137.69

		1,116.11		959.66		1,028.63


General Reserve
As at the commencement of the year		402.79		278.79		278.79
Add: Transfer from the Profit and Loss Account		—		—		124.00

		402.79		278.79		402.79
Less: Provision for leave encashment (Refer note (l) of Schedule 15)		17.47		—		—
Less: Capitalised on issue of bonus shares (Refer note (i) of Schedule 15)		65.46		—		—

		319.86		278.79		402.79


Employee Stock Options
Employee Stock Options Outstanding		0.30		0.76		0.52


Balance in Profit and Loss Account		3,444.99		2,364.68		2,836.81


		4,881.26		3,603.89		4,268.75


3. Secured Loans
Vehicle Loans		13.38		11.88		12.57

Satyam Computer Services Limited
Schedules forming part of the Balance Sheet
4. Fixed Assets


																		Rs. in Crores
		GROSS BLOCK										DEPRECIATION						NET BLOCK
		As at						As at		As at		For the				As at		As at		As at
	DESCRIPTION	01.04.2006		Additions		Deletions		30.09.2006		01.04.2006		period		Deletions		30.09.2006		30.09.2006		31.03.2006

1.	Land & Land Development
	—Freehold*		31.03		7.21		—		38.24		—		—		—		—		38.24		31.03
	—Leasehold		8.13		—		—		8.13		0.02		0.01		—		0.03		8.10		8.11

2.	Buildings**		101.76		—		—		101.76		13.24		1.80		—		15.04		86.72		88.52

3.	Plant and Machinery		789.40		45.65		1.04		834.01		636.85		51.34		1.04		687.15		146.86		152.55
	(Including Computers and Software)

4.	Office Equipment		20.92		2.59		—		23.51		13.51		1.57		—		15.08		8.43		7.41

5.	Furniture, Fixtures and Interiors		171.58		7.31		—		178.89		128.17		7.26		—		135.43		43.46		43.41

6.	Vehicles		30.34		6.11		2.20		34.25		11.95		3.13		1.06		14.02		20.23		18.39


	Total		1,153.16		68.87		3.24		1,218.79		803.74		65.11		2.10		866.75		352.04		349.42

	As at 30.09.2005		937.70		111.04		2.46		1,046.28		685.41		59.08		1.26		743.23		303.05		—


*		Includes Rs. 12.24 crores ( September 30, 2005 — Rs. 12.24 crores; March 31, 2006 — Rs. 12.24 crores ) in respect of which deed of conveyance is pending.

**		Includes Rs. 38.85 crores ( September 30, 2005 — Rs. 30.10 crores; March 31, 2006 — Rs. 38.85 crores ) constructed on leasehold land.

Satyam Computer Services Limited

Schedules forming part of the Balance Sheet


							Rs. in Crores
	As at			As at			As at
	30.09.2006			30.09.2005			31.03.2006
5. Investments

Long Term
i) Trade (Unquoted)

Sify Limited			—			22.04			—

Nil (September 30, 2005 - 11,182,600) Equity Shares of Rs. 10 each, fully paid-up

Satyam Venture Engineering Services Private Limited			3.54			3.54			3.54
3,544,480 Shares of Rs. 10 each, fully paid-up

CA Satyam ASP Private Limited			7.17			7.17			7.17
7,168,995 Equity Shares of Rs. 10 each, fully paid-up

Intouch Technologies Limited		10.90			10.90			10.90
833,333 Shares of 20 US cents each, fully paid-up Less : Provision for diminution		10.90	—		10.90	—		10.90	—

Medbiquitious Services Inc.,		1.57			1.57			1.57
334,000 Shares of ‘A’ series Preferred Stock of US Dollars 0.001 each, fully paid-up Less : Provision for diminution		1.57	—		1.57	—		1.57	—

Avante Global LLC.,		2.54			2.54			2.54
577,917 class ‘A’ units representing a total value of US Dollars 540,750 Less : Provision for diminution		2.54	—		2.54	—		2.54	—

Jasdic Park Company		0.75			0.75			0.75
480 Shares of J Yen 50,000 each, fully paid-up Less : Received on liquidation		0.26			0.26			0.26

Less : Provision for diminution		0.49	—		0.49	—		0.49	—

Investments in subsidiary companies

Satyam Technologies Inc.,			20.22			20.22			20.22
100,000 Common Stock of 1 US cent each, fully paid-up

Nipuna Services Limited			18.27			18.27			18.27
18,268,000 Equity Shares of Rs. 10 each, fully paid-up

Satyam Computer Services (Shanghai) Co. Limited$$			17.99			11.42			15.92

Citisoft Plc			111.56			62.25			75.98
11,241,000 (September 30, 2005 - 8,430,752; March 31, 2006 - 8,430,752 ) Ordinary Shares of 0.01 GBP each, fully paid up

Knowledge Dynamics Pte Ltd			14.64			—			14.64
10,000,000 Ordinary Shares of 0.01 SGD each, fully paid up

Satyam (Europe) Limited		6.98			6.98			6.98
1,000,000 Equity Shares of 1 GBP each, fully paid-up Less: Provision for losses		6.98	—		6.98	—		6.98	—

Satyam Japan KK		0.42			0.42			0.42
200 Common Stock of J Yen 50,000 each, fully paid-up Less: Provision for losses		0.42	—		0.42	—		0.42	—

Satyam Asia Pte Limited		1.03			1.03			1.03
400,000 Ordinary Shares of 1 Singapore Dollar each, fully paid-up Less: Provision for losses		1.03	—		1.03	—		1.03	—

Dr. Millennium, Inc.,		3.09			3.09			3.09
710,000 Common Stock of 1 US Dollar each , fully paid-up Less : Received on account of reduction of Share Capital		2.99			2.99			2.99
Less: Provision for losses		0.10	—		0.10	—		0.10	—

Vision Compass, Inc.		89.94			89.94			89.94
425,000,000 Common Stock of 1 US Cent each, fully paid-up Less : Provision for diminution		89.94	—		89.94	—		89.94	—

Satyam IdeaEdge Technologies Private Limited		0.01			0.01			0.01
10,000 Equity Shares of Rs. 10 each, fully paid-up Less : Provision for diminution		0.01	—		0.01	—		0.01	—

ii) Non Trade (Unquoted)

National Savings Certificates,VIII Series (Lodged as security with government authorities)			—			—			—

			193.39			144.91			155.74


^$$		Investment is not denominated in number of shares as per laws of the People’s Republic of China.

Satyam Computer Services Limited

Schedules forming part of the Balance Sheet


								Rs. in Crores
		As at			As at			As at
		30.09.2006			30.09.2005			31.03.2006
6.	Deferred Tax Assets (net)
	Debtors		11.01			10.15			11.02
	Advances		1.43			0.70			1.43
	Fixed Assets		(24.91	)		(16.11	)		(25.38	)
	Others		53.01			15.43			17.22

			40.54			10.17			4.29


7.	Sundry Debtors (Unsecured)
	Considered good *
	(a) Over six months old		20.66			10.26			12.78
	(b) Other debts		1,329.38			887.08			1,110.03

			1,350.04			897.34			1,122.81
	Considered doubtful **		108.36			100.30			103.89

			1,458.40			997.64			1,226.70

	Less: Provision for doubtful debts **		108.36			100.30			103.89

			1,350.04			897.34			1,122.81


*	Debtors include dues from subsidiaries Rs. 6.04 crores (September 30, 2005 - Rs.1.75 crores; March 31, 2006 — Rs. 4.38 crores) and Unbilled revenue Rs. 201.15 crores (September 30, 2005 - Rs. 114.91 crores; March 31, 2006 - Rs. 170.14 crores)

**	Includes dues from subsidiaries Rs. 18.89 crores (September 30, 2005 - Rs. 18.89 crores; March 31, 2006 - Rs. 18.89 crores)

8.	Cash and Bank Balances*

	Cash on hand		0.05			0.09			0.05
	Remittances in transit		—			2.86			—

	Balances with Scheduled Banks
	- On Current Accounts		1,490.34			671.57			1,021.28
	- On Deposit Accounts		1,801.02			1,799.43			1,907.42

	Unclaimed Dividend Accounts		10.93			5.97			5.05
	Balances with Non-Scheduled Banks**
	- On Current Accounts		138.96			92.05			117.80
	- On Deposit Accounts		0.77			0.77			0.73

			3,442.07			2,572.74			3,052.33


*	Includes unutilised amount of ADS issue proceeds — Rs. 62.87 crores (September 30, 2005 - Rs. 322.07 crores; March 31, 2006 - Rs. 262.20 crores)

**	Refer note (f) of Schedule 15

9.	Loans and Advances
	(Considered good unless otherwise stated)

	Secured — Loans		0.09			0.15			0.11
	Unsecured — Advances recoverable in cash or in kind or for value to be received*		132.56			100.76			114.16
	— Deposits		77.16			64.01			68.97
	Considered doubtful — Advances **		65.37			62.54			65.37

			275.18			227.46			248.61

	Less: Provision for doubtful Advances **		65.37			62.54			65.37

			209.81			164.92			183.24


*	Includes advances and share application money to subsidiaries Rs. 18.08 crores (September 30, 2005 - Rs. 4.14 crores; March 31, 2006 - Rs. 5.18 crores)

**	Includes due from subsidiaries Rs. 48.12 crores (September 30, 2005 - Rs. 48.12 crores; March 31, 2006 - Rs. 48.12 crores)

10.	Liabilities
	Sundry Creditors
	— Dues to small scale industrial undertakings		—			—			—
	— Dues to other than small scale industrial undertakings		458.91			308.48			332.05
	Advances from Customers		1.14			1.01			0.93
	Unearned Revenue		76.53			35.19			52.67
	Investor Education Protection Fund — Unclaimed Dividends		10.93			5.97			5.05
	Other Liabilities		58.37			40.07			45.01

			605.88			390.72			435.71


11.	Provisions

	Provision for Taxation (less payments)		53.64			41.01			33.53
	Proposed Dividend (including tax thereon)		74.81			73.50			186.85
	Provision for Gratuity and Leave Encashment		157.49			45.83			51.18

			285.94			160.34			271.56

Satyam Computer Services Limited

Schedules forming part of the Profit and Loss Account


														Rs. in Crores
		Quarter			Quarter			Half Year			Half Year			Year
		Ended			Ended			Ended			Ended			Ended
		30.09.2006			30.09.2005			30.09.2006			30.09.2005			31.03.2006
12.	Other Income
	Interest on deposits and advances — Gross		28.60			28.04			57.48			55.74			115.77
	{Tax Deducted at Source Rs. 12.86 crores} (September 30, 2005 - Rs. 12.48 crores; March 31, 2006 - Rs. 25.94 crores)
	Gain/(Loss) on exchange fluctuations (net)		(0.97	)		2.50			44.22			(2.18	)		(2.18	)
	Profit on sale of long term investments		—			—			—			—			262.83
	Miscellaneous income		0.50			0.58			0.81			0.94			1.49

			28.13			31.12			102.51			54.50			377.91


13.	Personnel Expenses
	Salaries and bonus		879.61			602.49			1,619.79			1,185.01			2,501.25
	Contribution to provident and other funds		63.23			45.21			114.27			83.42			181.97
	Staff welfare expenses		2.82			3.72			6.74			6.71			17.53
	Employee stock compensation expense		(0.17	)		(0.04	)		(0.18	)		(0.04	)		(0.08	)

			945.49			651.38			1,740.62			1,275.10			2,700.67


14.	Operating and Administration Expenses
	Rent		22.69			16.71			41.56			32.67			68.73
	Rates and taxes		5.33			2.48			11.15			4.65			15.20
	Insurance		4.04			3.16			7.87			6.34			13.95
	Travelling and conveyance		87.48			47.25			163.52			103.15			237.40
	Communication		17.37			15.41			32.65			29.53			63.42
	Printing and stationery		3.43			1.28			4.58			2.73			5.95
	Power and fuel		8.40			6.53			17.19			13.56			26.98
	Advertising		0.98			2.26			2.16			4.08			7.83
	Marketing expenses		13.07			15.64			30.46			27.68			59.24
	Repairs and maintenance
	- Buildings		0.73			0.19			1.35			0.33			1.43
	- Machinery		2.90			1.85			6.49			3.29			8.69
	- Others		6.07			4.39			11.23			7.56			20.04
	Security services		1.23			0.91			2.21			1.44			3.09
	Legal and professional charges		38.12			30.10			71.10			48.96			95.70
	Provision for doubtful debts and advances		2.21			5.28			4.47			5.28			11.71
	Loss on sale of Fixed Assets (net)		0.24			0.22			0.40			0.49			0.83
	Directors’ sitting fees		0.01			0.01			0.02			0.02			0.04
	Auditors’ remuneration		0.35			0.14			0.62			0.31			1.15
	Donations and contributions		0.87			0.67			1.74			1.24			3.73
	Subscriptions		0.58			0.50			1.23			0.84			2.09
	Training and development		4.87			3.04			8.87			7.40			15.00
	Research and development		0.30			0.47			0.64			1.45			2.45
	Software charges		2.77			3.49			11.17			8.38			22.54
	Managerial remuneration
	- Salaries		0.08			0.09			0.17			0.17			0.35
	- Commission		0.15			0.14			0.30			0.26			0.91
	- Contribution to P.F.		0.01			0.01			0.02			0.02			0.04
	- Others		0.06			0.05			0.11			0.10			0.19
	Visa charges		5.89			14.61			29.17			21.80			32.31
	Miscellaneous expenses		4.63			5.12			8.49			9.50			19.14

			234.86			182.00			470.94			343.23			740.13

Satyam Computer Services Limited

15. Notes to Accounts

Associate Stock Option Plans

	i.		Scheme established prior to SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999, (SEBI Guidelines on Stock Options).

			In May 1998, the Company established its Associate Stock Option Plan (the “ASOP”). The Company subsequently established an employee welfare trust called the Satyam Associates Trust (the “Trust”), to administer the ASOP and issued warrants to purchase 6,500,000 equity shares of Rs. 2 each in the Company. In turn, the Trust periodically grants to eligible employees warrants to purchase equity shares held by trust for the issuance to the employees. The warrants may vest immediately or may vest over a period ranging from two to three years, depending on the employee’s length of service and performance. Upon vesting, employees have 30 days to exercise warrants. The exercise price of the warrants was fixed at Rs. 450 per warrant.

			At the 12^th Annual General Meeting held on May 28, 1999, shareholders approved a 1:1 Bonus issue to all shareholders as of August 31, 1999. In order to ensure all its employees receive the benefits of the bonus issue in December 1999, the Trust exercised all its warrants to purchase the Company’s shares prior to the bonus issue using the proceeds obtained from bank loans. Subsequent to this, each warrant entitles the holder to purchase 10 shares of Rs. 2 each of the Company at a price of Rs. 450 per warrant plus an interest component associated with the loan which the Trust assumed, for conversion of the warrants it held. The interest component is computed based on fixed vesting period and a fixed interest rate. As this scheme is established prior to the SEBI guidelines on the stock options, there is no cost relating to the grant of options under this scheme.

	ii.		Scheme established after SEBI Guidelines on Stock Options

			Securities Exchange Board of India (SEBI) issued the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines 1999, which is applicable for all Stock Option Schemes established after June 19, 1999.

			The Company has established a scheme “Associate Stock Option Plan – B” (ASOP — B) for which 83,454,280 equity shares of Rs. 2 each were earmarked. Upon vesting, associates have 5 years to exercise these shares.

			Accordingly, options (net of cancellations) for a total number of 33,568,564 equity shares of Rs. 2 each were outstanding as at September 30, 2006 ( September 30, 2005 — 52,728,342 , March 31, 2006 — 45,605,388 ).

			Changes in number of options outstanding were as follows:


	Quarter ended September 30,						Half year ended September 30,						Year ended
Options	2006			2005			2006			2005			March 31, 2006

At the beginning of the period / year		40,628,076			55,226,388			45,605,388			53,660,630			53,660,630
Granted	Nil				1,137,582		Nil				6,555,816			6,579,552
Exercised		(1,943,694	)		(1,970,002	)		(5,495,790	)		(4,831,002	)		(9,039,604	)
Cancelled		(5,115,818	)		(1,665,626	)		(6,541,034	)		(2,657,102	)		(5,595,190	)
At the end of the period / year		33,568,564			52,728,342			33,568,564			52,728,342			45,605,388

	iii.		Associate Stock Option Plan (ADS)

			The Company has established a scheme “Associate Stock Option Plan (ADS)” to be administered by the Administrator of the ASOP (ADS), a committee appointed by the Board of Directors of the Company. Under the scheme 5,149,330 ADS are reserved to be issued to eligible associates with the intention to issue the warrants at a price per option which is not less than 90% of the value of one ADS as reported on NYSE on the date of grant converted into Indian Rupees at the rate of exchange prevalent on the day of grant as decided by the Administrator of the ASOP (ADS). Each ADS represents two equity shares of Rs. 2 each fully paid up. These warrants vest over a period of 1-10 years from the date of the grant. The time available to exercise the warrants upon vesting is as decided by the Administrator of the ASOP (ADS).

			Accordingly, options (net of cancellation) for a total number of 1,776,470 ADS ( September 30, 2005 – 2,496,398, March 31, 2006 – 1,991,342) representing 3,552,940 equity shares of Rs. 2 each were outstanding as at September 30, 2006 (September 30, 2005 — 4,992,796, March 31, 2006 -3,982,684).

			Changes in number of options outstanding were as follows:


	Quarter ended September 30,						Half year ended September 30,						Year ended
Options	2006			2005			2006			2005			March 31, 2006

At the beginning of the period / year		1,900,496			2,777,738			1,991,342			2,515,802			2,515,802
Granted	Nil				19,950			20,000			305,430			320,430
Exercised		(35,266	)		(261,006	)		(119,720	)		(284,550	)		(664,446	)
Cancelled		(88,760	)		(40,284	)		(115,152	)		(40,284	)		(180,444	)
At the end of the period / year		1,776,470			2,496,398			1,776,470			2,496,398			1,991,342

Satyam Computer Services Limited

		Pro forma disclosure:

		In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, had the compensation cost for associate stock option plans been recognized based on the fair value at the date of grant in accordance with Black Scholes’ model, the pro forma amounts of the Company’s net profit and earnings per share would have been as follows:


		Quarter ended September 30,				Half year ended September 30,				Year ended
	Particulars	2006		2005		2006		2005		March 31, 2006

1.	Profit after Taxation
	— As reported (Rs. in crores)		322.34		250.72		682.43		456.77		1,239.75
	— Pro forma (Rs. in crores)		306.97		224.05		651.05		399.88		1,142.11

2.	Earnings per share:
	Basic
	— No. of shares		653,538,584		642,686,564		652,502,120		641,206,164		643,784,984
	— EPS as reported	Rs.	4.93	Rs.	3.90	Rs.	10.46	Rs.	7.12	Rs.	19.26
	— Pro forma EPS	Rs.	4.70	Rs.	3.49	Rs.	9.98	Rs.	6.24	Rs.	17.74
	Diluted
	— No. of shares		673,862,942		661,223,670		672,826,478		659,634,740		669,626,864
	— EPS as reported	Rs.	4.78	Rs.	3.79	Rs.	10.14	Rs.	6.92	Rs.	18.51
	— Pro forma EPS	Rs.	4.56	Rs.	3.39	Rs.	9.68	Rs.	6.06	Rs.	17.06

The following assumptions were used for calculation of fair value of grants:


	Quarter ended September 30,				Half year ended September 30,				Year ended
	2006		2005		2006		2005		March 31, 2006

Dividend yield (%)		0.75		0.75		0.75		0.75		0.75
Expected volatility (%)		56.15		58.86		56.15		58.86		58.05
Risk-free interest rate (%)		7.00		7.00		7.00		7.00		7.00
Expected term (in years)		1.14		1.79		1.14		1.79		1.26

(b)		Share application money pending allotment

		Amount received from associates on exercise of stock options, pending allotment of shares is shown as share application money, pending allotment.

(c)		Secured Loans

		Vehicles are hypothecated to the Banks as security for the amounts borrowed.

(d)		Investments

		During May 2005, the Company acquired Citisoft Plc (“Citisoft”), a specialist business and systems consulting firm located in the United Kingdom that has focused on the investment management industry, with operating presence in London, Boston and New York.

		The Company acquired 75% of the shareholding in Citisoft for an initial cash consideration of Rs. 62.25 crores (inclusive of acquisition costs) and a deferred consideration of Rs.13.63 crores (equivalent GBP 1.75 million). The Company is also required to pay a maximum earn out consideration amounting to Rs.19.41 crores (equivalent GBP 2.25 million) based on achievement of targeted revenues and profits. On June 29, 2006, the Company acquired the remaining 25% shareholding for a consideration of Rs. 27.47 crores (equivalent GBP 3.26 million).

		During the quarter, the company has paid Rs. 7.82 crores (equivalent GBP 0.90 million) to Employee Benefit Trust.

		The Company is also required to pay a maximum earn-out consideration amounting to Rs.30.53 crores (equivalent GBP 3.54 million) based on achievement of targeted revenues and profits and to fund an Employee Benefit Trust (EBT) formed by Citisoft. The obligation to fund the EBT amounting to maximum of Rs. 15.53 crores (equivalent GBP 1.80 million) is contingent on Citisoft achieving certain revenue and profit performance targets.

(e)		Land

Satyam Computer Services Limited

During the quarter ended June 30, 2006, the Company acquired 14.93 acres of land at Hyderabad from Andhra Pradesh Industrial Infrastructure Corporation (APIIC) for an aggregate purchase consideration of Rs.7.21 crores. Non-compliance of certain terms and conditions would attract withdrawal of rebate, which may increase the cost of land.

(f)

Balances with Non-Scheduled Banks


											Rs. in crores
	Balances						Maximum Balances
	As at						Half year ended				Year ended
	September 30,				As at March 31,		September 30,				March 31,
Name of the Bank	2006		2005		2006		2006		2005		2006
Balances with Non-Scheduled Banks On Current Accounts
Banque Nationale De Paris, Brussels		0.95		—		—		4.73		—		—
Banque Nationale De Paris, France		0.99		—		1.05		4.55		—		1.26
Banque Nationale De Paris, Hague		3.93		—		3.32		5.90		—		3.32
Banque Nationale De Paris, Ireland		1.29		—		0.42		1.69		—		0.54
Banque Nationale De Paris, Italy		0.57		—		—		2.95		—		—
Banque Nationale De Paris, Saarbruecken		1.67		—		0.54		7.78		—		0.54
Banque Nationale De Paris, Spain		0.83		0.65		0.69		0.94		1.03		1.26
Banque Nationale De Paris, Switzerland		1.78		—		—		4.26		—		—
Banque Nationale De Paris, Saudi Arabia		0.61		—		—		0.61		—		—
Banque Nationale De Paris, Taipei		2.13		1.30		2.15		2.64		1.44		2.21
Citibank NA, Bangkok		7.28		8.64		11.45		12.43		9.16		11.71
Citibank NA, Chicago		—		—		—		—		0.04		0.04
Citibank NA, Denmark		0.18		—		—		0.33		—		—
Citibank NA, Dubai		0.36		1.54		0.20		2.51		2.09		2.09
Citibank NA, Hong Kong		1.23		0.45		0.27		1.23		0.69		0.90
Citibank NA, Hungary		0.23		0.14		0.15		0.50		1.43		1.43
Citibank NA, Kuala Lumpur		2.05		2.46		0.67		8.44		2.84		2.84
Citibank NA, London		0.99		1.14		0.54		2.09		5.06		5.06
Citibank NA, New York		3.10		2.48		3.98		20.00		24.62		24.62
Citibank NA, New Zealand		1.48		2.56		2.20		2.23		2.70		2.93
Citibank NA, Seoul		8.14		6.22		8.27		8.89		6.56		8.54
Citibank NA, Singapore		3.08		0.44		2.54		7.73		8.09		8.10
Citibank NA, Johannesburg		2.97		0.17		1.51		3.32		1.09		2.12
Citibank NA, Sydney		14.03		4.83		6.29		25.61		26.54		26.54
Citibank NA, Sweden		0.31		—		—		0.32		—		—
Citibank NA, Toronto		3.52		5.38		2.24		6.98		5.38		5.41
Dresdner Bank, Saarbruecken		0.82		6.08		12.27		14.73		6.14		12.81
Hong Kong and Shanghai Banking Corporation, London		28.99		7.23		11.79		50.53		18.37		22.91
Hong Kong and Shanghai Banking Corporation, Shanghai		0.02		0.02		0.02		0.02		0.02		0.02
Hong Kong and Shanghai Banking Corporation, Tokyo		3.43		7.17		9.79		14.55		10.09		10.96
Koonmin Bank, Seoul		—		—		—		0.12		—		—
KSB Bank N V, Brussels		2.57		2.41		2.31		9.63		3.04		4.37
Mitsui Sumitomo Bank, Tokyo		0.81		0.21		0.65		2.18		0.92		1.70
UBS Bank, Switzerland		1.08		2.51		1.39		7.70		3.50		3.83
Unicredit Banca, Italy		1.05		1.82		0.90		3.95		2.78		3.69
United Bank, Vienna		33.74		25.87		28.71		48.36		52.27		52.89
Wachovia Bank, Atlanta		—		—		—		—		0.06		0.06
Wachovia Bank, New Jersey		2.75		0.15		1.49		73.82		10.41		13.12
Woori Bank, Korea		—		0.18		—		0.26		5.08		5.08

		138.96		92.05		117.80


On Deposit Accounts
Citibank NA, Hungary		0.77		0.77		0.73		0.77		0.82		0.82

(g)		Related Party Transactions

		The Company had transactions with the following related parties:

		Subsidiaries: Citisoft Plc, Citisoft Inc., Knowledge Dynamics Pte Ltd, Knowledge Dynamics Private Limited, Knowledge Dynamics USA Inc., Info On Demand SDN BHD, Nipuna Services Limited, Satyam Computer Services (Shanghai) Co. Ltd and Satyam Technologies Inc.

