cmc annual report 2005 06

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ContentsCorporate Information 2

Notice 3

Directors’ Report 6

Management Discussion and Analysis 14

Corporate Governance Report 19

Declaration of the Managing Director & CEO 28

Secretarial Auditors’ Certificate on Corporate Governance 28

Company Secretary’s Responsibility Statement 29

Auditors’ Report 30

Balance Sheet 34

Profit & Loss Account 35

Cash Flow Statement 36

Schedules & Notes on Accounts 37

Balance Sheet Abstract and Company’s General Business Profile 52

Information under Section 212 of the Companies Act, 1956 53related to Subsidiary Company

Consolidated Financial Statements

Auditors’ Report 54

Consolidated Accounts 56

CMC LimitedThirtieth annual report 2005 - 2006

Annual General Meeting on Tuesday,

June 27, 2006 at 2.30 p.m. at Bhartiya

Vidya Bhavan Auditorium, BVB

Hyderabad Kendra

No. 5-9-1105, Basheerbagh-King Koti

Road, Hyderabad-500029

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CMC Limited

Thirtieth annual report 2005 - 2006

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CORPORATE INFORMATION

Board of DirectorsMr S Ramadorai (Chairman)

Mr R Ramanan (Managing Director & CEO)

Mr Ishaat Hussain

Dr KRS Murthy

Mr Surendra Singh

Mr C B Bhave

Mr Shardul Shroff

Management TeamMr R Ramanan (Managing Director & CEO)

Mr J K Gupta (CFO)

Mr Prasad Rangnekar (Head of Operations)

Mr Prabhat Mittra (Global Head - CS & ITES)

Mr Uday Bhobe (Global Head - SI, E&T)

Mr Saibal Ghosh (VP & National Sales Head)

Mr S V Ramanan (Head-HR & Corp. Communications)

Mr Vivek Agarwal (Company Secretary & Head – Legal)

Statutory AuditorsM/s S.B. Billimoria & Co.

Chartered Accountants

Secretarial AuditorsChandrasekaran Associates

Company Secretaries

Registered OfficeCMC Centre

Old Mumbai Highway

Gachibowli, Hyderabad-500032

Tel. : 040-23000401 (10 lines)

Fax : 040-23000509

Corporate OfficePTI Building, 5th Floor

4, Sansad Marg

New Delhi-110001

Tel. : 011-23736151 (8 lines)

Fax : 011-23736159

Principal BankersCanara Bank

State Bank of Bikaner & Jaipur

ICICI Bank

Audit CommitteeDr KRS Murthy

Mr Surendra Singh

Mr C B Bhave

Share Transfer-cum-ShareholdersGrievance CommitteeMr Surendra Singh

Mr R Ramanan

Mr Shardul Shroff

Mr Vivek Agarwal

Remuneration CommitteeDr KRS Murthy

Mr S Ramadorai

Mr C B Bhave

Mr Surendra Singh

Ethics and Compliance CommitteeMr Surendra Singh

Mr R Ramanan

Mr Shardul Shroff

Mr Vivek Agarwal

Registrars & Share Transfer AgentsM/s Karvy Computershare Private Limited

Karvy House, 46, Avenue 4, Street No 1

Banjara Hills, Hyderabad 500 034

Stock Exchanges where Company’sSecurities are listedThe Stock Exchange, Mumbai

National Stock Exchange of India Ltd.

The Calcutta Stock Exchange Ass. Ltd.

Web site

www.cmcltd.com

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NOTICENotice is hereby given that the 30th Annual General Meeting of the Members of CMC Limited will be held on Tuesday, June 27, 2006 at 2.30P.M. at Bhartiya Vidya Bhavan Auditorium, BVB Hyderabad Kendra No. 5-9-1105 Basheerbagh-King Koti Road, Hyderabad – 500 029, AndhraPradesh, to transact the following:ORDINARY BUSINESS:1. To receive, consider and adopt the audited Profit and Loss Account for the year ended March 31, 2006 and the Balance Sheet as at that

date and the Reports of the Board of Directors and the Auditors thereon.2. To declare a dividend.3. To appoint a Director in place of Mr. S. Ramadorai, who retires by rotation and, being eligible, offers himself for re-appointment.4. To appoint a Director in place of Mr. Ishaat Hussain, who retires by rotation and, being eligible, offers himself for re-appointment.5. To appoint Statutory Auditors and to fix their remuneration.SPECIAL BUSINESS:6. To consider and, if thought fit, to pass with or without modification(s), the following Resolution as an Ordinary Resolution:

“RESOLVED that pursuant to Sections 198, 269, 309, 311 and other applicable provisions, if any, of the Companies Act, 1956 (the Act),read with Schedule XIII of the Act, the Company hereby approves of the re-appointment and terms of remuneration of Mr. R. Ramanan,Managing Director & CEO of the Company for a period of three years from December 13, 2006, upon the terms and conditions set outin the Explanatory Statement annexed to the Notice convening this meeting with liberty to the Directors to alter and vary the termsand conditions of the said re-appointment in such manner as may be agreed to between the Directors and Mr. R. Ramanan.”“RESOLVED FURTHER THAT the Board be and is hereby authorised to take all such steps as may be necessary, proper and expedient togive effect to this Resolution.”

Mumbai BY ORDER OF THE BOARDApril 25, 2006 For CMC LIMITED

Registered Office: VIVEK AGARWALCMC Centre COMPANY SECRETARY & HEAD - LEGALOld Mumbai Highway, GachibowliHyderabad-500 032

Notes:1. A Member entitled to attend and vote is entitled to appoint a Proxy to attend and vote at the meeting instead of himself and

the Proxy need not be a Member of the Company. The Proxy Form must be deposited at the Registered Office of the Companynot later than 48 hours before the commencement of the meeting.

2. The relevant explanatory statement pursuant to Section 173(2) of the Companies Act, 1956 setting out the material facts in respect ofthe business under item no. 6 and the relevant details of item nos. 3 & 4 above pursuant to Clause-49 of the listing agreement areannexed hereto.

3. Members who hold shares in dematerialised form are requested to bring their DP ID and Client ID numbers for easy identification ofattendance at the meeting.

4. For the convenience of the Members, attendance slip is enclosed elsewhere in the Annual Report. Members/Proxy Holders/AuthorisedRepresentatives are requested to fill in and affix their signatures at the space provided therein and surrender the same at the venue.Proxy/Authorised Representatives of a Member should state on the attendance slip as ‘Proxy’ or ‘Authorised Representative’ as the casemay be.

5. The Register of Members and the Share Transfer Books of the Company will remain closed from Wednesday, June 21, 2006 to Tuesday,June 27, 2006 (both days inclusive).

6. The dividend as recommended by the Board of Directors, if declared at the Annual General Meeting, will be paid at par after June 27,2006 to (i) those shareholders whose names appear on the Company’s Register of Members after giving effect to all valid sharetransfers in physical form lodged with the Company on or before June 20, 2006; (ii) in respect of shares held in electronic form to those‘deemed’ members whose names appear in the statements of beneficial ownership furnished by National Securities Depository Limited(NSDL) and Central Depository Services (India) Ltd. (CDSL) as at the end of business hours on June 20, 2006.

7. In accordance with SEBI’s directions vide their Circular No. DCC/FITT/Cir-3/2001 dated October 15, 2001, arrangements have been made tocredit your dividend amount directly to your bank account through the Electronic Clearing Service (ECS).In case you hold shares in physical form, please furnish your bank details in the ECS Mandate Form enclosed separately together witha xerox copy of your cheque leaf and return to our Registrars, Karvy Computershare Private Limited on or before June 20, 2006. The saiddetails in respect of the shares held in electronic form should be sent to your respective Depository Participant and not to the Registraras the Registrar is obliged to use only the data provided by the Depository while making payment of dividend.

8. Pursuant to provisions of Section 205A(5) of the Companies Act, 1956, dividends which remain unclaimed for a period of 7 years fromthe date of transfer of the same to the Company’s unpaid dividend account will be transferred to the Investor Education and ProtectionFund established by the Central Government. Shareholders who have not encashed their dividend warrant(s) so far are requested to

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make their claim to the Registrar & Share Transfer Agents of the Company. The Company has been periodically reminding theshareholders concerned to claim their dividend from the Company.

9. Pursuant to Section 109A of the Companies Act, 1956, shareholders are entitled to make nomination in respect of shares held by them.Shareholders desirous of making nominations are requested to send their requests in Form No. 2B in duplicate (which will be madeavailable on request) to the Registrar & Share Transfer Agents of the Company.

10. As an austerity measure, copies of the Annual Report will not be distributed at the Annual General Meeting. Members are requested tobring their copies to the meeting.

Explanatory Statement pursuant to Section 173(2) of the Companies Act, 1956Item No. 6:At the Annual General Meeting held on August 30, 2004, the members of the Company had approved of the appointment and terms ofremuneration of Mr. R. Ramanan as Managing Director & CEO of the Company for a period of three years from December 13, 2003.The Board at its meeting held on April 15, 2006, re-appointed Mr. R. Ramanan as Managing Director & CEO for a period of three years fromDecember 13, 2006, subject to the approval of the Shareholders.Mr R Ramanan, aged 48 years, is a B. Tech.(Electrical Engg.) from IIT Mumbai with more than 25 years of rich working experience. He is amember of the Computer Society of India, the IEEE Computer Society, USA, and IEEE Communications, USA. He has been a keynote speakerat seminars on data communications in Switzerland, Geneva, France, the UK and India, and has written many papers on communicationsand networking for major international conferences.He has held several key positions in Tata Consultancy Services (TCS). Starting his career as a Software Engineer in July 1981, he has been aProject Leader, a Group Leader and an Overseas Regional Manager representing TCS in USA. He is also Chairman of CMC Americas Inc. Hewas deputed to CMC by the holding company as Dy. Managing Director & COO on October 16, 2001 and elevated to the post of ManagingDirector & CEO on December 13, 2003.The main terms and conditions relating to the re-appointment of Mr. R. Ramanan, as Managing Director & CEO (MD & CEO), are as follows:

(1) Period – From December 13, 2006 to December 12, 2009.(2) Nature of Duties -

The MD & CEO shall carry out such duties as may be entrusted to him, subject to the supervision and control of the Board ofDirectors and he shall also perform such other duties and services as shall from time to time be entrusted to him by the Board ofDirectors.

(3) A. Remuneration : Basic salary upto a maximum of Rs. 2,50,000 per month. The annual increments which will be effective 1st

April each year, will be decided by the Board and will be merit based and take into account the Company’s performance. Inaddition to basic salary payable, MD & CEO shall also be entitled to benefits, perquisites and allowances as determined bythe Board of Directors from time to time and incentive remuneration and/or Commission based on certain performancecriteria to be laid down by the Board.

B. Minimum Remuneration: Notwithstanding anything to the contrary herein contained where in any financial year duringthe currency of the tenure of the MD & CEO, the Company has no profits or its profits are inadequate, the Company will payremuneration by way of salary, perquisites, allowances and incentive remuneration as specified above.

(4) The terms and conditions of the said appointments may be altered and varied from time to time by the Board as it may, in itsdiscretion, deem fit, within the maximum amount payable to managing and whole-time directors in accordance with ScheduleXIII to the Act, or any amendments made hereinafter in this regard.

(5) The agreement between the Company and Mr. R. Ramanan as the MD & CEO may be terminated by either party giving the otherparty six months’ notice or the Company paying six months’ remuneration in lieu thereof.

(6) If at any time the MD & CEO ceases to be a Director of the Company for any cause whatsoever, he shall cease to be the MD & CEO.(7) If at any time the Managing Director & CEO ceases to be MD & CEO of the Company for any cause whatsoever, he shall cease to be

a Director of the Company.(8) If at any time the MD & CEO ceases to be in the employment of the Company for any cause whatsoever, he shall cease to be a

Director of the Company.In compliance with the provisions of Section 309 read with Schedule XIII of the Act, terms of the remuneration specified above arenow being placed before the Members in General Meeting for their approval.Mr. R. Ramanan is concerned or interested in Item No. 6 of the Notice.This may be treated as an abstract of the draft agreement between the Company and Mr. R. Ramanan as MD & CEO pursuant tothe provisions of the Section 302 of the Act.The Resolution regarding the re-appointment of the MD & CEO at Item No. 6 is commended for acceptance by the Members.

BY ORDER OF THE BOARDFor CMC LIMITED

Mumbai VIVEK AGARWALApril 25, 2006 COMPANY SECRETARY & HEAD - LEGAL

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DETAILS OF DIRECTORS RETIRING BY ROTATION AND SEEKING REAPPOINTMENT(In Pursuance of Clause 49 of the Listing Agreement)

Name

Date of Birth

Date of Appointment

Qualifications

Expertise in specific functional areas

Chairman/ Director of other Companies

Chairman/ Member of Committees of theBoard of Companies of which he is aDirector

Mr S Ramadorai

6.10.1944

16.10.2001

B.Sc. (Physics) B.E. (Elec. & Tel.)M.Sc. (Computer) University of California, USA

Business Management and specialized in InformationTechnology

Tata Industries LimitedTata Elxsi Limited – Vice ChairmanTata Technologies Limited - ChairmanWTI Advanced Technology LimitedAviation Software Development Consultancy India LimitedInnova TV Inc. (USA)Hindustan Lever LimitedNicholas Piramal India LimitedTCS Iberoamerica S. A. (Uruguay)Tata Solutions Centre S.A. (Uruguay)Tata Consultancy Services De Espana S.A. (Spain)Tata Consultancy Services Do Brasil S.A. (Brazil)Tata Consultancy Services Chile S.A. (Chile)Conscripti (pty) Limited (South Africa)Tata Consultancy Services Limited - Managing DirectorTata Teleservices LimitedVSNL Singapore Pte. Ltd.C-Edge Technologies LimitedComicron S.A.Sisteco S.A.Syscrom S.A.

Tata Technologies Ltd.Audit - ChairmanTata Elxsi (India) LimitedAuditHindustan Lever LimitedAuditTata Consultancy Services LimitedShareholders / Investor Grievance

Mr Ishaat Hussain

2.9.1947

16.10.2001

B.A. (Economics)Chartered Accountant, England & Wales

Business Management and Finance

Tata Sons LimitedTata Steel LimitedTitan Industries LimitedVoltas Limited – ChairmanTata Inc.Tata Teleservices LimitedIdea Cellular LimitedTata Industries LimitedTata AIG General Insurance Co. Ltd.Tata AIG Life Insurance Co. LimitedVidesh Sanchar Nigam LimitedTata Sky Ltd. – ChairmanTata Refractories Ltd.

Tata Steel LimitedAuditInvestors’ Grievance – ChairmanTata Industries LimitedAudit – ChairmanTitan Industries LimitedAuditTata Trustee Co. Pvt. Ltd.AuditTata Teleservices Ltd.Audit – ChairmanVidesh Sanchar Nigam Ltd.Audit

BY ORDER OF THE BOARDFor CMC LIMITED

Mumbai VIVEK AGARWALApril 25, 2006 COMPANY SECRETARY & HEAD - LEGAL

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1. FINANCIAL RESULTS

(Rs. in Crores)

Particulars 2005-06 2004-05

Income from Sales and Services 828.79 775.67

Other Income 28.97 6.80

Total Income 857.76 782.47

Operating Expenses 784.71 736.14

Profit before Depreciation, Interest and Tax 73.05 46.33

Depreciation 9.10 9.16

Interest 3.84 4.22

Profit before Tax 60.11 32.95

Provision for Taxation (incl. deferred Income Tax) 16.00 9.89

Profit after Tax 44.11 23.06

Add: Profit brought forward from previous year 143.90 130.93

Amount available for appropriations 188.01 153.99

Appropriations

Proposed Dividend 7.58 6.82

Tax on Proposed Dividend 1.06 0.96

Transfer to General Reserve 4.41 2.31

Balance carried to Balance Sheet 174.96 143.90

188.01 153.99

1.1 OPERATING RESULTS

During the year, your Company earned total revenue of Rs. 857.76 crores compared with Rs. 782.47 crores

during the past year, registering a growth of 9.6%. The revenue from Sales and Services at Rs. 828.79 crores

registered a growth of 6.9% compared with Rs. 775.67 crores earned in the last year, mainly on account of

64% growth in IT Enabled Services, 39% growth in Education & Training, 4.6% growth in Customer Services

and 2.7% growth in Systems Integration businesses.

DIRECTORS’ REPORT

TO THE MEMBERS OF CMC LIMITED

Your Directors have pleasure in presenting the Thirtieth Annual Report and the Audited Statement of Accounts for the

year ended March 31, 2006.

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The profit before tax at Rs. 60.11 crores registered an increase of 82.4% over the previous year mainly on

account of increase of Rs. 22.17 crores in other income. Other income increased primarily on account of sale

of surplus residential properties during the year. The Company made a provision of tax of Rs. 16.00 crores,

inclusive of Fringe Benefit Tax amounting to Rs. 1.73 crores, which is a new tax introduced during 2005-06.

The profit after tax stood at Rs. 44.11 crores registering an increase of 91.30% over the previous year.

2. DIVIDEND

Your Directors recommend payment of dividend at 50% of paid-up equity share capital for the year ended

March 31, 2006.

3. BUSINESS OPERATIONS

3.1 Customer Services (CS)

Customer Services Strategic Business Unit (SBU) undertakes all activities related to IT infrastructure including

infrastructure architecture, design and consulting services; turnkey systems integration of large network

and data center infrastructures including supply of associated equipment and software; on-site and remote

facilities management of multi-location infrastructures of domestic and international clients. The CS SBU

earned revenue of Rs. 528.47 crores during the year compared to Rs. 506.70 crores earned during the previous

year, registering an increase of 4.30% over the previous year. The CS SBU has seen a healthy change in

business mix from predominance of low-margin supply & build projects to increasingly larger share of

revenues coming from high-margin managed services, program management and consulting engagements.

With strong pan India presence, a large national workforce with versatile infrastructure skills and unparallel

field experience and closer alignment with Tata Consultancy Services Ltd. (TCS) infrastructure, total

outsourcing and solutions practices, the CS SBU continues to be a major player in the infrastructure business.

Some of the wins in the domestic market include architecture, program management and total infrastructure

outsourcing of diverse set of clients, a large container terminal in Mumbai, three large public sector banks

with nationwide presence, and a state wide area network. The SBU also had major successes in offshore

managed services for several international clients in the banking, finance and insurance sectors.

3.2 Systems Integration (SI)

The SI SBU undertakes the activities of solution deployment that includes software development, software

maintenance and support, turnkey project implementation and systems consultancy. The SI SBU earned

revenue of Rs. 231.74 crores during the year compared with Rs. 225.68 crores earned in the previous year,

2004-05

Total Revenue: Rs. 782.47 crores

ITES2.4%

SI28.8%

E&T3.6%

CS64.7%

Others0.5%

Total Revenue: Rs. 857.76 crores

2005-06

ITES3.7%

SI27.0%

E&T4.5%

CS61.6%

Others3.2%

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registering an increase of 2.7%. The growth in the revenue of SI SBU was primarily driven by strong growth

in the international markets. Embedded Systems continued to be a strong performer doubling its revenue

during the year. The SI SBU has become one of the leading embedded systems service provider from India

to some of the Fortune 100 Companies worldwide. In the domestic market, the SI SBU continues to be an

important player in general insurance sector, securities sector, e-Governance space and also added few key

private sector customers in its fold.

