Infosys Technologies (INFY)

Results for the nine months ended December 31, 2004 compared to the nine months ended December 31, 2003

Revenues. Our revenues were $1,137 million in the nine months ended December 31, 2004, representing an increase of $377 million, or 49.6%, over revenues of $760 million for the nine months ended December 31, 2003. Revenues increased in most segments of our services. The increase in revenues was attributable to an increase in business from both existing clients and from new clients, particularly in industries such as manufacturing, telecommunications, utilities, logistics and services. Our clients in the financial services industry comprised 34.7% and 38.0% of revenues for the nine months ended December 31, 2004 and 2003. Clients in the manufacturing sector comprised 14.7% and 14.9% of revenues for the same periods. Our clients in the retail industry comprised 10.0% and 11.7% of revenues for the nine months ended December 31, 2004 and 2003, while our clients in the telecommunications industry comprised 18.2% and 15.0% of revenues for the same periods. Clients in other industries such as utilities, logistics and services, contributed 22.4% and 20.4% of revenues for the nine months ended December 31, 2004 and 2003. Revenues from services represented 97.2% of total revenues for the nine months ended December 31, 2004, as compared to 97.0% for the nine months ended December 31, 2003. Revenues from fixed-price, fixed-timeframe contracts and from time-and-materials contracts represented 30.3% and 69.7% of total services revenues for the nine months ended December 31, 2004, as compared to 35.0% and 65.0% for the nine months ended December 31, 2003. Sales of our software products represented 2.8% of our total revenues for the nine months ended December 31, 2004 as compared to 3.0% for the nine months ended December 31, 2003. Revenues from North America, Europe, India and the rest of the world represented 65.6%, 22.0%, 1.8% and 10.6% of total revenues for the nine months ended December 31, 2004 as compared to 73.6%, 18.8%, 1.4% and 6.2% for the nine months ended December 31, 2003.

During the nine months ended December 31, 2004, the total billed person-months for our services other than business process management grew by 49.6% compared to the nine months ended December 31, 2003. The onsite and offshore volume growth were 44.0% and 52.3% during the nine months ended December 31, 2004 compared to the nine months ended December 31, 2003. Although we have recently seen a slight increase in pricing on engagements with some of our customers, during the nine months ended December 31, 2004 there was an overall pricing decline of 0.8% in U.S. dollar terms consisting of 0.4% decline in onsite rates and a 1.2% increase in offshore rates compared to the nine months ended December 31, 2003.

37

Table of Contents

Cost of revenues. Our cost of revenues was $642 million for the nine months ended December 31, 2004, representing an increase of $212 million, or 49.3%, over our cost of revenues of $430 million for the nine months ended December 31, 2003. Cost of revenues represented 56.5% and 56.6% of total revenues for the nine months ended December 31, 2004 and 2003. The increase in our cost of revenues is mainly attributable to an increase of approximately $169 million in personnel costs due to new hires and a compensation review effected in April 2004, $13 million in overseas travel expenses, $11 million in depreciation expenses, $7 million in software purchased for own use, $6 million in cost of technical subcontractors, $3 million in accruals for post sales client support, and $2 million in communication expenses. Cost of revenue for the nine months ended December 31, 2003 also included amortization of deferred stock compensation expense of $2 million. The deferred stock compensation has been completely amortized as of March 31, 2004.

Gross profit. As a result, our gross profit was $495 million for the nine months ended December 31, 2004, representing an increase of $165 million, or 50.0%, over our gross profit of $330 million for the nine months ended December 31, 2003. As a percentage of revenues, gross profit increased to 43.5% for the nine months ended December 31, 2004 from 43.4% for the nine months ended December 31, 2003. The increase is attributable to a 49.6% increase in revenues for the nine months ended December 31, 2004 offset by a 49.3% increase in cost of revenues in the same period compared to the nine months ended December 31, 2003.

Selling and marketing expenses. We incurred selling and marketing expenses of $76 million in the nine months ended December 31, 2004 representing an increase of $20 million, or 35.7%, over the $56 million expended in the nine months ended December 31, 2003. As a percentage of total revenues, selling and marketing expenses were 6.7% and 7.4% for the nine months ended December 31, 2004 and 2003. The number of our sales and marketing personnel increased to 328 as of December 31, 2004, from 297 as of December 31, 2003. The increase in selling and marketing expenses is mainly attributable to an increase of approximately $10 million in personnel costs of selling and marketing employees on account of new hires and the compensation review, $3 million each in overseas travel expenses and sales commissions and $2 million in professional charges.