		Joint Ventures (JVs): Satyam Venture Engineering Services Private Limited and CA Satyam ASP Private Limited.

		Associates: Sify Limited (ceased to exist as an associate w.e.f. November 09, 2005)

Satyam Computer Services Limited

Others: Satyam Foundation Trust and Satyam Associates Trust (Enterprises where trustees are spouses of Whole-time Director and Key Managerial Personnel).

Directors and Key Management Personnel: B.Ramalinga Raju, B.Rama Raju, Prof. Krishna G Palepu, Abraham Joseph, A.S.Murthy, Mohan Eddy, G.B.Prabhat, Ram Mynampati, D. Subramaniam, V. Srinivas, G. Jayaraman, Shailesh Shah, Vijay Prasad Boddupalli, Manish Sukhlal Mehta, Dr. Keshab Panda, Virender Aggarwal, T R Anand, Ravi Shankar Bommakanti, Murali V and Hari T.

Summary of the transactions and balances with the above related parties is as follows:

Transactions:


										Rs. in crores
	Quarter ended September 30,				Half Year ended September 30,					Year ended
	2006		2005		2006		2005			March 31,2006
Sales:
Subsidiaries		2.46		0.02		3.78		0.88			5.30
JVs		—		0.22		—		0.22			0.25

		2.46		0.24		3.78		1.10			5.55

Outsourcing:
Subsidiaries		14.17		8.72		24.70		13.46			31.57
JVs		11.05		10.35		21.37		20.36			37.35
Associates		—		2.36		—		5.28			6.25

		25.22		21.43		46.07		39.10			75.17

Other Services:
Subsidiaries		0.83		0.84		1.16		0.99			2.30
JVs		0.36		0.51		0.87		0.82			1.65

		1.19		1.35		2.03		1.81			3.95

Interest
JVs		0.01		0.01		0.02		0.01			0.03


Fixed Assets :
Subsidiaries		—		—		0.02		—			—
JVs		0.89		—		0.89		—
Associates		—		5.09		—		5.53			5.53

		0.89		5.09		0.91		5.53			5.53

Investments:
Subsidiaries		1.38		2.93		2.07		4.94			8.68

Advances:
Subsidiaries		10.38		—		22.41		(5.21	)		—
JVs		—		0.50		—		0.50			0.50
Others		—		—		—		—			0.71

		10.38		0.50		22.41		(4.71	)		1.21

Contributions:
Others		0.77		0.63		1.64		1.14			3.62

Balances :


							Rs. in crores
	As at September 30,						As at
	2006			2005			March 31, 2006
Accounts Receivable:
Subsidiaries		6.04	^*		1.75	^*		4.38	^*
JVs		0.16			0.37			0.25

		6.20			2.12			4.63

Payables:
Subsidiaries		18.48			11.62			9.22
JVs		13.18			16.61			8.21
Associates		—			4.29			—

		31.66			32.52			17.43

Investments:
Subsidiaries		182.68	^*		112.16	^*		145.03	^*
JVs		10.71			10.71			10.71
Associates		—			22.04			—

		193.39			144.91			155.74

Advances and share application money:
Subsidiaries		18.08	^*		4.14	^*		5.18	^*
JVs		—			0.51			0.53
Others		0.72			0.07			0.71

		18.80			4.72			6.42


*		Net of provisions made

Satyam Computer Services Limited

Transactions with Directors and Key Managerial Personnel


									Rs. in crores
	Quarter ended September 30,				Half year ended September 30,				Year ended
	2006		2005		2006		2005		March 31, 2006
Remuneration to Whole-time Directors		0.16		0.15		0.31		0.30		0.93
Remuneration to Key Managerial Personnel		4.11		3.20		7.97		7.49		19.34
Professional charges paid to Director		—		0.39		—		0.39		0.99
Advances to Key Managerial Personnel		1.28		0.78		1.28		0.78		1.06

Balances due to / from Directors and Key Managerial Personnel


					Rs. in crores
	As at September 30,				Year ended
	2006		2005		March 31, 2006
Remuneration Payable to Whole-time Directors		—		—		0.22
Remuneration Payable to Key Managerial Personnel		0.23		0.21		0.65
Advances due from Key Managerial Personnel		0.33		0.16		0.34

Options granted and outstanding to the Key Managerial Personnel 4,365,328 {includes 1,229,740 options granted under ASOP — ADS}. (September 30, 2005 — 5,671,590 {includes 1,546,632 options granted under ASOP — ADS}, March 31, 2006 — 4,960,772 {includes 1,266,344 options granted under ASOP — ADS}).

(h)

Obligation on long term non-cancelable operating leases

The Company has entered into operating lease agreements for its development centers at offshore, onsite and offsites ranging for a period of 3 to 10 years. The lease rentals charged during the quarter and maximum obligations on long-term non-cancelable operating leases payable as per the rentals stated in respective agreements are as follows:

Rs. in crores

Half year ended September 30,

Year ended

2006

2005

March 31, 2006

Lease rentals (Refer Schedule 14)

22.69

32.67

68.73


	As at September 30,				As at
	2006		2005		March 31, 2006
Obligations on non-cancelable leases:
Not later than one year		21.47		17.63		17.35
Later than one year and not later than five years		20.87		19.79		13.16
Later than five years		1.73		2.13		1.85

Total		44.07		39.55		32.36

(i)

Earnings Per Share

At the annual general meeting held on August 21, 2006, the shareholders approved a 1:1 bonus issue for all shareholders including the ADS holders i.e. one additional equity share for every one existing share held by the members by capitalizing a part of the general reserves. The record date for the bonus issue was October 10, 2006 and shares were allotted on October 11, 2006. All basic and diluted shares used in determining earnings per share are after considering the effect of bonus issue.

Calculation of EPS (Basic and Diluted):


			Quarter ended September 30,				Half year ended September 30,				Year ended
S.No.		Particulars	2006		2005		2006		2005		March 31, 2006
Basic

	1.	Opening no. of shares		652,620,082		641,438,670		648,899,078		638,530,582		638,530,582

	2.	Total Shares outstanding		653,538,584		642,686,564		652,502,120		641,206,164		643,784,984
	3.	Profit after Taxation (Rs. in crores)		322.34		250.72		682.43		456.77		1,239.75

Satyam Computer Services Limited

Quarter ended September 30,

Half year ended September 30,

Year ended

S.No.

Particulars

2006

2005

2006

2005

March 31, 2006

EPS

Rs. 4.93

Rs.3.90

Rs. 10.46

Rs.7.12

Rs. 19.26

Diluted

Stock options outstanding

20,324,358

18,537,106

20,324,358

18,428,576

25,841,880

Total shares outstanding (including dilution)

673,862,942

661,223,670

672,826,478

659,634,740

669,626,864

EPS

Rs. 4.78

Rs.3.79

Rs. 10.14

Rs.6.92

Rs. 18.51

(j)

Commitments and Contingencies

	i)		Bank Guarantees outstanding Rs. 72.84 crores (September 30, 2005 — Rs. 32.32 crores, March 31, 2006 — Rs. 58.95 crores).

	ii)		Contracts pending execution on capital accounts, net of advances, Rs. 171.76 crores (September 30, 2005 — Rs. 47.64 crores, March 31, 2006 — Rs. 114.07 crores).

	iii)		Forward Contracts outstanding Rs. 727.10 crores (Equivalent US$158.00 millions) {September 30, 2005 — Rs. 1,066.22 crores (Equivalent US$242.00 millions), March 31, 2006 — Rs. 966.36 crores (Equivalent US$216.00 millions)}.Gain/(Loss) on foreign exchange forward contracts which are included under the head gain/(loss) on exchange fluctuation in the profit and loss account amounted to (Rs. 14.78 crores) {September 30, 2005 — Rs. 0.32 crores, March 31, 2006 — (Rs. 3.75 crores)}.

	iv)		Claims against the Company not acknowledged as debts

—

Income tax and Sales tax matters under dispute — Rs. 20.38 crores (September 30, 2005 — Rs. Nil, March 31, 2006 — Rs. 20.38 crores).

	v)		Contingent consideration payable in respect of acquired subsidiary companies Rs. 76.19 crores (September 30, 2005 — Rs. 104.76 crores, March 31, 2006 — Rs. 101.72 crores).

	vi)		Nipuna Services Limited (a wholly owned subsidiary-Nipuna) issued 45,669,999 and 45,340,000 0.05% Convertible Redeemable Cumulative Preference Shares of par value Rs.10 each fully paid-up in October 2003 and June 2004 respectively to Olympus BPO Holdings Ltd. and Intel Capital Corporation (investors) for an aggregate consideration of Rs. 91.88 crores (equivalent to US$20 millions). These Preference shares are to be mandatorily converted/redeemed into such number of equity shares latest by June 2007 based on certain provisions in the agreement entered with the investors relating to revenues and profits earned up to March 31, 2006. The said preference shares, if not converted or early converted at the option of the investors based on certain triggering events, are redeemable on maturity in June 2007 at a redemption premium, which could range in between 7.5% to 13.5% p.a. The Company has guaranteed payment of all sums payable by Nipuna to the investors on redemption of the said Preference Shares.

			Further the Company is required to subscribe to Convertible Debentures amounting to US$20 million based on certain provisions in the agreement. These Convertible Debentures shall bear an interest rate equal to the prime lending rate of the State Bank of India prevailing at that time and are convertible upon the election of Nipuna into Equity Shares at any time after issuance.

	vii)		The Company has given a corporate guarantee on behalf of a subsidiary for the loan obtained amounting to maximum of Rs. 91.88 crores (September 30, 2005 — Rs. 88.04 crores, March 31, 2006 — Rs. 89.24 crores) (Equivalent US$20 million).

	viii)		The Company had filed a request for arbitration with the London Court of International Arbitration (“LCIA”) naming Venture Global Engineering LLC, USA (“VGE”) as respondent. The Arbitration concerned a dispute between the Company and VGE in connection with their joint venture Satyam Venture Engineering Services Private Limited (“SVES”).

			The LCIA Arbitrator issued its Final Award on April 3, 2006 in favour of the Company. The Company has filed a petition to recognize and enforce the Award in the United States District Court in Michigan. VGE has separately filed a declaratory judgment action seeking to refuse enforcement of the Award in the United States District Court in Illinois.

Satyam Computer Services Limited

(k)		The Gratuity Plan

		The following table sets forth the status of the Gratuity Plan of the Company, and the amounts recognized in the balance sheet and profit and loss account.


				Rs. in crores

	Quarter ended			Half Year ended
	September 30, 2006			September 30, 2006
Projected benefit obligation at the beginning of the period		35.68			35.08
Current service cost		2.23			4.31
Interest cost		0.56			1.19
Actuarial loss/(gain)		6.02			5.44
Benefits paid		(0.94	)		(2.47	)

Projected benefit obligation at the end of the period		43.55			43.55

Amounts recognised in the balance sheet
Projected benefit obligation at the end of the period		43.55			43.55
Fair value of plan assets at end of the period		—			—

Funded status of the plans — ( asset )/ liability		43.55			43.55
Liability recognised in the balance sheet		43.55			43.55

Gratuity cost for the period
Current service cost		2.23			4.31
Interest cost		0.56			1.19
Net actuarial (gain)/loss recognised in the period		6.02			5.44

Net gratuity cost		8.81			10.94

Assumptions
Discount rate		7.40	%		7.40	%
Long-term rate of compensation increase		7.00	%		7.00	%

Note: This being the first year of disclosure, previous year figures have not been furnished.

(l)	Provision for Leave encashment

	Effective April 1, 2006, the Company adopted the revised accounting standard on employee benefits. Pursuant to the adoption, the transitional obligations of the Company amounted to Rs. 26.33 crores. As required by the standard, an amount of Rs. 17.47 crores (net of related deferred tax of Rs. 8.86 crores) has been adjusted against general reserves.

(m)	Other Information

	i)	The Company is engaged in the development of computer software. The production and sale of such software cannot be expressed in any generic unit. Hence, it is not possible to give the quantitative details of sales and the information as required under Paragraphs 3 and 4C of Part II of Schedule VI of the Companies Act, 1956.

	ii)	Auditors’ Remuneration:


									Rs. in crores

	Quarter ended September 30,				Half year ended September 30,				Year ended
	2006		2005		2006		2005		March 31, 2006
Statutory audit		0.25		0.14		0.50		0.28		1.00
Tax audit		0.09		—		0.09		—		0.08
Other services		0.01		0.01		0.03		0.03		0.06
Out of pocket expenses		—		—		—		0.09		0.01

iii)

Earnings in foreign exchange (on receipt basis):

Rs. in crores

Quarter ended September 30,

Half year ended September 30,

Year ended

2006

2005

2006

2005

March 31, 2006

Income from software development services

1,067.69

997.59

2,206.20

1916.37

3,855.36

Satyam Computer Services Limited

iv)

C.I.F. value of imports:

Rs. in crores

Quarter ended September 30,

Half year ended September 30,

Year ended

2006

2005

2006

2005

March 31, 2006

Capital goods

30.96

13.59

39.99

31.05

61.02

Expenditure in foreign currency (on payment basis):


									Rs. in crores

	Quarter ended September 30,				Half year ended September 30,				Year ended
	2006		2005		2006		2005		March 31, 2006
Travelling expenses		31.60		21.22		58.55		43.69		90.92

Expenditure incurred at overseas branches		638.26		413.54		1,245.72		898.50		1,959.17

Others		15.48		17.99		30.82		39.68		71.97

(n)

The financial statements are represented in Rs. crores. Those items which were not represented in the financial statement due to rounding off to the nearest Rs. crores is given below:

Rs. in lakhs

As at September 30,

As at

Schedule No.

Description

2006

2005

March 31, 2006

5 (ii)

National Saving Certificates, VIII Series (Lodged as security with government authorities)

0.06

(o)		Dividends remitted in foreign currency:

		The Company does not make any direct remittances of dividends in foreign currency. The Company remits equivalent of the dividend payable to the holders of ADS in Indian Rupees to the depository bank, which is the registered shareholder on records for all owners of the Company’s ADS. The depository bank purchases the foreign currencies and remits dividend to the ADS holders. The Company remitted Rs. 32.39 crores during the period (September 30, 2005 — Rs. 19.22 crores, March 31, 2006 — Rs. 32.09 crores )

(p)		Reclassification:

		Figures for the corresponding period/year have been regrouped, recast and rearranged to conform to those of the current period wherever necessary.

Satyam Computer Services Limited

Cash Flow Statement for the Quarter and Half Year ended September 30, 2006


														Rs. in Crores
		Quarter ended			Quarter ended			Half year ended			Half year ended			Year Ended
		30.09.2006			30.09.2005			30.09.2006			30.09.2005			31.03.2006
A.	Cash Flows from Operating Activities
	Net Profit before Interest and Tax		323.91			256.00			692.75			473.01			1,332.76
	Profit on sale of Shares in Sify Limited		—			—			—			—			(262.83	)
	Depreciation		32.81			30.93			65.11			59.08			122.81
	Loss on sale of Fixed Assets		0.24			0.22			0.40			0.49			0.83

	Cash generated before changes in Working Capital		356.96			287.15			758.26			532.58			1,193.57


	(Increase)/Decrease in Sundry Debtors		(163.20	)		(25.77	)		(227.23	)		(132.18	)		(357.64	)
	(Increase)/Decrease in Loans and Advances		(8.62	)		(34.42	)		(26.57	)		(36.71	)		(62.85	)
	Increase/(Decrease) in Current Liabilities and Provisions		163.29			106.34			240.76			139.73			169.57
	Income Taxes Paid		(14.60	)		(49.66	)		(73.94	)		(76.36	)		(155.84	)
	Exchange differences on translation of foreign currency cash and cash equivalents		1.85			(6.61	)		(43.28	)		4.73			(1.20	)

	Net Cash Flow from Operating Activities		335.68			277.03			628.00			431.79			785.61


B.	Cash Flows used in Investing Activities
	Purchase of Fixed Assets		(105.65	)		(66.98	)		(169.86	)		(117.95	)		(234.27	)
	Purchase of Long term Investments		(9.49	)		(2.93	)		(28.26	)		(66.43	)		(78.81	)
	Share Application money		—			(7.82	)		—			(7.82	)		—
	Proceeds from sale of Shares in Sify Limited		—			—			—			—			228.24
	Proceeds from sale of Fixed Assets		0.40			0.46			0.74			0.71			1.33
	Interest accrued / income received		6.94			6.35			14.55			12.64			29.66

	Net Cash Flow used in Investing Activities		(107.80	)		(70.92	)		(182.83	)		(178.85	)		(53.85	)


C.	Cash Flows from Financing Activities
	Proceeds from issue of share capital		29.68			29.86			86.24			68.81			138.08
	Receipt of Share Application money, pending allotment		1.86			1.07			1.86			1.07			1.78
	Proceeds from Secured Loans		2.72			3.28			5.17			5.81			10.48
	Repayment of Secured Loans		(2.01	)		(1.97	)		(4.36	)		(3.79	)		(7.78	)
	Advance to Joint Venture Company		—			(0.50	)		—			(0.50	)		(0.50	)
	Financial expenses paid		(0.26	)		(0.20	)		(1.33	)		(0.40	)		(2.72	)
	Payment of Dividend		(186.29	)		(109.78	)		(186.29	)		(109.78	)		(183.28	)

	Net Cash Flow from Financing Activities		(154.30	)		(78.24	)		(98.71	)		(38.78	)		(43.94	)


D.	Exchange differences on translation of foreign currency cash and cash equivalents		(1.85	)		6.61			43.28			(4.73	)		1.20


	Net Increase in Cash and Cash equivalents during the period/year		71.73			134.48			389.74			209.43			689.02
	Cash and Cash equivalents at the beginning of the period/year		1,574.84			642.76			1,256.83			567.81			567.81

	Cash and Cash equivalents at the end of the period/year		1,646.57			777.24			1,646.57			777.24			1,256.83


	Supplementary Information
	Cash and Bank Balances		3,442.07			2,572.74			3,442.07			2,572.74			3,052.33
	Less: Long Term Deposits with Scheduled Banks considered as investment		1,795.50			1,795.50			1,795.50			1,795.50			1,795.50


	Balance considered for Cash Flow Statement		1,646.57			777.24			1,646.57			777.24			1,256.83


	The balance of Cash and Cash equivalents include amounts set aside for payment of dividends		10.93			5.97			10.93			5.97			5.05

	1.		Includes amount set aside for payment of unclaimed dividends.

	2.		Figures for the corresponding period/year have been regrouped, recast and rearranged to conform to those of the current period wherever necessary.

This is the Cash Flow Statement referred to in our report of even date. for and on behalf of the Board of Directors


S. Gopalakrishnan	B. Ramalinga Raju	B. Rama Raju
Partner	Chairman	Managing Director
for and on behalf of
Price Waterhouse
Chartered Accountants

	V. Srinivas	G. Jayaraman
	Director	Sr. Vice President (Corp. Governance)
	& Sr. Vice President — Finance	& Company Secretary

Place : Secunderabad		Place : Secunderabad
Date : October 20, 2006		Date : October 20, 2006

EX-99.5 6 u92864exv99w5.htm EX-99.5 CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER AND HALF-YEAR ENDED SEPTEMBER 30, 2006 UNDER INDIAN GAAP (UNAUDITED) Ex-99.5

Exhibit 99.5

Satyam Computer Services Limited

Description of Business

Satyam Computer Services Limited and its consolidated subsidiaries, Joint Ventures and Associates (hereinafter referred to as “Satyam”) are engaged in providing information technology services, developing software products and business process outsourcing.

Satyam Computer Services Limited (hereinafter referred to as “Satyam Computer Services”) is an information technology (“IT”) services provider that uses a global infrastructure to deliver value-added services to its customers, to address IT needs in specific industries and to facilitate electronic business, or eBusiness, initiatives. Satyam Computer Services was incorporated on June 24, 1987 in Hyderabad, Andhra Pradesh, India. Satyam Computer Services has offshore development centers located throughout India that enables it to provide high quality and cost-effective solutions to clients. It also has offsite centers located in the Australia, Canada, China, Dubai, Germany, Hungary, Japan, Malaysia, Singapore, United Kingdom and United States. The range of services offered by it, either on a “time and material” basis or “fixed price”, includes consulting, systems design, software development, system integration and application maintenance. Satyam Computer Services offers a comprehensive range of IT services, including software development, packaged software integration, system maintenance and engineering design services. Satyam Computer Services has established a diversified base of corporate customers in a wide range of industries including insurance, banking and financial services, manufacturing, telecommunications, transportation and engineering services.

Nipuna Services Limited (“Nipuna”) a wholly owned subsidiary of Satyam Computer Services is engaged in providing Business Process Outsourcing services covering HR, Finance & Accounting, Customer Contact (Voice, Mail and Chat), and Transaction Processing (industry-specific offerings).

Statement on Significant Accounting Policies

a)		Basis of Consolidation

		The Consolidated Financial Statements include the accounts of Satyam Computer Services and its subsidiary companies. Subsidiary companies are those in which Satyam Computer Services, directly or indirectly, have an interest of more than one half of the voting power or otherwise have power to exercise control over the operations. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date of disposal.

		All inter company transactions, balances and unrealized surpluses and deficits on transactions between Group companies are eliminated. Consistency in adoption of accounting polices among all group companies is ensured to the extent practicable. Separate disclosure is made of minority interest.

		Investments in Business entities over which the company exercises joint control are accounted for using the proportionate consolidation except where the control is considered to be temporary. Investment in associates are accounted for using the equity method.

		On occasion, a subsidiary or associated company accounted for by the equity method (“offering company”) may issue its shares to third parties as either a public offering or private placement at per share amounts in excess of or less than Satyam’s average per share carrying value. With respect to such transactions, the resulting gains or losses arising from the dilution of interest are recorded as Capital Reserve/Goodwill. Gain or losses arising on the direct sales by Satyam of its investment in its subsidiaries or associated companies to third parties are transferred to Profit and Loss Account. Such gains or losses are the difference between the sale proceeds and net carrying value of investments.

		Minority Interest in subsidiaries represents the minority shareholders proportionate share of net assets and the net income of Satyam’s majority owned subsidiaries.

b)		Use of Estimates

		The preparation of the financial statements in conformity with the GAAP requires that the management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities as at the date of the financial statements, and the reported amounts of revenue and expenses during the reported year. Actual results could differ from those estimates.

Satyam Computer Services Limited

c)		Revenue Recognition

		i) IT Services

		Revenue from professional services consist primarily of revenue earned from services performed on a “time and material” basis. The related revenue is recognized as and when the services are performed. Satyam Computer Services also performs time bound fixed-price engagements, under which revenue is recognized using the percentage of completion method of accounting. The cumulative impact of any revision in estimates of the percentage of work completed is reflected in the year in which the change becomes known. Provisions for estimated losses on such engagements are made during the year in which a loss becomes probable and can be reasonably estimated.

		Amounts received or billed in advance of services performed are recorded as advance from customers/unearned revenue. Unbilled revenue, included in debtors, represents amounts recognized based on services performed in advance of billing in accordance with contract terms.

		Unearned revenue is calculated on the basis of the unutilized period of time at the Balance Sheet and represents revenue which is expected to be earned in future periods in respect of internet, e-mail services, electronic data interchange and web hosting services.

		ii) Business Process Outsourcing

		Revenue from per engagement services is recognized based on the number of engagements performed. Revenues from per time period services are recognized based on the time incurred in providing services at contracted rates. Revenue from per incident services is based on the performance of specific criteria at contracted rates.

d)		Foreign Currency Transactions/Translations

		Transactions in foreign currency are recorded at exchange rate prevailing on the date of transaction.

		Monetary assets and liabilities denominated in foreign currency are translated at the rate of exchange at the balance sheet date and resultant gain or loss is recognized in the profit and loss account.

		Non-monetary assets and liabilities are translated at the rate prevailing on the date of transaction.