3.3 IT Enabled Services (ITES)

The ITES Strategic Business Unit (SBU) undertakes business process outsourcing services including total

front-office/back-office outsourcing; office records digitization and document management; examination

results and recruitment management; legacy data migration management; inbound call center services

with specific business domain expertise and on-demand software services. The ITES SBU earned revenue of

Rs. 31.48 crores during the year compared to Rs. 19.18 crores earned in the previous year registering an

increase of 64.1%. The engagements include outsourcing of complaints handling of a large overseas utility

company and execution of the multi-discipline and complex MCA 21 e-Governance project of Ministry of

Company Affairs along with TCS. The ITES SBU has also made a foray into the fast-growing software-as-a-

service market through alliance with Webex.

3.4 Education & Training (E&T)

E&T SBU of the Company offers courses on information technology including professional courses, career

development programs through its own and franchisee centers. After having made an impressive turnaround

in the year 2004-2005, E&T SBU continued to achieve good growth with a revenue of Rs. 38.24 crores

compared to Rs. 28.12 crores earned in the previous year, registering an increase of 36.0%. E&T SBU while

benefited from the general upsurge in the E&T market also consolidated its base in the corporate sector.

3.5 International Operations

The Company increased its International component in the above SBUs accounting for Rs. 188.52 crores

during the year as compared to Rs. 179.32 crores earned in the previous year. The growth in international

revenue was driven primarily by Embedded Systems, which almost doubled during the year.

4. SUBSIDIARY COMPANY

Your Company has a wholly owned subsidiary CMC Americas Inc. in USA. Copies of the Balance Sheet, Profit

& Loss Account and Report of the Auditors of the Subsidiary Company have not been attached as per approval

granted by the Central Government under Section 212(8) of the Companies Act, 1956. As per Accounting

Standard 21 issued by the Institute of Chartered Accountants of India, the Consolidated Financial Statements

have been presented which include the financial information of its Subsidiary.

The Annual Accounts of the Subsidiary Company and related detailed information will be made available to

the shareholders of the Company seeking such information at any point of time. The Annual Accounts of the

Subsidiary Company are also kept for inspection by any investors at the Registered Office of your Company.

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5. FIXED DEPOSIT

During the year, the Company has not accepted any fixed deposits under Section 58A of the Companies Act,

1956.

6. LISTING

The equity shares of the Company are listed with The Stock Exchange, Mumbai, National Stock Exchange

and Calcutta Stock Exchange. There are no arrears on account of payment of listing fees to the Stock

Exchanges.

7. DIRECTORS

Mr S Ramadorai and Mr Ishaat Hussain are retiring by rotation at the ensuing Annual General Meeting and,

being eligible, offer themselves for re-election.

Mr R Ramanan’s tenure as Managing Director & CEO expires on December 12, 2006. The Board of Directors

has recommended his re-appointment for a further period of three years.

8. COMMUNITY DEVELOPMENT

The Company promotes active participation among staff members in activities related to community services

with emphasis on volunteering their services. As part of this, the Company promoted various activities related

to helping the under privileged and the physically challenged people. Some of the programs, which were

initiated, viz. conducting free medical diagnostics in old age homes, educating the underprivileged children,

supporting street children. A sports day was organized for handicapped children, which was conducted

with active support and help of NGOs. A free medical check-up of handicapped children and their family

was also conducted. The Company would further strengthen its community service initiatives for improving

the quality of life of identified key communities in conjunction and in line with the TATA Group activities.

9. BUSINESS EXCELLENCE AND QUALITY INITIATIVES

Your Company continued its journey in the TBEM process (Tata Business Excellence Model) and Company

went through the external assessment process for the second time with better results. A number of initiatives

were launched in order to strengthen business processes.

With the achievement of CMM level 5 certification in Kolkata and Delhi during the year, all centers of CMC

are now covered under level 5 certified. Process for obtaining CMMI certification has been initiated and the

same is expected to result in acquiring the same by the end of this financial year.

10. CORPORATE GOVERNANCE

As required under Clause 49 of the Listing Agreement with the Stock Exchanges, the report on Management

Discussion and Analysis, Corporate Governance as well as the Secretarial Auditors’ Certificate regarding

compliance of conditions of Corporate Governance form a part of the Annual Report.

11. TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Information as required under the Companies (Disclosure of particulars in the Report of Board of Directors)

Rules, 1988 in respect of energy conservation, technology absorption and foreign exchange earnings and

outgo is given in Annexure-I to this Report.

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12. DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956, the Directors based on the

information and representations received from the operating management confirm that:

i) In the preparation of the Annual Accounts, the applicable Accounting Standards have been followed

with no material departures;

ii) The Directors had selected such accounting policies and applied them consistently and made

judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the

state of affairs of the Company as on March 31, 2006 and of the profit of the Company for that

period;

iii) The Directors had taken proper and sufficient care to the best of their knowledge and ability for the

maintenance of adequate accounting records in accordance with the provisions of the Companies

Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and

other irregularities; and

iv) The Directors had prepared the Annual Accounts on a ‘going concern’ basis.

13. AUDITORS

M/s S B Billimoria & Co., the Statutory Auditors of the Company, hold office until the ensuing Annual General

Meeting. The said Auditors have under Section 224(1-B) of the Companies Act, 1956, furnished the certificate

regarding their eligibility for re-appointment.

14. PARTICULARS OF STAFF

Information as required under section 217 (2A) of the companies Act, 1956, read with Companies (Particulars

of Employees) Rules, 1975, as amended, regarding particulars of employees drawing remuneration of Rs. 24

lacs per annum or Rs. 2 lacs per month, as the case may be is set out in the Annexure – II to this report. The

Ministry of Company Affairs has recently amended the Companies (Particulars of Employees) Rules, 1975 to

the effect that the particulars of the employees of the Companies engaged in Information Technology Sector,

posted and working outside India, not being directors or their relatives, need not be included in the statement

but, such particulars shall be furnished to the Registrar of Companies. Accordingly, the statement included

in this report does not contain the particulars of employees who are posted and working outside India.

15. ACKNOWLEDGEMENTS

The Directors wish to convey their appreciation to business associates for their support and contribution

during the year. The Directors would also like to thank the employees, shareholders, customers, suppliers

and bankers for the continued support given by them to the Company and their confidence reposed in the

management.

For and on behalf of the Board

Mumbai S RAMADORAI

April 25, 2006 Chairman

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Annexure-I

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS ANDOUTGO

A. CONSERVATION OF ENERGY

Your Company is not an industry as listed in Schedule to rule 2 of the Companies (Disclosure of Particulars in the Report of Board ofDirectors) Rule, 1988.

B. TECHNOLOGY ABSORPTION

Efforts made in technology absorption - as per Form B given below:

FORM B

1. Research and Development (R&D)

a. Specific Areas in which Research and Development (R&D) is being carried out by the Company

� Developing biometric solutions for access control and personal identification for civilian application.

� Developing Point of Sales Systems using embedded technology.

� Global Positioning System (GPS) based vehicle tracking systems solutions.

b. Benefits derived from the above

� Many technologies developed at R&D Centre have been successfully commercialized.

� Use of FACTS technology for civilian applications can bring a wave of such opportunities to CMC, as CMC is the only player inthis country with this field proven technology.

� ID card systems based on biometrics is a new area of application for CMC. It is expected to bring significant opportunities forcommercial replication with necessary customization.

� Developing technologies to optimize the operations at the generation, distribution and transmission of electricity.

c. Future Plan of Action

� Developing applications requiring tracking of vehicles such as tracking police vehicles, buses, ambulances, fire engines etc.

� Point of sales systems are expected to bring about significant commercial benefits to CMC.

� FPGA technology is being applied to develop a hardware matcher. This will help CMC in providing economical solution forlarge scale AFIS systems.

� Making forays into the e-Security arena with latest standards R&D and other Application Specific Development Centre (ASDC)activities have continued to commercialize the technologies developed in respective areas. All design, development, supportand maintenance activities at the R&D Centre are carried on under the ISO-9001:2000 certified and CMM Level 5 processesand practices.

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d. Expenditure on R&D

(Rs. in crores)

Particulars 2005-06 2004-05

A Capital 0.21 0.23

B Recurring 11.60 9.89

C Total 11.81 10.12

D Total R&D Expenditure as a Percentage of Turnover 1.38 1.29

2. Technology absorption, adaptation and innovation

a. Efforts made towards technology absorption, adaptation and innovation

� CMC proactively develops technology for its business needs. It also uses available state-of-the-art technology inconceptualizing solutions. Technologies developed by the Company are used extensively for providing solutions to ourcustomers.

� Projects are executed that span across technology groups such as use of Java & Web technologies for Embedded Systems,use of FPGA for Finger Print Identification.

� CMC is in the process of exchanging technological advances and developments with TCS.

� CMC constantly gives training to its staff to enable them to learn newer technologies and apply them to the problem domains.

b. Benefits derived as a result of the above efforts

� Upgradation of the Company’s product portfolio on new technologies.

� The work done at the R&D Centre forms the core of the most of the solutions provided by the Strategic Business Units (SBUs)and hence is directly responsible for the improved profitability of the Company.

� Another significant benefit is the social benefits arising out of the use of IT in core sectors and ‘IT-enabling’ the Country,especially in Law and Order.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO

1. Activities relating to exports, initiatives to increase exports, developments of new export markets for products and services& export planAs a part of its core strategy, the Company is focusing on increasing exports of its services by leveraging wide marketing reach ofits parent Company, Tata Consultancy Services Limited. The Company has established itself as a major supplier of EmbeddedSystem Services and software solution in key industry verticals and e-Governance space.

2. Total Foreign Exchange Earnings & OutgoingsThe foreign exchange earnings of the Company during the year were Rs. 80.94 Crores while the outgoings were Rs. 18.53 Crores.


Mumbai S RAMADORAI


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Annexure-II

STATEMENT PURSUANT TO SECTION 217(2A) OF THE COMPANIES ACT 1956 AND THE COMPANIES(PARTICULARS OF EMPLOYEES) RULES, 1975

Name Age Designation/ Remuneration Qualification Experience Date of Last(Yrs.) Nature of Duties (Rs.) (Yrs.) commence- employment

ment of held,employment Designation

(A) Personnel who are in receipt of remuneration aggregating not less than Rs. 24,00,000 per annum and employed throughoutthe year.

Jonnavithula Suryaprakash 42 Technical Head- 3,275,667 M Tech- 17 17.11.2004 CISCO - USAXIDC Digital System Engineering

Manager

(B) Personnel who are in receipt of remuneration aggregating not less than Rs. 2,00,000 per month and employed for part of theyear

NIL

Notes:

1. The above remuneration includes salaries, monetary value of perquisites as per Income Tax rules and Company’s contribution to ProvidentFund but excludes contribution to Gratuity Fund on the basis of acturial valuation as separate figures are not available.

2. The nature of employment is contractual.

3. Nature of Duties- In guidance and supervision of Technical Project Head.

4. Mr Suryaprakash is not related to any directors of the Company.


Mumbai S RAMADORAI


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MANAGEMENT DISCUSSION AND ANALYSIS

Overview

The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956 and GenerallyAccepted Accounting Principles (GAAP) in India. There are no material departures from prescribed accounting standards inthe adoption of the accounting standards. The Management of your Company accepts responsibility for the integrity andobjectivity of these financial statements, as well as for various estimates and judgements used therein. These estimates andjudgements relating to the financial statements have been made on a prudent and reasonable basis, in order that the financialstatements reflect in a true and fair manner, the form and substance of transactions and the state of affairs and profits for the year.

Industry structure and developmentThe Indian economy has accelerated the growth rate to 8.1% in 2005-06 up from 7.5% in 2004-05. Other economic indicatorslike foreign exchange reserves, inward FDI remittances and exports are showing a healthy growth.

The Indian IT industry is set to cross $36 billion in annual revenues as per Nasscom estimates for 2005-06. The domesticmarket contributes just over $6 billion but is stated to double in the next few years. The domestic market is transforming frombeing predominantly hardware-driven to a solution-oriented approach. This is driving demand for a host of solution andservices like customized application development, system integration and network integration. The domestic spending onoutsourced IT services is expected to reach Rs. 23,800 crores by 2009 up from Rs.10,300 crores in 2004. Large e-Governanceinitiatives launched by the Government under the National e-Governance Plan (NeGP) are expected to provide sustainedgrowth in domestic demand for IT services over the next few years. Apart from government sector, civil aviation, insurance,telecom and banking sectors would drive growth in the domestic services market in the coming years.

Opportunity and ThreatsOpportunity:Nasscom–IDC study on the domestic services (IT & ITES) market opportunity reports that liberalization of Indian economicpolicy, de-regulation of key sectors and move towards further integrating India with the global economy will be the keydrivers of increased IT adoption in the country. As per Nasscom reports high maturity IT segments like Banking, Insurance,Telecom, Automotives will increase spending on IT services to integrate business with Information Technology.

The Company will benefit from the overall economic growth in the country which translates into increased IT spend oninfrastructure and services.

The Company can leverage its expertise in providing IT infrastructure setup services, life cycle support as well as systemintegration services in the domestic market. The increased opportunities in Government sector under the National e-Governance Plan can be addressed by the vast range of proven solutions and services which the Company has developedspecifically for Governance applications.

The international segment of IT industry offers the Company an opportunity in further leveraging its expertise in embeddedsystem, ports solutions and in providing offshore services in critical back office processes for large volume applications. Inaddition the Company can provide remote infrastructure management services to enable international customers to get acost effective alternative to in-house infrastructure management. The Company has traditionally been strong in providingservices and solutions in the domestic market and the emerging market opportunities offer it the opportunity to furthergrow and consolidate its business.

Threats:The competition from large international and Indian IT companies is increasing in the domestic market space. As the size andsophistication of the Indian IT market is increasing it is becoming viable for a large number of Companies to address themarket strongly. These Companies are making aggressive efforts to address the after sales support & services segment notonly for promoting their own products but also to meet the existing competition. Scarcity of the right talent as well as theability to retain them is one of the critical factors confronting all IT Companies.

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Financial Performance:

Revenues:During the year under review, the Company earned total revenue of Rs. 857.76 crores compared with Rs. 782.47 crores duringthe last year registering a growth of 9.62%. The income from sales and services at Rs. 828.79 crores registered a growth of6.85% compared with Rs. 775.67 crores earned in the last year mainly on account of 64% growth in ITES, 39% growth inEducation and Training and 5% each in CS and International businesses. Income from sale of purchased equipment declinedby 1% from Rs. 378.62 crores to Rs. 375.05 crores, while income from services increased by 14% from Rs. 397.05 crores toRs. 453.74 crores. The share of services in total operating revenue improved from 51% to 55%.

Other income has increased from Rs. 6.80 crores to Rs. 28.97 crores primarily on account of profit of Rs. 24.66 crores on sale ofresidential properties in Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad.

The segment-wise breakdown of total revenue is given below:( Rs./Crores)

Segment 2005-06 2004-05

Domestic- Customer Services 498.70 476.86- Systems Integration 74.76 74.93- ITES 28.59 16.97- Education & Training 38.22 27.59

International 188.52 179.32

Other Income 28.97 6.80

Total 857.76 782.47

Expenditure:During the year under review, the operating expenses at Rs. 784.71 crores increased by 6.60% compared with Rs. 736.14crores incurred in the previous year in line with 6.85% increase in operating revenues. As a percentage of total operatingrevenue, these expenses registered a decline from 94.90% to 94.68%. The operating costs have gone up mainly on account of6.64% increase in living expenses due to 5.13% increase in international business and 12.05% increase in manpower costsprimarily due to 12.6% increase in average manpower strength during the current year compared with the previous year. Thetotal manpower strength has increased to 3431 as on March 31, 2006 compared with 3162 as on March 31, 2005. Themanpower cost as a percentage of operating revenue has increased from 18.3% to 19.2%. Other operating expenses increasedby 14.63% mainly on account of increased in outsourced services from Rs. 43.40 crores to Rs. 61.60 crores (an increase of 42%),E&T expenses (including payout to franchisees) from Rs. 15.00 crores to Rs. 19.24 crores (an increase of 28% in line with 39%increase in E&T revenue), travel costs from Rs. 19.74 crores to Rs. 23.10 crores in line with increased business and generalinflation and repair & maintenance costs from Rs. 5.52 crores to Rs. 7.53 crores.

The interest cost decreased by 9.0% to Rs. 3.84 crores during the current year compared with Rs. 4.22 crores incurred in thecorresponding period last year as a result of reduction in borrowings from Rs. 81.72 crores to Rs. 67.07 crores and replacementof high cost cash credit by low cost commercial papers and short term bank loans. Depreciation charge declined marginallyfrom Rs. 9.16 crores to Rs. 9.10 crores.

As a result, Operating Profit (PBT excluding other income) has increased by 19.1% from Rs. 26.15 crores to Rs. 31.14 crores.Operating Margin has increased from 3.4% to 3.8%. PBT (including other income) has increased by 82.43% from Rs. 32.95crores to Rs. 60.11 crores and as a percentage of total revenue PBT has increased from 4.21% to 7.01%.

The provision for taxation (including deferred tax and fringe benefit tax) increased to Rs. 16.00 crores from Rs. 9.89 crores in thecorresponding period last year, resulting in an increase of 61.78%. The increase in tax is attributable to increase in income fromsale of residential properties. In addition, the Company had to bear extra tax of Rs. 1.73 crores in the form of Fringe Benefit Tax,which is a new tax introduced from current financial year. However, since the Company had larger portion of income frominternational operations eligible for tax breaks, the effective tax rate for the Company decreased from 30.0% to 26.6%.

As a result, Profit After Tax (PAT) has increased from Rs. 23.06 crores to Rs. 44.11 crores, an increase of 91.3% over the previousyear. PAT as a percentage of total revenue has increased from 3.0% to 5.1%.

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Financial Position

Fixed Assets

The gross fixed assets as at 31st March, 2006 was Rs. 131.35 crores compared with Rs. 126.70 crores as at the beginning of theyear, resulting in an increase of 3.7% during the year, mainly on account of enhancement in IT and office infrastructure. TheCompany incurred Rs. 10.30 crores on capital expenditure during the year ended 31st March, 2006 compared with Rs. 9.13crores in the previous year.