General and administrative expenses. Our general and administrative expenses were $91 million for the nine months ended December 31, 2004, representing an increase of $32 million, or 54.2%, over general and administrative expenses of $59 million for the nine months ended December 31, 2003. General and administrative expenses were 8.0% and 7.8% of total revenues for the nine months ended December 31, 2004 and 2003. The increase in general and administrative expenses was primarily attributable to increases of approximately $8 million for personnel costs on account of new hires and the compensation review, $5 million in professional charges, $3 million each in telecommunication charges and office maintenance, $2 million each in travel expenses, power and fuel charges and donations to charities, and $1 million each in taxes other than income taxes, overseas travel expenses, advertisements and recruitment expenses.

Amortization of stock compensation expenses. Amortization of stock compensation expenses was $1 million for the nine months ended December 31, 2003, and has been completely amortized as of March 31, 2004.

Amortization of intangible assets. Amortization of intangible assets was $7 million for the nine months ended December 31, 2003. This relates to amortization of certain intellectual property rights we acquired through purchases and licenses of software during fiscal 2003. These intangible assets were completely amortized as of March 31, 2004. The amortization of intangible assets for the nine months ended December 31, 2004 represents $1 million of amortization of the identified customer contract intangibles arising on the allocation of purchase price of Expert Information Services Pty. Limited, Australia.

Operating income. Our operating income was $327 million for the nine months ended December 31, 2004 representing an increase of $120 million, or 58.0%, over our operating income of $207 million for the nine months ended December 31, 2003. As a percentage of revenues, operating income increased to 28.7% for the nine months ended December 31, 2004 from 27.2% for the nine months ended December 31, 2003.

38

Table of Contents

Other income, net. Other income, consisting mainly of interest and dividend income, foreign exchange gains and provision for investments, was $17 million for the nine months ended December 31, 2004 compared to $24 million for the nine months ended December 31, 2003. Interest and dividend income was approximately $18 million and $16 million during the nine months ended December 31, 2004 and 2003.

We had foreign currency exchange gains of $10 million in the nine months ended December 31, 2003 compared to $1 million loss in the nine months ended December 31, 2004. The exchange rate between the rupee and the U.S. dollar decreased by 4.2% from Rs 47.53 per U.S. dollar on March 31, 2003 to Rs 45.55 on December 31, 2003. The exchange rate between the rupee and the U.S. dollar decreased by 0.3% from Rs 43.40 per U.S. dollar on March 31, 2004 to Rs 43.27 on December 31, 2004. The average exchange rate between the rupee and the U.S. dollar was Rs 46.15 and Rs 45.29 per U.S. dollar for the nine months ended December 31, 2003 and 2004 respectively. For the nine months ended December 31, 2004 and 2003, U.S. dollar denominated revenues represented 78.3% and 86.9% of total revenues. The company purchases foreign exchange forward contracts to mitigate the risk of changes in foreign exchange rates on accounts receivable and forecasted cash flows denominated in certain foreign currencies. As of December 31, 2004 and 2003, we had $309 million and $114 million of forward cover. We have recorded gains of less than $1 million on account of foreign exchange forward contracts for the nine months ended December 31, 2004 while we had recorded gains of $12 million for the nine months ended December 31, 2003, which are included in total foreign currency exchange gains/losses. Our accounting policy requires us to mark to market and recognize the effect in earnings immediately of any derivative that is either not designated a hedge, or is so designated but is ineffective as per SFAS 133.

The provision for investments during the nine months ended December 31, 2003 includes write-downs to investments in CiDRA Corporation ($1.5 million) and Stratify Inc ($0.4 million). These write-downs were required due to the non-temporary impact of adverse market conditions on these entities’ business models and contemporary transactions on the securities of the entities which have been indicative of their current fair value.

Provision for income taxes. Our provision for income taxes was $52 million for the nine months ended December 31, 2004, representing an increase of $14 million, or 36.8% over our provision for income taxes of $38 million for the nine months ended December 31, 2003. Our effective tax rate decreased to 15.1% for nine months ended December 31, 2004 from 16.5% for the nine months ended December 31, 2003.

Net income. Our net income was $292 million for the nine months ended December 31, 2004, representing an increase of $99 million, or 51.3%, over our net income of $193 million for the nine months ended December 31, 2003. As a percentage of total revenues, net income increased to 25.7% for nine months ended December 31, 2004 from 25.4% for nine months ended December 31, 2003.

39

Table of Contents