		The operations of foreign branches of the company are of integral in nature and the financial statements of these branches are translated using the same principles and procedures of head office.

		In case of forward exchange contract or any other financial instruments that is in substance a forward exchange contract to hedge the foreign currency risk which is on account of firm commitment and/or is a highly probable forecast transaction, the premium or discount arising at the inception of the contract is amortized as expense or income over the life of the contract.

		Gains/losses on settlement of transaction arising on cancellation or renewal of such a forward exchange contract is recognized as income or as expense for the period.

		In all other cases the gain or loss on contract is computed by multiplying the foreign currency amount of the forward exchange contract by the difference between the forward rate available at the reporting date for the remaining maturity of the contract and the contracted forward rate (or the forward rate last used to measure a gain or loss on that contract for an earlier period), is recognized in the profit and loss account for the period.

		Foreign subsidiaries are non-integral in nature. Assets and Liabilities of such subsidiaries are translated at the year end exchange rate, income and expenditure are translated at the average rate during the period. The resultant translation adjustment is reflected as a separate component of shareholders’ funds as a ‘Currency Translation Reserve’.

e)		Fixed Assets

		Fixed assets are stated at actual cost less accumulated depreciation. The actual cost capitalized includes material cost, freight, installation cost, duties and taxes, finance charges and other incidental expenses incurred during the construction/installation stage.

		Gains/losses arising on foreign exchange liabilities incurred for the purpose of acquiring fixed assets are adjusted in the carrying amount of the respective fixed assets.

		Depreciation on fixed assets is computed on the straight line method over their estimated useful lives at the rates which are higher than the rates prescribed under Schedule XIV of the Companies Act, 1956. Individual assets

Satyam Computer Services Limited

		acquired for less than Rs. 5,000 are entirely depreciated in the year of acquisition.

		The cost of and the accumulated depreciation for fixed assets sold, retired or otherwise disposed off are removed from the stated values and the resulting gains and losses are included in the profit and loss account.

		Costs of application software for internal use are generally charged to revenue as incurred due to its estimated useful lives being relatively short, usually less than one year.

		The estimated useful lives are as follows:


		Estimated useful lives
Buildings		28 years
Computers		2 years
Plant and Machinery (Other than Computers)		5 years
Software — used in Development for Projects		3 years
Office Equipment		5 years
Furniture, Fixtures and Interiors		5 years
Vehicles		5 years

		Depreciation on assets acquired under a finance lease is provided using the straight-line method over the shorter of the lease term or the useful life of the asset.

		Assets under installation or under construction as at the Balance sheet date are shown as capital work in progress. Advances paid towards acquisition of assets are also included under capital work in progress.

f)		Goodwill and Other Intangible Assets

		Goodwill represents the difference between the purchase price and the book value of assets and liabilities acquired. Goodwill is amortized over the useful life of the asset. The goodwill is reviewed for impairment whenever events or changes in business circumstances indicate the carrying amount of assets may not be fully recoverable. If impairment is indicated, the asset is written down to its fair value.

g)		Investments

		Investments are classified into current investments and long-term investments. Current investments are carried at the lower of cost or market value. Any reduction in carrying amount and any reversals of such reductions are charged or credited to the profit and loss account. Long-term investments are carried at cost less provision made to recognize any decline, other than temporary, in the value of such investments.

h)		Inventories

		Inventories are stated at the lower of cost and net realizable value. Cost of hardware and software purchased for the purpose of resale is determined using the first-in-first-out method.

i)		Employee Benefits

		Contributions to defined schemes such as Provident Fund, Employee State Insurance Scheme and Superannuation are charged as incurred on accrual basis. Satyam Computer Services also provides for gratuity and leave encashment in accordance with the requirements of revised Accounting Standard — 15 “Employee Benefits”.

j)		Taxes on Income

		Tax expense for a year comprises of current tax and deferred tax. Current taxes are measured at the amounts expected to be paid using the applicable tax rates and tax laws. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the profit and loss account in the year of change. Deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards.

Satyam Computer Services Limited

k)		Earnings Per Share

		The earnings considered in ascertaining Satyam’s Earnings Per Share comprises the net profit after tax (and includes the post tax effect of any extra ordinary items). The number of shares used in computing Basic EPS is the weighted average number of shares outstanding during the year. The number of shares used in computing Diluted EPS comprises of weighted average shares considered for deriving Basic EPS, and also the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as at the beginning of the year, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). The number of shares and potentially dilutive shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate.

l)		Associate Stock Option Scheme

		Stock options granted to the employees under the stock option schemes established after June 19, 1999 are evaluated as per the accounting treatment prescribed by Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines 1999 issued by Securities and Exchange Board of India. Accordingly the excess of market value of the stock options as on the date of grant over the exercise price of the options is recognized as deferred employee compensation and is charged to profit and loss account on graded vesting basis over the vesting period of the options. The un-amortized portion of the deferred employee compensation is shown under Reserves and Surplus.

m)		Research and Development

		Revenue expenditure incurred on research and development is charged to revenue in the year/period in which it is incurred. Assets used for research and development activities are included in fixed assets.

n)		Miscellaneous Expenditure

		Miscellaneous expenditure is charged to profit and loss account in the period/year in which it is incurred irrespective of its enduring benefit available in future.

Satyam Computer Services Limited
Consolidated Balance Sheet as at September 30, 2006


							Rs. in crores
			As at		As at		As at
	Schedule		30.09.2006		30.09.2005		31.03.2006
	Reference		(Unaudited)		(Unaudited)		(Audited)

I. Sources of Funds :
1. Shareholders’ Funds
(a) Share Capital		1		221.94		155.40		155.90
(b) Share application money, pending allotment				1.86		1.07		1.78
(c) Reserves and Surplus		2		4,764.70		3,563.56		4,159.57

				4,988.50		3,720.03		4,317.25

2. Minority Interest				—		4.44		4.15

3. Loan Funds
(a) Secured Loans		3		129.18		49.89		102.71

				5,117.68		3,774.36		4,424.11


II. Application of Funds :
1. Fixed Assets		4
(a) Gross Block				1,433.29		1,182.51		1,317.21
(b) Less: Depreciation				911.98		771.79		840.21

(c) Net Block				521.31		410.72		477.00
(d) Capital Work in Progress				184.51		74.16		80.25

				705.82		484.88		557.25

2. Investments		5		—		71.33		—

3. Deferred Tax Assets (net)		6		40.82		10.18		4.62

4. Current Assets, Loans and Advances
(a) Inventories		7		0.18		0.19		0.19
(b) Sundry Debtors		8		1,425.96		925.19		1,168.42
(c) Cash and Bank Balances		9		3,483.78		2,594.83		3,111.70
(d) Loans and Advances		10		205.75		156.33		184.32
(e) Other Current Assets
- Interest Accrued on Fixed Deposits				153.58		67.59		110.60

				5,269.25		3,744.13		4,575.23

Less: Current Liabilities and Provisions
(a) Liabilities		11		608.78		377.24		437.04
(b) Provisions		12		289.43		158.92		275.95

				898.21		536.16		712.99

Net Current Assets				4,371.04		3,207.97		3,862.24


				5,117.68		3,774.36		4,424.11


Notes to Accounts		18

The Schedules referred to above and the Statement on Significant Accounting Policies form an integral part of the Consolidated Balance Sheet.


		for and on behalf of the Board of Directors

		B. Ramalinga Raju		B. Rama Raju
		Chairman		Managing Director

		V. Srinivas		G. Jayaraman
		Director		Sr. Vice President (Corp. Governance)
		& Sr. Vice President — Finance		& Company Secretary

				Place: Secunderabad
				Date: October 20, 2006

Satyam Computer Services Limited
Consolidated Profit and Loss Account for the Quarter and Half Year Ended September 30, 2006


															Rs. in crores
			Quarter ended			Quarter ended			Half Year ended			Half Year ended			Year ended
	Schedule		30.09.2006			30.09.2005			30.09.2006			30.09.2005			31.03.2006
	Reference		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Audited)

Income
Services
— Exports				1,525.25			1,114.54			2,901.91			2,131.36			4,596.74
— Domestic				76.63			40.43			142.90			82.31			195.85
Other Income		13		28.23			31.55			102.71			54.97			333.25

				1,630.11			1,186.52			3,147.52			2,268.64			5,125.84


Expenditure
Personnel Expenses		14		982.71			677.85			1,814.32			1,317.23			2,804.70
Cost of Software and Hardware sold		15		0.35			0.26			1.03			0.46			2.00
Operating and Administration Expenses		16		256.33			200.47			511.96			378.87			819.71
Financial Expenses		17		2.72			0.77			5.27			1.24			5.54
Depreciation				37.51			34.70			73.68			66.01			137.28
Miscellaneous Expenenditure Written Off				—			0.03			—			0.08			0.07

				1,279.62			914.08			2,406.26			1,763.89			3,769.30


Profit Before Taxation				350.49			272.44			741.26			504.75			1,356.54
Provision for Taxation — Current				43.23			32.68			89.07			66.62			191.98
— Fringe benefit				2.92			1.88			5.77			5.45			9.46
— Deferred				(15.47	)		(1.28	)		(27.39	)		0.42			6.04

Profit After Taxation and Before share of loss in associate company and Minority Interest				319.81			239.16			673.81			432.26			1,149.06

Share of loss in associate company				—			(1.92	)		—			(4.98	)		(7.88	)
Minority Interest				—			0.10			0.12			0.26			0.55

Profit After Taxation and share of loss in associate company and Minority Interest				319.81			237.34			673.93			427.54			1,141.73

Add: Balance brought forward from previous period/year				2,362.60			1,443.00			2,008.48			1,252.80			1,252.80
Less: Residual dividend and additional dividend tax				(0.56	)		1.23			(0.56	)		1.23			1.23


Profit Available for Appropriation				2,682.97			1,679.11			2,682.97			1,679.11			2,393.30
Appropriations :

Interim Dividend @ Re. 1.00 per Equity Share of Rs. 2.00 each (2005 - Rs. 2.00 per Equity Share)				65.61			64.46			65.61			64.46			64.46
Final Dividend (2006 - Rs. 5.00 per Equity Share)				—			—			—			—			163.87
Dividend paid by subsidiary to minority interest							—						—			0.47
Tax on distributed profits				9.20			9.04			9.20			9.04			32.02
Transfer to General Reserve				—			—			—			—			124.00

Balance carried to Balance Sheet				2,608.16			1,605.61			2,608.16			1,605.61			2,008.48


Earnings Per Share (Rs. per equity share of Rs. 2 each)
Basic				4.89			3.69			10.33			6.67			17.73
Diluted				4.75			3.59			10.02			6.48			17.05

No. of Shares used in computing Earnings Per Share
Basic				653,538,584			642,686,564			652,502,120			641,206,164			643,784,984
Diluted				673,862,942			661,223,670			672,826,478			659,634,740			669,626,864

Notes to Accounts		18

The Schedules referred to above and the Statement on Significant Accounting Policies form an integral part of the Consolidated Profit and Loss Account.


		for and on behalf of the Board of Directors

		B. Ramalinga Raju		B. Rama Raju
		Chairman		Managing Director

		V. Srinivas
		Director		G. Jayaraman
		& Sr. Vice President — Finance		Sr. Vice President (Corp. Governance)
				& Company Secretary

				Place: Secunderabad
				Date: October 20, 2006

Satyam Computer Services Limited
Schedules forming part of the Consolidated Balance Sheet


							Rs. in crores
	As at			As at			As at
	30.09.2006			30.09.2005			31.03.2006
	(Unaudited)			(Unaudited)			(Audited)

1. Share Capital

Authorised:
800,000,000 (September 30, 2005-375,000,000; March 31, 2006-375,000,000) Equity Shares of Rs. 2 each		160.00			75.00			75.00

100,000,000 0.05% Convertible Redeemable Cumulative Preference Shares of Rs. 10 each		100.00			100.00			100.00


Issued and Subscribed:
654,634,308(September 30, 2005 — 321,965,342; March 31, 2006 — 324,449,539) Equity Shares of Rs.2 each fully paid-up		130.93			64.39			64.89

91,009,999 (September 30, 2005 — 91,009,999; March 31, 2006 — 91,009,999) 0.05% Convertible Redeemable Cumulative Preference Shares of Rs. 10 each fully paid-up		91.01			91.01			91.01
(Refer note (d) of Schedule 18)


		221.94			155.40			155.90


Out of the above:
4,000,000 Equity Shares of Rs. 2 each were allotted as fully paid-up Equity Shares for a consideration other than cash pursuant to the Scheme of Amalgamation with Satyam Enterprise Solutions Limited

467,912,154 (140,595,000) Equity Shares of Rs. 2 each were allotted as fully paid-up by way of Bonus Shares by capitalising free reserves of Satyam Computer Services

129,600,640 (September 30, 2005 — 64,300,704; March 31, 2006 — 64,680,600) Equity Shares of Rs. 2 each fully paid-up represent 64,800,320 (September 30, 2005 — 32,150,352; March 31, 2006 — 32,340,300) American Depository Shares

25,554,308 (September 30, 2005 — 7,425,342; March 31, 2006 — 9,909,539) Equity Shares of Rs. 2 each fully paid-up were alloted to associates of Satyam Computer Services pursuant to the Associate Stock Option Plan — B and Associate Stock Option Plan (ADS)

2. Reserves and Surplus

Share Premium Account
As at the commencement of the year		1,028.63			890.94			890.94
Add: Received on account of issue of ADS / ASOP		87.48			68.72			137.69

		1,116.11			959.66			1,028.63


Capital Reserve
As at the commencement of the year		720.14			720.14			720.14

		720.14			720.14			720.14


General Reserve
As at the commencement of the year		407.15			283.15			283.15
Add: Transfer from the Profit and Loss Account		—			—			124.00
Less: Provision for leave encashment (Refer note (q) of Schedule 18)		18.05			—			—
Less: Capitalised on issue of bonus shares (Refer note (m) of Schedule 18)		65.46

		323.64			283.15			407.15


Currency Translation Reserve		(3.65	)		(5.76	)		(5.35	)

Employee Stock Options Outstanding		0.30			0.76			0.52

Balance in Profit and Loss Account		2,608.16			1,605.61			2,008.48


		4,764.70			3,563.56			4,159.57


3. Secured Loans

Bank Overdraft		24.15			1.10			4.90
External Commercial Borrowing		48.03			26.47			46.62
Working Capital Loans		43.03			4.40			25.05
Export Packing Credit		—			5.71			13.17
Vehicle Loans		13.83			12.21			12.97
Interest accrued and due on loans		0.14			—			—

		129.18			49.89			102.71

Satyam Computer Services Limited
Schedules forming part of the Consolidated Balance Sheet
4. Fixed Assets


																	Rs. in crores
	GROSS BLOCK								DEPRECIATION								NET BLOCK
DESCRIPTION	As at						As at		As at		For the				As at		As at		As at
	01.04.2006		Additions		Deletions		30.09.2006		01.04.2006		period @		Deletions		30.09.2006		30.09.2006		31.03.2006
																	(Unaudited)		(Audited)

1. Goodwill		93.79		31.66		—		125.45		—		—		—		—		125.45		93.79

2. Land & Land Development
-Freehold*		31.03		7.21		—		38.24		—		—		—		—		38.24		31.03
-Leasehold		8.13		—		—		8.13		0.02		—		—		0.02		8.11		8.11

3. Buildings**		101.76		—		—		101.76		13.24		1.80		—		15.04		86.72		88.52

4. Plant and Machinery		840.84		61.19		1.04		900.99		665.45		58.20		1.04		722.61		178.38		175.39
(Including Computers)

5. Office Equipment		27.45		3.34		—		30.79		16.29		2.30		—		18.59		12.20		11.16

6. Furniture, Fixtures and Interiors		182.74		9.75		—		192.49		132.90		8.45		—		141.35		51.14		49.84

7. Vehicles		31.47		6.34		2.37		35.44		12.31		3.22		1.16		14.37		21.07		19.16


Total		1,317.21		119.49		3.41		1,433.29		840.21		73.97		2.20		911.98		521.31		477.00

As at 30.09.2005		1,014.22		171.13		2.84		1,182.51		705.65		67.47		1.33		771.79		410.72		—


*		Includes Rs. 12.24 crores (September 30, 2005 — Rs. 12.24 crores; March 31, 2006 — Rs. 12.24 crores) in respect of which deed of conveyance is pending.

**		Includes Rs. 38.85 crores (September 30, 2005 — Rs. 30.10 crores; March 31, 2006 — Rs. 38.85 crores) constructed on leasehold land.

@		Depreciation for the year includes Rs.0.29 crores considered in Currency Translation Reserve due to translation of non-integral foreign subsidiaries.

Satyam Computer Services Limited
Schedules forming part of the Consolidated Balance Sheet


							Rs. in crores
	As at 30.09.2006			As at 30.09.2005			As at 31.03.2006
	(Unaudited)			(Unaudited)			(Audited)

5. Investments

a) Long Term
i) Trade (Unquoted)

Investment in Associate Companies

Sify Limited			—			71.33			—

Nil (September 30, 2005 - 11,182,600) Equity Shares of Rs. 10 each, fully paid-up)

Other Investments

Jasdic Park Company		0.75			0.75			0.75
(480 Shares of J Yen 50,000 each, fully paid-up)
Less: Received on liquidation		0.26			0.26			0.26
Less: Provision for diminution		0.49	—		0.49	—		0.49	—


Intouch Technologies Limited		10.90			10.90			10.90
(833,333 Shares of 20 US cents each, fully paid-up)
Less: Provision for diminution		10.90	—		10.90	—		10.90	—


Medbiquitious Services Inc.,		1.57			1.57			1.57
(334,000 shares of ‘A’ series Preferred Stock of US $0.001 each, fully paid-up)
Less: Provision for diminution		1.57	—		1.57	—		1.57	—


Avante Global LLC.,		2.54			2.54			2.54
(577,917 class ‘A’ units representing a total value of US $540,750, fully paid-up)
Less: Provision for diminution		2.54	—		2.54	—		2.54	—


ii) Non Trade (Unquoted)

National Savings Certificates,VIII Series (Lodged as security with government authorities)			—			—			—

			—			71.33			—

Satyam Computer Services Limited
Schedules forming part of the Consolidated Balance Sheet


				Rs. in crores
	As at			As at			As at
	30.09.2006			30.09.2005			31.03.2006
	(Unaudited)			(Unaudited)			(Audited)

6. Deferred Tax Assets (net)

Debtors		11.01			10.15			11.02
Advances		1.43			0.70			1.43
Fixed Assets		(24.91	)		(16.11	)		(25.38	)
Others		53.29			15.44			17.55

		40.82			10.18			4.62


7. Inventories

Traded software and hardware		0.18			0.19			0.19


8. Sundry Debtors (Unsecured)

Considered good *
(a) Over six months old		21.37			13.53			14.19
(b) Other debts		1,404.59			911.66			1,154.23

		1,425.96			925.19			1,168.42
Considered doubtful		89.60			81.60			85.13

		1,515.56			1,006.79			1,253.55
Less: Provision for doubtful debts		89.60			81.60			85.13

		1,425.96			925.19			1,168.42

* Debtors include Unbilled Revenue — Rs.237.03 crores (September 30, 2005 — Rs.115.87 crores; March 31, 2006 — Rs. 182.88 crores)

9. Cash and Bank Balances*

Cash on hand		0.09			0.25			0.14
Remittances in Transit		—			2.86			—

Balances with Scheduled Banks
— on Current accounts		1,495.12			685.06			1,026.92
— on Deposit accounts		1,802.30			1,804.96			1,909.16
Unclaimed Dividend Accounts		10.93			5.97			5.05

Balances with Non-Scheduled Banks**
— on Current Accounts		146.03			94.96			126.27
— on Deposit Accounts		29.31			0.77			44.16

		3,483.78			2,594.83			3,111.70


*Includes unutilised amount of ADS issue proceeds - Rs. 62.87 crores (September 30, 2005 — Rs. 322.07 crores; March 31, 2006 - Rs. 262.20 crores)
**Refer note (i) of schedule18

10. Loans and Advances

(Considered good unless otherwise stated)

Loans and Advances
Secured — Loans		0.09			0.15			0.11

Unsecured — Advances recoverable in cash or in kind or for value to be received		119.76			85.86			108.02
— Deposits		85.90			70.32			76.19
Considered doubtful — Advances		17.25			14.42			17.25

		223.00			170.75			201.57
Less: Provision for doubtful advances		17.25			14.42			17.25

		205.75			156.33			184.32


11. Liabilities

Sundry Creditors
— Dues to small scale industrial undertakings		—			—			—
— Dues to other than small scale industrial undertakings		457.29			293.10			330.92
Advances from Customers		1.65			1.01			1.41
Unearned Revenue		76.63			35.20			52.68
Investor Education Protection Fund — Unclaimed Dividends		10.93			5.97			5.05
Interest accrued but not due on loans		0.37			—			—
Other Liabilities		61.91			41.96			46.98

		608.78			377.24			437.04


12. Provisions

Provision for Taxation (Less payments)		54.57			39.12			36.94
Proposed Dividend (Including tax thereon)		74.81			73.50			186.85
Provision for Gratuity and Leave Encashment		160.05			46.30			52.16

		289.43			158.92			275.95

Satyam Computer Services Limited
Schedules forming part of the Consolidated Profit and Loss Account


										Rs. in crores
	Quarter ended			Quarter ended			Half Year ended			Half Year ended			Year ended
	30.09.2006			30.09.2005			30.09.2006			30.09.2005			31.03.2006
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Audited)

13. Other Income

Interest on Deposits — Gross
{Tax Deducted at Source Rs. 12.86 crores} (September 30, 2005 — Rs. 12.49 crores; March 31, 2006 — Rs. 25.96 crores)		29.05			28.16			58.42			55.91			116.24
Profit on sale of Long Term Investments		—			—			—			—			216.43
Gain/(Loss) on exchange fluctuations (net)		(1.33	)		2.83			43.37			(2.00	)		(2.10	)
Provision no longer required written back		—			—			—			—			0.89
Miscellaneous Income		0.51			0.56			0.92			1.06			1.79

		28.23			31.55			102.71			54.97			333.25


14. Personnel Expenses

Salaries and bonus		913.08			625.90			1,686.58			1,222.46			2,595.48
Contribution to Provident and other funds		65.94			47.53			118.84			86.75			188.86
Staff welfare expenses		3.86			4.46			9.08			8.06			20.44
Employee stock compensation expense		(0.17	)		(0.04	)		(0.18	)		(0.04	)		(0.08	)

		982.71			677.85			1,814.32			1,317.23			2,804.70


15. Cost of software and hardware sold

Opening inventory		0.18			0.18			0.19			0.19			0.19
Add: Purchases (net of returns)		0.35			0.27			1.02			0.46			2.00
Less: Closing inventory		0.18			0.19			0.18			0.19			0.19

		0.35			0.26			1.03			0.46			2.00


16. Operating and Administration Expenses

Rent		25.84			19.02			47.49			36.90			78.03
Rates and taxes		5.89			2.61			12.21			4.96			16.23
Insurance		4.22			3.40			8.27			6.63			14.65
Travelling and conveyance		94.67			50.71			176.21			109.96			253.70
Communication		21.28			20.65			39.95			39.13			82.72
Printing and stationery		3.87			1.52			5.40			3.13			6.91
Power and fuel		9.42			7.13			18.78			14.67			29.24
Advertisement		1.21			2.54			2.50			4.77			9.57
Marketing expenses		14.36			16.97			33.00			31.03			64.56
Repairs and maintenance
— Buildings		0.74			0.35			1.38			0.48			1.65
— Machinery		4.19			2.71			8.27			4.61			11.64
— Others		6.38			4.46			11.98			7.82			21.23
Security services		1.23			0.91			2.21			1.46			3.11
Legal and professional charges		38.89			32.71			74.52			53.50			106.43
Provision for doubtful debts and advances		2.21			5.28			4.47			5.28			11.83
Loss on sale of Fixed assets (net)		0.24			0.23			0.46			0.54			0.93
Directors’ sitting fees		0.01			0.01			0.02			0.02			0.04
Auditors’ remuneration		0.51			0.19			0.87			0.39			1.69
Donations and contributions		0.87			0.67			1.74			1.24			3.73
Subscriptions		0.57			0.52			1.25			0.85			2.15
Training and development		5.35			3.11			9.30			7.60			16.20
Research and development		0.30			0.47			0.64			1.45			2.45
Software charges		2.06			3.66			10.81			8.82			24.50
Managerial Remuneration
— Salaries		0.08			0.09			0.17			0.17			0.35
— Commission		0.15			0.14			0.30			0.26			0.91
— Contribution to P.F.		0.01			0.01			0.02			0.02			0.04
— Others		0.06			0.05			0.11			0.10			0.19
Visa charges		5.96			14.64			29.32			21.88			32.53
Miscellaneous expenses		5.76			5.71			10.31			11.20			22.50

		256.33			200.47			511.96			378.87			819.71


17. Financial Expenses

Interest on packing credit		0.01			—			0.03			—			0.04
Interest on working capital loans		1.98			0.46			3.18			0.56			1.86
Interest on term loans		0.36			0.07			0.56			0.17			0.49
Other finance charges		0.37			0.24			1.50			0.51			3.15

		2.72			0.77			5.27			1.24			5.54

Satyam Computer Services Limited

18.		Notes to Accounts

a)		List of domestic and foreign subsidiaries, joint ventures and associate considered for consolidation:-


		Country of	Extent of holding (%) as at
Sl. No.	Name of the Company	Incorporation	September 30, 2006

	Subsidiaries:
1.	Nipuna Services Limited	India	100.00
2.	Satyam Computer Services (Shanghai) Co. Ltd	China	100.00
3.	Satyam Technologies, Inc.	USA	100.00
4.	Knowledge Dynamics Pte.Ltd. ^@	Singapore	100.00
5.	Citisoft Plc. *	UK	100.00
	Associate:
6.	Sify Limited ^#	India	—
	Joint Ventures:
7.	CA Satyam ASP Private Limited	India	50.00
8.	Satyam Venture Engineering Services Private Limited	India	50.00


^@		Knowledge Dynamics has been consolidated with effective date of October 01, 2005, the date of acquisition.