Working Capital

Net current assets as at 31st March, 2006 increased to Rs. 219.95 crores compared to Rs. 198.20 crores at the beginning of theyear, mainly on account of increase in current assets from Rs. 524.00 crores to Rs. 621.84 crores and increase in current liabilities& provision from Rs. 325.80 crores to Rs. 401.88 crores during the year. Increase in current assets is attributable mainly toincrease in accrued debtors from Rs. 93.95 crores to Rs. 132.37 crores and increase in inventory from Rs. 32.00 crores to Rs.52.36 crores. However, it was partly offset by reduction in sundry debtors from Rs. 248.38 crores to Rs. 233.02 crores. As aresult, the level of debtors in terms of number of days has declined from 117 days sales to 103 days. Debtors over six months(net of provisioning) have declined by 26% to Rs. 38.73 crores (16.6% of total debtors) from Rs. 52.20 crores (21.0% of totaldebtors). Of the remaining Rs. 194.29 crores, debtors less than 30 days are Rs. 132.20 crores (57% of total debtors). Totaldebtors including accrued debtors have remained at the same level of 161 days sales.

Capital Structure

Net worth of the Company as at 31st March, 2006 was Rs. 210.72 crores compared with Rs. 175.55 crores at the beginning ofthe year, resulting in an increase of 20% during the year mainly on account of retained profit after tax earned during the year.

Loan funds as at 31st March, 2006 were Rs. 67.07 crores, resulting in a reduction of Rs. 14.65 crores over Rs. 81.72 crores at thebeginning of the year.

As a result the debt equity ratio has declined from 0.47:1 to 0.31:1 during the year.

Segment-wise Review:

Customer Services

The Customer Services SBU earned revenue of Rs. 498.70 crores from the domestic market registering an increase of 4.6%over the previous year. The total revenue of the SBU (including international revenue) was Rs. 528.47 crores registering anincrease of 4.3% over the previous year. The share of CS SBU in the total operating revenue declined from 61.5% to 60.2%.

Systems Integration

The Systems Integration SBU earned revenue of Rs. 74.76 crores from the domestic market remaining almost at the last year’slevel. The total revenue of the SBU (including international revenue) was Rs. 231.74 crores registering an increase of 2.7% overthe previous year. The share of SI SBU in the total operating revenue declined from 9.7% to 9.0%.

IT Enabled Services

ITES SBU made smart turnaround in the year under review. The ITES SBU earned revenue of Rs. 28.59 crores from the domesticmarket registering an increase of 68.5% over the previous year. The total revenue of the SBU (including international revenue)was Rs. 31.48 crores registering an increase of 64.1% over the previous year. The share of ITES SBU in the total operatingrevenue increased from 2.2% to 3.4%.

Education & Training

The E&T SBU continues to show strong growth in revenue. The E&T SBU earned revenue of Rs. 38.22 crores from the domesticmarket registering an increase of 38.5% over the previous year. The total revenue of the SBU (including international revenue)was Rs. 38.24 crores registering an increase of 36.0% over the previous year. The share of E&T SBU in the total operatingrevenue increased from 3.6% to 4.6%.

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International

The Company earned International revenues of Rs. 188.52 crores during the year registering an increase of 5.1 % over theprevious year. The share of international revenue in total revenue declined from 23.1% to 22.7%.

Future outlook

The Company believes that the current trends in IT spend both in the domestic and international market presentsunprecedented opportunity for growth. Liberalization and opening up of more infrastructure sectors like roads, airports andsea ports, national e-Governance initiatives and implementation of Mission Mode Projects of the type of recently launchedMCA21 project, recent policy initiatives to make Indian companies more competitive including new policy on Special EconomicZone, the focus of Indian Corporates to benchmark themselves with leading global players in terms of quality of processesand competitiveness, is going to drive increase in IT spend. The Company is well poised to exploit the emerging opportunitiesboth in India and global market in synergy with TCS.

Risk and ConcernsA comprehensive and integrated risk management framework forms the basis of all the de-risking efforts of the Company.Formal reporting and control mechanisms ensure timely information availability and facilitate proactive risk management.These mechanisms are designed to cascade down to the level of the line managers so that risks at the transaction level areidentified and steps are taken towards mitigation in a decentralised fashion.

The Board of Directors is responsible for monitoring risk levels on various parameters and the Management ensuresimplementation of mitigation measures. The Audit Committee provides the overall direction on the risk management policies.

1. Business risks

Excessive dependence on any single business segment increases risks and needs to be avoided. The Company has adoptedprudential norms wherever required, to prevent undesirable concentration in any one vertical technology client orgeographic area.

Excessive exposure to a few large clients has the potential to impact profitability and to increase credit risk. However,large clients and high repeat business lead to higher revenue growth and lower marketing cost. Therefore, the Companyneeds to strike a balance. The Company actively seeks new business opportunities and clients to reduce clientconcentration levels.

A high geographical concentration of business could lead to volatility because of political and economic factors in targetmarkets. However, individual markets have distinct characteristics – growth, IT spends, willingness to outsource, costs ofpenetration, and price points. Cultural issues such as language, work culture and ethics, and acceptance of global talentalso come into play. Due to these business considerations, the Company has decided not to impose any rigid limits ongeographical concentration.

Proactively looking for business opportunities in new geographies and thereby increasing their contribution to totalrevenues helps manage this risk.

Vertical domains relate to the industries in which clients operate. The Company has chosen to focus on selected verticalsegments with a view to leverage accumulated domain expertise to deliver enhanced value to its clients.

Being a Company exposed to rapid shifts in technology, an undue focus on any particular technology could adverselyaffect the risk profile of the Company. Given the rapid pace of technological change, your Company has chosen not toimpose rigid concentration limits. Often, industry characteristics and market dynamics determine the choice of technology.

2. Financial risks

The debtor recovery cycle of the Company is long due to dominance of Government entities in its customer profileresulting in need to finance higher level of working capital. The Company is broad-basing its client profile in order toreduce debtors recovery cycle on one hand and to strengthen the collection efforts on the other hand. In the interim, theCompany is confident to have adequate funding to finance its working capital requirements.

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3. Legal risks

Litigation regarding intellectual property rights, patents and copyrights is significantly high in the software industry. Inaddition, there are other general corporate legal risks. The management has clearly charted out a review anddocumentation process for contracts. Legal compliance issues are an important factor in assessing all new businessproposals.

4. Internal process risks

The key resource for CMC is its people. The Company has been able to create a favorable work environment that encouragesinnovation and meritocracy. An employee-friendly work environment combined with challenging job opportunities,which ensures that your Company has low employee attrition rates.

Risk management processes at the operational level are a key requirement for reducing uncertainty in delivering high-quality software solutions to clients within budgeted time and cost. Adoption of quality models such as the SoftwareEngineering Institute’s Capability Maturity Model (SEI-CMM) has ensured that risks are identified and measures are takento mitigate these at the project plan stage itself.

The Company evaluates technological obsolescence and the associated risks on a continuous basis and makes investmentsaccordingly.

Internal control systems and their adequacy

The Company has an adequate system of internal controls implemented by the management towards achieving efficiency inoperations, optimum utilisation of resources and effective monitoring thereof and compliance with applicable laws. Thesystem is continuously reinforced with analysis of data to strengthen it to meet the changing requirements.

The system comprises well defined organisation structure, pre-identified authority levels and documented policy guidelinesand manuals for delegation of authority.

A qualified and independent Audit Committee of the Board of Directors reviews the internal audit reports and the adequacyof internal controls.

Human Resources

CMC recognises human resource as the backbone for its long-term success and has tried continuously to provide a challengingwork environment thereby adding value to their professional growth.

The Company’s focus during the year has been to improve productivity and enhance the learning and development methods.A special drive was initiated to increase the pool of talent in specialized areas through encouraging certifications and training.

Internal Human Resource processes have been digitized thereby improving productivity and information sharing. Themanagement pool was further strengthened by induction of several Senior Professionals from Industry in key positions. Insupport of its business objectives, the Company has re-deployed resources from low value added business into higher valueadded business.

The staff strength of the Company as on 31st March, 2006 was 3431 as compared to 3162 as on 31st March, 2005.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Company’s objectives, expectations or predictionsmay be forward looking within the meaning of applicable securities, laws and regulations. Actual results may differ materiallyfrom those expressed in the statement. Important factors that could influence the Company’s operations include change inGovernment regulations, tax laws, economic & political developments within and outside the country and such other factors.

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CORPORATE GOVERNANCE REPORT

Company’s philosophy on Corporate Governance

As part of the Tata Group, CMC’s philosophy on Corporate Governance is founded upon a rich legacy of fair and transparent governancepractices. The Corporate Governance philosophy has been further strengthened with the adoption by the Company of the Tata BusinessExcellence Model and Tata Code of Conduct and the adoption of the requirements under Clause 49 of the Listing Agreement with the StockExchanges.

I. Board of Directors

(A) Composition of Board

The present Board consists of one Executive Director and six Non-Executive Directors. Out of the Non-Executive Directors, four areIndependent Directors and the other two represent the Promoters. The Non-Executive Directors with their diverse knowledge, experienceand expertise bring in their independent judgment to the deliberations and decisions of the Board. Apart from the sitting fees paid forattending Board/Committee Meetings, the Non-Executive Directors did not have any material pecuniary relationship or transactions withthe Company during the year 2005-06.

The Company has a Non-Executive Chairman. The number of Independent Directors is more than one-third of the total number of Directors.The Company meets the requirements relating to the composition of Board of Directors.

(B) Non Executive Directors’ compensation and disclosures

The Non Executive Directors of the Company are paid sitting fee as fixed by the Board of Directors within the limits prescribed under theCompanies Act, 1956. No stock options were granted to Non Executive Directors or Independent Directors during the year under review.

(C) Other provisions as to Board and Committees

During the year 2005-06, 6 meetings of the Board of Directors were held on April 18, July 14, October 11, December 24 in 2005, on January11 and March 24 in 2006.

The 29th Annual General Meeting of your Company was held on June 17, 2005.

None of the Directors of the Board serve as Members of more than 10 Committees nor do they chair more than 5 Committees, as per the

requirements of the Listing Agreement.

Detailed information is given in the table:

Name Category Board Attendance No. of outside No. of CommitteesMeetings at the Directorships* andattended AGM held Positions held

during the on 17.06.2005 Indian Foreign Member Chairmanyear

Mr S Ramadorai Promoter (Chairman) Non-executive 6 Yes 10 11 3 1Mr R Ramanan Promoter

Executive 6 Yes 1 1 1 -Mr Ishaat Hussain Promoter

Non-executive 4 No 12 1 3 3Dr KRS Murthy Independent

Non-executive 4 Yes 2 - 1 1Mr Shardul Shroff Independent

Non-executive 2 No 4 - 4 -Mr Surendra Singh Independent

Non-executive 4 No 6 - 5 3Mr C B Bhave Independent

Non-executive 5 Yes 3 - 4 -

*This does not include directorships in Private Limited Companies.

(D) Code of Conduct

(i) The Board of Directors has laid down Code of Conduct for all Board Members and Senior Management of the Company. The copies ofCode of Conduct as applicable to the Executive Director (including Senior Management of the Company) and Non Executive Directorsare uploaded on the website of the Company – www.cmcltd.com.

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(ii) The Members of the Board of Directors and Senior Management personnel have affirmed compliance with the Code applicable tothem during the year ended March 31, 2006. The Annual Report of the Company contains a Certificate duly signed by the MD & CEO inthis regard.

II. Audit Committee

(A) Qualified and Independent Audit Committee

The Company complies with the provisions of Section 292A of the Companies Act, 1956 as well as requirements under the listingagreement pertaining to the Audit Committee. Its functioning is as under:

(i) The Audit Committee consists of the three directors as members who are all independent directors.

(ii) All members of the Committee are financially literate and one of the members, Mr C B Bhave, is having the requisite financialmanagement expertise.

(iii) The Chairman of the Audit Committee is an independent director.

(iv) The Chairman of the Audit Committee was present at the last Annual General Meeting.

(v) The Chief Financial Officer, Addl. General Manager – Corporate Finance & Accounts, internal auditors and the representatives ofthe Statutory Auditors and such other officials of the Company are invited to attend the Audit Committee meetings as and whenrequired.

(vi) The Company Secretary & Head - Legal acts as the Secretary to the Committee.

(B) Meeting of Audit Committee

During the year, 5 Audit Committee meetings were held on April 18, July 14, October 10, December 24 in 2005 and on January 11 in2006. The Audit Committee meetings are held both at Corporate Office and other locations.

The Composition of the Audit Committee and number of meetings attended by the Members are given below:

Name of Member Composition of the Audit Committee Number of meetings attended

Dr KRS Murthy Chairman - Independent Director 4

Mr CB Bhave Independent Director 4

Mr Surendra Singh Independent Director 4

Two Members were present in all the meetings of the Audit Committee.

(C) Powers of Audit Committee

The Audit Committee has powers including :

1. To investigate any activity within its terms of reference.

2. To seek information from any employee.

3. To obtain outside legal or other professional advice.

4. To secure attendance of outsiders with relevant expertise, if it considers necessary.

(D) Role of Audit Committee

• review of the Company’s financial reporting process, the financial statements and financial/risk management policies.

• recommendation to the Board on appointment of statutory auditors and fixation of audit fee and other fees to the auditors.

• review of the adequacy of the internal control systems in the Company.

• review of the internal audit report forwarded by the internal auditors.

• discussions with the management and the external auditors, the audit plan for the financial year and a joint post-audit review ofthe same.

• review of the quarterly and annual financial statements before submission to the Board.

• review of the statutory and internal auditors performance.

• review the functioning of the Whistle Blower mechanism, as existing in the Company.

• to carry out any of the functions contained in the Corporate Governance Clause of the Listing Agreement.

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(E) Review of information by Audit Committee

The Audit Committee has reviewed the following information during the year:

1. Management discussion and analysis of financial condition and results of operations of the Company.

2. Statement of related party transactions.

3. The reports of Statutory Auditors.

4. The reports of Internal Auditors.

5. The appointment of Internal Auditors .

III. Subsidiary Companies

(i) The Company does not have any non listed Indian Subsidiary Company.

(ii) The Company has one wholly owned unlisted Subsidiary Company in the USA. Its financial statements are reviewed at the BoardMeetings of the Holding Company.

(iii) The Minutes of the Subsidiary Company are placed at the Board Meetings of the Holding Company. The financial statements ofthe unlisted Subsidiary Company were put up at the Board Meetings of the Holding Company.

IV. Disclosures

(A) Basis of related party transactions

(i) The statements containing the transactions with related parties were submitted periodically to the Audit Committee.

(ii) There were no material individual transactions with related parties during the year, which were not in the normal course ofbusiness as well as on an arm’s length basis.

(B) Disclosure of Accounting Treatment

During the year, there has been no change in Accounting Standard.

(C) Board Disclosures – Risk Management

The Company has laid down procedures to inform the Board of Directors about the Risk Management and its minimization procedures.The Audit Committee and the Board of Directors review these procedures periodically.

(D) Proceeds from public issues, rights issues, preferential issues etc.

The Company did not have any of the above issues during the year under review.

(E) Remuneration of Directors

(i) Executive Director

(a) The remuneration of the executive director is decided by the Remuneration Committee based on criteria such as industrybenchmarks, the Company’s performance vis-à-vis the industry, performance track record of the executive director/appointee(s). The Company pays remuneration by way of salary, perquisites and allowances consisting of fixed and variablecomponent.

(b) Mr R Ramanan is working as the Managing Director & Chief Executive Officer of the Company.

(c) The salary and perquisites paid to Mr R Ramanan, Managing Director & CEO during the year 2005-06, were Rs. 506580 andRs. 32363 respectively.

(ii) Non-Executive Directors

(a) The Non-Executive Directors are entitled to sitting fee only for attending the Board/Committee Meetings. A sitting fee of Rs.10,000 per meeting of the Board and Audit Committee and Rs. 5,000 per meeting of the Remuneration Committee, ShareTransfer-cum-Shareholders Grievance Committee and other Committees is paid for attending such meetings.

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(b) Payment of sitting fee to Non-Executive Directors for the year ended March 31, 2006:

Name of Director Sitting Fee paid (Rs.)

Mr. S. Ramadorai 60,000Mr. Ishaat Hussain 40,000Dr. K. R. S. Murthy 80,000Mr. Surendra Singh 1,70,000Mr. C. B. Bhave 90,000Mr. S Shroff 1,00,000

(c) The non executive directors have disclosed that they do not hold any shares and/or convertible instruments in the Company.

(d) There have been no new appointments of non executive directors on the Board of Directors of the Company during the yearunder review.

(e) There has been no pecuniary relationship or transactions of the non executive directors vis-à-vis the Company during theyear under review.

(F) Management

The Management Discussion and Analysis Report has been included separately in the Annual Report to the shareholders.

(G) Shareholders

(i) Mr S Ramadorai and Mr Ishaat Hussain are retiring from the Board by rotation at the Annual General Meeting and, being eligible,offer themselves for re-election as non executive directors. The brief resume and other details of these directors are given separatelyin the Annual Report.

(ii) The quarterly results and presentations made by the Company to analysts are put on the Company’s website – www.cmcltd.com.

(iii) Share Transfer-cum-Shareholders Grievance CommitteeThe Share Transfer-cum-Shareholders Grievance Committee is constituted under the Chairmanship of a non-executive Directorto consider and approve various requests for transfer, sub-division, consolidation, renewal, exchange, issue of new Certificates inreplacement of old ones and redressal of the grievances of the Shareholders as may be received from time to time.

The present composition of the Share Transfer-cum-Shareholders Grievance Committee is as under:

Mr Surendra Singh .. ChairmanMr R Ramanan .. MemberMr Shardul Shroff .. MemberMr Vivek Agarwal .. Member

The Committee has had 20 Meetings during the year ended March 31, 2006.

Mr Vivek Agarwal, Company Secretary & Head - Legal, is the Compliance Officer and can be contacted at:

CMC Limited Tel: 91-11-23736151PTI Building, 5th Floor Fax:91-11-237361594, Sansad Marg E-mail: [email protected] Delhi-110001

71 investors’ complaints/queries were received during the year under review and 15 complaints/queries were pending as onMarch 31, 2006.

(iv) The Board of Directors of the Company has delegated the power of share transfer to the Share Transfer cum Shareholders GrievanceCommittee and the Registrars and Share Transfer Agents. The meetings of the Share Transfer cum Shareholders GrievanceCommittee to attend to share transfer formalities are held on fortnightly basis generally.

V. CEO & CFO Certification

The Managing Director & CEO and the Chief Financial Officer have certified to the Board of Directors of the Company that:

(a) They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge andbelief:

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(i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that mightbe misleading;

(ii) these statements together present a true and fair view of the Company’s affairs and are in compliance with existing accountingstandards, applicable laws and regulations.

(b) There are, to the best of their knowledge and belief, no transactions entered into by the Company during the year which arefraudulent, illegal or violate the Company’s code of conduct.

(c) They accept responsibility for establishing and maintaining internal controls for financial reporting and that they have evaluatedthe effectiveness of internal control systems of the Company pertaining to financial reporting and they have disclosed to theAuditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which they are awareand the steps they have taken or propose to take to rectify these deficiencies.