*		Citisoft Plc has been consolidated with effective date of May 12, 2005, the date of acquisition.

^#		Sify Limited ceased to be an associate from November 09, 2005.

The reporting date for all the above companies is March 31 except as following:

	-		Satyam Computer Services (Shanghai) Co. Ltd. — December 31.

	-		Satyam Technologies Inc. — December 31.


		Country of	Extent of holding (%) as at
Sl. No.	Subsidiaries of Knowledge Dynamics Pte Ltd	Incorporation	September 30, 2006

1.	Info On Demand SDN BHD	Malaysia	100.00
2.	Knowledge Dynamics Private Limited	India	99.99
3.	Knowledge Dynamics USA Inc.	USA	98.00

b) Associate Stock Option Schemes

	1)		Stock Option Scheme of Satyam Computer Services

	i)		Scheme established prior to SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999, (SEBI guidelines on Stock Options)

In May 1998, Satyam Computer Services established its Associate Stock Option Plan (the “ASOP”). Satyam Computer Services subsequently established an employee welfare trust called the Satyam Associates Trust (the “Trust”), to administer the ASOP and issued warrants to purchase 6,500,000 equity shares of Rs. 2 each in Satyam Computer Services. In turn, the Trust periodically grants to eligible employees warrants to purchase equity shares held by Trust for the issuance to the employees. The warrants may vest immediately or may vest over a period ranging from two to three years, depending on the employee’s length of service and performance. Upon vesting, employees have 30 days to exercise warrants. The exercise price of the warrants was fixed at Rs. 450 per warrant.

At the 12^th Annual General Meeting held on May 28, 1999, shareholders approved a 1:1 Bonus issue to all shareholders as of August 31, 1999. In order to ensure all its employees receive the benefits of the bonus issue in December 1999, the Trust exercised all its warrants to purchase Satyam Computer Service’s shares prior to the bonus issue using the proceeds obtained from bank loans. Subsequent to this, each warrant entitles the holder to purchase 10 shares of Rs. 2 each of Satyam Computer Services at a price of Rs. 450 per warrant plus an interest component associated with the loan which the Trust assumed, for

Satyam Computer Services Limited

conversion of the warrants it held. The interest component is computed based on fixed vesting period and a fixed interest rate. As this scheme is established prior to the SEBI guidelines on the stock options, there is no cost relating to the grant of options under this scheme.

	ii)	Scheme established after SEBI Guidelines on Stock Options

		Securities Exchange Board of India (SEBI) issued the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines 1999, which is applicable for all Stock Option Schemes established after June 19, 1999.

		Satyam Computer Services established a scheme “Associate Stock Option Plan – B” (ASOP — B) for which 83,454,280 equity shares of Rs. 2 each were earmarked. Upon vesting, associates have 5 years to exercise these shares.

		Accordingly, options (net of cancellations) for a total number of 33,568,564 equity shares of Rs. 2 each were outstanding as at September 30,2006 (September 30,2005 —52,728,342; March 31, 2006 — 45,605,388).

Changes in number of options outstanding were as follows:


	Quarter ended September 30,						Half year ended September 30,						Year ended
Options	2006			2005			2006			2005			March 31,2006
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Audited)

At the beginning of the period / year		40,628,076			55,226,388			45,605,388			53,660,630			53,660,630
Granted	Nil.				1,137,582		Nil				6,555,816			6,579,552
Exercised		(1,943,694	)		(1,970,002	)		(5,495,790	)		(4,831,002	)		(9,039,604	)
Cancelled		(5,115,818	)		(1,665,626	)		(6,541,034	)		(2,657,102	)		(5,595,190	)
At the end of the period / year		33,568,564			52,728,342			33,568,564			52,728,342			45,605,388

	iii)	Associate Stock Option Plan (ADS)

		Satyam Computer Services has established a scheme “Associate Stock Option Plan (ADS)” to be administered by the Administrator of the ASOP (ADS), a committee appointed by the Board of Directors of Satyam Computer Services. Under the scheme 5,149,330 ADS are reserved to be issued to eligible associates with the intention to issue the warrants at a price per option which is not less than 90% of the value of one ADS as reported on NYSE on the date of grant converted into Indian Rupees at the rate of exchange prevalent on the day of grant as decided by the Administrator of the ASOP (ADS). Each ADS represents two equity shares of Rs. 2 each fully paid up. These warrants vest over a period of 1-10 years from the date of the grant. The time available to exercise the warrants upon vesting is as decided by the Administrator of the ASOP (ADS).

		Accordingly, options (net of cancellation) for a total number of 1,776,470 ADS (September 30, 2005 — 2,496,398, March 31, 2006 — 1,991,342) representing 3,552,940 equity shares of Rs. 2 each were outstanding as at September 30, 2006 (September 30, 2005 — 4,992,796, March 31, 2006 — 3,982,684).

Changes in number of options outstanding were as follows:


	Quarter ended September 30,						Half year ended September 30,						Year ended
Options	2006			2005			2006			2005			March 31,2006
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Audited)

At the beginning of the period / year		1,900,496			2,777,738			1,991,342			2,515,802			2,515,802
Granted	Nil				19,950			20,000			305,430			320,430
Exercised		(35,266	)		(261,006	)		(119,720	)		(284,550	)		(664,446	)
Cancelled		(88,760	)		(40,284	)		(115,152	)		(40,284	)		(180,444	)
At the end of the period / year		1,776,470			2,496,398			1,776,470			2,496,398			1,991,342

	2)		Stock Option Scheme of Nipuna Services

			In April 2004, Nipuna Services established its Employee Stock Option Plan (the “ESOP”) for its employees. The exercise price is equal to the fair market value on the date of the grant. These options vest over a period ranging from two to four years, starting with 33.33% in the second year, 33.33% in the third year and remaining 33.34% in the fourth year from the date of grant. Upon granting, they are subject to lock in period of one year.

Satyam Computer Services Limited


	Quarter ended September 30,					Half year ended September 30,					Year ended
Options	2006			2005		2006			2005		March 31,2006
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)		(Audited)

At the beginning of the period / year		855,106			813,578		1,215,106			813,578		813,578
Granted		225,298			—		225,298			—		654,600
Exercised		—			—		—			—		—
Cancelled		(54,804	)		—		(414,804	)		—		(253,072	)
At the end of the period / year		1,025,600			813,578		1,025,600			813,578		1,215,106

As at September 30, 2006, 1,025,600 (September 30, 2005 — 813,578, March 31, 2006 — 1,215,506), net of cancellations, options at weighted average exercise price of Rs. 80 being the fair market value per share were outstanding.

c)		Pro forma disclosure:

		In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, had the compensation cost for associate stock option plans been recognized based on the fair value at the date of grant in accordance with Black Scholes’ model, the pro forma amounts of Satyam’s net profit and earnings per share would have been as follows:


		Quarter ended September 30,				Half year ended September 30,				Year ended
	Particulars	2006		2005		2006		2005		March 31,2006
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Audited)

1.	Profit After Taxation and share of loss in associate company (Rs. in crores)
	- As reported (Rs. in crores )		319.81		237.34		673.93		427.54		1,141.73
	- Pro forma (Rs. in crores )		304.44		210.66		642.55		370.64		1,044.09

2.	Earnings Per Share:
	Basic
	- No. of shares		653,538,584		642,686,564		652,502,120		641,206,164		643,784,984
	- EPS as reported (Rs.)		4.89		3.69		10.33		6.67		17.73
	- Pro forma EPS (Rs.)		4.66		3.28		9.85		5.78		16.22
	Diluted
	- No. of shares		673,862,942		661,223,670		672,826,478		659,634,740		669,626,864
	- EPS as reported (Rs.)		4.75		3.59		10.02		6.48		17.05
	- Pro forma EPS (Rs.)		4.52		3.19		9.62		5.62		15.59

The following assumptions were used for calculation of fair value of grants:


	Quarter ended September 30,				Half year ended September 30,				Year ended
	2006		2005		2006		2005		March 31,2006
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Audited)

Dividend yield (%)		0.75		0.75		0.75		0.75		0.75
Expected volatility (%)		56.15		58.86		56.15		58.86		58.05
Risk-free interest rate (%)		7.00		7.00		7.00		7.00		7.00
Expected term (in years)		1.14		1.79		1.14		1.79		1.26

d)		Convertible Redeemable Cumulative Preference Shares

		Nipuna Services issued 45,669,999 and 45,340,000 0.05% Convertible Redeemable Cumulative Preference Shares of par value Rs.10 each fully paid-up in October 2003 and June 2004 respectively to Olympus BPO Holdings Ltd. and Intel Capital Corporation (investors) for an aggregate consideration of Rs. 91.88 crores (equivalent to US$ 20 millions). These Preference shares are to be mandatorily converted/redeemed into such number of equity shares latest by June 2007 based on certain provisions in the agreement entered with the investors relating to revenues and profits earned up to March 31, 2006. The said preference shares, if not converted or early converted at the option of the investors based on certain triggering events, are redeemable on maturity in June 2007 at a redemption premium, which could range in between 7.5% to 13.5% p.a.

Satyam Computer Services Limited

e)		Share application money pending allotment

		Amount received from associates of Satyam Computer Services on exercise of stock options, pending allotment of shares is shown as share application money pending allotment.

f)		Secured Loans

		Bank Overdraft is secured by way of hypothecation of book debts. External Commercial Borrowing is secured by way of movable and immovable property. Working capital loan is secured by way of movable and immovable property. Export Packing Credit loan is secured by way of hypothecation of book debts. Vehicles are hypothecated to the Banks as security for the amounts borrowed.

g)		Investments

		During May 2005, Satyam Computer Services acquired Citisoft Plc (“Citisoft”), a specialist business and systems consulting firm located in the United Kingdom that has focused on the investment management industry, with operating presence in London, Boston and New York.

		Satyam Computer Services acquired 75% of the shareholding in Citisoft for an initial cash consideration of Rs. 62.25 crores (inclusive of acquisition costs) and a deferred consideration of Rs.13.63 crores (equivalent GBP 1.75 million). Satyam Computer Services is also required to pay a maximum earn out consideration amounting to Rs.19.41 crores (equivalent GBP 2.25 million) based on achievement of targeted revenues and profits. On June 29, 2006, Satyam Computer Services acquired the remaining 25% shareholding for a consideration of Rs. 27.47 crores (equivalent GBP 3.26 million).

		During the quarter, Satyam Computer Services has paid Rs. 7.82 crores (equivalent GBP 0.90 million) to Employee Benefit Trust.

		The Company is also required to pay a maximum earn-out consideration amounting to Rs.30.53 crores (equivalent GBP 3.54 million) based on achievement of targeted revenues and profits and to fund an Employee Benefit Trust (EBT) formed by Citisoft. The obligation to fund the EBT amounting to maximum of Rs. 15.53 crores (equivalent GBP 1.80 million) is contingent on Citisoft achieving certain revenue and profit performance targets.

h)		Land

		During the quarter ended June 30, 2006, Satyam Computer Services acquired 14.93 acres of land at Hyderabad from Andhra Pradesh Industrial Infrastructure Corporation (APIIC) for an aggregate purchase consideration of Rs.7.21 crores. Non-compliance of certain terms and conditions would attract withdrawal of rebate, which may increase the cost of land.

i)		Balances with Non-Scheduled Banks


						Rs. in crores
	As at September 30,				As at March 31,
Name of the Bank	2006		2005			2006
	(Unaudited)		(Unaudited)			(Audited)

Balances with Non-Scheduled Banks on Current Accounts
ANZ Grindlays Bank, New York		—		—			—
Bank One, Canada		0.01		0.01			0.05
Barclays Bank, London		2.07		—			2.45
Bank of America, Boston		0.12		—			0.82
Bank One, Michigan		0.35		—			0.01
Banque Nationale De Paris, Brussels		0.95		—			—
Banque Nationale De Paris, Euro		0.02		—			0.01
Banque Nationale De Paris, Saarbruecken		1.67		—			0.54
Banque Nationale De Paris, Hague		3.93		—			3.32
Banque Nationale De Paris, Ireland		1.29		—			0.42
Banque Nationale De Paris, Italy		0.57		—			—
Banque Nationale De Paris, France		0.99		—			1.05
Banque Nationale De Paris, Saudi Arabia		0.61		—			—
Banque Nationale De Paris, Singapore		0.16		—			—
Banque Nationale De Paris, Spain		0.83		0.65			0.69
Banque Nationale De Paris, Switzerland		1.78		—			—
Banque Nationale De Paris, Taipei		2.13		1.30			2.15
Citibank NA, Bangkok		7.28		8.64			11.45
Citibank NA, Chicago		0.80		0.30			1.40
Citibank NA, Denmark		0.18		—			—
Citibank NA, Dubai		0.36		1.54			0.20
Citibank NA, Hong Kong		1.23		0.45			0.27
Citibank NA, Hungary		0.23		0.14			0.15
Citibank NA, Kuala Lumpur		2.05		2.46			0.67
Citibank NA, London		0.99		1.14			0.54

Satyam Computer Services Limited


	Rs. in crores
	As at September 30,				As at March 31,
Name of the Bank	2006		2005			2006
	(Unaudited)		(Unaudited)			(Audited)
Citibank NA, New York		3.10		2.48			3.98
Citibank NA, New Zealand		1.48		2.56			2.20
Citibank NA, Seoul		8.14		6.22			8.27
Citibank NA, Singapore		3.08		0.44			2.54
Citibank NA, South Africa		—		0.18			—
Citibank NA, Johannesburg		2.97		—			1.51
Citibank NA, Sydney		14.03		4.83			6.29
Citibank NA, Sweden		0.31		—			—
Citibank NA, Toronto		3.52		5.38			2.24
Commerz Bank, New York		—		—			—
Dresdner Bank, Saarbruecken		0.82		6.08			12.27
Hong Kong and Shanghai Banking Corporation, London		28.99		7.23			12.14
Hong Kong and Shanghai Banking Corporation, Shanghai		1.31		1.18			1.36
Hong Kong and Shanghai Banking Corporation, Tokyo		3.43		7.16			9.79
KSB Bank N V, Brussels		2.57		2.41			2.31
Mitsui Sumitomo Bank, Tokyo		0.81		0.21			0.65
OCBC Bank, Singapore		0.81		—			0.30
OCBC Bank, Kuala Lumpur		—		—			0.11
Pudong Development Bank, Shanghai		0.04		0.04			0.03
Standard Chartered Bank, Singapore		—		—			—
Union Bank of Switzerland		1.08		2.51			1.39
Unicredit Banca , Italy		1.05		1.82			0.90
United Bank, Vienna		33.74		25.87			28.71
Wachovia Bank, Atlanta		1.33		1.34			1.54
Wachovia Bank, New Jersey		2.82		0.21			1.55
Woori Bank, Korea		—		0.18			—

		146.03		94.96			126.27


Balances held on Deposit Accounts
Banque Nationale De Paris, Singapore		28.54		—			43.43
Citibank NA, Hungary		0.77		0.77			0.73

		29.31		0.77			44.16

j)		Segment Reporting

		Satyam has adopted AS 17, “Segment Reporting” issued by the Institute of Chartered Accountants of India, which requires disclosure of financial and descriptive information about Satyam’s reportable operating segments. The operating segments reported below are the segments of Satyam for which separate financial information is available and for which operating profit/loss amounts are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. Management evaluates performance based on consolidated revenues and net income for the companies in Satyam Computer Services. Satyam evaluates operating segments based on the following two business groups:

	•		IT Services, providing a comprehensive range of services, including application development and maintenance, consulting and enterprise business solutions, extended engineering solutions, and infrastructure management services. Satyam Computer Services provides its customers the ability to meet all of their information technology needs from one service provider. Satyam Computer Services’ eBusiness services include designing, developing integrating and maintaining Internet-based applications, such as eCommerce websites, and implementing packaged software applications, such as customer or supply chain management software applications. Satyam Computer Services also assists its customers in making their existing computing systems accessible over the Internet.

	•		BPO, providing Business Process Outsourcing services covering HR, Finance & Accounting, Customer Contact (Voice, Mail and Chat), and Transaction Processing (industry-specific offerings).

Satyam Computer Services Limited

			Satyam’s operating segment information for the quarter and half year ended September 30, 2006 and 2005 and for the year ended March 31, 2006 are as follows:

Business Segment


	Rs. in crores
	Quarter ended September 30, 2006 (Unaudited)
Description	IT Services		BPO			Elimination			Total

Revenue
Sales to external customers		1,569.30		32.58			—			1,601.88
Inter Segment Sales		0.40		9.05			(9.45	)		—

Total Revenue		1,569.70		41.63			(9.45	)		1,601.88

Segment result–Profit/(Loss)		327.39		(2.41	)		—			324.98
Interest expense		0.31		2.41			—			2.72
Other income		28.02		0.21			—			28.23
Income taxes		30.52		0.16			—			30.68

Profit/(Loss) from ordinary activities		324.58		(4.77	)		—			319.81
Share of loss in associate company		—		—			—			—
Minority Interest		—		—			—			—

Profit/(Loss) after Tax and share of loss in associate company		324.58		(4.77	)		—			319.81

Other Segment Information
Capital Expenditure		114.79		12.68			—			127.47
Depreciation		33.80		3.71			—			37.51
Non-cash expenses other than depreciation		2.28		—			—			2.28


	Rs. in crores
	Quarter ended September 30, 2005 (Unaudited)
Description	IT Services			BPO			Elimination			Total

Revenue
Sales to external customers		1,143.26			11.71			—			1,154.97
Inter Segment Sales		5.53			6.49			(12.02	)		—

Total Revenue		1,148.79			18.20			(12.02	)		1,154.97

Segment result–Profit/(Loss)		251.61			(9.95	)		—			241.66
Interest expense		0.26			0.51			—			0.77
Other income		31.59			(0.04	)		—			31.55
Income taxes		33.15			0.13			—			33.28

Profit/(Loss) from ordinary activities		249.79			(10.63	)		—			239.16
Share of loss in associate company		(1.92	)		—			—			(1.92	)
Minority Interest		0.10			—			—			0.10

Profit/(Loss) after Tax and share of loss in associate company		247.97			(10.63	)		—			237.34

Other Segment Information
Capital Expenditure		68.33			1.02			—			69.35
Depreciation		31.76			2.94			—			34.70
Non-cash expenses other than depreciation		5.46			0.01			—			5.47

Satyam Computer Services Limited


	Rs. in crores
	Half Year ended September 30, 2006 (Unaudited)
Description	IT Services		BPO			Elimination			Total

Revenue
Sales to external customers		2,983.52		61.29			—			3,044.81
Inter Segment Sales		0.77		16.70			(17.47	)		—

Total Revenue		2,984.29		77.99			(17.47	)		3,044.81

Segment result–Profit/(Loss)		651.29		(7.47	)		—			643.82
Interest expense		1.40		3.87			—			5.27
Other income		102.07		0.64			—			102.71
Income taxes		67.24		0.21			—			67.45

Profit/(Loss) from ordinary activities		684.72		(10.91	)		—			673.81
Share of loss in associate company		—		—			—			—
Minority Interest		0.12		—			—			0.12

Profit/(Loss) after Tax and share of loss in associate company		684.84		(10.91	)		—			673.93

Other Segment Information
Capital Expenditure		204.23		20.02			—			224.25
Depreciation		67.03		6.65			—			73.68
Non-cash expenses other than depreciation		4.69		0.06			—			4.75


	Rs. in crores
	Half Year ended September 30, 2005 (Unaudited)
Description	IT Services			BPO			Elimination			Total

Revenue
Sales to external customers		2,193.38			20.29			—			2,213.67
Inter Segment Sales		11.84			12.40			(24.24	)		—

Total Revenue		2,205.22			32.69			(24.24	)		2,213.67

Segment result–Profit/(Loss)		471.30			(20.28	)		—			451.02
Interest expense		0.50			0.74			—			1.24
Other income		55.11			(0.14	)		—			54.97
Income taxes		72.10			0.39			—			72.49

Profit/(Loss) from ordinary activities		453.81			(21.55	)		—			432.26
Share of loss in associate company		(4.98	)		—			—			(4.98	)
Minority Interest		0.26			—			—			0.26

Profit/(Loss) after Tax and share of loss in associate company		449.09			(21.55	)		—			427.54

Other Segment Information
Capital Expenditure		120.03			1.57			—			121.60
Depreciation		60.54			5.47			—			66.01
Non-cash expenses other than depreciation		5.73			0.05			—			5.78

Satyam Computer Services Limited


	Rs. in crores
	Year ended March 31, 2006 (Audited)
Description	IT Services			BPO			Elimination			Total

Revenue
Sales to external customers		4,732.14			60.45			—			4,792.59
Inter Segment Sales		12.76			28.14			(40.90	)		—

Total Revenue		4,744.90			88.59			(40.90	)		4,792.59

Segment result—Profit/(Loss)		1,060.10			(31.27	)		—			1,028.83
Interest expense		2.95			2.59			—			5.54
Other income		332.46			0.79			—			333.25
Income taxes		206.95			0.53			—			207.48

Profit/(Loss) from ordinary activities		1,182.66			(33.60	)		—			1,149.06
Share of loss in associate company		(7.88	)		—			—			(7.88	)
Minority Interest		0.55			—			—			0.55

Profit/(Loss) after Tax and share of loss in associate company		1,175.33			(33.60	)		—			1,141.73

Other Segment Information
Capital Expenditure		319.54			7.62			—			327.16
Depreciation		126.10			11.18			—			137.28
Non-cash expenses other than depreciation		12.54			0.22			—			12.76

Particulars of Segment Assets and Liabilities


	Rs. in crores
	As at September 30, 2006 (Unaudited)
Description	IT Services		BPO		Elimination			Total

Segment Assets		3,888.03		131.80		(29.95	)		3,989.88
Investments		18.27		—		(18.27	)		—
Bank Deposits		1,802.80		28.81		—			1,831.61
Other Assets		194.36		0.04		—			194.40

Total Assets		5,903.46		160.65		(48.22	)		6,015.89

Segment Liabilities		823.92		49.67		(29.95	)		843.64
Other Liabilities		70.18		113.57		—			183.75

Total Liabilities		894.10		163.24		(29.95	)		1027.39


	Rs. in crores
	As at September 30, 2005 (Unaudited)
Description	IT Services		BPO		Elimination			Total

Segment Assets		2,304.23		64.95		(13.49	)		2,355.69
Investments		89.60		—		(18.27	)		71.33
Bank Deposits		1,801.18		4.55		—			1,805.73
Other Assets		77.75		0.02		—			77.77

Total Assets		4,272.76		69.52		(31.76	)		4,310.52

Segment Liabilities		497.42		13.11		(13.49	)		497.04
Other Liabilities		53.56		35.45		—			89.01

Total Liabilities		550.98		48.56		(13.49	)		586.05

Satyam Computer Services Limited


Rs. in crores
	As at March 31, 2006 (Audited)
Description	IT Services		BPO		Elimination			Total

Segment Assets		3,002.79		76.67		(10.90	)		3,068.56
Investments		18.27		—		(18.27	)		—
Bank Deposits		1,909.59		43.73		—			1,953.32
Other Assets		115.22		—		—			115.22

Total Assets		5,045.87		120.40		(29.17	)		5,137.10

Segment Liabilities		663.41		23.54		(10.90	)		676.05
Other Liabilities		51.70		87.95		—			139.65

Total Liabilities		715.11		111.49		(10.90	)		815.70

Geographic Segment

Revenue attributable to location of customers is as follows:


Rs. in crores
	Quarter ended September 30,				Half year ended September 30,				Year ended
	2006		2005		2006		2005		March 31, 2006
Geographic location	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Audited)

North America		1,036.83		764.72		1,964.48		1,467.48		3,105.68
Europe		299.95		222.87		573.59		410.97		907.36
Japan		25.34		13.43		41.08		28.65		67.34
India		76.63		40.43		142.90		82.32		195.85
Rest of the World		163.13		113.52		322.76		224.25		516.36

Total		1,601.88		1,154.97		3,044.81		2,213.67		4,792.59

Segment assets based on their location are as follows:


Rs. in crores
	Segment Assets
	As at September 30,				As at March 31,
	2006		2005		2006
Geographic location	(Unaudited)		(Unaudited)		(Audited)

North America		2,192.94		1,238.20		1,675.14
Europe		402.54		279.92		368.13
Japan		46.61		60.26		48.71
India		1,036.12		616.65		760.38
Rest of the World		311.67		160.66		216.20

Total		3,989.88		2,355.69		3,068.56


Rs. in crores
	Addition to fixed assets
	Quarter ended September 30,				Half year ended September 30,				Year ended
Geographic location	2006		2005		2006		2005		March 31, 2006
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Audited)

North America		0.91		0.93		1.83		2.62		4.73
Europe		8.56		1.12		8.84		53.59		6.99
Japan		0.08		0.11		0.16		0.21		0.48
India		114.00		66.74		208.53		115.88		310.18
Rest of the World		2.84		0.45		3.82		1.06		4.78

Total		126.39		69.35		223.18		173.36		327.16

Satyam Computer Services Limited

k)		Related Party Transactions:

		Satyam Computer Services had transactions with the following related parties:

		Associate: Sify Limited (ceased to exist as an associate w.e.f. November 09, 2005)

		Others: Satyam Foundation Trust and Satyam Associate Trust (Enterprises where trustees are spouses of Whole-time Directors and Key Managerial Personnel).

		Directors and Key Management Personnel: B. Ramalinga Raju, B. Rama Raju, Prof. Krishna G Palepu, Abraham Joseph, A.S. Murthy, Mohan Eddy, G.B.Prabhat, Ram Mynampati, D. Subramaniam, V.Srinivas, G. Jayaraman, Shailesh Shah, Vijay Prasad Boddupalli, Manish Sukhlal Mehta, Dr. Keshab Panda, Virender Aggarwal, T R Anand, Ravi Shankar Bommakanti, Venkatesh Roddam, M Satyanarayana, Murali V, Hari T, Deepak Mangla, Naresh Jhangiani and Seshadri Krishna.

		Summary of the transactions and balances with the above related parties is as follows:

		Transactions:


Rs. in crores
	Quarter ended September 30,				Half year ended September 30,				Year ended
	2006		2005		2006		2005		March 31, 2006
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Audited)

Associate
Outsourcing		—		2.36		—		5.28		6.25
Fixed Assets		—		5.09		—		5.53		5.53
Other Services		—		0.01		—		0.57		0.57
Others
Contributions		0.77		0.63		1.64		1.14		3.62

Balances:


Rs. in crores
	As at September 30,				As at March 31,
	2006		2005		2006
	(Unaudited)		(Unaudited)		(Audited)

Associate
Payables		—		4.29		—
Investments		—		71.33		—
Advances		—		0.06		—
Others
Advances		0.72		0.07		0.71

Transactions with Directors and Key Managerial Personnel


Rs. in crores
	Quarter ended September 30,				Half year ended September 30,				Year ended
Nature of Transactions	2006		2005		2006		2005		March 31, 2006
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Audited)

Remuneration to Whole-time Directors		0.16		0.15		0.31		0.30		0.93
Remuneration to Key Managerial Personnel		5.02		3.90		10.27		8.85		22.26
Professional charges paid to Director		—		0.39		—		0.39		0.99
Advances to Key Management Personnel		1.55		0.78		1.56		0.78		1.14

Balances due to / from Directors and Key Managerial Personnel


Rs. in crores
	As at September 30,				As at March 31,
	2006		2005		2006
	(Unaudited)		(Unaudited)		(Audited)

Remuneration payable to Whole-time Directors		—		—		0.22
Remuneration payable to Key Management Personnel		0.23		0.30		0.73
Advances due from Key Management Personnel		0.67		0.28		0.40

Options granted and outstanding to the Key Management Personnel 5,391,328 {includes 1.229,740 options granted under ASOP — ADS} (September 30, 2005 – 6,485,168 {includes 1,546,632 options granted under ASOP — ADS}, March 31, 2006 – 6,176,278 {includes 1,266,344 options granted under ASOP — ADS}).

Satyam Computer Services Limited

l)		Obligation on long term non-cancelable operating leases

		Satyam Computer Services has entered into operating lease agreements for its development centres at offshore, onsite and offsites ranging for a period of 3 to 10 years. The lease rentals charged during the year and maximum obligations on long-term non-cancelable operating leases payable as per the rentals stated in respective agreements are as follows:

Rs. in crores

Quarter ended September 30,

Half year ended September 30,

Year ended

2006

2005

2006

2005

March 31, 2006

(Unaudited)

(Audited)

Lease rentals (Refer Schedule 16)

25.84

19.02

47.49

36.90

78.03

As at September 30,

As at March 31,

2006

2005

2006

(Unaudited)

(Audited)

Obligations on non-cancelable leases

Not later than one year

23.34

18.70

18.49

Later than one year and not later than five years

24.41

23.53

14.97

Later than five years

2.11

2.86

2.58

Total

49.86

45.09

36.04

m)		Earnings Per Share

		At the annual general meeting of Satyam Computer Services held on August 21, 2006, the shareholders approved a 1:1 bonus issue for all shareholders including the ADS holders i.e. one additional equity share for every one existing equity share held by the members by capitalizing a part of the general reserves. The record date for the bonus issue was October 10, 2006 and shares were allotted on October 11, 2006. All basic and diluted shares used in determining earnings per share are after considering the effect of bonus issue.

		Calculation of EPS (Basic and Diluted):


		Quarter ended September 30,				Half year ended September 30,				Year ended
S.No.	Particulars	2006		2005		2006		2005		March 31, 2006
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Audited)

Basic
1.	Opening no. of shares		652,620,082		641,438,670		648,899,078		638,530,582		638,530,582
2.	Total Shares outstanding		653,538,584		642,686,564		652,502,120		641,206,164		643,784,984
3.	Profit after Taxation and share of loss in associate companies (Rs. in crores )		319.81		237.34		673.93		427.53		1,141.73
4.	EPS (Rs.)		4.89		3.69		10.33		6.67		17.73

Diluted
5.	Stock options outstanding		20,324,358		18,537,106		20,324,358		18,428,576		25,841,880
6.	Total shares outstanding (including dilution)		673,862,942		661,223,670		672,826,478		659,634,740		669,626,864
7.	EPS (Rs.)		4.75		3.59		10.02		6.48		17.05

Satyam Computer Services Limited

The aggregate amounts of the assets, liabilities, income and expenses related to Satyam’s share in joint venture companies that are consolidated and included in these financial statements are as follows:


Rs. in crores
	Quarter ended September 30,					Half year ended September 30,				Year ended
Description	2006			2005		2006		2005		March 31, 2006
	(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)		(Audited)

Income from Sales and Services		9.84			8.19		19.55		15.92		35.04
Other Income		(0.01	)		0.22		0.21		0.18		0.25

Total		9.83			8.41		19.76		16.10		35.29

Personnel expenses		4.52			4.28		9.73		7.72		16.78
Other expenses		3.33			2.50		6.10		5.67		12.03
Interest		0.04			0.05		0.06		0.09		0.18
Depreciation		0.52			0.46		0.99		0.83		1.79

Total		8.41			7.29		16.88		14.31		30.78

Net Profit		1.42			1.12		2.88		1.79		4.51


Rs. in crores
	Quarter ended September 30,				Year ended
Description	2006		2005		March 31, 2006
	(Unaudited)		(Unaudited)		(Audited)

Secured Loans		0.09		1.56		0.07
Unsecured Loans		—		0.50		0.50
Fixed Assets		3.72		3.28		3.79
Inventories		0.18		0.19		0.19
Sundry Debtors		12.79		13.26		10.48
Cash and Bank Balances		3.89		1.52		3.16
Loans and Advances		5.15		3.65		6.24
Current Liabilities		6.55		5.21		4.62
Provisions		0.45		0.24		2.33

Commitments and Contingencies

	i)		Nipuna Services issued 45,669,999 and 45,340,000 0.05% Convertible Redeemable Cumulative Preference Shares of par value Rs.10 each fully paid-up in October 2003 and June 2004 respectively to Olympus BPO Holdings Ltd. and Intel Capital Corporation (investors) for an aggregate consideration of Rs. 91.88 crores (equivalent to US$ 20 millions). These Preference shares are to be mandatorily converted/redeemed into such number of equity shares latest by June 2007 based on certain provisions in the agreement entered with the investors relating to revenues and profits earned up to March 31, 2006. The said preference shares, if not converted or early converted at the option of the investors based on certain triggering events, are redeemable on maturity in June 2007 at a redemption premium, which could range in between 7.5% to 13.5% p.a.

			Satyam Computer Services has guaranteed payment of all sums payable by Nipuna Services to the investors on redemption of the said Preference Shares. Further Satyam Computer Services is required to subscribe to Convertible Debentures amounting to US$ 20 millions based on certain provisions in the agreement. These Convertible Debentures shall bear an interest rate equal to the prime lending rate of the State Bank of India prevailing at that time and are convertible upon the election of Nipuna Services into Equity Shares at any time after issuance.

	ii)		Bank Guarantees outstanding Rs. 73.79 crores (September 30, 2005 – Rs. 40.62 crores, March 31, 2006 – Rs. 59.83 crores).

	iii)		Contracts pending execution on capital accounts, net of advances, Rs. 179.33 crores (September 30, 2005 – Rs. 48.04 crores, March 31, 2006 – Rs. 118.89 crores).

	iv)		Forward and Options Contracts outstanding Rs. 727.10 crores (equivalent US$ 158.00 millions) {September 30, 2005 – Rs. 1,066.22 crores (equivalent US$ 242.00 millions), March 31, 2006 – Rs. 966.36 crores (equivalent US$ 216.00 millions)}. Gain/(Loss) on foreign exchange forward contracts which are included under the head gain/(loss) on exchange fluctuation in the profit and loss account amounted to (Rs. 14.78 crores) {September 30, 2005 – Rs. 0.32 crores, March 31, 2006 – (Rs. 3.75 crores)}.

	v)		Claims against the company not acknowledged as debts

Income tax and Sales tax matters under dispute – Rs. 20.38 crores ( September 30, 2005 – Rs. Nil, March 31, 2006 – Rs. 20.38 crores)

Satyam Computer Services Limited

	vi)		Arrears on 0.05% Convertible Redeemable Cumulative Preference Shares amounting to Rs. 0.12 crores (September 30, 2005 – Rs. 0.07 crores, March 31, 2006 – Rs. 0.10 crores).

	vii)		Contingent consideration payable in respect of acquired subsidiary companies Rs. 76.19 crores (September 30, 2005 – Rs. 104.76 crores, March 31, 2006 – Rs. 101.72 crores).

	viii)		Satyam Computer Services has given a corporate guarantee on behalf of a subsidiary for the loan obtained amounting to maximum of Rs. 91.88 crores (September 30, 2005 – Rs. 88.04 crores, March 31, 2006 – Rs. 89.24 crores) (equivalent US$ 20 millions).

	ix)		Satyam Computer Services had filed a request for arbitration with the London Court of International Arbitration (“LCIA”) naming Venture Global Engineering LLC, USA (“VGE”) as respondent. The Arbitration concerned a dispute between Satyam Computer Services and VGE in connection with their joint venture Satyam Venture Engineering Services Private Limited (“SVES”).

			The LCIA Arbitrator issued his Final Award on April 3, 2006 in favour of Satyam Computer Services. Satyam Computer Services has filed a petition to recognize and enforce the Award in the United States District Court in Michigan. VGE has separately filed a declaratory judgment action seeking to refuse enforcement of the Award in the United States District Court in Illinois.

The Gratuity Plan

The following table sets forth the status of the Gratuity Plan of the company, and the amounts recognized in the consolidated balance sheets and profit and loss account.


Rs. in crores
	Quarter ended			Half Year ended
	September 30, 2006			September 30, 2006

Projected benefit obligation at the beginning of the period		36.01			35.32
Current service cost		2.27			4.40
Interest cost		0.56			1.20
Actuarial loss/(gain)		6.07			5.53
Benefits paid		(0.94	)		(2.47	)

Projected benefit obligation at the end of the period		43.97			43.98

Amounts recognised in the balance sheet
Projected benefit obligation at the end of the period		43.97			43.98
Fair value of plan assets at end of the period		—			—

Funded status of the plans – (asset )/ liability		43.97			43.98
Liability recognised in the balance sheet		43.97			43.98

Gratuity cost for the period
Current service cost		2.27			4.40
Interest cost		0.56			1.20
Net actuarial (gain)/loss recognised in the period		6.07			5.53

Net gratuity cost		8.90			11.13

Assumptions
Discount rate		7.4	%		7.4	%
Long-term rate of compensation increase		7.0	%		7.0	%

Note: This being the first year of disclosure, previous year figures have not been furnished.

q)		Provision For Leave encashment

		Effective April 1, 2006, Satyam Computer Services adopted the revised accounting standard on Employee Benefits. Pursuant to the adoption, the transitional obligations of Satyam Computer Services towards leave encashment amounted to Rs. 26.91 crores. As required by the standard, an amount of Rs. 18.05 crores (net of related deferred tax of Rs. 8.86 crores) has been adjusted against general reserves.

Satyam Computer Services Limited

The financial statements are represented in Rs. crores. Those items which were not represented in the financial statements due to rounding off to the nearest Rs. crores are given below:


Rs. in lakhs
		As at September 30,				As at
Schedule No.	Description	2006		2005		March 31, 2006

5(ii)	National Saving Certificates, VIII Series (Lodged as security with government authorities)		0.16		0.16		0.16
18(i)	Balances with non-scheduled banks
	ANZ Grindlays Bank, New York		0.10		0.09		0.09
	Commerz Bank, New York		0.24		0.23		0.24
	OCBC Bank, Kuala Lumpur		0.06		—		—
	Standard Chartered Bank, Singapore		0.47		—		0.49

Reclassification

Figures for the corresponding period/year have been regrouped, recast and rearranged to conform to those of the current period/year wherever necessary.

Satyam Computer Services Limited
Consolidated Cash Flow Statement for the Quarter and Half Year Ended September 30, 2006


Rs. in crores
		Quarter ended			Quarter ended			Half Year ended			Half Year ended			Year Ended
		30.09.2006			30.09.2005			30.09.2006			30.09.2005			31.03.2006
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Audited)

A.	Cash Flows from Operating Activities
	Net Profit Before Interest and Tax		325.90			245.09			689.45			449.53			1,246.03
	Depreciation		37.51			34.70			73.67			66.01			137.28
	Loss on sale of Fixed Assets		0.24			0.23			0.46			0.54			0.93
	Profit on sale of shares in Associate Company		—			—			—			—			(216.43	)
	Minority Interest		—			(0.10	)		(0.12	)		(0.26	)		(0.55	)

	Cash generated before changes in Working Capital		363.65			279.92			763.46			515.82			1,167.26
	(Increase)/Decrease in Inventories		—			—			0.01			—			—
	(Increase)/Decrease in Sundry Debtors		(177.75	)		(24.17	)		(257.54	)		(126.51	)		(365.77	)
	(Increase)/Decrease in Loans and Advances		(5.93	)		(44.30	)		(21.43	)		(33.60	)		(63.23	)
	Increase/(Decrease) in Current Liabilities and Provisions		159.80			113.64			242.99			126.15			168.55
	Income Taxes Paid		(17.50	)		(51.57	)		(77.21	)		(79.58	)		(154.50	)
	Exchange differences on translation of foreign currency cash and cash equivalents		1.85			(6.84	)		(43.28	)		4.52			(1.20	)

	Net Cash Flow from Operating Activities		324.12			266.68			607.00			406.80			751.11


B.	Cash Flows used in Investing Activities
	Purchase of Fixed Assets		(118.26	)		(69.35	)		(191.61	)		(121.59	)		(246.29	)
	Acquisition of Citisoft Plc, net of cash acquired		(8.11	)		—			(22.59	)		(51.76	)		(51.76	)
	Acquisition of Knowledge Dynamics Pte Ltd., net of cash acquired		—			(7.82	)		(3.59	)		(7.82	)		(7.02	)
	Proceeds from sale of shares in Associate Company, (net)		—			—			—			—			228.24
	Proceeds from sale of Fixed Assets		0.40			0.53			0.76			0.97			1.66
	Interest income received		7.39			6.50			15.45			12.79			30.11

	Net Cash Flow from Investing Activities		(118.58	)		(70.14	)		(201.58	)		(167.41	)		(45.06	)


C.	Cash Flows used in Financing Activities
	Proceeds from issue of Share Capital		29.68			29.86			86.24			68.81			138.08
	Receipt of Share Application money pending allotment		1.86			1.07			1.86			1.07			1.78
	Proceeds from Secured Loans		38.31			19.11			64.78			35.98			111.70
	Repayment of Secured Loans		(27.20	)		(2.70	)		(38.44	)		(5.01	)		(27.95	)
	Financial Expenses Paid		(3.37	)		(0.77	)		(4.76	)		(1.24	)		(5.54	)
	Dividends Paid		(186.30	)		(109.78	)		(186.30	)		(109.78	)		(183.75	)

	Net Cash Flow from Financing Activities		(147.02	)		(63.21	)		(76.62	)		(10.17	)		34.32


D.	Exchange differences on translation of foreign currency cash and cash equivalents		(1.85	)		6.84			43.28			(4.52	)		1.20

	Net Increase in Cash and Cash equivalents during the period/year		56.67			140.17			372.08			224.70			741.57
	Cash and Cash equivalents at the beginning of the period/year		1,631.61			659.16			1,316.20			574.63			574.63

	Cash and Cash equivalents at the end of the period/year		1,688.28			799.33			1,688.28			799.33			1,316.20


	Supplementary Information

	Cash and Bank Balances as per Balance sheet		3,483.78			2,594.83			3,483.78			2,594.83			3,111.70
	Less: Long Term Deposits with Scheduled Banks considered as Investments		1,795.50			1,795.50			1,795.50			1,795.50			1,795.50

	Balance considered for Cash Flow Statement		1,688.28			799.33			1,688.28			799.33			1,316.20


	The balance of Cash and Cash equivalents include amounts set aside for payment of dividends		10.93			5.97			10.93			5.97			5.05


1.		Includes amount set aside for payment of unclaimed dividends.

2.		Figures for the corresponding period/year have been regrouped, recast and rearranged to conform to those of the current period wherever necessary.


		For and on behalf of the Board of Directors

		B. Ramalinga Raju		B. Rama Raju
		Chairman		Managing Director

		V. Srinivas		G. Jayaraman
		Director		Sr. Vice President (Corp. Governance)
		& Sr. Vice President — Finance		& Company Secretary

				Place : Secunderabad
				Date : October 20, 2006

EX-99.6 7 u92864exv99w6.htm EX-99.6 CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006 UNDER US GAAP (UNAUDITED) Ex-99.6

Exhibit 99.6

SATYAM COMPUTER SERVICES LIMITED

INDEX TO THE U.S. GAAP CONSOLIDATED FINANCIAL STATEMENTS


		Page

Consolidated Balance Sheets as of September 30, 2006, 2005 (unaudited) and March 31, 2006		F-2

Consolidated Statements of Income for the six months ended September 30, 2006, 2005 (unaudited) and for the year ended March 31, 2006		F-3

Consolidated Statements of Shareholder’s Equity and Comprehensive Income for the six months ended September 30, 2006 (unaudited) and for the year ended March 31, 2006		F-4

Consolidated Statements of Cash Flows for the six months ended September 30, 2006, 2005 (unaudited) and for the year ended March 31, 2006		F-6

Notes to the Consolidated Financial Statements		F-7

F-1

Satyam Computer Services Limited

Consolidated Balance Sheets

(Millions of US Dollars except per share data and as stated otherwise)


	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Assets

Current assets
Cash and cash equivalents	$	363.0		$	179.0		$	292.8
Investments in bank deposits		390.8			—			403.7
Accounts receivable, net of allowance for doubtful debts		256.8			183.2			220.0
Unbilled revenue on contracts		52.1			26.4			41.1
Deferred income taxes		17.3			10.2			12.2
Prepaid expenses and other receivables		62.4			21.9			48.9

Total current assets		1,142.4			420.7			1,018.7
Investments in bank deposits		—			408.6			—
Investments in associated companies		4.0			22.3			3.5
Premises and equipment, net		127.1			96.0			106.6
Goodwill, net		30.6			22.1			27.6
Intangible assets, net		8.4			4.6			6.6
Other assets		19.4			34.2			18.2

Total assets		1,331.9			1,008.5			1,181.2


Liabilities and shareholders’ equity

Current liabilities
Short-term and current portion of long-term debt		8.1			4.6			6.5
Accounts payable		20.6			14.4			11.9
Accrued expenses and other current liabilities		147.3			96.1			108.9
Unearned and deferred revenue		16.7			8.0			11.8

Total current liabilities		192.7			123.1			139.1

Long-term debt, excluding current portion		21.3			8.1			17.9
Deferred income taxes		9.3			9.6			8.9

Total liabilities		223.3			140.8			165.9

Contingencies and Commitments (Note No.19)

Minority interest		—			1.0			0.9

Preferred Stock of Subsidiary
0.05% Cumulative convertible redeemable preference shares, par value Rs.10 (US$0.22)* per share		20.0			20.0			20.0
(100 million preference shares authorized, 91,009,999 and 91,009,999 preference shares issued as of September 30, 2006 and 2005 (unaudited) respectively and 91,009,999 preference shares as of March 31, 2006)

Shareholders’ equity
Common stock — par value Rs.2 (US$0.04)* per equity share		35.4			17.5			17.6
(800 million and 750 million equity shares authorized as of September 30, 2006 and 2005 (unaudited) respectively and 750 million equity shares as of March 31, 2006. 654,634,308 and 638,530,582 equity shares issued as of September 30, 2006 and 2005 (unaudited) respectively and 648,899,078 equity shares as of March 31, 2006)
Additional paid-in capital		488.8			449.9			465.1
Shares subscribed but unissued		0.4			0.2			0.4
Deferred stock-based compensation		—			(0.3	)		(0.4	)
Retained earnings		580.3			357.7			497.1
Accumulated other comprehensive income/(loss)		(15.1	)		23.0			15.8

		1,089.8			848.0			995.6
Shares held by the SC-Trust under associate stock option plan		(1.2	)		(1.3	)		(1.2	)
(2,368,680 and 2,562,680 equity shares as of September 30, 2006 and 2005 (unaudited) respectively and 2,386,280 equity shares as of March 31, 2006)

Total shareholders’ equity		1,088.6			846.7			994.4

Total liabilities and shareholders’ equity	$	1,331.9		$	1008.5		$	1,181.2

*		The par value in US$ has been converted at the closing rate as of September 30, 2006, 1US$ = Rs45.95

		The accompanying notes are an integral part of these consolidated financial statements.

F-2

Satyam Computer Services Limited

Consolidated Statements of Income

(Millions of US Dollars except per share data and as stated otherwise)


	Six months ended September 30,						Year ended
	2006			2005			March 31, 2006
	(unaudited)			(unaudited)

Revenues	$	674.5		$	513.9		$	1,096.3
Cost of revenues		(435.8	)		(329.8	)		(689.0	)
(Includes stock-based compensation of US$6.7,US$Nil for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$Nil for the year ended March 31, 2006)

Gross profit		238.7			184.1			407.3
Selling, general and administrative expenses		(105.7	)		(86.2	)		(187.6	)
(Includes stock-based compensation of US$0.4,US$0.3 for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$0.8 for the year ended March 31, 2006)

Total operating expenses		(105.7	)		(86.2	)		(187.6	)

Operating income		133.0			97.9			219.7
Interest income		12.8			12.8			26.3
Interest expense		(1.2	)		(0.3	)		(1.3	)
Gain on sale of investments (Refer note 7)		—			—			43.6
Gain/(Loss) on foreign exchange transactions		12.8			(0.6	)		0.3
Other income/(expense), net		(3.3	)		(0.1	)		(0.8	)

Income before income taxes and equity in earnings/(losses) of associated companies		154.1			109.7			287.8
Income taxes		(13.5	)		(15.2	)		(37.7	)
Minority interest		—			0.1			0.1

Income before equity in earnings/(losses) of associated companies		140.6			94.6			250.2
Equity in earnings/(losses) of associated companies, net of taxes		0.4			(0.7	)		(0.8	)

Net income	$	141.0		$	93.9		$	249.4


Earnings per share:
Basic	$	0.22		$	0.15		$	0.39
Diluted	$	0.21		$	0.14		$	0.38
Weighted average number of shares used in computing earnings per share (in millions)
Basic		650.1			638.6			641.2
Diluted		670.5			657.2			662.8

The accompanying notes form an integral part of these consolidated financial statements.