(d) They have indicated to the auditors and the Audit Committee:

(i) significant changes in internal control over financial reporting during the year;

(ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financialstatements; and

(iii) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management oran employee having a significant role in the Company’s internal control system over financial reporting.

VI. Report on Corporate Governance

The quarterly compliance report has been submitted to the Stock Exchanges where the Companies equity shares are listed in therequisite format duly signed by the Compliance Officer.

VII. Compliance

The non mandatory requirements as implemented in the Company are given separately in the Corporate Governance report.

The other information on Corporate Governance for the benefits of shareholders is as under:

GENERAL BODY MEETINGS

Location and time of General Meetings held in the last 3 years:

Year Type Date Venue Time

2003 AGM 31.07.2003 CMC Centre, Gachibowli 2.30 p.m.Old Mumbai Highway, Hyderabad

2004 AGM 30.08.2004 Bhartiya Vidya Bhavan Auditorium, 2.30 p.m.BVB Hyderabad Kendra No. 5-9-1105,

Basheerbagh-King Koti Road, Hyderabad – 500 029, A.P.2005 AGM 17.06.2005 -do- 2.30 p.m.

Whether Special Resolutions:

(a) Were put through postal ballot last year - NoDetails of voting pattern - N.A.Persons who conduct the postalballot exercise- - N.A.

(b) Are proposed to be conducted through - Nopostal ballot –

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• Means of Communication

Quarterly report sent to each household : The results of the Company are published in theof shareholders newspapers.

Quarterly results and in which newspaper : Results are normally published in Business Standardnormally published in. and in Eenadu (Telugu – Hyderabad edition).

Any website where displayed. : Yes, the results are displayed on the Company’s website www.cmcltd.com

Whether it also displays official news releases : Yes

Whether the website displays the presentation : Yes, the Company holds an Analysts Meet after themade to the institutional investors and to quarterly, half yearly and Annual Accounts, have beenthe analysts. adopted by the Board of Directors, where information is disseminated and

analysed.

General Shareholder InformationAnnual General Meeting:

(i) Date, time and Venue : Tuesday, June 27, 2006 at 2.30 p.m.

Bhartiya Vidya Bhavan AuditoriumBasheerbaghHyderabad-500029

(ii) Financial year : 1st April to 31st March

(iii) Date of Book Closure : Wednesday, June 21, 2006 to Tuesday, June 27, 2006(both days inclusive)

(iv) Dividend Payment Date : The dividend warrants will be posted on or before July 26, 2006.

(v) Listing:

The Stock Exchanges on which the Company’s shares are listed:

The Stock Exchange, The Calcutta Stock The National Stock ExchangeMumbai, Phiroze Exchange Association Ltd. Association of India Ltd.Jeejeebhoy Towers 7, Lyons Range Exchange Plaza, 5th FloorDalal Street Kolkata-700001 Plot No.C/1, G BlockMumbai-400001 Bandra-Kurla Complex

Bandra (E), Mumbai-400051(vi) Stock Code

The Stock Exchange, Mumbai : 517326The National Stock Exchange : CMC

(vii) Market price information

The reported high and low closing prices during the year ended March 31, 2006 on the National Stock Exchange and the Stock Exchange,Mumbai, where your Company’s shares are frequently traded, are given below:

National Stock Exchange The Stock Exchange, MumbaiMonth High (Rs.) Low (Rs.) High (Rs.) Low (Rs.)

April-05 676 470 650 468.00May-05 520 452 522 453.00June-05 549 460 530 491.05July-05 570 486 570 487.10Aug-05 525 481 520 474.00Sept-05 600 477 550 495.00Oct-05 550 470 550 470.00Nov-05 509 470 485 466.15Dec-05 500 465 540 461.10Jan-06 542 472 538 471.70Feb-06 542 490 543 435.00Mar-06 544 512 599 485.00

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(viii) Performance in Comparison to BSE SensexThe performance of the Company’s scrip on the BSE as compared to the Sensex is as under:

Month BSE Sensex CMC LIMITED

High Low High (Rs.) Low (Rs.)

April 2005 6649.42 6118.42 650.00 468.00May 2005 6772.74 6140.97 522.00 453.00June 2005 7228.21 6647.36 530.00 491.05July 2005 7708.59 7123.11 570.00 487.10August 2005 7921.39 7537.50 520.00 474.00September 2005 8722.17 7818.90 550.00 495.00October 2005 8821.84 7656.15 550.00 470.00November 2005 9033.99 7891.23 485.00 466.15December 2005 9442.98 8769.56 540.00 461.10January 2006 9945.19 9158.44 538.00 471.70February 2006 10422.65 9713.51 543.00 435.00March 2006 11356.95 10344.26 599.00 485.00

(ix) Registrars and Share Transfer Agents:

The Members are requested to correspond with the Company’s Registrars & Share Transfer Agents – M/s Karvy Computershare PrivateLimited quoting their folio number at the following address:

M/s Karvy Computershare Private LimitedKarvy House, 46, Avenue 4, Street No. 1,Banjara Hills, Hyderabad 500 034Tel: 040- 23312454/23320251Fax: 040-23311968Email: [email protected]

(x) Share Transfer SystemShares lodged for transfer at the Registrar’s address are normally processed and approved by Share Transfer cum ShareholdersGrievance Committee on a fortnight basis. All requests for dematerialisation of shares are processed and the confirmation is given tothe Depositories within 15 days. Grievances received from Members and other miscellaneous correspondence on change of address,mandates etc. are processed by the Registrars within 30 days.

(xi) Distribution of shareholding(a) Distribution of shareholding (no of shares) as on March 31, 2006:

No. of shares No. of % of Total no. of % of holdingshareholders shareholders shares

1-500 40850 99.20 941435 6.21501-1000 160 0.39 12458 0.821001-2000 70 0.17 108339 0.722001-3000 28 0.07 71739 0.473001-4000 7 0.02 24155 0.164001-5000 9 0.02 42836 0.285001-10000 18 0.04 137443 0.9110001 & above 38 0.09 13699475 90.43Total 41180 100.00 15150000 100.00Physical Mode 75 0.18 12007 0.08Electronic Mode 41105 99.82 15137993 99.92

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(b) Shareholding pattern as on March 31, 2006:

Category No. of shares Percentage of issuedheld share capital

Promoter-Tata Consultancy Services Limited 7744961 51.12Mutual Funds and UTI 1454046 9.59Banks 161056 1.07Financial Institutions/ Insurance Companies 2054855 13.57FIIs 1746442 11.53NRIs/Foreign Nationals 81209 0.54Private Bodies Corporates 335224 2.21Indian Public 1572207 10.37Total 15150000 100.00

(c) Top ten shareholders as on March 31, 2006:

Category Name No. of shares Percentage

Promoter Tata Consultancy Services Limited 7744961 51.12FII Aberdeen Asset Managers Ltd. A/c Aberdeen International

India Opportunities Fund (Mauritius) Limited 1426928 9.42FI Life Insurance Corporation of India 1083362 7.15Mutual Fund HDFC Trustee Co. Ltd. – HDFC Equity Fund 988173 6.52FI General Insurance Corporation of India 406941 2.69FI The New India Assurance Company Limited 234131 1.55Bank ICICI Bank Limited 158506 1.05FI The Oriental Insurance Company Limited 151942 1.00FII Aberdeen Asset Managers Ltd. A/c New India Investment Co (Mauritius) Limited 137000 0.90FII Citigroup Global Markets Mauritius Private Limited 125000 0.83

(xii) Dematerialisation of shares and liquidity99.92% of the equity shares have been dematerialised by about 99.82% of the total shareholders as on March 31, 2006. The Company’sshares can be traded only in dematerialised form as per SEBI notification. The Company has entered into Agreement with NSDL andCDSL whereby shareholders have the option to dematerialise their shares with either of the depositories. Equity shares are activelytraded in BSE and NSE.

(xiii) Outstandings GDRs/ADRs/Warrants or any convertible instruments, conversion date and likely impact on equityThe Company has not issued any GDRs/ADRs/Warrants or any convertible instruments.

(xiv) Plant locationsYour Company is not a manufacturing unit and thus not having any Plant. However, our offices are located in almost all metropolitancities in India.

(xv) Address for correspondenceThe Company Secretary & Head-LegalCMC LimitedPTI Building, 5th Floor4, Sansad MargNew Delhi-110001Tel.: 91-11-23736151-58Fax : 91-11-23736159Email: [email protected]

(xvi) Electronic Clearing Service (ECS)The Company is availing of the ECS facility to distribute dividend to those Members who have opted for it in metropolitan cities.

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NON-MANDATORY REQUIREMENTS(a) Remuneration Committee

The Company is having a Remuneration Committee consisting of Non-Executive Directors, with the Chairman being an IndependentDirector. The members of the Remuneration Committee are as follows:

- Dr KRS Murthy .. Chairman- Mr S Ramadorai- Mr Surendra Singh (w.e.f. January 11, 2006)- Mr C B Bhave

The scope and function of the Remuneration Committee is to review and fix the remuneration payable to the Executive Director of theCompany.

(b) Ethics & Compliance CommitteeThe Company has also an Ethics and Compliance Committee for the following purpose:- Set forth the policies relating to and oversee the implementation of the code of conduct for prevention of insider trading and

code of corporate disclosure practices.

- Take on record the status reports prepared by the compliance officer dealing in securities by the specified persons on monthlybasis.

- Decide penal action in respect of violation of the SEBI Regulations/code by any specified person.

During the year ended March 31, 2006, one meeting of Ethics & Compliance Committee was held on December 05, 2005.

The Composition of the Ethics and Compliance Committee and number of meetings attended by the Members are given below:

Name of Member Composition of the Ethics & Number of meetings attendedCompliance Committee

Mr Surendra Singh Chairman 01Mr R Ramanan Member -Mr Shardul Shroff Member 01Mr Vivek Agarwal, Member 01Company Secretary &Head - Legal

(c) Whistle Blower PolicyYour Company has established a mechanism called ‘Whistle Blower Policy’ for employees to report to the management instances ofunethical behavior, actual or suspected, fraud or violation of the Company’s code of conduct or ethics policy.

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DECLARATION OF THE MANAGING DIRECTOR & CEO

This is to certify that the Company has laid down Code of Conduct for all Board Members and Senior Management of the Company and thecopies of the same are uploaded on the website of the Company – www.cmcltd.com

Further certified that the Members of the Board of Directors and Senior Management personnel have affirmed having complied with theCode applicable to them during the year ended March 31, 2006.

Date : April 25, 2006 R RAMANANPlace : Mumbai MANAGING DIRECTOR & CEO

CORPORATE GOVERNANCE COMPLIANCE CERTIFICATE

The MembersCMC LimitedCMC CentreOld Mumbai Highway, GachibowliHyderabad - 500 032

We have examined all relevant records of CMC Limited (the Company) for the purpose of certifying of the conditions of the CorporateGovernance under Clause 49 of the Listing Agreement with Stock Exchanges for the financial year ended 31st March, 2006. We have obtainedall the information and explanations which to the best of our knowledge and belief were necessary for the purposes of certification.

The compliance of the conditions of Corporate Governance is the responsibility of the management. Our examination was limited to theprocedure and implementation thereof. This certificate is neither an assurance as to the future viability of the Company nor of the efficacyor effectiveness with which the management has conducted the affairs of the Company.

On the basis of our examination of the records produced explanations and information furnished, we certify that the Company has compliedwith:

(a) all the mandatory conditions of the Clause 49 of the Listing Agreement

(b) the following non-mandatory requirements of the said Clause 49.

� Set up Remuneration Committee� Set up Ethics & Compliance Committee� Established Whistle Blower Policy

Chandrasekaran AssociatesCompany Secretaries

Dr S ChandrasekaranDate : April 26, 2006 Senior PartnerPlace : New Delhi (Membership No. FCS 1644, CP 715)

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COMPANY SECRETARY’S RESPONSIBILITY STATEMENT

The Company Secretary confirms that the Company has:

i) maintained all the books of accounts and statutory registers required under the Companies Act, 1956 (“the Act”) and the rulesmade thereunder;

ii) filed all the forms and returns and furnished all the necessary particulars to the Registrar of Companies and/or authorities asrequired by the Act;

iii) registered all the particulars relating to charges in favour of Banks with the Registrar of Companies;

iv) issued all notices required to be given for convening of Board Meetings, Committee Meetings and Annual General Meetingwithin the time limit prescribed by Law;

v) conducted the Board Meetings, Committee Meetings and Annual General Meeting as per the Act;

vi) complied with all the requirements relating to the Minutes of the proceedings of the Meetings of the Board of Directors, Committeesand the Shareholders;

vii) made the disclosures required under the Act including those required in pursuance of the disclosures made by the Directors;

viii) obtained all necessary approvals of the Directors, Shareholders and other Authorities as per the requirements;

ix) effected share transfers and despatched the certificates within the statutory time limits;

x) not exceeded its borrowing powers;

xi) paid dividend amounts to the shareholders within the time limit prescribed;

xii) complied with the requirements of the Listing Agreement entered into with the Stock Exchanges.

The Company has also complied with other statutory requirements under the Companies Act, 1956 and other related Statutes.

For CMC LIMITED

Mumbai Vivek AgarwalApril 25, 2006 Company Secretary & Head - Legal

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AUDITORS’ REPORT

TO THE MEMBERS OFCMC LIMITED

1. We have audited the attached Balance Sheet of CMC Limited, as at 31 March, 2006, the Profit and Loss Account and theCash Flow Statement of the Company for the year ended on that date, both annexed thereto. These financial statementsare the responsibility of the Company’s Management. Our responsibility is to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. These Standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made byManagement, as well as evaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specifiedin paragraphs 4 & 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report that:

a) we have obtained all the information and explanations, which to the best of our knowledge and belief were necessaryfor the purposes of our audit;

b) in our opinion, proper books of account as required by law have been kept by the Company so far as appears fromour examination of those books;

c) the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement withthe books of account;

d) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report complywith the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

e) In our opinion and to the best of our information and according to the explanations given to us, the said accountsgive the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in

conformity with the accounting principles generally accepted in India:

i. in the case of the Balance Sheet, of the state of affairs of the Company as at 31 March, 2006;

ii. in the case of the Profit and Loss Account, of the profit of the Company for the year ended on that date; and

iii. in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

5. On the basis of written representations received from the directors, as on 31 March, 2006, and taken on record by theBoard of Directors, we report that none of the directors is disqualified as on 31 March, 2006, from being appointed as adirector in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;

For S.B. Billimoria & Co.Chartered Accountants

Mumbai Jitendra Agarwal15 April, 2006 Partner

(Membership No. 87104 )

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ANNEXURE TO THE AUDITORS’ REPORT(Referred to in paragraph 3 of our report of even date)

1. The nature of the Company’s business / activities during the year is such that clauses i(c), iii(b), iii(c), iii(d), iii(f ), iii(g), v(b),xii, xiii, xiv, xv, xix, xx are not applicable to the Company.

2. a. The Company has maintained proper records showing full particulars, including quantitative details and situation offixed assets.

b. The Company has a programme of physically verifying its fixed assets in a phased manner designed to cover allassets over a period of two years, which in our opinion is reasonable having regard to the size of the Company andthe nature of its business. In accordance with this programme, the Management had carried out a physical verificationof fixed assets at some locations during the year and necessary adjustments were made for discrepancies arising outof such verification.

3. a. As explained to us, inventory in the Company’s possession has been verified by the Management during the year atreasonable intervals. For materials lying with third parties or at customers’ sites aggregating to Rs. (000s) 40,092 inthe absence of confirmations from such parties, we have relied on certification from the respective Project Managers.

b. In our opinion the procedures of physical verification of inventory followed by the Management are reasonable andadequate in relation to the size of the Company and the nature of its business.

c. In our opinion, the Company has maintained proper inventory records. The discrepancies noticed between the physical

stocks and book records were not material and the same have been properly dealt with in the books of account.

4. The Company has not granted or taken any loans, secured or unsecured, to or from companies, firms or other partieslisted in the register maintained under Section 301 of the Companies Act, 1956.

5. In our opinion and according to the information and explanations given to us, there are adequate internal control systemscommensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assetsand for the sale of goods and services.

6. Based on the examination of the books of account and related records and according to the information and explanationsprovided to us, there are no contracts or arrangements with companies, firms or other parties which need to be listed inthe register maintained under Section 301 of the Companies Act, 1956.

7. The Company has not accepted any deposits from the public during the year.

8. In our opinion the Company has an adequate internal audit system commensurate with the size of the Company andnature of its business.

9. According to the information and explanations given to us, the Central Government has not prescribed the maintenanceof cost records under Section 209 (1)(d) of the Companies Act, 1956 for any of the products of the Company.

10. According to the information and explanations given to us and the records of the Company examined by us:

a. the Company has generally deposited its statutory dues including Provident Fund, Investor Education and ProtectionFund, Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty and Cess within theprescribed time with the appropriate authorities during the year and that there are no undisputed amounts payable

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in respect of these dues which have remained outstanding as at 31 March 2006 for a period of more than six monthsfrom the date they became payable. The Company’s operations do not give rise to any Excise Duty.

b. and as set out in note 23 of Schedule 16, dues of Sales Tax, Works Contract Tax and Service Tax aggregating toRs. (000s) 32,144 have not been deposited on account of various disputes as set out in the Attachment. We areinformed that there are no dues in respect of Income Tax, Wealth Tax, Customs Duty and Cess which have not beendeposited on account of any dispute.

11. The Company does not have any accumulated losses and has not incurred any cash losses during the current andimmediately preceding financial year.

12. Based on the examination of the books of account and related records and according to the information and explanationsprovided to us, the Company has not defaulted in repayment of dues to the banks. The Company has not taken any loansfrom financial institutions nor has it issued debentures.

13. According to the information and explanations given to us and the records of the Company examined by us, the Companyhas not obtained any term loans during the year.

14. According to the information and explanations given to us, and on an overall examination of the balance sheet of theCompany, funds raised on short-term basis have prima facie, not been utilised for long term investment.

15. The Company has not made any fresh allotment of equity shares during the year.

16. According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported

during the year.

For S.B. BILLIMORIA & CO.Chartered Accountants

Mumbai Jitendra Agarwal15 April, 2006 Partner

(Membership No. 87104)

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ATTACHMENT(Referred to in paragraph 10 b. of Annexure to the Auditors’ Report)

Information pursuant to clause 4(ix)(b) of Companies (Auditor’s Report) Order, 2003 as amended by Companies (Auditor’s Report)Order, 2004 in respect of dues disputed, not deposited with various authorities.