F-3

Satyam Computer Services Limited

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

(Millions of US Dollars except per share data and as stated otherwise)


																Accumulated
					Additional		Shares			Deferred						other			Shares held			Total
	Common Stock				paid-in		subscribed but			stock-based			Retained			comprehensive			by			Shareholders’
	Shares		Par Value		capital		unissued			compensation			earnings			income/(loss)			SC-Trust			Equity
Balance as of March 31, 2005		638,530,582	$	17.4	$	433.6	$	0.1		$	(0.3	)	$	289.0		$	29.6		$	(1.5	)	$	767.9
Net income		—		—		—		—			—			249.4			—			—			249.4
Other comprehensive income
Gain on foreign currency translation		—		—		—		—			—			—			(13.8	)		—			(13.8	)

Total Comprehensive income																							235.6
Issuance of common stock		1,03,68,496		0.2		30.3		(0.1	)		—												30.4
Shares subscribed but unissued		—		—		—		0.4			—			—			—			—			0.4
Deferred stock-based compensation		—		—		0.9		—			(0.9	)		—			—			—			—
Amortization of deferred stock-based compensation		—		—		—		—			0.8			—			—			—			0.8
Shares transferred by SC-Trust to employees		—		—		0.3		—			—			—			—			0.3			0.6
Cash dividend paid at the rate of US$0.11 per share		—		—		—		—			—			(41.3	)		—			—			(41.3	)

Balance as of March 31, 2006		648,899,078	$	17.6	$	465.1	$	0.4		$	(0.4	)	$	497.1		$	15.8		$	(1.2	)	$	994.4

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Satyam Computer Services Limited
Consolidated Statements of Shareholders’ Equity and Comprehensive Income
(Millions of US Dollars except per share data and as stated otherwise)


																	Accumulated
					Additional			Shares			Deferred						other			Shares held			Total
	Common Stock				paid-in			subscribed but			stock-based			Retained			comprehensive			by			Shareholders’
	Shares		Par Value		capital			unissued			compensation			earnings			income/(loss)			SC-Trust			Equity
Balance as of March 31, 2006		648,899,078	$	17.6	$	465.1		$	0.4		$	(0.4	)	$	497.1		$	15.8		$	(1.2	)	$	994.4
Net income		—		—		—			—			—			141.0			—			—			141.0
Other comprehensive income/(loss)
Gain on foreign currency translation		—		—		—			—			—			—			(30.9	)		—			(30.9	)


Total Comprehensive income																								110.1

Issuance of common stock		5,735,230		0.1		17.0			(0.4	)		—			—			—			—			16.7
Stock split (effected in the form of dividend)		—		17.7		—			—			—			(17.7	)		—			—			—
Shares subscribed but unissued		—		—		—			0.4			—			—			—			—			0.4
Reversal of Deferred stock based compensation on adoption of SFAS 123R		—		—		(0.4	)		—			0.4			—			—			—			—
Amortization of deferred stock-based compensation		—		—		7.1			—			—			—			—			—			7.1
Cash dividend paid at the rate of US$0.11 per share		—		—		—			—			—			(40.1	)		—			—			(40.1	)

Balance as of September 30, 2006		654,634,308	$	35.4	$	488.8		$	0.4			—		$	580.3		$	(15.1	)	$	(1.2	)	$	1,088.6

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Satyam Computer Services Limited

Consolidated Statements of Cashflows

(Millions of US Dollars except per share data and as stated otherwise)


	Six months ended September 30,						Year ended
	2006			2005			March 31,2006
	(unaudited)			(unaudited)
Cash Flows From Operating Activities
Net income	$	141.0		$	93.9		$	249.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangible assets		16.4			15.3			31.5
Stock-based compensation		7.1			0.3			0.8
Deferred income taxes		(5.9	)		(0.4	)		(5.1	)
Gain on sale of investments		—			—			(43.6	)
Loss on sale of premises and equipment		0.1			0.1			0.2
Minority Interest		—			(0.1	)		(0.1	)
Equity in losses of associated companies, net of taxes		(0.4	)		0.7			0.8
Changes in assets and liabilities:		—
Accounts receivable, net and unbilled revenue on contracts		(56.0	)		(29.0	)		(81.9	)
Prepaid expenses and other receivables, net		(15.1	)		(5.9	)		(31.7	)
Other assets, net		(2.0	)		(15.7	)		(1.8	)
Accounts payable		8.9			0.3			(2.5	)
Accrued expenses and other current liabilities		39.9			32.2			40.6
Unearned and deferred revenue		5.2			2.4			6.1

Net cash provided by operating activities		139.2			94.1			162.7

Cash Flows From Investing Activities
Purchase of premises and equipment		(38.9	)		(26.2	)		(54.1	)
Proceeds from sale of premises and equipment		0.2			0.2			0.3
Payment for purchase of Citisoft Plc, net of cash acquired		(3.3	)		(12.1	)		(12.1	)
Payment for purchase of Knowledge Dynamics Pte. Ltd., net of cash acquired		(0.8	)		(1.8	)		(1.6	)
Proceeds from sale of investments		—			—			62.3

Net cash used in investing activities		(42.8	)		(39.9	)		(5.2	)

Cash Flows From Financing Activities
Proceeds from short-term debt		1.4			1.1			3.6
Repayments of short-term debt		—			(1.2	)		(1.2	)
Proceeds from long-term debt		4.3			6.8			16.3
Repayment of long-term debt		(0.9	)		(1.2	)		(2.7	)
Issuance of common stock		16.7			16.1			31.0
Shares subscribed but unissued		0.4			0.2			0.4
Cash dividends paid		(40.1	)		(25.2	)		(41.3	)

Net cash provided by/(used in) financing activities		(18.2	)		(3.4	)		6.1

Effect of exchange rate changes on cash and cash equivalents		(8.0	)		(1.6	)		(0.6	)

Net change in cash and cash equivalents		70.2			49.2			163.0

Cash and cash equivalents at the beginning of the period		292.8			129.8			129.8

Cash and cash equivalents at the end of the period	$	363.0		$	179.0		$	292.8


Supplementary information:
Cash paid during the period for:
Income taxes	$	14.9		$	16.3		$	44.9
Interest		1.2			0.3			1.3
Non-cash items:
Capital leases and hire purchase	$	1.2		$	0.14		$	2.5
Deferred consideration for purchase of Citisoft Plc		5.9			—			3.1
Deferred consideration for purchase of Knowledge Dynamics Pte Ltd		—			—			1.5

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Satyam Computer Services Limited

Notes on Consolidated Financial Statements

1. Description of Business

Satyam Computer Services Limited, its consolidated subsidiaries and associated companies (hereinafter referred to as “Satyam”) are engaged in providing Information Technology (“IT”) services and Business Process Outsourcing (“BPO”) services. Satyam Computer Services Limited (hereinafter referred to as “Satyam Computer Services”) is an IT services provider that uses global infrastructure to deliver value-added services to its customers, to address IT needs in specific industries and to facilitate electronic business, or eBusiness, initiatives. Satyam Computer Services was incorporated on June 24, 1987 in Hyderabad, Andhra Pradesh, India. Satyam Computer Services has offshore development centers located throughout India that enable it to provide high quality and cost-effective solutions to clients. It also has offsite centers located in the United States, United Kingdom, Japan, Australia, Singapore, Malaysia, Dubai, Germany, Canada, China and Hungary. Satyam offers a comprehensive range of IT services, including application development and maintenance, consulting and enterprise business solutions, extended engineering solutions and infrastructure management services. Satyam Computer Services has established a diversified base of corporate customers in a wide range of industries including insurance, banking and financial services, manufacturing, telecommunications, transportation and engineering services.

Nipuna Services Limited (“Nipuna”) a wholly owned subsidiary of Satyam Computer Services is engaged in providing BPO services covering HR, Finance & Accounting, Customer Care (Voice, Mail and Chat), and Transaction Processing (industry-specific offerings).

2. Summary of Significant Accounting Policies

a) Principles of Consolidation and Basis of Presentation

The consolidated financial statements of Satyam Computer Services and its majority owned domestic and foreign subsidiaries are prepared in accordance with generally accepted accounting principles applicable in the United States (“U.S. GAAP”). All significant inter-company balances and transactions are eliminated.

Minority interest in subsidiaries represents the minority shareholders’ proportionate share of the net assets and the results of operations of Satyam’s majority owned subsidiaries.

Satyam’s investments in business entities in which it does not have control, but have the ability to exercise significant influence over operating and financial policies (generally 20-50 percent ownership), are referred to as associated companies and are accounted for by the equity method.

On occasion, a subsidiary or associated company accounted for by the equity method (“offering company”) may issue its shares to third parties as either a public offering or private placement at per share amounts in excess of or less than Satyam’s average per share carrying value. With respect to such transactions, the resulting gains or losses arising from the change in interest are recorded in additional paid-in capital. Gains or losses arising on the direct sales by Satyam of its investment in its subsidiaries or associated companies to third parties are recognized as income/(loss) in the statement of income. Such gains or losses are the difference between the sale proceeds and net carrying value of investments.

The excess of the cost over the underlying net equity of investments in subsidiaries and associated companies accounted for on equity basis is allocated to identifiable assets based on fair values at the date of acquisition. The unassigned residual value of the excess of the cost over the underlying net equity is recognized as goodwill.

b) Interim Information (unaudited)

Interim information presented in the consolidated financial statements has been prepared by the management without audit and in the opinion of management, includes all adjustments of a normal recurring nature that are necessary for the fair presentation of the balance sheets, statements of operations, statements of shareholders’ equity and comprehensive income, and statements of cash flows for the periods shown in accordance with U.S. GAAP.

c) Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reported period. Examples of such estimates include: estimates of expected contract costs to be incurred to complete software development, allowance for doubtful debts, and future obligations under employee benefit plans, valuation allowances for deferred taxes, impairment of goodwill and useful lives of premises and equipment (fixed assets). Actual results could differ materially from those estimates.

F-7

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

d) Foreign Currency Translation

The accompanying consolidated financial statements are reported in U.S. dollars. The Indian rupee is the functional currency for Satyam Computer Services, its domestic subsidiaries and associated companies. However, the U.S. Dollar, Pound Sterling, Singapore Dollar and Renminbi are the functional currencies for its foreign subsidiaries located in U.S., UK, Singapore and China respectively. The translation of the functional currencies into U.S. dollars is performed for assets and liabilities using the current exchange rates in effect at the balance sheet date and for revenues, costs and expenses using average exchange rates prevailing during the reporting periods. Adjustments resulting from the translation of functional currency financial statements to reporting currency are accumulated and reported as other comprehensive income/(loss), a separate component of shareholders’ equity.

Transactions in foreign currency are recorded at the exchange rate prevailing on the date of transaction. Monetary assets and liabilities denominated in foreign currencies are expressed in the functional currency at the exchange rates in effect at the balance sheet date. Revenues, costs and expenses are recorded using exchange rates prevailing on the date of transaction. Gains or losses resulting from foreign currency transactions are included in the statement of income.

e) Revenue Recognition

Revenues from IT services, which includes software development, system maintenance, package software implementation, engineering design services and e-Business consist of revenues earned from services performed either on a time-and-material basis or time bound fixed price engagements.

Revenues earned from services performed on a time-and-material basis are recognized as the services are performed. IT services performed on time bound fixed-price engagements; require accurate estimation of the costs which include salaries and related expenses of technical associates, related communication expenses, travel costs, scope and duration of each engagement. Revenue and the related costs for these projects are recognized on percentage of completion basis, with revisions to estimates reflected in the period in which changes become known. Provisions for estimated losses on such engagements are made during the period in which a loss becomes probable and can be reasonably estimated.

Revenues from BPO services consist of revenues from time-and-material services or time bound fixed price engagements. Revenues from time-and-material services are recognized as the services are performed. Revenues from BPO services are also on time bound fixed-price engagements, under which revenue is recognized using the percentage completion method of accounting. The cumulative impact of any revision in estimates of the percentage of work completed is reflected in the period in which the change becomes known. Provisions for estimated losses are made during the year in which a loss becomes probable and can be reasonably estimated.

Amounts included in the financial statements, which relate to recoverable costs and accrued profits not yet billed on contracts, are classified in current assets as “Unbilled revenue on contracts”. Billings on uncompleted contracts in excess of accrued cost and accrued profit are classified in current liabilities under the heading “Unearned and deferred revenue”. Satyam provides its clients with one to three months’ warranty as post-sale support for its fixed price engagements. Satyam has not provided for any warranty costs for the for the six months ended September 30, 2006 and 2005 (unaudited) and for the year ended March 31, 2006 as historically Satyam has not incurred any expenditure on account of warranties and since the customer is required to formally sign off on the work performed, any subsequent work is usually covered by an additional contract.

In accordance with Emerging Issues Task Force (EITF) 01-14 (formerly Topic D-103), “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred”, Satyam has accounted for reimbursements received for out-of-pocket expenses incurred as revenues in the statement of income.

f) Cash and Cash Equivalents

Satyam considers all highly liquid investments with an original maturity or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates their fair value due to the short maturity of the investments. Cash and claims to cash that are restricted as to withdrawal or use in the ordinary course of business are classified as other receivables under current assets, unless they are to be utilized for other than current operations in which case they are classified as other assets, non-current.

g) Premises, Equipment and Depreciation

Premises and equipment are stated at actual cost less accumulated depreciation. Assets under capital leases are stated at the present value of minimum lease payments. Depreciation is computed using the straight-line method over the estimated useful lives. Assets under capital leases and leasehold improvements are amortized straight-line over their estimated useful life or the lease term, as appropriate. Costs of application software for internal use are

F-8

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

generally charged to income as incurred due to its estimated useful lives being relatively short, usually less than one year.

The cost and the accumulated depreciation for premises and equipment sold, retired or otherwise disposed off are removed from the stated values and the resulting gains and losses are included in the statement of income. Interest related to the construction of qualifying assets is capitalized. Advances paid towards the acquisition of premises and equipment outstanding at each balance sheet date and the cost of premises and equipment not put to use before such date are disclosed as Assets under Construction.

h) Software Development Costs

Satyam capitalizes internally generated software development costs under the provisions of Statement of Financial Accounting (SFAS) 86, “Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed.” Capitalization of computer software development cost begins upon the establishment of technological feasibility, which Satyam has defined as the completion of a prototype. Costs incurred prior to establishment of technological feasibility and other research and development expenses are charged to income as incurred. Costs incurred by Satyam between completion of the prototype and the point at which the product is ready for general release have been insignificant.

Research and development expenses charged to income amounted to US$0.2 million and US$0.3 million for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$0.5 million for the year ended March 31, 2006.

i) Goodwill and Other Intangible Assets

Goodwill represents the difference between either a) the purchase price and the fair value of assets and liabilities acquired and/or b) the purchase price and additional interest in subsidiaries acquired from minority shareholders. Upto March 31, 2002, goodwill and other intangible assets including license fees were amortized over the useful lives principally over a period of 5 years based on management’s estimate. Goodwill is tested for impairment annually and reviewed for triggering events when circumstances indicate that the carrying amount may not be recoverable, and written down when impaired, rather than being amortized as required by previous standards. Further in accordance with SFAS 142 purchased intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite.

j) Impairment of Long-lived Assets

Satyam accounts for impairment of long-lived assets in accordance with the provisions of SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” on April 1, 2002. Satyam reviews long-lived assets, for impairment whenever events or changes in business circumstances indicate the carrying amount of assets may not be fully recoverable. Each impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset to its recorded value. If impairment is indicated, the asset is written down to its fair value. Assets to be disposed are reported at the lower of the carrying value or the fair value less cost to sell.

k) Investments

Satyam has evaluated its investment policies consistent with the provisions of SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities”, and determined that all of its marketable investment securities are to be classified as available-for-sale. Accordingly, such securities are carried at fair value with unrealized gains and losses, net of taxes, reported as a separate component of other comprehensive income/(loss) until realized. Realized gains and losses and decline in value judged to be other-than-temporary are included in other income. The cost of securities sold is based on the first-in-first-out (FIFO) method. Interest and dividends on securities classified as available-for-sale are recognized when earned and included in other income. Other investments that are not marketable are carried at cost, subject to tests of other than temporary impairment.

l) Cost of Revenues and Selling, General and Administrative Expenses

Cost of revenues primarily include the compensation cost of technical staff, depreciation on dedicated assets and system and application software costs, amortization of intangibles, travel costs, data communication expenses and other expenses incurred that are related to the generation of revenue.

m) Advertising Costs

Satyam expenses all advertising costs as incurred. Advertising costs charged to income amounted to US$0.6 million and US$1.1 million for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$2.2 million for the year ended March 31, 2006.

F-9

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

n) Employee Benefits

i) Provident Fund

In accordance with Indian law, employees are entitled to receive benefits under the Provident Fund, which is a defined contribution plan. Both the employee and the employer make monthly contributions to the plan at a predetermined rate (presently 12.0%) of the employees’ basic salary. Satyam has no further obligations under the plan beyond its monthly contributions. These contributions are made to the fund administered and managed by the Government of India. Satyam’s monthly contributions are charged to income in the period they are incurred.

ii) Gratuity Plan

Satyam has a defined benefit retirement plan (the “Gratuity Plan”) covering all its employees in India. The Gratuity Plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee’s salary and years of employment with Satyam.

Satyam provides for the Gratuity Plan on the basis of actuarial valuation. The entire Gratuity Plan of Satyam Computer Services and Nipuna is unfunded.

iii) Superannuation Plan

In addition to the above benefits, the senior employees of Satyam Computer Services in India are entitled to receive benefits under the Superannuation Plan, a defined contribution plan. Satyam Computer Services makes yearly contributions under the Superannuation plan administered and managed by LIC, based on a specified percentage (presently 10.0%) of each covered employee’s basic salary. Satyam Computer Services has no further obligations under the plan beyond its contributions.

iv) Other Benefit Plans

Satyam maintains a 401(k) retirement plan (the “401(k) Plan”) covering all its employees in the United States. Each participant in the 401(k) Plan may elect to contribute up to 15.0% of his or her annual compensation to the 401(k) Plan. Satyam matches 50.0% of employee contributions, subject to a maximum of 3.0% of gross salary for all employees participating in the 401(k) plan. Effective October 1, 2003, Satyam Computer Services has discontinued its matching contribution under this plan.

o) Income Taxes

In accordance with the provisions of SFAS 109, “Accounting for Income Taxes”, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of income in the period of enactment. Based on management’s judgment, the measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which it is more likely than not that some portion or all of such benefits will not be realized.

p) Earnings Per Share

In accordance with the provisions of SFAS 128, “Earnings Per Share”, basic earnings per share is computed on the basis of the weighted average number of shares outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of common and dilutive common equivalent shares outstanding during the period, using the “treasury stock” method for options and warrants, except where the results will be anti-dilutive.

q) Stock-Based Compensation

F-10

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

reliably measurable. In March 2005, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No.107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of share-based payments for public companies. Satyam has applied the provisions of SAB 107 in its adoption of SFAS 123R.

Satyam adopted SFAS 123R using the modified prospective transition method, which required the application of the accounting standard as of April 1, 2006, the first day of Satyam’s fiscal year 2007. Under this transition method, stock-based compensation expensed for the six months ended September 30, 2006 includes a) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of April 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, (“SFAS 123”) and b) Stock-based compensation expenses for all stock-based compensation awards granted after April 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified prospective transition method, Satyam’s Consolidated Financial Statements for the prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R.

Pro forma disclosure

Had deferred stock-based compensation cost been recognized based on the fair value at the date of grant in accordance with SFAS 123, the pro forma amounts of Satyam’s net income and earnings per share would have been as follows for the six months ended 2005 (unaudited) and for the year ended March 31, 2006.


	(US$ in millions except per share data)
	Six months			Year ended
	ended September 30,			March 31,
	2005			2006
	(unaudited)
Net Income
-As reported	$	93.9		$	249.4
Add: Charge under APB25		0.3			0.8
Less: Charge under FAS123		(13.0	)		(22.2	)

-Pro forma	$	81.2		$	228.0

Earnings Per Share:
Basic
-As reported	$	0.29		$	0.78
-Pro forma	$	0.25		$	0.71
Diluted
-As reported	$	0.29		$	0.75
-Pro forma	$	0.25		$	0.69

Note: The pro forma disclosures shown above are not representative of the effects on net income and earnings per share in future years.

The fair value of Satyam Computer Services’ stock options used to compute pro forma net income and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model.

The following weighted average assumptions were used:


	Six months ended			Year ended March 31,
	September 30,
	2005			2006
	(unaudited)

Dividend yield		0.75	%		0.75	%
Expected volatility		59	%		57.22	%
Risk-free interest rate		7	%		7	%
Expected term (in years)		1.79			1.26

r) Derivative financial instruments

Satyam has adopted the provisions of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” as amended. Satyam enters into foreign exchange forward and options contracts where the counter party is generally a bank. Satyam purchases foreign exchange forward and options contracts to mitigate the risk of changes in foreign exchange rates on cash flows denominated in certain foreign currencies. These contracts do not

F-11

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

qualify for hedge accounting under SFAS 133, as amended. Any derivative that is either not a designated hedge, or is so designated but is ineffective per SFAS 133, as amended is marked to market and recognized in earnings immediately.

s) Recently issued accounting pronouncements

In September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans” (an amendment of FASB Statements No. 87, 88, 106, and 132R). SFAS 158 requires an employer to (i) recognize the overfunded or undefended status of a defined benefit plan (other than a multiemployer plan) as an asset or liability with changes in that funded status recognized through comprehensive income; and (ii) measure the funded status of a plan as of the year-end date. SFAS 158 also specifies additional disclosures. Companies with publicly-traded equity securities are required to adopt the recognition and disclosure provisions of SFAS 158 effective for fiscal years ending after December 15, 2006 which is fiscal year ending on March 31, 2007 for us. SFAS 158 does not permit retrospective application of its provisions. We are in the process of evaluating the impact SFAS 158 will have on our financial position, results of operations, liquidity and its related disclosures.

t) Reclassifications

Certain items previously reported in specific financial statement captions have been reclassified to conform to the current period’s presentation.

3. Acquisitions

a) Citisoft Plc.

F-12

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

Computer Services from the consummation date of May 12, 2005. The acquisition has been accounted for by following the purchase method of accounting.

The consideration for the 75% equity interest in Citisoft amounted to US$17.4 million comprising of an initial consideration of US$14.3 million (including direct acquisition costs of US$0.9 million) and deferred consideration (non-contingent) of US$3.1 million. The deferred consideration, accounted for as part of the purchase consideration, has been paid during the three months ended June 30, 2006. Satyam Computer Services is also required to pay a maximum earn out consideration amounting to US$3.9 million on April 30, 2007 based on achievement of targeted revenues and profits. The earn-out consideration will be accounted for as purchase consideration when the contingency is resolved.

Satyam Computer Services is also required to fund an Employee Benefit Trust (“EBT”) formed by Citisoft for the purpose of providing additional incentive to employees to contribute to the success of Citisoft. Satyam is required to fund a maximum of US$3.4 million and US$1.7 million on April 30, 2007 and 2008 respectively, based on achievement of targeted revenues and profits. During the six months ended September 30, 2006, Satyam Computer Services has recognized US$0.9 million in the statement of income as part of cost of revenues in respect of the EBT contribution. As of September 30, 2006, the unpaid EBT contribution amounting to US$0.7 million is disclosed as a current liability.


	US$ in millions
Purchase price	$	17.4

Allocated to:
Net current assets	$	2.2
Tangible assets		0.3
Customer Contracts related intangibles		0.8
Customer relationship related intangibles		5.4
Trade name		0.7
Goodwill		10.3
Deferred tax liability		(2.3	)

Total	$	17.4

On June 29, 2006, Satyam Computer Services exercised the call option and acquired the remaining 25% equity interest for a deferred consideration of US$5.9 million and a maximum earn-out consideration of US$6.5 million based on achievement of targeted revenues and profits.

The purchase consideration for the 25% interest has been allocated to the assets acquired and liabilities assumed as of the date of acquisition, on a preliminary basis based on management’s estimates. The finalization of the purchase price allocation, which is expected to be completed within one year from the date of the acquisition, may result in certain adjustments to the purchase price allocation. The preliminary allocation of the purchase price resulted in goodwill of US$3.4 million and US$1.8 million of intangible assets, which are subject to amortization. The goodwill has been allocated to the IT services segment.

Pro forma disclosure regarding this acquisition has not been provided because it is not material to the operations of the Company.

b) Knowledge Dynamics Pte Ltd (“Knowledge Dynamics”).