Nature of Dues Amount Financial Forum where(Rs./000s) Year/Period the dispute is pending

Sales taxA. West Bengal

i. Tax demand on enhancement of turnover 518 1987-88 Deputy Commissionerii. Tax demand on disallowance of credit for tax deducted at Commercial Taxes

source (TDS), concessional sales tax forms and set off 3,054 1997-98 to Deputy Commissionerof amount of tax paid to sub-contractors 2002-03 Commercial Taxes

3,572B. Bihar

i. Tax demand and penalty on enhancement of 3,919 1990-91, Commercialturnover and delay in filing of return. 1991-92 Taxes Tribunal

1992-93

C. Madhya PradeshTax demand and penalty imposed on enhancement of turnover. 438 1987-88 High Court

662 1990-91 & Assistant Commissioner 1991-92

1,100D. Orissa

i. Tax demand on disallowance of claim of service charges & of 384 1994-95, Assistant Commissionersales tax deducted at source. 2001-2002

2002-03ii. Tax demand on disallowance of claim of service & labour charges. 809 1995-96, Sales Tax Tribunal

1999-2000 &2000-01

1,193E. Uttar Pradesh

i. Tax demand on inter state sales deemed as intra state sales. 364 1994-95 Sales Tax Tribunalii. Tax demand on disallowance of non taxable turnover. 38 1996-97 DC – Appealsiii. Tax demand on disallowance of credit for tax deducted at 287 2002-03 Assessing Authority

source (TDS) and tax deposited through challans.689

F. Tamil Nadui. Tax demand on notional profit on cost of maintenance spares 120 1996-97 Appellate Assisstant

and on disallowance of concessional sales tax forms. 1998-99 CommercialG. Kerala

Tax demand for dispute on tax rate 49 1996-97 Assistant CommissionerH. Andhra Pradesh

Tax demand on sales assessed as works Contract 15,665 2002-03 Appellate DeputyCommissioner

Works Contract TaxA. Delhi

i. Tax demand on disallowance of input credit. 52 1999-00 Assessing Authorityii. Tax demand on re-computation of gross turnover on the basis

of tax deducted at source–certificates furnished 3,655 2002-03 Assessing Authority

Total 3,707

Service TaxA. Andhra Pradesh

Tax demand on Election Identity Card Projects. 1,745 2003-04 Commissioner of CentralExcise (Appeals)

Tax demand on Education & Training 385 2003-04 Tribunal

Total 2,130

Grand Total 32,144

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BALANCE SHEET AS AT 31 MARCH, 2006

Schedule As at As atRef. 31.3.06 31.3.05

Rs./000s Rs./000s

SOURCES OF FUNDS

1. Shareholders’ Funds(a) Share Capital 1 151,500 151,500(b) Reserves & Surplus 2 1,955,667 1,604,020

2,107,167 1,755,520

2. Loan Funds(a) Secured Loans 3 520,679 167,199(b) Unsecured Loans 4 150,000 650,000

670,679 817,199

3. Deferred Tax Liabilities (See Note 15) 68,799 61,454

2,846,645 2,634,173

APPLICATION OF FUNDS

4. Fixed Assets 5(a) Gross Block 1,313,478 1,266,965(b) Less: Depreciation 748,170 696,550

(c) Net Block 565,308 570,415

5. Investments 6 81,801 81,801

6. Current Assets, Loans & Advances(a) Inventories 7 523,596 320,034(b) Sundry debtors 8 2,330,232 2,483,831(c) Unbilled revenues 1,323,649 939,491(d) Cash and bank balances 9 265,033 131,178(e) Loans and advances 10 1,775,872 1,365,409

6,218,382 5,239,943

7. Less : Current Liabilities and Provisions 11 4,018,846 3,257,986

8. Net Current Assets 2,199,536 1,981,957

2,846,645 2,634,173

Notes forming part of the financial statements 16

As per our report attached For and on behalf of the Board

For S B Billimoria & Co S Ramadorai R Ramanan Dr K R S MurthyChartered Accountants Chairman Managing Director & CEO Director

Jitendra Agarwal J K Gupta Vivek Agarwalsain S Singh S ShroffPartner Chief Financial Officer Company Secretary & Head-Legal Director DirectorMembership No. 87104

Mumbai Mumbai15 April, 2006 15 April, 2006

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PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH, 2006

Schedule Year ended Year endedRef. 31.3.06 31.3.05

Rs./000s Rs./000s

INCOME1. Sales and Services 12 8,287,902 7,756,7382. Other Income 13 289,669 67,985

8,577,571 7,824,723EXPENDITURE3. Operating and other expenses 14 7,847,047 7,361,4554. Depreciation 91,021 91,5695. Interest (Net) 15 38,417 42,178

7,976,485 7,495,202

Profit Before Tax 601,086 329,5216. Provision for taxes

– Current income tax 135,342 105,514– Deferred income tax 7,345 (6,591)– Fringe benefit tax 17,299 –

Profit After Tax 441,100 230,5987. Balance brought forward

from previous year 1,439,070 1,309,269

Amount available for appropriations 1,880,170 1,539,8678. Appropriations

(a) General Reserve 44,110 23,060(b) Proposed Dividend 75,750 68,175(c) Tax on Proposed Dividend 10,624 9,562

(d) Balance carried to Balance Sheet 1,749,686 1,439,070

Basic and diluted Earnings Per Share (Rupees) (See note 20) 29.12 15.22

Notes forming part of the financial statements 16





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CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH, 2006Year ended Year ended

31.3.06 31.3.05

Rs./000s Rs./000s Rs./000sA. CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax* 601,086 329,521Adjustments for :

Depreciation 91,021 91,569Interest paid 41,466 45,560(Profit) /Loss on sale of fixed assets (246,581) (11,549)Bad debts/advances written off (net) 64,115 55,491Unclaimed balances/provisions written back (12,401) (29,873)Provision for doubtful debts 43,543 160,000Unrealised Foreign exchange loss (gain) (9,099) 8,483Fixed assets written off 869 2,875Transfer from capital reserve (3,079) (3,740)

(30,146)

Operating profit before working capital changes 570,940 648,337Adjustments for :

Trade and other receivables (487,052) (735,977)Inventories (203,562) (135,187)Trade payables and other liabilities 611,635 440,608

Cash generated from operations 491,961 217,781Direct taxes paid/deducted at source (252,898) (178,124)

NET CASH FROM/(USED) IN OPERATING ACTIVITIES (A) 239,063 39,657

B. CASH FLOW FROM INVESTING ACTIVITIESPurchase of fixed assets (103,035) (91,271)Sale of fixed assets 262,833 12,241

NET CASH FROM/(USED) IN INVESTING ACTIVITIES (B) 159,798 (79,030)

C. CASH FLOW FROM FINANCING ACTIVITIESInterest paid (41,201) (68,319)Proceeds/(Payment) of short term borrowings (146,520) 155,361Dividend paid (including dividend tax) (77,534) (93,869)

NET CASH FROM FINANCING ACTIVITIES (C) (265,255) (6,827)

NET INCREASE/(DECREASE) INCASH AND CASH EQUIVALENTS (A+B+C) 133,606 (46,200)

CASH AND CASH EQUIVALENTS AS ON 1 APRIL, 2005 [Excluding unrealised exchange difference of Rs. (‘000s) 952] 130,226 176,426

CASH AND CASH EQUIVALENTS AS ON 31 MARCH, 2006[Excluding unrealised exchange difference of Rs. (‘000s) 1,201] 263,832 176,426

* includes project grants from Government of Rs. (‘000s) 177 (Previous year Rs. (‘000s) 5,690)





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SCHEDULES FORMING PART OF THE ACCOUNTS

As at As at31.3.06 31.3.05

Rs./000s Rs./000s

Schedule 1 : SHARE CAPITAL

Authorised[35,000,000 (Previous year 35,000,000) equity sharesof Rs. 10 each] 350,000 350,000

Issued, Subscribed and Paid up15,150,000 (Previous year 15,150,000) equity sharesof Rs. 10 each fully paid up 151,500 151,500

Of the above:7,744,961 (Previous year 7,744,961) equity shares are heldby Tata Consultancy Services Limited, the holding company.

(See note 1)

Schedule 2 : RESERVES & SURPLUS

(a) Capital Reserve(Grants from Government of India)

(i) Opening balance 4,521 8,261(ii) Less: Transferred to Profit and Loss Account 3,079 3,740

(iii) Closing balance 1,442 4,521

(b) General Reserve(i) Opening balance 160,429 137,369(ii) Add: Transferred from Profit and Loss account 44,110 23,060


(c) Profit and Loss account 1,749,686 1,439,070

1,955,667 1,604,020

Schedule 3 : SECURED LOANS

From banksCash credit accounts 120,679 167,199Short term loan 400,000 –

520,679 167,199

Note:1. Cash credits and short term loan from banks are secured by hypothecation of inventories, debtors and other current assets.2. Loans repayable within one year Rs. ‘(000s) 400,000 (Previous year Nil)

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As at As at31.3.06 31.3.05

Rs./000s Rs./000s

Schedule 4 : UNSECURED LOANS

a. Short Term Loans(i) From banks 100,000 350,000(ii) Commercial paper 50,000 300,000

150,000 650,000

Note:1. Loans repayable within one year Rs. ’(000s) 150,000 {(Previous year Rs. ‘(000s) 650,000}2. Maximum amount outstanding on commercial paper during the year Rs. ‘(000s) 300,000 {Previous year Rs. ‘(000s) 300,000}

Schedule 5 : FIXED ASSETS (See note 6)(All amounts in Rs./000s)

GROSS BLOCK DEPRECIATION NET BLOCK

Particulars As at Additions Deductions/ As at As at For the Deductions/ As at As at As at01.04.05 Adjustments 31.03.06 01.04.05 year Adjustments 31.03.06 31.03.06 31.03.05

(a) Land(i) Leasehold 59,197 – – 59,197 8,133 758 – 8,891 50,306 51,064(ii) Freehold 1,796 – 1,191 605 – – – – 605 1,796

(b) Buildings(i) Leasehold 16,008 159 – 16,167 8,576 3,501 – 12,077 4,090 7,432(ii) Freehold 326,764 – 21,380 305,384 63,026 5,103 7,117 61,012 244,372 263,738

(c) Plant & Machinery(i) Computers 533,035 70,001 27,614 575,422 390,897 61,535 26,973 425,459 149,963 142,138(ii) Office and

other equipment 44,467 3,802 999 47,270 25,529 2,120 788 26,861 20,409 18,938(iii) Others 168,674 16,488 3,067 182,095 145,862 9,823 3,017 152,668 29,427 22,812

(d) Furniture & Fittings 91,953 10,984 2,271 100,666 52,754 7,658 1,506 58,906 41,760 39,199

(e) Vehicles 4,718 1,136 – 5,854 1,773 523 – 2,296 3,558 2,945

TOTAL 1,246,612 102,570 56,522 1,292,660 696,550 91,021 39,401 748,170 544,490 550,062

(f) Capital work-in-progress 20,353 8,992 8,527 20,818 – – – – 20,818 20,353

GRAND TOTAL 1,266,965 111,562 65,049 1,313,478 696,550 91,021 39,401 748,170 565,308 570,415

Previous Year 1,310,466 95,782 139,283 1,266,965 736,186 91,569 131,205 696,550 570,415 574,280

As at As at31.3.06 31.3.05

Rs./000s Rs./000s

Schedule 6 : INVESTMENTS (At cost)

Long-term, trade investments (unquoted)

160,001,000 (Previous year 160,001,000)non-assessable shares of USD 0.01 each, fully paid upin CMC Americas Inc., USA(formerly known as Baton Rouge International Inc.),a wholly owned subsidiary. 81,801 81,801

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As at As at31.3.06 31.3.05

Rs./000s Rs./000s

Schedule 7 : INVENTORIES

(a) Finished goods - equipment for resale 477,952 273,139(b) Components/spares for maintenance and resale 33,692 40,031(c) Education and training material 8,858 5,917(d) Work-in-progress 3,094 947

523,596 320,034

Note: Finished goods include goods in transit Rs. ‘(000s) 40,089 (Previous year Rs. ‘(000s) 4,249)

Schedule 8 : SUNDRY DEBTORS

a. Over six months old (unsecured):Considered good 387,326 521,953Considered doubtful 222,274 179,049

609,600 701,002b. Others (unsecured):

Considered good 1,927,552 1,946,117

2,537,152 2,647,119Less: Provision for doubtful debts 222,274 179,049

2,314,878 2,468,070

c. Future lease installments receivable (unsecured) (See note 16b) 45,422 53,209Less: Unearned finance and service charges 30,068 37,448

15,354 15,761

2,330,232 2,483,831

Notes:1. (i) Debtors include amounts due from a subsidiary company 123,867 134,582

(ii) Maximum balance outstanding during the year 123,867 186,235

2. (i) Debtors include amounts due from the holding company 531,636 88,079(ii) Maximum balance outstanding during the year 531,636 95,248

Schedule 9 : CASH AND BANK BALANCES

(a) Cash on hand [including stamps on hand 1,642 1,877Rs. ‘(000s) 22 (Previous year Rs. ‘(000s)27)]

(b) Cheques/demand drafts on hand 24,217 48,905(c) Balance with scheduled banks in:

(i) Current accounts 37,541 31,190(ii) Cash credit accounts 89,438 38,411(iii) Deposit accounts* 112,195 10,795

265,033 131,178

*includes Rs. ‘(000s) 6,195 on account of fixed deposits pledged withcustomers as security (Previous year Rs. ‘(000s) 6,295)

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As at As at31.3.06 31.3.05

Rs./000s Rs./000s

Schedule 10 : LOANS AND ADVANCES

(a) Advances recoverable in cash or in kind orfor value to be received* 434,059 276,191

(b) Advance income tax and tax deducted at source 1,351,504 1,098,606(including Fringe bebefit tax Rs. ‘(000s) 16,645) 1,785,563 1,374,797

(c) Less: Advances considered doubtful 9,691 9,388

1,775,872 1,365,409(d) Of the above, amounts :

(i) Fully secured 55,520 68,514(ii) Unsecured, considered good 1,720,352 1,296,895(iii) Considered doubtful 9,691 9,388

1,785,563 1,374,797Notes:1. Amounts due from directors — —2. Maximum amounts due from directors during the year — 3453. * includes deposits with Customs, Octroi, Electricity Boards etc. 21,954 10,525

Schedule 11 : CURRENT LIABILITIES AND PROVISIONS

LIABILITIES(a) Sundry Creditors* 1,617,071 1,394,410(b) Customers’ security deposits and credit balances and

advance against supplies and services to be rendered 432,378 226,036(c) Unclaimed dividend 1,053 850(d) Unearned revenue 571,978 418,348(e) Other liabilities 82,902 34,846(f) Interest accrued but not due 406 141

2,705,788 2,074,631PROVISIONS(a) Provision for taxation 1,147,738 1,018,597(b) Provision for fringe bebefit tax 17,299 —(c) Proposed dividends 75,750 68,175(d) Provision for Tax on Proposed dividends 10,624 9,562(e) Provision for leave encashment 61,647 87,021

1,313,058 1,183,355

4,018,846 3,257,986

*Sundry Creditors include:Due to Small Scale Industrial Undertakings 1,143 1,330Due to Others 1,615,928 1,393,080

1,617,071 1,394,410

The names of small scale industrial undertakings to whom the company owes a sum outstanding for more than 30 days aggregatingto Rs. ‘(000) 857 (Previous year Rs. ‘(000) 1,320 are CCS Infotech Limited, Numeric Power Systems Limited, Venus Plastics Limited, Accel ICIMSYS & SERV Limited, Valrack Modular, B. Joy & Works, Victoria Forms, Quality Forms Private Limited.

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Year ended Year ended31.3.06 31.3.05

Rs./000s Rs./000s

Schedule 12 : SALES AND SERVICES

(a) Sale of purchased equipment 3,761,689 3,786,192(b) Services

(i) Software services 2,582,868 2,274,076(ii) Maintenance services 777,006 817,840(iii) Other services 770,597 604,917

(c) Education and training 382,368 264,908(d) Lease rentals 13,374 8,805

8,287,902 7,756,738

Note: Lease rentals include income Rs. ‘(000s) 10,053(Previous year Rs. ‘(000s) 1,564 ) under finance leases.

Schedule 13 : OTHER INCOME

(a) Project Grants from Government 177 5,690(b) Gain on foreign exchange fluctuations (Net of loss) 4,327 —(c) Profit on sale of fixed assets (Net of loss) 246,581 11,549(d) Transfer from capital reserve. (See note 2e) 3,079 3,740(e) Unclaimed balances/provisions written back 12,401 29,873(f ) Miscellaneous income 23,104 17,133

289,669 67,985

Schedule 14 : OPERATING AND OTHER EXPENSES

1. Equipment Purchased for Resale 3,659,413 3,664,092

2. Payments to and Provisions for Employees(a) Salaries, allowances and incentives 1,369,384 1,242,242(b) Contribution to provident and other funds 112,034 91,713(c) Staff welfare expenses 108,045 84,632

Sub-Total 1,589,463 1,418,587

3. Operating and Administration Expenses(a) Components/spares for maintenance and resale 255,850 173,277(b) Sub-contracted/outsourced services 616,048 433,997(c) Purchased software 42,799 34,481(d) Freight, handling and packing expenses 34,571 21,123(e) Rental of P&T lines and leased equipment 18,100 10,820(f ) Rent and hire charges 59,336 50,354(g) Rates and taxes 10,125 20,371(h) Repairs and maintenance:

(i) Building 32,748 32,027(ii) Plant and machinery 31,370 11,075(iii) Other 11,227 12,082

(i) Electricity charges 60,334 51,733(j) Insurance 7,284 5,223

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(k) Travelling and conveyance 230,961 197,404

(l) Printing, stationery and computer consumables 21,167 33,433

(m) Postage, telephone and courier 53,416 52,699

(n) Advertisement, publicity and business promotion 14,114 13,633

(o) Directors’ fees 540 550

(p) Professional and legal fees 43,037 18,159

(q) Education and training :

(i) Payments to franchisees 99,838 90,521

(ii) Other expenses 92,558 59,441

(r) Living expenses – overseas contracts 688,645 645,718

(s) Bad debts/advances written off 64,115 55,491[net of bad debts recovered Rs.’(000s) 912](Previous year Rs.’(000s) 5,174]

(t) Provision for doubtful debts 43,543 160,000

(u) Fixed assets written off (net) 869 2,875

(v) Loss on foreign exchange fluctuations (Net of Gain) – 12,474

(w) Other expenses (see note 17) 65,576 79,815

Sub-Total 2,598,171 2,278,776

Total 7,847,047 7,361,455


Rs./000s Rs./000s

Schedule 14 : OPERATING AND OTHER EXPENSES (Contd.)

Schedule 15 : INTEREST

1. Interest expense

(a) On fixed loans

(i) Government of India loans — 89

(ii) Other short term loans 34,217 28,206

(b) Cash credit accounts with banks 6,785 16,781

(c) Others 464 484

41,466 45,5602. Less: Interest earned

(a) Loans and advances 541 513

(b) Fixed deposits with banks [Tax deducted at sourceRs. ‘(000s) 188 (Previous year Rs. ‘(000s) 185)] 1,614 883

(c) Others [Tax deducted at source Rs. ‘(000s) 93(Previous year Rs. ‘(000s) 440)] 894 1,986

3,049 3,382

38,417 42,178

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Schedule 16 : NOTES FORMING PART OF THE ACCOUNTS

1. Background

CMC Limited (“the Company”) is engaged in the design, development and implementation of software technologies and applications,providing professional services in India and overseas, and procurement, installation, commissioning, warranty and maintenance ofimported/ indigenous computer and networking systems, and in education and training.

The Company was a Government of India (GoI) enterprise up to 15 October, 2001. Under the disinvestment process, GoI sold 7,726,500shares representing 51 percent of the share capital to Tata Sons Limited, on 16 October, 2001. The GoI further sold its entire remainingshares representing 26.25 percent of the share capital, in March 2004 by an open offer to the public.

On 29 March, 2004, as per specific approval granted by SEBI, Tata Sons Limited transferred its entire shareholding in the Company toTata Consultancy Services Limited (a subsidiary of Tata Sons Limited). As a result, the Company has become a subsidiary of TataConsultancy Services Limited.

2. Significant Accounting Policies

a. Basis of accountingThe financial statements have been prepared under the historical cost convention and comply with the Accounting Standardsprescribed by the Institute of Chartered Accountants of India and referred to in Section 211(3)(c) of the Companies Act, 1956.

b. Use of estimatesThe preparation of financial statements requires the management of the Company to make estimates and assumptions thataffect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of thefinancial statements and reported amounts of income and expenses during the period. Example of such estimates includeprovisions for doubtful debts, employee retirement benefit plans, provision for income taxes, accounting for contract costs expectedto be incurred to complete software development and the useful lives of fixed assets.

c. Fixed assets and depreciation

i. All fixed assets are stated at cost. Cost includes purchase price and all other attributable costs of bringing the assets toworking condition for intended use.

ii. Fixed assets acquired out of grants, the ownership of which rests with the grantor, are capitalised at cost.iii. Depreciation on all assets is charged proportionately from the date of acquisition/installation on straight line basis at rates

prescribed in Schedule XIV of the Companies Act, 1956 except in respect of:

• Leasehold assets that are amortised over the period of lease.• Computers, Plant and Machinery - (other items), that are depreciated over six financial years.

d. Revenue Recognition

i. Revenue relating to equipment supplied is recognised on delivery to the customer and acknowledgement thereof, inaccordance with the terms of the individual contracts.

ii. Revenue from software development on fixed price contracts is recognised according to the milestone achieved as specifiedin the contract, and is adjusted on the “proportionate completion” method based on the work completed.

iii. On time and material contracts, revenue is recognised based on time spent as per the terms of the specific contracts.

iv. Revenue from warranty and annual maintenance contracts is recognised over the life of the contracts. Maintenance revenueon expired contracts on which services have continued to be rendered is recognised on renewal of contract or on receipt ofpayment.

v. Revenue from “Education and Training” is recognised on accrual basis over the course term.

vi. Dividend income is recognised when the Company’s right to receive dividend is established.

e. Grants

i. Grants received for capital expenditure incurred are included in “Capital Reserve”. Fixed assets received free of cost areconsidered as a grant and are capitalised at notional value with a corresponding credit to the Capital Reserve account.

An amount equivalent to the depreciation charge on such assets is appropriated from capital reserve and recognised asrevenue in the Profit and Loss Account.

ii. Grants received for execution of projects is recognised as revenue to the extent utilized.

iii. Unutilised grants are shown under other liabilities.

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f. Inventories

Inventories include finished goods, stores and spares, work-in progress and education and training material.

i. Inventories of finished goods mainly comprising equipment for resale are valued at the lower of cost (net of provision forobsolescence) or net realisable value.

ii. Inventories of stores and spares are valued at cost, net of provision for diminution in the value. Cost is determined on weightedaverage cost basis.

iii. Inventories of “Education and Training material” are valued at the lower of cost and net realisable value. Cost is determinedon the “First In first Out” basis.

iv. Work-in-progress comprises cost of infrastructural facilities in the process of installation at customers’ sites. These are valuedat cost paid/payable to sub-contractors.

g. Research and Development Expenses

Research and development costs of revenue nature are charged to the Profit and Loss account when incurred. Expenditure ofcapital nature is capitalised and depreciated.

h. Foreign exchange transactions

Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. Monetary itemsdenominated in foreign currency and outstanding at the Balance Sheet date are translated at the exchange rate ruling on thatdate. Exchange differences, other than on foreign currency loans to acquire fixed assets from countries outside India are recognizedin the profit and loss account. In case of forward contracts for foreign exchange, the difference between the forward rate and theexchange rate at the date of the transaction are recognised over the life of the contract.

i. Investments

Long-term investments are stated at cost, less any permanent diminution in value, if any.

j. Leases

Assets given under finance leases are recognised as receivables at an amount equal to the net investment in the lease and thefinance income is based on a constant rate of return on the outstanding net investment.

Lease arrangements where the risks and rewards incident to ownership of an asset substantially vest with the lessor, are recognizedas operating leases. Lease rents under operating leases are recognized in the profit and loss account on a straight line basis.

k. Retirement benefits

i. The Company’s contribution to the Employees’ Provident Fund is deposited in a trust formed by the Company under theEmployees’ Provident Fund and Miscellaneous Provisions Act, 1952 which is recognised by the Income-tax authorities. Suchcontributions are charged to the profit and loss account each year.

ii. Gratuity to employees is based on the Group Gratuity Scheme of the Life Insurance Corporation of India. Contributionsmade to the Scheme are expensed in the year.

iii. The balance of unavailed leave due to employees has been provided on the basis of actuarial valuation.

l. Provision for taxation

Income tax comprises of current tax and deferred tax. Deferred tax assets and liabilities are recognised for the future taxconsequences of timing differences, subject to the consideration of prudence. Deferred tax assets and liabilities are measuredusing the tax rates enacted or substantively enacted by the Balance Sheet date.

m. Impairment

At each balance sheet date, the Company reviews the carrying amounts of its fixed assets to determine whether there is anyindication that those assets suffered an impairment loss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extend of impairment loss. Recoverable amount is the higher of an asset’s net selling priceand value in use. In assessing value in use, the estimated future cash flows expected from the continuing use of the asset and fromits disposal are discounted to their present value using a pre-discount rate that reflects the current market assessments of timevalue of money and the risks specific to the asset.

Reversal of impairment loss is recognised immediately as income in the profit and loss account.

n. Earnings per Share

The earnings considered in ascertaining the Company’s’ EPS comprises the net profit after tax. The number of shares used incomputing Basic EPS is the weighted average number of shares outstanding during the year.

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3. Segment Information

i. Business segments

Based on similarity of activities, risks and reward structure, organisation structure and internal reporting systems, the Companyhas structured its operations into the following segments:

Customer Services (CS): Hardware supplies and maintenance, facilities management and provision of infrastructure facilities.

Systems Integration (SI): Systems study and consultancy, software design, development and implementation, softwaremaintenance and supply of computer hardware in accordance with customers’ requirements.

IT Enabled Services (ITES) - (Formerly Indonet): Value added services, data network, data center services, web design andhosting etc.

Education and Training (E&T): IT education and training service through its own centers and through franchisees.

Segment revenue and expenses include amounts, which are directly identifiable to the segment and allocable on a reasonablebasis. Segment assets include all operating assets used by the segment and consist primarily of debtors, inventory and fixedassets. Segment liabilities include all operating liabilities and consist primarily of creditors, advances/deposits from customersand statutory liabilities.

ii. Geographic segments

The Company also provides services overseas, primarily in the United States of America, United Kingdom and Middle East & AfricaRegion.

4. Research and Development Expenses

Expenditure includes “Research and Development” expenditure aggregating to Rs. ’(000s) 115,980 (Previous year Rs. ’(000s) 98,878).Amounts aggregating to Rs. ’(000s) 2,086 (Previous year Rs. ’(000s) 2,267) have been capitalised.

5. Contingent liabilities and commitments

At at As at31.03.06 31.03.05

Rs./000s Rs./000sa. Claims against the company not acknowledged as debts

� Liability on income tax 18,838 16,337� Under litigation 32,661 29,011� ESI Demand 280 280� Disputed demands raised by Sales tax authorities for

which the Company has gone on appeal against the department* 31,350 17,083b. Unexpired Letters of Credit 435,418 622,643c. Guarantees issued by bankers against Company’s counter guarantee 12,77,283 11,94,973d. Others 26,540 20,523e. Sales tax on leased assets 3,726 3,749f. Estimated amount of contracts remaining to be executed on capital

account (net of advances) and not provided for 82,862 21,080

* No provision is considered necessary since the Company expects favourable decisions.

6. Fixed Assets

Gross Block as at 31 March, 2006 includes:

a. Assets acquired from Grants and aggregating to Rs. ’(000s) 41,865 (Previous year Rs. ’(000s) 41,865) being the property ofGovernment of India. The depreciation for the year on such assets is Rs. ’(000s) 3,079 (Previous year Rs. ’(000s) 3,740) and theaccumulated depreciation at the year end is Rs. ’(000s) 40,495 (Previous year Rs.’(000s) 37,416).

b. Assets aggregating to Rs. ’(000s) 7,210 (Previous year Rs. ’(000s) 7,210) received free of cost. The depreciation for the year on suchassets is Rs. Nil (Previous year Rs. Nil) and the accumulated depreciation thereon is Rs.’(000s) 7,138 (Previous year Rs. ’(000s) 7,138).

c. Plant and machinery given on lease aggregating to Rs. ’(000s) 30,198 (Previous year Rs. ’(000s) 30,198). The depreciation for theyear is Rs. ’(000s) 3,498 (Previous year Rs. ’(000s) 5,159), the accumulated depreciation thereon being Rs. ’(000s) 24,029 (Previousyear Rs. ’(000s) 20,531).

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7. Investments

CMC Americas Inc. the Company’s wholly owned subsidiary, had accumulated losses aggregating to Rs.’(000s) 1,567 (Previous yearRs.’(000s) 45,320) as at 31 March, 2006 resulting in a diminution in its net worth.

Keeping in view the improved performance of the subsidiary and the long term involvement of the Company in the subsidiary, nodiminution in the value of the investment is considered necessary by the Management.


Rs./000s Rs./000s8. Earnings in foreign currency

a. Export (Services) 692,871 932,650

b. Export (Hardware) 11,351 287,934

c. Technical consultancy services & others 105,215 11,786

9. Expenditure in Foreign Currency

a. Living allowance 139,185 304,924b. Travel 6,275 16,742c. Material cost 10,024 277,642d. Overseas branch expenses and Others 29,823 110,820

10. Remittances in foreign currencies for dividends

The particulars of dividend paid to non-resident shareholders during the year :

Units Year ended Year ended31.03.06 31.03.05

No. of non-resident shareholders Nos. 20 24No. of shares held by them Nos. 8,700 10,150Gross amount of dividend Rs. /000s 39 56Year to which dividends relate 2004-05 2003-04

11. Value of imports (calculated on CIF basis)a. Equipment /System software 1,606,770 903,074b. Stores and spares 4,019 19,322c. Capital equipment 138,001 66,701

12. Goods in Transit exclude customs duty pending clearance Rs. ‘(000s) 112 (Previous year Rs. ‘(000s) 123).

13. Managerial Remuneration

a. Managerial Remuneration for Directors’(excluding provision for encashable leave and gratuityas separate figures for Whole-time Directors is not available). 879 783

b. The above is inclusive of:• Estimated expenditure on perquisites [includes Rs. (000s) Nil

(Previous year Rs. (000s) Nil) paid towards retirement benefits] 318 222• Contribution to Provident and Superannuation Fund 55 55

c. Directors sitting fees 540 550

14. Information in regard to Purchases, Sales, Opening and Closing StocksComputer equipment and Peripherals


Nos. Rs./000s Nos. Rs./000sOpening stock 13,579 268,890 7,741 115,501Purchases 236,862 3,828,386 239,485 3,817,480Sales 219,454 3,758,571 233,647 3,786,192Closing stock* 30,987 437,863 13,579 268,890

* does not include goods in transit Rs. ‘(000s) 40,089 (Previous year Rs. ‘(000s) 4,249).

The quantitative details relate to quantities of main sub-systems whereas amounts include revenues relating to components as well, for which amountscan not be segregated.

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15. Taxes

a. Current income tax includes taxes deducted in foreign jurisdiction Rs.’(000s) 6,201 (Previous year Rs.’(000s) 11,962).b. Deferred tax assets and liabilities are being offset as they relate to taxes on income levied by the same governing taxation laws.c. Break up of deferred tax assets/liabilities and reconciliation of current year deferred tax charge.

(All amounts in Rs./000s)

Opening Charged/ Closing(Credited)

to P&L(i) Deferred Tax Liabilities:

Tax impact of difference between carrying amount offixed assets in the financial statements and the income tax return 98,389 2,438 100,827

(ii) Deferred Tax Assets:Tax impact of expenses charged in the financial statementsbut allowable as deductions in future years under income tax 36,935 (4,907) 32,028

Net Deferred Tax Liability (i-ii) 61,454 7,345 68,799

16. Lease Commitments

a. Operating LeaseThe Company has taken property on operating lease and has recognized rent of Rs. (‘000) 6,242 (Previous Year Rs. (‘000) 2,865)The total of future minimum lease payments under leases for the following periods:-

Particulars Year ended Year ended31.03.06 31.03.05

(Rs./000s) (Rs./000s)

a. Not later than one year 7,648 2,864b. Later than one year but not later than five years 9,493 6,924

b. Finance LeaseThe Company has purchased and given on lease computer equipment, peripherals and system software. The details are asfollows:-

Particulars As at As at31.03.06 31.03.05Rs./000s Rs./000s

a. Total gross investment 45,422 53,209b. Present value of Minimum Lease Payments receivable 15,354 15,761c. Total gross investment for the period 45,422 53,209

• Not later than one year 7,786 7,787• Later than one year but not later than five years 31,147 38,933• Later than five years 6,489 6,489

d. Present value of Minimum Lease Payments receivable 15,354 15,761• Not later than one year 689 407• Later than one year but not later than five years 9,594 10,076• Later than five years 5,071 5,278

e. Unearned Finance Income 30,068 37,448

17. Auditors’ Remuneration

Other expenses include Auditors’ remuneration as follows:Year ended Year ended

31.03.06 31.03.05(Rs./000s) (Rs./000s)

Statutory Audit 1,500 1,200Tax audit 600 400Other services 1,040 1,085Reimbursement of service tax 320 268Reimbursement of out-of-pocket expenses 244 373

3,704 3,326

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18. Pending RBI approval, certain anticipated losses from past international operations amounting to Rs.’(000s) 8,089 (Previous year Rs.’(000s)8,089), which stands provided for, are not written off.

Sanction of Reserve Bank of India for expenditure incurred on overseas operations amounting to Rs.’(000s) 3,436 (Previous year Rs.’(000s)3,436) during the year 1991-92 has not yet been received.

19. Related Party Disclosures

a. List of related partiesi. Company holding substantial interest in voting power of the Company

• Tata Sons Limited (the ultimate holding Company)• Tata Consultancy Services Limited (the holding Company)

ii. Fellow Subsidiaries• Tata AIG General Insurance Company Limited• Tata AIG Life Insurance Company Limited• Tata Teleservices Limited• Tata Consultancy Services, Netherlands BV• Tata Consultancy Services, Deutshland GmbH• Tata Consultancy Services, Sverige AB

iii. Subsidiary• CMC Americas, Inc. (formerly Baton Rouge International, Inc.)

iv. Key Management Personnel• Mr. R. Ramanan

b. Transactions /balances outstanding with Related Parties.(All amounts in Rs./ 000s)

Transactions/ Holding Subsidiary Fellow Key TotalOutstanding Company Company Subsidiary ManagementBalances Personnel

Purchase of goods /services 541,764 77,674 11,570 — 631,008(note a)

(392,638) (248,827) (2,546) — (644,011)Sale of goods 1,312,689 23,629 32,533 — 1,368,851

( note b)(309,557) — (9,260) — (318,817)

Service Income 1,233,975 789,416 23,476 — 2,046,867(note c)

(839,350) (573,737) (208,409) — (1,621,496)Managerial Remuneration — — — 879 879

— — — (783) (783)Debtors/Unbilled revenues 824,129 191,756 37,014 — 1,052,899outstandings at year end (note d)

(285,903) (134,582) (108,894) — (529,379)Creditors / Advances at year end 117,948 61,978 9,281 — 189,207

(16,160) — (note e) — (16,160)Loans/ advances at year end — — — — —

Other transactions * 34,852 — — — 34,852(42,597) — — — (42,597)

*Includes dividend paid to holding Companya. Of this amount Rs.’(000s) 8,641 pertains to Tata Consultancy Services Netherlands BV and Rs.’(000s) 1,991 pertains to Tata Teleservices

Limited.b) Of this amount Rs.’(000s) 32,031 pertains to Tata Teleservices Limited.c) Of this amount Rs.’(000s) 21,088 pertains to Tata Consultancy Services Sverige AB.d) Of this amount Rs.’(000s) 21,135 pertains to Tata Consultancy Services Sverige AB, Rs.’(000s) 4,908 pertains to Tata Consultancy Services

Deutschland GmbH and Rs.’(000s) 8,297 pertains to Tata Teleservices Limited.e) Of this amount Rs.’(000s) 8,641 pertains to Tata Consultancy Services Netherlands BV.Note: Amounts in brackets represent previous year’s figures.

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49

20. Earnings per shareUnits Year ended Year ended

31.03.06 31.03.05

Net profit attributable to shareholders Rs./000s 441,100 230,598Weighted average number of equity shares in issue Nos. 000s 15,150 15,150Basic earning per share of Rs.10 each Rs. 29.12 15.22

The Company does not have any outstanding dilutive potential equity shares.


a. Financial information about the primary business segments is given below: (All amounts in Rs./000s)

Customer System ITES Education TotalServices Integration and Training

i. SEGMENT REVENUE– Sales and Services 5,282,687 2,309,096 314,249 381,870 8,287,902

(5,052,081) (2,237,857) (191,531) (275,269) (7,756,738)– Other Income 1,984 8,306 558 569 11,417

(14,873) (18,915) (239) (5,938) (39,965)ii. SEGMENT RESULTS 330,044 443,020 15,099 73,205 861,368

(325,175) (319,650) (10,260) (34,263) (689,348)iii. UNALLOCABLE EXPENSES 221,865

(net of unallocable income) (317,649)

iv. OPERATING PROFIT 639,503(371,699)

v. INTEREST EXPENSE (NET) 38,417(42,178)

vi. PROVISION FOR TAX- Current income tax 135,342

(105,514)- Deferred income tax 7,345

(-6,591)- Fringe benefit tax 17,299

—

vii. NET PROFIT 441,100(230,598)

viii. OTHER INFORMATIONSegment assets 2,768,744 1,476,812 230,811 139,919 4,616,286

(2,741,223) (1,029,846) (151,864) (81,856) (4,004,789)Unallocable assets 2,249,205

(1,887,370)

TOTAL ASSETS 6,865,491(5,892,159)

Segment liabilities 1,793,982 474,833 186,820 121,377 2,577,012(1,604,608) (303,186) (101,109) (67,558) (2,076,461)

Unallocable liabilities 2,181,312(2,060,178)

TOTAL LIABILITIES 4,758,324(4,136,639)

Capital Expenditure 31,752 38,135 1,289 17,430(12,774) (45,593) (6,354) (12,447)

Depreciation 15,800 30,340 4,104 6,573(19,736) (42,931) (5,323) (8,673)

Non-cash expenses other 44,794 64,853 4,632 487than depreciation (39,401) (184,234) (11,838) (503)

i. Unallocated assets include investments, advance tax and tax deducted at source.ii. Unallocated liabilities include secured/unsecured loans, deferred tax/current tax liabilities, proposed dividend and tax on proposed

dividend.iii Amounts in brackets represent previous year’s figures.