F-13

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

The consideration for this acquisition amounted to US$3.3 million comprising of initial consideration of US$1.8 million (including direct acquisition costs of $11 thousand) and deferred consideration (non-contingent) of US$1.5 million. The total deferred consideration for the acquisition of US$1.5 million has been accounted for as part of the purchase consideration out of which US$0.8 million has been paid during the three months ended June 30, 2006 and US$0.7 million as current liability in the balance sheet. Satyam Computer Services is also required to pay a maximum earn out consideration amounting to US$1.1 million and US$1.1 million on April 30, 2007 and 2008 respectively based on the achievement of targeted revenues and profits. The earn-out consideration will be accounted for as purchase consideration when the contingency is resolved.


	US$ in millions

Purchase price	$	3.3

Allocated to:
Net current assets	$	0.5
Customer Contracts and Related Relationships		1.0
Trade name		0.1
Goodwill		2.1
Deferred tax liability		(0.4	)

Total	$	3.3

Pro forma disclosure regarding this acquisition has not been provided because it is not material to the operations of the Company.

4. Preferred Stock of Subsidiary

Nipuna issued 45,669,999 and 45,340,000 0.05% convertible redeemable cumulative preference shares of par value Rs 10 (US$0.22) per share in October 2003 and June 2004 respectively to the investors at an issue price of Rs.10 (US$0.22) per share, in exchange for an aggregate consideration of US$20 million.

As per the agreement, these preference shares are mandatorily convertible into equity shares of Nipuna no later than June 2006, if Nipuna achieves certain targets for revenues and profits earned up to March 31, 2006. If these targeted revenues and profits are not achieved by Nipuna along with other triggering events, the investors have an option to either redeem these preference shares or convert them. Although certain triggering events for early redemption as per the agreement have occurred during the period January 2004 to December 2004 the investors waived the right of early redemption. Further Nipuna has not achieved the targeted revenues and profits upto March 2006.

If not converted, early converted or redeemed, these convertible preference shares are redeemable on maturity in June 2007 at a redemption premium, which could range between 7.5% to 13.5% p.a. The Investors are entitled to receive dividends at the rate of 0.05% per cent per annum, on the face value of Rs. 10 (US$0.22) from the date of issuance of such Preference Shares. The dividends are cumulative and payable in cash at the rate indicated above, whether or not they have been declared and whether or not there are profits, surplus or other funds of Nipuna legally available for the payment of dividends. These preference shares rank senior to all classes of Nipuna’s currently existing capital stock or established subsequently with respect to dividend distributions and repayment of capital and premium upon a Bankruptcy Event or Change in Control with respect to Nipuna, unless the terms and conditions of such class expressly provide that such class will rank senior to or on parity with the convertible redeemable cumulative preference shares. The dividend on the preference shares for the period ended September 30, 2006 is payable. As of September 30, 2006, discussions for redemption/conversion of preference shares are in progress between Satyam management and the Investors.

F-14

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

5. Investments

Investments of Satyam consist of available-for-sale securities (“AFS”) and other non-marketable securities.


							(US$ in millions)
	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Available-for-sale securities
Cost and fair value		—			—			—
Other investments, at cost	$	3.5		$	3.6		$	3.7
Less: Provision for impairment		(3.5	)		(3.6	)		(3.7	)

Investments — Non current		—			—			—

Satyam records an investment impairment charge on other non-marketable investments, which are carried at cost, when management believes an investment has experienced a decline in value that is judged to be other than temporary. Satyam monitors its investments for impairment by considering current factors including economic environment, market conditions and the operational performance and other specific factors relating to the business underlying the investment. Based on its assessment of its carrying values of investments, Satyam impaired the entire carrying value of other non-marketable investments as of March 31, 2003 due to adverse changes in the above factors.

6. Investments in bank deposits

Investments in bank deposits represents term deposits placed with banks earning fixed rate of interest and amounted to US$390.8 million, US$408.6 million and US$403.7 million as of September 30, 2006, 2005 (unaudited) and March 31, 2006 respectively with maturities from more than three months to two years. Interest on investments in bank deposits is recognized on accrual basis.

7. Investments in associated companies

The carrying values of investments in various associated companies of Satyam are as follows:


					(US$ in millions)
	As of September 30,				As of March 31,
	2006		2005		2006
	(unaudited)		(unaudited)

Sify		—	$	19.2		—
Satyam Venture	$	3.3		2.4	$	2.7
CA Satyam		0.7		0.7		0.8

Total	$	4.0	$	22.3	$	3.5

Sify

On November 7, 2005, Satyam Computer Services offered to sell an aggregate of 11,182,600 equity shares, representing its entire investment of 31.61% of the outstanding equity shares of Sify. The sale transaction was consummated on November 9, 2005 at a sale price of US$5.60 per equity share aggregating to US$62.3 million.

Satyam Computer Services accounted for its share of equity in earnings/(losses) of Sify under equity method of accounting upto November 9, 2005. The excess of sale proceeds (net of transaction costs) over the carrying value of investment in Sify as on the date of sale amounting to US$43.6 million has been recognized as gain in the statement of income during the year ended March 31, 2006.

F-15

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

The summarized financial information as to assets, liabilities and results of operations of Sify is presented below:


	(US$ in millions)
	As of September 30,
Balance sheet	2005
	(unaudited)

Current assets	$	49.2
Non-current assets		42.4
Current liabilities		36.5
Net current asset		12.7
Shareholders’ equity		53.3


			(US$ in millions)
	Six months ended		Period ended
	September 30, 2005		November 9, 2005
Statement of operations	(unaudited)		(unaudited)

Revenues	$	50.3	$	60.2
Gross profit		21.8		25.7
Operating loss		4.9		7.2
Net loss		3.2		5.3

Satyam Computer Services’ equity in loss of Sify, net of taxes amounted to US$Nil million and US$0.9 million for the six months ended September 30, 2006 and 2005 (unaudited) and US$1.3 million for the year ended March 31, 2006.

Satyam Venture

On October 28, 1999, Satyam Computer Services entered into an agreement with Venture Industries, USA (“Venture”) to form an equally held joint venture company Satyam Venture Engineering Services Private Limited. (“Satyam Venture”). Satyam Computer Services holds 50% in Satyam Venture. The joint venture was formed on January 3, 2000 at Hyderabad, India. Satyam Venture is engaged in providing engineering solutions, software development and customization services specifically for the automotive industries worldwide. Satyam Computer Services’ equity in the profit of Satyam Venture, net of taxes amounted to US$0.4 million and US$0.2 million for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$0.5 million for the year ended March 31, 2006.

CA Satyam

On December 29, 2000, Satyam Computer Services entered into an agreement with Computer Associates International, Inc. (“CA”) to form an equally held joint venture company CA Satyam ASP Private Limited (“CA Satyam”). Satyam Computer Services holds 50% in CA Satyam. The joint venture was formed in January 2001, at Mumbai, India. As per the agreement, both Satyam Computer Services and CA have invested US$1.5 million each in the joint venture. Satyam Computer Services equity in the loss of CA Satyam, net of taxes amounted to US$41 thousand, US$47 thousand for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$15 thousand for the year ended March 31, 2006.

F-16

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

8. Premises, Equipment and Depreciation

Premises and equipment at cost less accumulated depreciation consist of:


							(US$ in millions)
	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Freehold land	$	8.3		$	8.4		$	7.0
Leasehold land		1.8			1.8			1.8
Premises		22.9			17.9			23.6
Computers including servers		115.8			105.6			109.7
System software		21.6			18.3			21.0
Office equipment		62.3			56.1			61.6
Furniture and fixtures		40.8			36.1			40.1
Vehicles		7.6			6.6			7.0
Assets under construction		40.6			17.3			19.9

Total		321.7			268.1			291.7
Less: Accumulated depreciation		(194.6	)		(172.1	)		(185.1	)

Premises and equipment, net	$	127.1		$	96.0		$	106.6

Satyam has established the estimated useful lives of assets for depreciation purposes as follows:


Premises		28 years
Computers including servers		2 –5 years
System Software		3 years
Office equipment		5 years
Furniture and fixtures		5 years
Vehicles		5 years

Depreciation expense amounted to US$15.9 million and US$15.0 million for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$30.6 million for the year ended March 31, 2006.

9. Goodwill

Goodwill consists of:


							(US$ in millions)
	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Goodwill
Acquisition of Citisoft Plc	$	14.0		$	6.8		$	10.5
Acquisition of Knowledge Dynamics Pte Ltd		2.0			—			2.0
Acquisition of minority interest in
Satyam Enterprise Solutions Limited		22.4			23.4			23.1
Satyam Technologies Inc.		3.4			3.6			3.6

Total		41.8			33.8			39.2
Less: Accumulated amortization		(11.2	)		(11.7	)		(11.6	)

Goodwill, net	$	30.6		$	22.1		$	27.6

The following table presents the reconciliation of changes in carrying values of goodwill:


						(US$ in millions)
	Six months ended September 30,					Year ended March 31,
	2006			2005		2006
	(unaudited)			(unaudited)

Goodwill at the beginning of the period	$	27.6		$	15.5	$	15.5
Acquisitions during the period		3.9			6.6		12.4
Impairment during the period		—			—		—
Change due to foreign exchange		(0.9	)		—		(0.3	)

Goodwill at the end of the period	$	30.6		$	22.1	$	27.6

Goodwill represents the excess of amount paid towards purchase price and non-refundable deposit over the fair value of assets acquired, and relates to the acquisition of the minority interest in Satyam Enterprise Solutions Limited and Satyam Technologies Inc., and majority interest in Citisoft Plc. and Knowledge Dynamics Pte Ltd.,

F-17

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

by Satyam Computer Services. Goodwill is tested for impairment annually and when circumstances indicate that the carrying amount may not be recoverable as provided under FAS 142. Currently there is no impairment of goodwill; however, there can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

10. Intangible assets, net

Intangible assets consist of:


																			(US$ in millions)
			As of September 30,																As of March 31,
			2006							2005									2006
			(unaudited)							(unaudited)
	Weighted
	average		Gross					Net		Gross					Net		Gross					Net
Acquired and amortized	life (in		carrying		Accumulated			intangible		carrying		Accumulated			intangible		carrying		Accumulated			intangible
intangible assets	years)		amount		amortization			assets		amount		amortization			assets		amount		amortization			assets

Citisoft Plc
Customer Relationship		8	$	6.8	$	(1.0	)	$	5.8	$	3.8		($0.2	)	$	3.6	$	4.9	$	(0.6	)	$	4.3
Customer Contracts		6		1.0		(0.2	)		0.8		0.6		—			0.6		0.8		(0.1	)		0.7
Trade name		5		0.8		(0.1	)		0.7		0.4		—			0.4		0.6		(0.1	)		0.5

Total			$	8.6	$	(1.3	)	$	7.3	$	4.8		($0.2	)	$	4.6	$	6.3	$	(0.8	)	$	5.5

Knowledge Dynamics
Customer Contracts and Related Relationships		9	$	1.0	$	(0.1	)	$	0.9		—		—			—	$	1.0	$	(0.1	)	$	0.9
Trade name		3		0.1		—			0.1		—		—			—		0.1		—			0.1
Internally developed technology		3		0.1		—			0.1		—		—			—		0.1		—			0.1

Total			$	1.2	$	(0.1	)	$	1.1		—		—			—	$	1.2	$	(0.1	)	$	1.1

During the year Satyam has not recognized any impairment of other intangible assets. Satyam has adopted the provisions of SFAS No. 141 and 142, and has accordingly assessed the remaining useful lives of identified intangibles with definite useful lives and provides for amortization over the determined useful life of the asset. Satyam does not have any intangible assets with indefinite useful life.

The following table presents the reconciliation of changes in carrying values of other intangible assets:


							(US$ in millions)
	Six months ended September, 30						Year ended March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Identifiable intangibles at the beginning of the period	$	6.6			—			—
Acquisitions during the period		1.8		$	5.2		$	8.0
Amortization during the period		(0.6	)		(0.2	)		(0.9	)
Change due to foreign exchange		0.6			(0.4	)		(0.5	)

Identifiable intangibles at the end of the period	$	8.4		$	4.6		$	6.6

The following table gives details of Satyam’s total other intangible assets

The expected future annual amortization expense of other intangible assets is as follows:


	US$ in millions

Estimated amortization expense:
For the year ended September 30,
2007	$	0.7
2008		1.4
2009		1.3
2010		1.3
2011		1.2
Beyond 2011		2.5

F-18

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

11. Income Taxes

The income tax expense consists of:


							(US$ in millions)
	Six months ended September 30,						Year ended March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Foreign taxes
Current	$	11.7		$	7.6		$	15.4
Deferred		(0.2	)		—			(0.8	)
Domestic taxes
Current		7.7			8.0			27.4
Deferred		(5.7	)		(0.4	)		(4.3	)

Aggregate taxes	$	13.5		$	15.2		$	37.7

A reconciliation of the income tax expense to the amount computed by applying the statutory income tax rate to income before income tax expense is summarized below:


							(US$ in millions)
	Six months ended September 30,						Year ended March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Net income before taxes	$	154.0		$	109.7		$	287.8
Enacted tax rates in India		33.66	%		33.66	%		33.66	%

Computed tax expense	$	51.8		$	36.9		$	96.9
Tax effect due to non-taxable export income		(48.5	)		(33.4	)		(75.3	)
Difference arising from different tax rates in other tax jurisdictions		4.6			4.2			10.2
Difference arising from different tax rates on gain on sale of investment		—			—			(7.0	)
Stock- based compensation (non-deductible)		2.4			0.1			0.3
Changes in valuation allowance, including losses of subsidiaries		1.5			1.7			5.4
Effect of tax rate change		—			0.1			0.1
Others		1.7			5.6			7.1

Income taxes recognized in the statement of income		13.5		$	15.2		$	37.7

The current provision for income taxes, net of payments, were US$12.8 million and US$9.9 million as of September 30, 2006 and 2005 (unaudited) respectively and US$8.5 million as of March 31, 2006. The foreign taxes are due to income taxes payable in overseas tax jurisdictions by its offsite and onsite centers, principally in the United States. Satyam Computer Services benefits from tax incentive provided to software entities as an exemption from payment of Indian corporate income taxes for a period of ten consecutive years of operations of software development facilities designated as “Software Technology Parks” (“STP units”). The benefit of this tax incentive has historically resulted in an effective tax rate for Satyam Computer Services well below statutory rates. In case of Satyam Computer Services for various registered STP units these exemptions expire starting from fiscal 2006 through fiscal 2010. Satyam Computer Services subsidiaries are subject to income taxes of the countries in which they operate.

Satyam has not recognized deferred income taxes arising on income of Satyam Computer Services due to the tax benefit available to it in the form of a exemption from taxable income, except to the extent of timing differences which reverse after the tax holiday period or unless they reverse under foreign taxes. However, Satyam Computer Services earns certain other income and domestic income, which are taxable irrespective of the tax holiday as stated above.

F-19

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

Significant components of activities that gave rise to deferred tax assets and liabilities included in the financial statements are as follows:


							(US$ in millions)
	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Deferred tax assets:
Operating loss carry forwards	$	24.7		$	22.5		$	24.0
Provision for accounts receivable, advances and investments		5.5			5.3			5.7
Premises and equipment		0.5			0.5			0.5
Provision for gratuity and unutilized leaves		11.8			4.9			6.5

Gross deferred tax assets		42.5			33.2			36.7
Less: Valuation allowance		(24.7	)		(22.5	)		(24.0	)

Total deferred tax assets		17.8			10.7			12.7

Deferred tax liabilities:
Premises and equipment		(6.1	)		(4.4	)		(6.4	)
Provision for accounts receivable and advances		(2.7	)		(2.5	)		(2.8	)
Intangible assets		(2.8	)		—			(2.2	)
Investments in associated companies and gain on dilution		(0.4	)		(5.2	)		(0.3	)

Total deferred tax liabilities		(12.0	)		(12.0	)		(11.7	)

Net deferred tax assets/ (liabilities)	$	5.8		$	(1.4	)	$	1.0

Satyam has not provided for any deferred income taxes on undistributed earnings of foreign subsidiaries due to the losses incurred by them since their inception. These losses aggregated to approximately US$38.5 million and US$37.1 million as of September 30, 2006 and 2005 (unaudited) respectively and US$37.8 million as of March 31, 2006.

Operating loss carry forwards for tax purposes of Satyam amounts to approximately US$24.7 million and US$22.5 million as of September 30, 2006 and 2005 (unaudited) respectively and US$24.0 as of March 31, 2006 and are available as an offset against future taxable income of such entities. These carry forwards expire at various dates primarily over 8 to 20 years. Realization is dependent on such subsidiaries generating sufficient taxable income prior to expiration of the loss carry forwards. A valuation allowance is established attributable to deferred tax assets and loss carry forwards in subsidiaries where, based on available evidence, it is more likely than not that they will not be realized.

Net deferred tax asset/ (liabilities) included in the consolidated balance sheets are as follows:


							(US$ in millions)
	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Current assets — deferred income taxes	$	17.3		$	10.2		$	12.2
Non-current assets — other assets*		0.5			0.5			0.5
Current liabilities — accrued expenses and other liabilities*		(2.7	)		(2.5	)		(2.8	)
Long-term liabilities — deferred income taxes		(9.3	)		(9.6	)		(8.9	)

Net deferred tax asset/ (liabilities)	$	5.8		$	(1.4	)	$	1.0


*		Included in “other assets” and “accrued expenses and other liabilities” respectively.

F-20

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

12. Borrowings

Short-term debt

Short-term debt amounted to US$5.3 million and US$1.5 million as of September 30, 2006 and 2005 (unaudited) respectively and US$4.1 million as of March 31, 2006. Short-term debt represents overdraft facility of Nipuna at floating rate of interest of LIBOR+0.25% which is secured by a charge on book debts, accounts receivable and other moveable assets. The weighted-average interest rate on this borrowing was 5.68% and 5.55% for the six months ended September 30, 2006 and 2005 (unaudited) respectively and 5.33% for the year ended March 31, 2006.

Long-term debt

Long-term debt outstanding comprise of:


							(US$ in millions)
	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Secured debts, representing obligation principally to banks and financial institutions
— 10.25% Rupee loans of SC-Trust, maturing serially through fiscal 2008	$	1.3		$	1.7		$	1.3
— 0.95% above 6 month LIBOR working capital term loan maturing serially through fiscal 2009		9.5			5.7			5.6
— 0.95% above 6 month LIBOR external commercial borrowing maturing serially through fiscal 2009		10.5			1.0			10.5
Hire Purchase Loans		2.8			2.8			2.9

Total Debt		24.1			11.2			20.3
Less: Current portion of long-term debt		(2.8	)		(3.1	)		(2.4	)

Long-term debt, net of current portion	$	21.3		$	8.1		$	17.9

Rupee loans are secured by equity shares of Satyam Computer Services’ held by the SC-Trust. In 2003, SC-Trust has repaid its rupee loans maturing in January 2004 and March 2004, amounting to US$1.2 million and US$1.4 million, respectively, with an interest rate of 13% p.a. and has replaced them with new rupee loans in same principal amounts with a fixed interest rate of 10.75% p.a. maturing in July 2005. The SC-Trust has further renewed these upto September 2007 with a revised interest rate of 10.25%.

Aggregate maturities of long-term debt subsequent to September 30, 2006, are US$1.6 million in fiscal 2007, US$1.8 million in fiscal 2008, US$0.7 million in fiscal 2009 and US$20.0 million in fiscal 2010.

Unused lines of credit

Unused lines of credit comprise of:


					(US$ in millions)
	As of September 30,				As of March 31,
	2006		2005		2006
	(unaudited)		(unaudited)

Short-term debt	$	2.4	$	3.5	$	3.8
Long-term debt		—		13.3		3.9
Non-fund facilities		0.9		13.0		4.4

Total Unused lines of credit	$	3.3	$	29.8	$	12.1

On January 6, 2005, Nipuna obtained a credit facility from a bank for long term borrowings to the extent of US$20 million with an interest rate of 0.95% above 6 month LIBOR. Satyam Computer Services has given a corporate guarantee to the bank for the borrowing. The borrowing is repayable in 3 years from each draw down of the borrowing. As of September 30, 2006, Nipuna has availed US$20.0 million under the above arrangement.

F-21

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

13. Employee Benefits

The Gratuity Plan

The following table sets forth the status of the Gratuity Plan of Satyam, and the amounts recognized in Satyam’s consolidated balance sheets and statements of income.


							(US$ in millions)
	Six months ended September 30,						Year ended
	2006			2005			March 31, 2006
	(unaudited)			(unaudited)

Accumulated benefit obligation	$	7.1		$	3.0		$	5.7

Change in projected benefit obligation
Projected benefit obligation at beginning of the period	$	7.8		$	5.2		$	5.2
Service cost		1.0			0.9			1.9
Interest cost		0.3			0.2			0.4
Actuarial loss/(gain)		0.4			(0.1	)		0.9
Benefits paid		(0.5	)		(0.3	)		(0.5	)
Effect of exchange rate changes		(0.3	)		—			(0.1	)

Projected benefit obligation at end of the period	$	8.7		$	5.9			7.8

Change in plan assets
Employer contribution		0.5			0.2			0.5
Benefits paid from plan assets		(0.5	)		(0.2	)		(0.5	)

Fair value of plan assets at end of the period		—			—			—

Funded status of the plans		(8.7	)		(5.9	)		(7.8	)
Unrecognized net actuarial loss		1.6			0.2			1.3
Amount recognized during the period		—			—			—

Accrued benefit cost	$	(7.1	)	$	(5.7	)	$	(6.5	)


The components of net gratuity costs are reflected below:
Service cost		1.0		$	1.0		$	1.9
Interest cost		0.3			0.2			0.4
Amortization		—			—			—
Amount recognized during the period		0.1			—			—

Net gratuity costs	$	1.4		$	1.2		$	2.3

The assumptions used in accounting for the gratuity plan for the six months ended September 30, 2006 and 2005 (unaudited) and for the year ended March 31, 2006 are set out below:

Weighted-average assumptions used to determine benefit obligations:


	Six months ended September 30,						Year ended
	2006			2005			March 31, 2006
	(unaudited)			(unaudited)

Discount rate		8	%		8.0	%		8.0	%
Long-term rate of compensation increase		7	%		7.0	%		7.0	%

Weighted-average assumptions used to determine net periodic benefit cost:


	Six months ended September 30,						Year ended
	2006			2005			March 31, 2006
	(unaudited)			(unaudited)

Discount rate		8	%		7.0	%		8.0	%
Long-term rate of compensation increase		7	%		7.0	%		7.0	%

F-22

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

Cash Flows

Satyam expects to contribute US$1.5 million to its Gratuity plan during the year ending March 31, 2007. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:


	(US$ in millions)
For the financial year ended March 31,	Expected contribution

2008	$	1.6
2009		1.9
2010		2.4
2011		3.0
2012 – 2015		12.6

Provident Fund

Satyam’s contribution towards the Provident Fund amounted to US$6.4 million and US$5.0 million for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$10.7 million for the year ended March 31, 2006.

Superannuation Plan

Satyam Computer Services’ contribution towards the Superannuation Plan maintained by LIC amounted to US$0.8 million and US$0.5 million for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$1.2 million for the year ended March 31, 2006.

14. Earnings per Share

Basic earning per share is computed on the basis of the weighted average number of shares outstanding (weighted average number of shares issued less unallocated, unvested and unexercised shares held by the SC — Trust). Allocated but unvested or unexercised shares not included in the calculation of weighted-average shares outstanding for basic earnings per share were 89,000 and 283,000 as of September 30, 2006 and 2005 (unaudited) respectively and 106,600 as of March 31, 2006. Diluted earnings per share is computed on the basis of the weighted average number of shares outstanding plus the effect of outstanding stock options using the “treasury stock” method.

In addition to the above, the unallocated shares held by SC — Trust, which are by definition unvested, have been excluded from all earnings per share calculations. Such shares amounted to 2,279,680 and 2,279,680 as of September 30, 2006 and 2005 (unaudited) respectively and 2,279,680 as of March 31, 2006.

The components of basic and diluted earnings per share were as follows:


	(US$ in millions except per share data and as stated otherwise)
	Six months ended September 30,				Year ended
	2006		2005		March 31, 2006
	(unaudited)		(unaudited)

Net income	$	141.0	$	93.9	$	249.4
Equity Shares:
Average outstanding shares (in millions)		650.1		638.6		641.2
Dilutive effect of Associate Stock Options (in millions)		20.4		18.6		21.6

Share and share equivalents (in millions)		670.5		657.2		662.8

Earnings per share
Basic	$	0.22	$	0.15	$	0.39
Diluted	$	0.21	$	0.14	$	0.38

F-23

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

15. Stock-based Compensation Plans

ASOP plan

ASOP B plan

ASOP ADS plan

Warrant grants

During the six months ended September 30, 2006 (unaudited), under the ASOP B plan, Satyam Computer Services issued warrants for Nil (net of 6,541,034 warrants cancelled) shares to the associates. During the same period, under the ASOP (ADS), Satyam Computer Services issued warrants for Nil ADS representing Nil (net of warrants for 115,152 ADS representing 230,304 shares cancelled) shares to associates under the ASOP (ADS) plan.