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CMC Limited


50

22. Information pursuant to clause 4(ix)(b) of Companies (Auditor’s Report) Order, 2003 as amended by Companies (Auditor’s Report)(Amendment) Order, 2004 in respect of dues disputed, not deposited with various authorities.

Nature of Dues Amount Financial Forum where the(Rs./000s) Year/Period dispute is pending

SALES TAXA. West Bengal

i. Tax demand imposed on enhancement of turnover 518 1987-88 Deputy Commissioner-Commercial Taxes

ii. Tax demand on disallowance of credit for tax 3,054 1997-98 to Deputy Commissioner-deducted at source (TDS), concessional sales tax 2002-03 Commercial Taxesforms and set off of amount of tax paid tosub-contractors 3,572

B. Bihari. Tax demand and penalty imposed on enhancement 3,919 1990-91, Commercial Taxes Tribunal

of turnover during assessment and delay in filling of return. 1991-92 to1992-93

3,919

C. Madhya Pradeshi. Tax demand and penalty imposed on 438 1987-88 High Court

enhancement of turnover662 1990-91 & Assistant Commissioner

1991-921,100

D. Orissai. Tax demand on disallowance of claim of service 384 1994-95, Assistant Commissioner

charges & of sales tax deducted at source. 2001-02 &2002-03

ii. Tax demand on disallowance of claim of service 809 1995-96, Sales Tax Tribunal& labour charges. 1999-2000 &

2000-011,193

E. Uttar Pradeshi. Tax demand on inter state sales deemed as intra state sales. 364 1994-95 Sales Tax Tribunalii. Tax demand on disallowance of non taxable turnover 38 1996-97 DC-Appealsiii Tax demand on disallowance of credit for tax deducted 287 2002-03 Assessing Authority

at source (TDS) and tax deposited through challans.689

b. Geographical Segment(All amounts in Rs./000s)

India United Stated United Others Totalof America Kingdom

SEGMENT REVENUE- Sales and Services 7,382,650 691,526 104,514 109,212 8,287,902

(6,536,154) (586,915) (79,702) (553,967) (7,756,738)- Other Income 11,417 — — — 11,417

(39,965) — — — (39,965)TOTAL ASSETS 6,229,814 201,119 65,201 369,357 6,865,491

(5,345,081) (139,593) (37,247) (370,238) (5,892,159)TOTAL LIABILITIES 4,669,924 483 28,711 59,206 4,758,324

(4,021,503) (11,225) (10,203) (93,708) (4,136,639)

Note: Amounts in brackets represent previous year’s figures.

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51


S Ramadorai R Ramanan Dr K R S MurthyChairman Managing Director & CEO Director

J K Gupta Vivek Agarwalsain S Singh S ShroffChief Financial Officer Company Secretary & Head-Legal Director Director

Mumbai15 April, 2006

F. Tamil Nadui. Tax demand on notional profit on cost of maintenance 120 1996-97 & Appellate Assistant

spares and on disallowance of concessional sales tax forms. 1997-98 Commissioner120

G. KeralaTax demand for dispute on tax rate 49 1996-97 Assistant Commissioner

H. Andhra PradeshTax demand sales assessed as Works Contract. 15,665 2002-03 Appellate Deputy Commissioner

Works Contract Tax

A. Delhii. Tax demand on disallowance of input credit. 52 1999-00 Assessing Authority

ii. Tax demand on re-computation of gross turnover 3,655 2002-03 Assessing Authorityon the basis of tax deducted at source.

Total 3,707

Service Tax

A. Andhra Pradesh

i. Tax demand on Electronic Identity Card Project. 1,745 2003-04 Commissioner of CentralExcise (Apeals)

ii. Tax demand on Education & Training 385 2003-04 Tribunal

Total 2,130

Grand Total 32,144

23. Previous year’s figures have been presented for the purpose of comparison and have been regrouped where necessary.

(All amounts in Rs./000s)Nature of Dues Amount Financial Forum where the

(Rs./000s) Year/Period dispute is pending

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52

I. Registration DetailsRegistration No. State Code

Balance Sheet DateDate Month Year

II. Capital raised during the year (Amount in Rs. ‘000)Public Issue Rights Issue

Bonus Issue Private Placement (includes Adv. against Equity)

III. Position of mobilisation and deployment of funds (Amount in Rs. ‘000)Total Liabilities Total Assets

Sources of Funds Paid-up Capital (including Advance against Equity) Reserves and Surplus

Secured Loans Unsecured Loans

Deferred Tax Liability

Application of FundsNet Fixed Assets Investments

Net Current Assets Miscellaneous Expenditure

Accumulated Loss

IV. Performance of the Company (Amount in Rs. ‘000)Turnover Total Expenditure

Profit/(Loss) Before Tax Profit/(Loss) after Tax

Earning Per Share in Rs. Dividend Rate (%)

V. Generic Names of three Principal Products/Services of the Company (as per monetary terms)Item Code No.(ITC Code)ProductDescription AUTOMATIC DATA PROCESSING MACHINES

N I L

2 8 4 6 6 4 5

1 9 7 0

3 1 0 3 0 6

0 1

N I L

1 5 1 5 0 0

5 2 0 6 7 9

6 8 7 9 9

5 6 5 3 0 8

2 1 9 9 5 3 6

N I L

8 5 7 7 5 7 1

6 0 1 0 8 6

2 9 . 1 2

N I L

2 8 4 6 6 4 5

N I L

1 9 5 5 6 6 7

1 5 0 0 0 0

8 1 8 0 1

N I L

7 9 7 6 4 8 5

4 4 1 1 0 0

5 0

8 4 . 7 1

+/-+

ADDITIONAL INFORMATION AS REQUIRED UNDER PART IV OF SCHEDULE VITO THE COMPANIES ACT, 1956

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE


S Ramadorai R RamananChairman Managing Director & CEO

J K Gupta Vivek AgarwalsainChief Financial Officer Company Secretary & Head-Legal


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53

STATEMENT PURSUANT TO EXEMPTION UNDER SECTION 212 (8) OF THECOMPANIES ACT, 1956 RELATING TO SUBSIDIARY COMPANY

As on 31 March 2006

US $ INR

a. Capital 1,600,010 71,392,446

b. Reserves 469,353 20,942,531

c. Total Assets 9,075,074 404,929,802

d. Total Liabilities 7,005,711 312,594,825

e. Investments — —

Year Ended 31 March, 2006

US $ INR

f. Turnover 29,141,663 1,300,301,003

g. Profit/(Loss) before taxation 1,334,342 59,538,340

h. Provison for taxation 330,000 14,724,600

i. Profit/(Loss) after taxation 1,004,342 44,813,740

j. Proposed Dividend — —

Note : US $ have been converted to INR at the exchange rate prevailing on 31.03.2006 (1 US $ = INR 44.62)





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54


AUDITORS’ REPORT

TO THE BOARD OF DIRECTORSOF CMC LIMITED ON THE CONSOLIDATED FINANCIALSTATEMENTS OF CMC LIMITED AND ITS SUBSIDIARY

We have examined the attached Consolidated Balance Sheet of CMC Limited (“the Company”) and its subsidiary as at 31

March, 2006 and the consolidated Profit and Loss Account for the year then ended and the Cash Flow Statement for the year

ended on that date.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion

on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing

standards in India. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the

financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework and

are free of material misstatements. An audit includes, examining on a test basis, evidence supporting the amounts and

disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates

made by management, as well as evaluating the overall financial statements. We believe that our audit provides a reasonable

basis for our opinion.

We did not audit the financial statements of the Company’s subsidiary, whose financial statements reflect total assets of

Rs. (000s) 376,588 as at 31 March, 2006 and total revenues of Rs. (000s) 1,287,479 for the year then ended. These financial

statements have been audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it

relates to the amounts included in respect of the Company’s subsidiary, is based solely on the report of the other auditors.

We report that the consolidated financial statements have been prepared by the Company in accordance with the requirements

of Accounting Standard (AS) 21, Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India

and on the basis of the separate audited financial statements of the Company and its subsidiary included in the consolidated

financial statements.

On the basis of the information and explanations given to us and on the consideration of the separate audit reports on

individual audited financial statements of the Company and its subsidiary, we are of the opinion that:

a. the Consolidated Balance Sheet gives a true and fair view of the consolidated state of affairs of the Company and its

subsidiary as at 31 March, 2006; and

b. the Consolidated Profit and Loss Account gives a true and fair view of the consolidated results of operations of the Company

and its subsidiary for the year ended on that date.

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55

c. the Consolidated Cash Flow Statement gives a true and fair view of the consolidated cash flows of the Company and its

subsidiary for the year ended on that date.

For S.B. Billimoria & Co.

Chartered Accountants

Mumbai Jitendra Agarwal

15 April, 2006 Partner

Membership No: 87104

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56


CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2006

Schedule As at As atRef. 31.3.06 31.3.05

Rs./000s Rs./000s

SOURCES OF FUNDS

1. Shareholders’ Funds(a) Share Capital 1 151,500 151,500(b) Reserves & Surplus 2 1,969,623 1,572,069

2,121,123 1,723,569

2. Loan Funds(a) Secured Loans 3 520,679 167,199(b) Unsecured Loans 4 150,000 650,000

670,679 817,199

3. Deferred Tax Liabilities (See note 12) 68,799 61,454

2,860,601 2,602,222APPLICATION OF FUNDS

4. Fixed Assets 5(a) Gross Block 1,347,443 1,307,135(b) Less: Depreciation 781,957 736,512

(c) Net Block 565,486 570,623

5. Goodwill 3,412 3,412

6. Deferred Tax Assets 3,168 —

7. Current assets, loans & advances(a) Inventories 6 523,596 320,034(b) Sundry debtors 7 2,456,860 2,522,878(c) Unbilled revenues 1,343,365 950,849(d) Cash and bank balances 8 343,310 232,826(e) Loans and advances 9 1,786,716 1,370,110

6,453,847 5,396,697

8. Less : Current Liabilities and Provisions 10 4,165,312 3,368,510

9. Net Current Assets 2,288,535 2,028,187

2,860,601 2,602,222Notes forming part of the consolidated financial statements 15


For S B Billimoria & Co S Ramadorai R Ramanan Dr K R S MurthyChartered Accountants Chairman Managing Director & CEO



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CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH, 2006

Schedule Year ended Year endedRef. 31.3.06 31.3.05

Rs./000s Rs./000s

INCOME

1. Sales and services 11 8,871,900 8,074,165

2. Other Income 12 289,669 67,985

9,161,569 8,142,150

EXPENDITURE

3. Operating and other expenses 13 8,373,920 7,660,947

4. Depreciation 91,115 92,165

5. Interest (Net) 14 36,494 41,850

8,501,529 7,794,962

Profit Before Tax 660,040 347,188

6. Provision for Taxes (See note 11) 174,565 99,227

Profit after tax carried forward to Reserves and Surplus 485,475 247,961

Basic and diluted Earnings Per Share (Rupees) (See note 16) 32.04 16.37

Notes forming part of the consolidated financial statements





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58


CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH, 2006


Rs./000s Rs./000s Rs./000sA. CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax* 660,040 347,188Adjustments for :

Depreciation 91,115 92,165Interest paid 41,466 45,560(Profit) /Loss on sale of fixed assets (246,581) (11,549)Bad debts/advances written off (net) 64,115 56,596Unclaimed balances/provisions written back (12,401) (29,873)Provision for doubtful debts 49,654 160,000Unrealised Foreign exchange loss (gain) (9,099) 8,483Fixed assets written off 869 2,875Transfer from capital reserve (3,079) (3,740)

(23,941)Operating profit before working capital changes 636,099 667,705Adjustments for :

Trade and other receivables (576,513) (730,953)Inventories (203,562) (135,187)Trade payables and other liabilities 629,830 440,570

Cash generated from operations 485,854 242,135Direct taxes paid/deducted at source (271,630) (178,124)

NET CASH FROM/(USED) IN OPERATING ACTIVITIES (A) 214,224 64,011

B. CASH FLOW FROM INVESTING ACTIVITIESPurchase of fixed assets (103,094) (91,494)Sale of fixed assets 262,828 12,913Foreign exchange translation adjustment (arising on consolidation) 1,532 (979)

NET CASH FROM/(USED) IN INVESTING ACTIVITIES (B) 161,266 (79,560)

C. CASH FLOW FROM FINANCING ACTIVITIESInterest paid (41,201) (68,319)Proceeds/(Payment) of short term borrowings (146,520) 155,361Dividend paid (including dividend tax) (77,534) (93,869)

NET CASH FROM FINANCING ACTIVITIES (C) (265,255) (6,827)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) 110,235 (22,376)

CASH AND CASH EQUIVALENTS AS ON 1 APRIL, 2005 [Excluding unrealised exchange difference of Rs. (‘000s) 952] 231,874 254,250

CASH AND CASH EQUIVALENTS AS ON 31 MARCH, 2006 342,109 231,874

[Excluding unrealised exchange difference of Rs. (‘000s) 1,201]

* includes project grants from Government of Rs. (‘000s) 177 (Previous year Rs. (‘000s) 5,690)





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59

As at As at31.3.06 31.3.05

Rs./000s Rs./000sSchedule 1 : SHARE CAPITAL

Authorised35,000,000 (Previous year 35,000,000) equity shares of Rs.10 each 350,000 350,000

Issued, Subscribed and Paid up15,150,000 (Previous year 15,150,000) equity shares of Rs.10 each fully paid up 151,500 151,500

Of the above:7,744,961 (Previous year 7,744,961) equity shares are held by Tata ConsultancyServices Limited, the holding company.

(See note 2)

Schedule 2 : RESERVES AND SURPLUS

(a) Capital Reserve(Grants from Government of India)(i) Opening balance 4,521 8,261(ii) Less: Transferred to Profit and Loss Account 3,079 3,740


(b) General Reserve(i) Opening balance 160,429 137,369(ii) Add: Transferred from Profit and Loss account 44,110 23,060


(c) Foreign currency translation reserve(arising on consolidation)(i) Opening balance 14,889 15,868(ii) Add: Adjustment for current year 1,532 (979)


(d) Profit and Loss account(i) Opening balance 1,392,230 1,245,066(ii) Add: Additions during the year 485,475 247,961

1,877,705 1,493,027

(iii) Less: Proposed dividend 75,750 68,175(iv) Less: Tax on proposed dividend 10,624 9,562(v) Less: Transfer to General reserve 44,110 23,060

1,747,221 1,392,230

1,969,623 1,572,069

Schedule 3 : SECURED LOANS

From banksCash credit accounts 120,679 167,199Short term loan 400,000 —

520,679 167,199Note:1. Cash credits and short term loan from banks are secured by hypothecation of inventories, debtors and other current assets.2. Loans repayable within one year Rs. ‘(000s) 400,000 (Previous year Nil).

SCHEDULES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS

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60


As at As at31.3.06 31.3.05

Rs./000s Rs./000sSchedule 4 : UNSECURED LOANS

a. Short Term Loans(i) From banks 100,000 350,000(ii) Commercial Paper 50,000 300,000

150,000 650,000

Note:1. Loans repayable within one year Rs. ‘(000s) 150,000 {Previous year Rs. ‘(000s) 650,000)2. Maximum amount outstanding on commercial paper during the year Rs. ‘(000s) 300,000

{Previous year Rs. ‘(000s) 300,000}

Schedule 5 : FIXED ASSETS (See note 7)(All amounts in Rs./000s)

GROSS BLOCK DEPRECIATION NET BLOCK

Particulars As at Additions Deductions/ As at As at For the Deductions/ As at As at As at01.04.05 Adjustments 31.03.06 01.04.05 year Adjustments 31.03.06 31.03.06 31.03.05

(a) Land(i) Leasehold 59,197 – – 59,197 8,133 758 – 8,891 50,306 51,064(ii) Freehold 1,796 – 1,191 605 – – – – 605 1,796

(b) Buildings(i) Leasehold 16,008 159 – 16,167 8,576 3,501 – 12,077 4,090 7,432(ii) Freehold 326,764 – 21,380 305,384 63,024 5,105 7,117 61,012 244,372 263,740

(c) Plant & Machinery(i) Computers 564,462 70,060 33,261 601,261 422,122 61,622 32,624 451,120 150,141 142,340(ii) Office and

other equipment 53,211 3,802 1,617 55,396 34,268 2,125 1,406 34,987 20,409 18,943(iii) Others 168,673 16,488 3,066 182,095 145,862 9,823 3,017 152,668 29,427 22,811

(d) Furniture & Fittings 91,953 10,984 2,271 100,666 52,754 7,658 1,506 58,906 41,760 39,199

(e) Vehicles 4,718 1,136 – 5,854 1,773 523 – 2,296 3,558 2,945

TOTAL 1,286,782 102,629 62,786 1,326,625 736,512 91,115 45,670 781,957 544,668 550,270

(f) Capital work-in-progress 20,353 8,992 8,527 20,818 – – – – 20,818 20,353

GRAND TOTAL 1,307,135 111,621 71,313 1,347,443 736,512 91,115 45,670 781,957 565,486 570,623

Previous Year 1,355,016 96,005 143,886 1,307,135 779,483 92,165 135,136 736,512 570,623 575,533

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61

As at As at31.3.06 31.3.05

Rs./000s Rs./000s

Schedule 6 : INVENTORIES

(a) Finished goods - equipment for resale 477,952 273,139(b) Components/spares for maintenance and resale 33,692 40,031(c) Education and training material 8,858 5,917(d) Work-in-progress 3,094 947

523,596 320,034

Note: Finished goods include goods in transit Rs. (000s) 40,089[Previous year Rs. ‘(000s) 4,249]

Schedule 7 : SUNDRY DEBTORS

a. Over six months old (unsecured):Considered good 416,475 516,167Considered doubtful 250,615 205,350

667,090 721,517b. Others (unsecured):

Considered good 2,025,032 1,990,950

2,692,122 2,712,467Less: Provision for doubtful debts 250,616 205,350

2,441,506 2,507,117

c. Future lease instalments receivable (unsecured) (See note 13b) 45,422 53,209Less: Unearned finance and service charges 30,068 37,448

15,354 15,761

2,456,860 2,522,878

Schedule 8 : CASH AND BANK BALANCES

(a) Cash on hand [including stamps on hand 1,642 1,877Rs. ‘(000s) 22 (Previous year Rs. ‘(000s) 27)]

(b) Cheques/demand drafts in hand 24,217 48,905

(c) Balance with scheduled banks in:(i) Current accounts 88,059 106,287(ii) Cash credit accounts 89,438 38,411(iii) Deposit accounts* 139,954 37,346

343,310 232,826

* includes Rs. ‘(000s) 6,195 on account of fixed deposits pledged with customers as security (Previous year Rs. ‘(000s) 6,295)

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As at As at31.3.06 31.3.05

Rs./000s Rs./000sSchedule 9 : LOANS AND ADVANCES

(a) Advances recoverable in cash or in kind orfor value to be received 444,903 280,892

(b) Advance income tax and tax deducted at source(including Fringe benefit tax Rs. ‘(000s) 16,645) 1,351,504 1,098,606

1,796,407 1,379,498(c) Less: Advances considered doubtful 9,691 9,388

1,786,716 1,370,110

Schedule 10 : CURRENT LIABILITIES AND PROVISIONS

CURRENT LIABILITIES(a) Sundry Creditors 1,678,448 1,419,530(b) Customers’ security deposits and credit balances and advance

against supplies and services to be rendered 505,292 297,283(c) Investor Education and Protection Fund* shall be credited by the

following amounts namely:-– Unclaimed dividend 1,053 850

(d) Unearned revenue 575,248 422,302(e) Other liabilities 82,902 34,846(f) Interest accrued but not due 406 141

2,843,349 2,174,952

PROVISIONS(a) Provision for taxation 1,147,738 1,018,597(b) Proposed dividend 75,750 68,175(c) Provision for tax on proposed dividend 10,624 9,562(d) Provision for leave encashment 70,552 97,224(e) Provision for fringe benefit tax 17,299 —

1,321,963 1,193,558

4,165,312 3,368,510

*Does not include any amounts outstanding as on March 31, 2006 which are required to be credited to Investor Education andProtection Fund.