During the six months ended September 30, 2005 (unaudited), under the ASOP B plan, Satyam Computer Services issued warrants for 3,898,914 (net of 2,657,102 warrants cancelled) shares to the associates. During the same period, under the ASOP (ADS), Satyam Computer Services issued warrants for 265,146 ADS representing 530,292 (net of warrants for 40,284 ADS representing 80,568 shares cancelled) shares to associates under the ASOP (ADS) plan.

During the year ended March 31, 2006, the SC-Trust issued immediately vesting warrants for 26,400 shares and warrants for 61,600 (net of Nil warrants cancelled) shares with longer vesting periods to the associates under the ASOP plan. Further, during the year ended March 31, 2006, under the ASOP B plan, Satyam Computer Services issued warrants for 984,362 (net of 5,595,190 warrants cancelled) shares to the associates. During the same period, under the ASOP (ADS), Satyam Computer Services issued warrants for 139,986 ADS representing 279,972 (net of warrants for 180,444 ADS representing 360,888 shares cancelled) shares to associates under the ASOP (ADS) plan.

F-24

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

Changes in number of equity shares representing stock options outstanding for each of the plans were as follows:


	Six months ended September 30,										Year ended March 31,
	2006 (unaudited)					2005 (unaudited)					2006

				Weighted					Weighted					Weighted
	Number of			Average		Number of			Average		Number of			Average
	equity			Exercise		equity			Exercise		equity			Exercise
ASOP Plan	shares			Price		shares			Price		shares			Price

Balance at the beginning of the period		106,600		$	1.42		4,81,000		$	1.18		481,000		$	1.18
Granted		—			—		88,000		$	1.39		88,000		$	1.37
Exercised		(17,600	)	$	1.27		(286,000	)	$	1.12		(462,400	)	$	1.13
Cancelled		—			—		—			—		—			—
Lapsed		—			—		—			—		—			—

Balance at the end of the period		89,000		$	1.39		283,000		$	1.28		106,600		$	1.42

Exercisable at the end of the period		13,800		$	1.30		26,400		$	1.19		—			—
Weighted average fair value of options granted during the period		—			—		88,000		$	6.15		88,000		$	6.08


	Six months ended September 30,										Year ended March 31,
	2006 (unaudited)					2005 (unaudited)					2006

				Weighted					Weighted					Weighted
				Average					Average					Average
	Number of			Exercise		Number of			Exercise		Number of			Exercise
ASOP B	equity shares			Price		equity shares			Price		equity shares			Price

Balance at the beginning of the period		45,605,388		$	3.74		53,660,630		$	3.57		53,660,630		$	3.57
Granted		—			—		6,555,816		$	4.76		6,579,552		$	4.71
Exercised		(5,495,790	)	$	3.37		(4,831,002	)	$	2.94		(9,039,604	)	$	3.05
Cancelled		(6,541,034	)	$	3.63		(2,657,102	)	$	3.74		(5,595,190	)	$	3.77

Balance at the end of the period		33,568,564		$	3.65		52,728,342		$	3.74		45,605,388		$	3.74

Exercisable at the end of the period		14,269,010		$	3.43		14,856,876		$	3.41		10,248,808		$	3.43
Weighted average fair value of options granted during the period		—			—		6,555,816		$	4.76		6,579,552		$	4.71


	Six months ended September 30,										Year ended March 31,
	2006 (unaudited)					2005 (unaudited)					2006

				Weighted					Weighted					Weighted
				Average					Average					Average
	Number of			Exercise		Number of			Exercise		Number of			Exercise
ASOP (ADS)	equity shares			Price		equity shares			Price		equity shares			Price

Balance at the beginning of the period		3,982,684		$	4.25		5,031,604		$	3.71		5,031,604		$	3.71
Granted		40,000		$	9.40		610,860		$	5.70		640,860		$	5.74
Exercised		(239,440	)	$	2.71		(569,100	)	$	2.72		(1,328,892	)	$	2.69
Cancelled		(230,304	)	$	4.10		(80,568	)	$	2.91		(360,888	)	$	7.41

Balance at the end of the period		3,552,940		$	4.26		4,992,796		$	4.05		3,982,684		$	4.25

Exercisable at the end of the period		2,221,816		$	3.37		2,756,360		$	2.93		1,865,764		$	2.97
Weighted average fair value of options granted during the period		40,000		$	9.40		610,860		$	5.70		640,860		$	5.74

F-25

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

Information about number of equity shares representing stock options outstanding as on September 30, 2006:


				Outstanding					Exercisable
				Weighted		Weighted	Number of		Weighted		Number of
				Average Exercise		Average	equity shares		Average Exercise		equity shares
	Range of Exercise Price			Price (per equity		remaining	arising out of		Price (per equity		arising out of
	(per equity share)			share)		contractual life	options		share)		options

Rs.	59.74	$	1.30	Rs.	109.20				Rs.	108.79
Rs.	123.84	$	2.69	$	2.38	0.57 years		8,019,924	$	2.37		5,540,636

Rs.	123.85	$	2.69	Rs.	185.45				Rs.	178.77
Rs.	277.27	$	6.03	$	4.04	0.92 years		28,676,368	$	3.89		10,713,632

Rs.	277.28	$	6.03	Rs.	320.30				Rs.	308.23
Rs.	431.83	$	9.40	$	6.97	1.43 years		514,212	$	6.71		250,358


The US$ numbers in the above tables have been translated using the closing exchange rate as of September 30, 2006 1US$= Rs 45.95

Stock-based compensation

Satyam’s Consolidated Financial Statements as of and for the six months ended September 30, 2006 reflect the impact of SFAS 123R. In accordance with the modified prospective transition method, Satyam’s Consolidated Financial Statements for the prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. As required by SFAS 123(R), management has made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. There was no cumulative effect of initially adopting SFAS 123(R). During the six months ended September 30, 2006, Satyam recorded stock-based compensation related to stock options of US$7.1 million on graded vesting basis for all unvested options granted prior to and options granted after the adoption of SFAS 123(R).


	Six months ended
	September 30, 2006
	(unaudited)

Dividend yield		0.75	%
Expected volatility		56.15	%
Risk-free interest rate		7.00	%
Expected term (in years)	1.14 years

Expected Term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior.

Risk-Free Interest Rate: The risk-free interest rate is based on the applicable rates of government securities in effect at the time of grant.

Expected Volatility: The fair values of stock-based payments were valued using a volatility factor based on the Company’s historical stock prices.

Expected Dividend: The Black Scholes option-pricing model calls for a single expected dividend yield as an input.

Estimated Pre-vesting Forfeitures: When estimating forfeitures, the Company considers voluntary termination behavior. Estimated forfeiture rates are trued-up to actual forfeiture results as the stock-based awards vest.

F-26

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

Stock based compensation plan of Nipuna

In April 2004, Nipuna established its Employee Stock Option Plan (the “ESOP”). As per the ESOP, the options were granted at fair value as determined by an independent valuer as on the date of the grant and hence no compensation cost has been recognized. These options vest starting with 33.33% at the end of the second year, 33.33% at the end of the third year and remaining 33.34% at the end of the fourth year from the date of grant.

Changes in number of equity shares representing stock options outstanding were as follows:


	Six months ended September 30,									Year ended March 31,
	2006 (unaudited)					2005 (unaudited)				2006

				Weighted				Weighted					Weighted
	Number of			Average		Number of		Average		Number of			Average
	equity			Exercise		equity		Exercise		equity			Exercise
ASOP Plan	shares			Price		shares		Price		shares			Price

Balance at the beginning of the period		1,215,506		$	1.80		813,578	$	1.83		813,578		$	1.83
Granted		225,298		$	1.75		—		—		655,000		$	1.77
Exercised		—			—		—		—		—			—
Cancelled		(414,804	)	$	1.75		—		—		(253,072	)	$	1.77
Lapsed							—		—		—			—

Balance at the end of the period		1,026,000		$	1.74		813,578	$	1.82		1,215,506		$	1.80

Exercisable at the end of the period		—			—		—		—		—			—
Weighted average fair value of options granted during the period		225,298		$	1.75						654,600		$	1.77

16. Segmental Reporting

Satyam has adopted SFAS 131; “Disclosures about Segments of an Enterprise and Related Information” which requires disclosure of financial and descriptive information about Satyam’s reportable operating segments. The operating segments reported below are the segments of Satyam for which separate financial information is available and for which operating profit/loss amounts are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. Management evaluates performance based on stand-alone revenues and net income for the companies in Satyam. The executive management evaluates Satyam’s operating segments based on the following two business groups:

–	IT services, providing a comprehensive range of services, including application development and maintenance, consulting and enterprise business solutions, extended engineering solutions, infrastructure management services. Satyam provides its customers the ability to meet all of their information technology needs from one service provider. Satyam’s eBusiness services include designing, developing integrating and maintaining Internet-based applications, such as eCommerce websites, and implementing packaged software applications, such as customer or supply chain management software applications. Satyam also assists its customers in making their existing computing systems accessible over the Internet. The segment information includes the results of Citisoft and Knowledge Dynamics which were acquired during last year.

–	Business Process Outsourcing, providing BPO services covering HR, Finance & Accounting, Customer Contact (Voice, Mail and Chat), and Transaction Processing (industry-specific offerings).

Satyam’s operating segment information for the six months ended September 30, 2006 and 2005 (unaudited) and for the year ended March 31, 2006 are as follows:

Business Segments


	(US$ in millions)

	IT								Consolidated
	Services		BPO			Elimination			totals

For the six months ended September 30, 2006 (unaudited)
Revenue — External customers		661.1		13.3			—			674.4
Revenue — Inter-segment		0.4		3.7			(4.0	)		0.1

Total Revenues		661.5		17.0			(4.0	)		674.5

Operating income / (loss)		134.0		(1.0	)		—			133.0

F-27

Satyam Computer Services Limited
Notes on Consolidated Financial Statements


	IT									Consolidated
	Services			BPO			Elimination			totals

Equity in earnings/(losses) of associated companies, net of taxes		0.4			—			—			0.4
Net income / (loss)		142.9			(1.9	)		—			141.0
Segment assets		1,315.7			35.4			(19.2	)		1,331.9
Depreciation and amortization		15.0			1.4			—			16.4
Capital expenditures for long-lived assets		37.1			3.0			—			40.1

For the six months ended September 30, 2005 (unaudited)
Revenue — External customers	$	509.2		$	4.7			—		$	513.9
Revenue — Inter-segment		0.2			2.8		$	(3.1	)

Total Revenues		509.4			7.5			(3.1	)		513.9

Operating income / (loss)		103.3			(5.5	)					97.8
Equity in earnings/(losses) of associated companies, net of taxes		(0.7	)		—			—			(0.7	)
Net income / (loss)		99.8			(5.9	)		—			93.9
Segment assets		1,008.3			16.4			(16.3	)		1,008.4
Depreciation		14.0			1.3			—			15.3
Capital expenditures for long-lived assets		27.2			0.3			—			27.5

For the year ended March 31, 2006
Revenue — External customers	$	1,082.7		$	13.6			—		$	1,096.3
Revenue — Inter-segment		0.8			6.4			(7.2	)		—

Total Revenues		1,083.5			20.0			(7.2	)		1096.3

Operating income		228.5			(8.8	)		—			219.7
Equity in earnings/(losses) of associated companies, net of taxes		(0.8	)		—			—			(0.8	)
Net income		259.0			(9.6	)		—			249.4
Segment assets		1,170.8			27.7			(17.3	)		1,181.2
Depreciation		29.0			2.5			—			31.5
Capital expenditures for long-lived assets		53.4			3.2			—			56.6


The capital expenditures for long-lived assets in the above table represent the additions to premises and equipment (fixed assets) of each segment.

Geographic Information

The revenues that are attributable to countries based on location of customers and long-lived assets are as follows:


	(US$ in millions)

	Six months ended September 30,								Year ended March 31,
	2006 (unaudited)				2005 (unaudited)				2006
	Revenues				Revenues				Revenues
	from external		Long-lived		from external		Long-lived		from external		Long-lived
	customers		assets		customers		assets		customers		assets

North America	$	435.2	$	3.8	$	342.1	$	4.1	$	711.2	$	4.0
Europe		125.5		0.8		94.1		1.0		206.3		0.9
India		32.3		158.6		19.0		110.5		45.1		133.1
Japan		9.0		0.4		6.6		0.5		15.5		0.5
Rest of the World		72.5		2.5		52.1		2.0		118.2		2.3

Total	$	674.5	$	166.1	$	513.9	$	118.1	$	1,096.3	$	140.8

The long-lived assets in the above table represent premises and equipment and intangible assets of each segment.

F-28

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

17. Related Party Transactions

Related party transactions comprise of


	(US$ in millions)

	Six months ended September 30,				Year Ended
	2006		2005		March 31, 2006
	(unaudited)		(unaudited)

Infrastructure and other services provided by Satyam to
Satyam Venture	$	0.2	$	0.2	$	0.5
Short term advance provided by Satyam to
CA Satyam		—		0.1		0.1

Total	$	0.2	$	0.3	$	0.6

Infrastructure and other services received by Satyam from
Sify, its subsidiaries and associated companies		—	$	2.7	$	2.9
Satyam Venture	$	4.5		4.7		8.6
CA Satyam		0.2

Total	$	4.7	$	7.4	$	11.5

The balances receivable from and payable to related parties are as follows:


	(US$ in millions)

	As of September 30,						As of March 31,
	2006			2005			2006
Amount due from/(to) associated companies	(unaudited)			(unaudited)

Sify, its subsidiaries and associated companies		—		$	(0.9	)		—
Satyam Venture	$	(2.8	)		(3.7	)	$	(1.8	)
CA Satyam		—			0.1			0.1

Total	$	(2.8	)	$	(4.5	)	$	(1.7	)

18. Shareholders’ Equity and Dividends

Increase in authorized share capital

On August 21, 2006, the shareholders of Satyam Computer Services approved for increase in authorized capital of the Company from 375 million equity shares to 800 million equity shares.

Stock Split (in the form of stock dividend)

On August 21, 2006, the shareholders of Satyam Computer Services approved a two-for-one stock split (in the form of stock dividend) which was effective on October 10, 2006. Consequently, Satyam capitalized an amount of US$17.7 million from its retained earnings to common stock. All references in the financial statements to number of shares, per share amounts, stock option data, and market prices of Satyam Computer Services’ equity shares have been retroactively restated to reflect the stock split unless otherwise noted.

Dividends

Final dividends proposed by the Board of Directors are payable when formally declared by the shareholders, who have the right to decrease but not increase the amount of the dividend recommended by the Board of Directors. The Board of Directors declares interim dividends without the need for shareholders’ approval.

Dividends payable to equity shareholders are based on the net income available for distribution as reported in Satyam Computer Services unconsolidated financial statements prepared in accordance with Indian GAAP. As such, dividends are declared and paid in Indian Rupees. The net income in accordance with U.S. GAAP may, in certain years, either not be fully available or will be additionally available for distribution to equity shareholders. Under Indian GAAP the retained earnings available for distribution to equity shareholders was US$835.6 million and US$618.3 million for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$786.9 million for the year ended March 31, 2006.

Under the Indian Companies Act, dividends may be paid out of the profits of a company in the year in which the dividend is declared or out of the undistributed profits of previous fiscal years. Before declaring a dividend greater than 10.0% of the par value of its equity shares, a company is required to transfer to its reserves a minimum percentage of its profits for that year, ranging from 2.5% to 10.0%, depending on the dividend percentage to be declared in such year.

F-29

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

19. Contingencies and Commitments

a) Funding and Warrant commitments — Nipuna

Satyam Computer Services has guaranteed payment of all sums payable by Nipuna to the Investors on redemption of the 0.05% cumulative convertible redeemable preference shares. Further Satyam Computer Services is required to subscribe to convertible debentures amounting to US$20 million based on certain provisions in the agreement. These convertible debentures shall bear an interest rate equal to the prime lending rate of the State Bank of India prevailing at that time and are convertible upon the election of Nipuna into Ordinary Shares at any time after issuance.

Satyam Computer Services, Nipuna and the investors have also entered into a warrant agreement whereby Nipuna agrees to issue to the Investors, one warrant in consideration of and based upon every US$0.1 million referral revenues received by Nipuna or its subsidiaries at any time during the period commencing from the date of initial closing and ending in June 2007 from business referred to Nipuna or its subsidiaries by an investor or its affiliates. These warrants are convertible into ordinary equity shares of Nipuna subject to a maximum of 7.5% of the then outstanding equity share capital of Nipuna on a fully diluted basis during the exercise period at the price per share then in effect and subject to other terms and conditions set forth in the agreement. As of September 30, 2006, there were no referral revenues and hence no warrants have been issued.

b) Citisoft Plc and Knowledge Dynamics Pte Ltd.

For commitments relating to Citisoft and Knowledge Dynamics refer note 3.

c) Bank guarantees

Bank guarantees outstanding are US$16.0 million and US$9.1 million as of September 30, 2006 and 2005 (unaudited) respectively and US$13.4 million as of March 31, 2006. Bank guarantees are generally provided to government agencies, excise and customs authorities for the purposes of maintaining a bonded warehouse. These guarantees may be revoked by the governmental agencies if they suffer any losses or damage through the breach of any of the covenants contained in the agreements.

d) Capital commitments

Contractual commitments for capital expenditure pending execution were US$37.9 million and US$10.8 million as of September 30, 2006 and 2005 (unaudited) respectively and US$26.7 million as of March 31, 2006. Contractual commitments for capital expenditures are relating to acquisition of premises and equipment.

e) Operating leases

Satyam has certain operating leases for land, office premises and guesthouses. Rental expenses for operating leases are accounted for on a straight line method. Rental expense amounted to US$10.2 million and US$8.4 million for the six months ended September 30, 2006 and 2005 (unaudited) respectively and US$17.5 million for the year ended March 31, 2006.

Future minimum annual lease commitments for non-cancelable lease arrangements, including those leases for which renewal options may be exercised as of September 30, 2006 are US$2.9 million in fiscal 2007, US$3.9 million in fiscal 2008, US$2.2 million in fiscal 2009, US$1.8 million in fiscal 2010 and thereafter.

f) Venture Global Engineering LLC, USA

Satyam Computer Services had filed a request for arbitration with the London Court of International Arbitration (“LCIA”) naming Venture Global Engineering LLC, USA (“VGE”) as respondent. The Arbitration concerned a dispute between Satyam Computer Services and VGE in connection with their joint venture Satyam Venture Engineering Services Private Limited (“SVES”).

The LCIA Arbitrator issued his Final Award on April 3, 2006 in favour of Satyam Computer Services. Satyam Computer Services has filed a petition to recognize and enforce the Award in the United States District Court in Michigan. VGE has separately filed a declaratory judgment action seeking to refuse enforcement of the Award in the United States District Court in Illinois.

F-30

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

20. Concentration of Credit Risk

Accounts receivable balances are typically unsecured and are derived from revenues earned from customers primarily located in the United States. Satyam monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The following table gives details in respect of percentage of revenues generated from top two and top five customers:


	Six months ended September 30,						Year ended
	2006			2005			March 31, 2006
	(unaudited)			(unaudited)

Revenues generated from top two customers
Customer I		6.67	%		9.21	%		8.80	%
Customer II		5.05	%		5.09	%		5.14	%
Total revenues from top five customers		21.33	%		25.21	%		24.21	%

21. Financial Instruments

Forward and options contracts

Satyam Computer Services enters into foreign exchange forward and options contracts where the counter party is generally a bank. Satyam Computer Services considers the risks of non-performance by the counter party as not material.

The following tables give details in respect of our outstanding foreign exchange forward and options contracts:


	(US$ in millions)

	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Aggregate contracted principal amounts of contracts outstanding:
Forward contracts	$	65.0		$	105.5		$	79.0
Options contracts		93.0			136.5			137.0

Total	$	158.0		$	242.0		$	216.0

Balance sheet exposure:
Forward contracts	$	(0.5	)		—		$	0.4
Options contracts		(2.6	)		(0.9	)		(1.8	)

Total	$	(3.1	)	$	(0.9	)	$	(1.4	)

The outstanding foreign exchange forward and options contracts as of September 30, 2006 mature between one to seventeen months.

Gains/(losses) on foreign exchange forward and options contracts included under the head other income/(expense) in the statement of income are as stated below:


	(US$ in millions)

	Six months ended September 30,						Year Ended
	2006			2005			March 31, 2006
	(unaudited)			(unaudited)

Forward contracts	$	(1.3	)	$	0.2		$	0.8
Options contracts		(1.9	)		(0.1	)		(1.6	)

Total	$	(3.2	)	$	0.1		$	(0.8	)

Fair value

The carrying amounts reported in the balance sheets for cash and cash equivalents, trade and other receivables, investments, amounts due to or from related parties, short-term debts, accounts payable and other liabilities approximate their respective fair values due to their short maturity and due to no change in the interest rates for bank deposits. The approximate fair value of long-term debts, as determined by using current interest rates was US$24.1 million and US$11.1 million as of September 30, 2006 and 2005 (unaudited) respectively and US$20.3 million as of March 31, 2006 as compared to the carrying amounts of US$24.1 million and US$11.1 million as of September 30, 2006 and 2005 (unaudited) respectively and US$20.3 million as of March 31, 2006.

F-31

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

22. Schedules of Balance sheet

a) Cash and Cash Equivalents

The cash and cash equivalents consist of:


	(US$ in millions)

	As of September 30,				As of March 31,
	2006		2005		2006
	(unaudited)		(unaudited)

Cash and bank balances	$	356.7	$	178.0	$	258.9
Cash equivalents		6.3		1.0		33.9

Cash and cash equivalents	$	363.0	$	179.0	$	292.8

b) Accounts receivable and allowance for doubtful debts

Accounts receivable consist of:


	(US$ in millions)
	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Customers (trade)	$	276.3		$	201.6		$	238.1
Related parties		—			0.1			1.0
Less: Allowance for doubtful debts		(19.5	)		(18.5	)		(19.1	)

Accounts receivable	$	256.8		$	183.2		$	220.0

The allowance for doubtful debt is established at amounts considered to be appropriate based primarily upon Satyam’s past credit loss experience and an evaluation of potential losses on the outstanding receivable balances.

c) Prepaid Expenses and Other Receivables

Prepaid expenses and other receivables consist of:


(US$ in millions)
	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Interest accrued on bank deposits	$	33.4			—		$	24.9
Prepaid expenses		4.3		$	4.5			5.3
Directors liability insurance		—			—			0.4
Advance for expenses		14.6			8.9			12.0
Loans and advance to employees		8.3			5.5			6.2
Other advances and receivables		4.1			4.7			2.4
Less: Allowance for doubtful advances		(2.3	)		(1.7	)		(2.3	)

Prepaid expenses and other receivables	$	62.4		$	21.9		$	48.9

Prepaid expenses principally include the un-expired portion of annual rentals paid for use of leased telecommunication lines, satellite link charges, and insurance premiums.

Others advances and receivables include the current portion of the restricted cash in the form of deposits placed with banks to obtain bank guarantees amounted to US$1.1 million and US$0.4 million as of September 30, 2006 and 2005 (unaudited) respectively and US$0.4 million as of March 31, 2006.

d) Other Assets

Other assets consist of:


	(US$ in millions)
	As of September 30,						As of March 31,
	2006			2005			2006
	(unaudited)			(unaudited)

Interest accrued on bank deposits		—		$	15.4			—
Deposits	$	18.6			15.9		$	17.0
Loans and advances to employees due after one year		0.8			0.9			0.8
Deferred taxes on income		0.5			0.5			0.5
Others		1.0			3.1			1.4
Less: Allowance for doubtful advances		(1.5	)		(1.6	)		(1.5	)

Other Assets	$	19.4		$	34.2		$	18.2

F-32

Satyam Computer Services Limited
Notes on Consolidated Financial Statements

Others include the non-current portion of the restricted cash in the form of deposits placed with banks to obtain bank guarantees amounted to US$0.3 million and US$0.6 million as of September 30, 2006 and 2005 (unaudited) respectively and US$0.7 million as of March 31, 2006. Telephone and other deposits are primarily attributable to deposits with government organizations principally to obtain leased telephone lines and electricity supplies and advance payments to vendors for the supply of goods and rendering of services.

e) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of:


	(US$ in millions)
	As of September 30,				As of March 31,
	2006		2005		2006
	(unaudited)		(unaudited)

Accrued expenses	$	65.7	$	50.9	$	56.3
Unclaimed dividend		2.4		1.3		1.1
Provision for taxation, net of payments		12.8		9.9		8.5
Provision for gratuity and unutilised leave		32.9		12.2		16.9
Deferred taxes on income		2.7		2.5		2.8
Others		30.8		19.3		23.3

Accrued expenses and other current liabilities	$	147.3	$	96.1	$	108.9

F-33

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