Schedule 11 : SALES AND SERVICES

(a) Sale of purchased equipment 3,761,689 3,786,192(b) Services

(i) Software services 3,166,866 2,591,503(ii) Maintenance services 777,006 817,840(iii) Other services 770,597 604,917

(c) Education and training 382,368 264,908(d) Lease rentals 13,374 8,805

8,871,900 8,074,165

Note: Lease rentals include income Rs. ‘(000s) 10,053(Previous year Rs. ‘(000s) 1,564) under finance leases.

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Rs./000s Rs./000sSchedule 12 : OTHER INCOME

(a) Project Grants from Government 177 5,690(b) Gain on foreign exchange fluctuations (Net of loss) 4,327 —(c) Profit on sale of fixed assets (Net of loss) 246,581 11,549(d) Transfer from capital reserve - capital grants 3,079 3,740(e) Unclaimed balances/provisions written back 12,401 29,873(f ) Miscellaneous income 23,104 17,133

289,669 67,985

Schedule 13 : OPERATING AND OTHER EXPENSES

1. Equipment Purchased for Resale 3,659,413 3,664,092

2. Payments to and Provisions for Employees(a) Salaries, allowances and incentives 1,729,662 1,579,919(b) Contribution to provident and other funds 113,809 93,556(c) Staff welfare expenses 108,124 84,734

Sub-Total 1,951,595 1,758,209

3. Operating and Administration Expenses(a) Components/spares for maintenance and resale 255,850 173,277(b) Sub-contracted/outsourced services 826,829 535,200(c) Purchased software 44,213 42,973(d) Freight, handling and packing expenses 36,045 22,642(e) Rental of P&T lines and leased equipment 18,100 10,820(f ) Rent and hire charges 66,449 57,884(g) Rates and taxes 13,383 22,836(h) Repairs and maintenance:

(i) Building 32,748 32,027(ii) Plant and machinery 31,439 11,330(iii) Other 11,227 12,082

(i) Electricity charges 60,334 51,733(j) Insurance 44,855 54,508(k) Travelling and conveyance 258,890 216,428(l) Printing, stationery and computer consumables 23,124 35,209(m) Postage, telephone and courier 59,977 59,443(n) Advertisement, publicity and business promotion 14,905 15,255(o) Directors’ sitting fees 540 550(p) Professional and legal fees 63,371 27,096(q) Education and training :

(i) Payments to franchisees 99,838 90,521(ii) Other expenses 92,558 59,441

(r) Living expenses – overseas contracts 514,382 387,018(s) Bad debts/advances written off (net) 64,115 56,596

[net of bad debts recovered Rs. ’(000s) 912(Previous year Rs. ’(000s) 5,174)]

(t) Provision for doubtful debts 49,654 160,000(u) Fixed assets written off (net) 869 2,875(v) Loss on foreign exchange fluctuations (Net of Gain) – 12,475(w) Other expenses 79,217 88,427

Sub-Total 2,762,912 2,238,646

Total 8,373,920 7,660,947

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64



Rs./000s Rs./000sSchedule 14 : INTEREST

1. Interest expense(a) On fixed loans

(i) Government of India loans — 89(ii) Other short term loans 34,217 28,206

(b) Cash credit accounts with banks 6,785 16,781(c) Others 464 484

41,466 45,5602. Less: Interest earned

(a) Loans and advances 541 513(b) Fixed deposits with banks [Tax deducted at source

Rs. ‘(000s) 188 (Previous year Rs. ‘(000s) 185)] 1,614 883(c) Others [Tax deducted at source Rs. ‘(000s) 93

(Previous year Rs. ‘(000s) 440)] 2,817 2,314

4,972 3,710

36,494 41,850SCHEDULE 15

NOTES FORMING PART OF THE CONSOLIDATED ACCOUNTS

1. These accounts comprise a consolidation of the Balance Sheet, Profit and Loss Account and Cash Flow Statement of CMC Limited, acompany incorporated in India and its wholly owned subsidiary CMC Americas, Inc. (formerly known as Baton Rouge International,Inc.), which is incorporated in the United States of America.

2. Background

CMC Limited (the parent) is engaged in the design, development and implementation of software technologies and applications,providing professional services in India and overseas, and procurement, installation, commissioning, warranty and maintenance ofimported/ indigenous computer and networking systems, and in education and training.

The Parent was a Government of India (GoI) enterprise up to 15 October, 2001. Under the disinvestment process, GoI sold 7,726,500shares representing 51 percent of the share capital to Tata Sons Limited, on 16 October, 2001. The GoI further sold its entire remainingbalance representing 26.25 percent of the share capital, in March 2004 by an open offer to the public.

On 29 March, 2004, as per specific approval granted by SEBI, Tata Sons Limited transferred its entire shareholding in the Company toTata Consultancy Services Limited (a subsidiary of Tata Sons Limited). As a result, the Parent has become a subsidiary of Tata ConsultancyServices Limited.CMC Americas, Inc. (the Subsidiary) derives its revenue throughout the United States of America from two sources:a. Information technology services at customer sites for a contract fee.b. Auxiliary services, such as maintenance contracts, systems upgrades, and training of customer personnel.

3. Significant Accounting Policies

a. Basis of accounting

The financial statements of the Parent have been prepared under the historical cost convention and comply with the AccountingStandards prescribed by the Institute of Chartered Accountants of India.

b. Use of estimates

The preparation of financial statements requires the management of the Company to make estimates and assumptions thataffect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of thefinancial statements and reported amounts of income and expenses during the period. Example of such estimates includeprovisions for doubtful debts, employee retirement benefit plans, provision for income taxes, accounting for contract costs expectedto be incurred to complete software development and the useful lives of fixed assets.

c. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Parent and its wholly owned subsidiary made

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65

upto 31 March each year. All significant inter-company transactions and balances are eliminated on consolidation. Goodwillarising on consolidation represents the excess of the cost of acquisition over the book value of assets and liabilities at the date ofacquisition.

d. Fixed assets and depreciation

i. All fixed assets are stated at cost. Cost includes purchase price and all other costs attributable to bringing the assets toworking condition for intended use.

ii. Fixed assets acquired out of grants, the ownership of which rests with the grantor, are capitalised at cost.iii. Depreciation on all assets of the Parent is charged proportionately from the date of acquisition/installation on straight line

basis at rates prescribed in Schedule XIV of the Companies Act, 1956 except in respect of:� Leasehold assets that are amortised over the period of lease.� Computers, Plant and Machinery - (other items), that are depreciated over six financial years.

Depreciation on assets of the Subsidiary is charged based on the estimated useful life of the assets using the straight linemethod of depreciation.

e. Revenue Recognition

i. Revenue relating to equipment supplied is recognised on delivery to the customer and acknowledgement thereof, inaccordance with the terms of the individual contracts.

ii. Revenue from software development on fixed price contracts is recognised according to the milestone achieved as specifiedin the contract, and is adjusted on the “proportionate completion” method based on the work completed.

iii. On time and material contracts, revenue is recognised based on time spent as per the terms of the specific contracts.iv. Revenue from warranty and annual maintenance contracts is recognised over the life of the contracts. Maintenance revenue

on expired contracts on which services have continued to be rendered is recognised on renewal of contract or on receipt ofpayment.

v. Revenue from “Education and Training” is recognised on accrual basis over the course term.

f. Grants

i. Grants received for capital expenditure incurred are included in “Capital Reserve”. Fixed assets received free of cost areconsidered as a grant and are capitalised at notional value with a corresponding credit to the Capital Reserve account.An amount equivalent to the depreciation charge on such assets is appropriated from capital reserve and recognised asrevenue in the Profit and Loss Account.

ii. Grants received for execution of projects is recognised as revenue to the extent utilized.iii. Unutilised grants are shown under other liabilities.

g. Inventories

Inventories include finished goods, stores and spares, work-in progress and education and training material.i. Inventories of finished goods mainly comprise of equipment for resale are valued at the lower of cost (net of provision for

obsolescence) or net realisable value.ii. Inventories of stores and spares are valued at cost, net of provision for diminution in the value. Cost is determined on weighted

average cost basis.iii. Inventories of “Education and Training material” are valued at the lower of cost and net realisable value. Cost is determined

on the “First In first Out” basis.iv. Work-in-progress comprises cost of infrastructural facilities in the process of installation at customers’ sites. These are valued

at cost paid/payable to sub-contractors.

h. Research and Development Expenses

Research and development costs of revenue nature are charged to the Profit and Loss account when incurred. Expenditure ofcapital nature is capitalised and depreciated.

i. Foreign exchange transactions

Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. Monetary itemsdenominated in foreign currency and outstanding at the Balance Sheet date are translated at the exchange rate ruling on thatdate. Exchange differences, other than on foreign currency loans to acquire fixed assets from countries outside India are recognizedin the profit and loss account. In case of forward contracts for foreign exchange, the difference between the forward rate and theexchange rate at the date of the transaction are recognised over the life of the contract.

In respect of the subsidiary, income and expenses are translated into the reporting currency at the average rate. All assets andliabilities are translated at the closing rate. The resulting exchange differences are transferred to foreign currency translation reserve.

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j. Leases

Assets given under finance leases are recognised as receivables at an amount equal to the net investment in the lease andthe finance income is based on a constant rate of return on the outstanding net investment.

Lease arrangements where the risks and rewards incident to ownership of an asset substantially vest with the lessor, arerecognized as operating leases. Lease rents under operating leases are recognized in the profit and loss account on a straightline basis.

k. Retirement benefits

i. The Parent’s contribution to the Employees’ Provident Fund is deposited in a trust formed by the Company under theEmployees’ Provident Fund and Miscellaneous Provisions Act, 1952 which, is recognised by the Income-tax authorities. Suchcontributions are charged to the Profit and Loss Account each year.

ii. Gratuity to employees is based on the Group Gratuity Scheme of the Life Insurance Corporation of India. Contributionsmade to the Scheme are expensed in the year.

iii. The balance of unavailed leave due to employees has been provided on the basis of actuarial valuation.iv. The Subsidiary is the sponsor of a defined contribution 401 (K) Profit sharing Plan for its employees. Subsidiary contribution

to the plan for the year ended 31 March, 2006 aggregated to Rs.’(000s) 1,785 (Previous year Rs.’(000s) 1,794). The Subsidiaryalso sponsors a separate profit sharing plan for its employees. Benefits are paid upon retirement, total disability, death ortermination. The Subsidiary did not make a contribution for the year ended 31 March 2006.

l. Provision for taxationIncome tax comprises of current tax and deferred tax. Deferred tax assets and liabilities are recognised for the future taxconsequences of timing differences, subject to the consideration of prudence. Deferred tax assets and liabilities are measuredusing the tax rates enacted or substantively enacted by the Balance Sheet date.

m. Impairment

At each balance sheet date, the Company reviews the carrying amounts of its fixed assets to determine whether there is anyindication that those assets suffered an impairment loss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extent of impairment loss. Recoverable amount is the higher of an asset’s net selling priceand value in use. In assessing value in use, the estimated future cash flows expected from the continuing use of the asset and fromits disposal are discounted to their present value using a pre-discount rate that reflects the current market assessments of timevalue of money and the risks specific to the asset.Reversal of impairment loss is recognized immediately as income in the profit and loss account.

n. Earnings per Share

The earnings considered in ascertaining EPS comprise the net profit after tax. The number of shares used in computing Basic EPSis the weighted average number of shares outstanding during the year.


i. Business segments

Based on similarity of activities, risks and reward structure, organisation structure and internal reporting systems, the Parent hasstructured its operations into the following segments:Customer Services (CS): Hardware supplies and maintenance, facilities management and provision of infrastructure facilities.Systems Integration (SI): Systems study and consultancy, software design, development and implementation, softwaremaintenance and supply of computer hardware in accordance with customers’ requirements. The operations of the Subsidiaryfall in this category.IT Enabled Services (ITES) - (Formerly Indonet): Value added services, data network, data center services, web design andhosting etc.Education and Training (E&T): IT education and training service through its own centers and through franchisees.Segment revenue and expenses include amounts, which are directly identifiable to the segment and allocable on a reasonablebasis. Segment assets include all operating assets used by the segment and consist primarily of debtors, inventory and fixedassets. Segment liabilities include all operating liabilities and consist primarily of creditors, advances/deposits from customersand statutory liabilities.

ii. Geographic segments

The Parent also provides services overseas, primarily in the United States of America, United Kingdom and Middle East and AfricaRegion.

5. Research and Development Expenses

Expenditure includes “Research and Development” expenditure for the Parent aggregating to Rs.’(000s) 115,980 (Previous year Rs.’(000s)98,878). Amounts aggregating to Rs.’ (000s) 2,086 (Previous year Rs.’(000s) 2,267) have been capitalised.

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6. Contingent liabilities and commitments

For the Parent:

As at As at31.3.06 31.3.05

Rs./000s Rs./000sa. Claims against the company not acknowledged as debts

� Liability on income tax 18,838 16,337� Under litigation 32,661 29,011� ESI Demand 280 280� Disputed demands raised by Sales tax authorities for

which the Company has gone on appeal against the department* 31,350 17,083b. Unexpired Letters of Credit 435,418 622,643c. Guarantees issued by bankers against Company’s counter guarantee 12,77,283 11,94,973d. Others 26,540 20,523e. Sales tax on leased assets 3,726 3,749f. Estimated amount of contracts remaining to be executed on capital

account (net of advances) and not provided for 82,862 21,080

* No provision is considered necessary since the Company expects favourable decisions.

7. Fixed Assets

Gross Block for the Parent as at 31 March, 2006 includes:

a. Assets acquired from Grants and aggregating to Rs. ’(000s) 41,865 (Previous year Rs. ’(000s) 41,865) being the property ofGovernment of India. The depreciation for the year on such assets is Rs. ’(000s) 3,079 (Previous year Rs. ’ (000s) 3,740 ) and theaccumulated depreciation at the year end was Rs. ’(000s) 40,495 (Previous year Rs.’(000s) 37,416).

b. Assets aggregating to Rs. ’(000s) 7,210 (Previous year Rs. ’(000s) 7,210) received free of cost. The depreciation for the year on suchassets is Rs. Nil (Previous year Rs. Nil) and the accumulated depreciation thereon is Rs. ’(000s) 7,138 (Previous year Rs. ’(000s) 7,138).

c. Plant and machinery includes assets given on lease aggregating to Rs. ’(000s) 30,198 (Previous year Rs. ’(000s) 30,198). Thedepreciation for the year is Rs. ’(000s) 3,498 (Previous year Rs. ’(000s) 5,159), the accumulated depreciation thereon beingRs. ’(000s) 24,029 (Previous year Rs. ’(000s) 20,531).

8. Sundry DebtorsSundry debtors of the subsidiary include Rs.’(000s) 223 (Previous year Rs.’(000s) 4,665) retained by a customer, which are expected tobe remitted to the subsidiary during 2007.

9. Current Liabilities

Customers’ security deposits and credit balances and advance against supplies and services to be rendered include a note payabledated 1 June, 1996, amounting to Rs.’(000s) 51,313 (Previous year Rs.’(000s) 50,140) due by the Subsidiary to an unrelated corporateentity. The note is due on demand and bears interest at 1% over the 1 year U.S. dollar LIBOR (total rate of 6.25% at March 31, 2006).

10. Self Insurance

The subsidiary became self-insured for a portion of its medical and prescription drug benefits. The subsidiary has accrued the estimatedliability for claims reported and processed, as well as claims incurred but not reported through March 31, 2006. It has also obtainedreinsurance coverage for the policy year October 1, 2005 through September 30, 2006.

11. Provision for Income Tax

The provision for taxes on income is as follows:


Rs./000s Rs./000sCurrent taxes

i) Domestic taxes* 152,641 105,514ii) Foreign taxes 17,716 304

Deferred taxesi) Domestic taxes 7,345 (6,591)ii) Foreign taxes (3,137) —

Total 174,565 99,227

* includes taxes in foreign jurisdiction Rs. ‘(000s) 6,201 (Previous year Rs. (000s) 11,962)

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CMC Limited

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12. Deferred Tax

a. Deferred tax assets and liabilities are being offset as they relate to taxes on income levied by the same governing taxation laws.

b. Break up of deferred tax assets/liabilities and reconciliation of current year deferred tax charge for the Parent:(All amounts in Rs./000s)

Opening Charged/ Closing(Credited)

to P&L

i. Deferred Tax Liabilities:Tax impact of difference between carrying amount offixed assets in the financial statements and the income tax return 98,389 2,438 100,827

ii. Deferred Tax Assets:Tax impact of expenses charged in the financial statements butallowable as deductions in future years under income tax 36,935 (4,907) 32,028

Net Deferred Tax Liability (i-ii) 61,454 7,345 68,799

13. Lease Commitments

a. Operating LeaseThe parent and subsidiary have taken property on operating lease and have recognized rent of Rs.’(000s) 13,355 (Previous YearRs.’(000) 10,395). The total of future minimum lease payments under leases for the following periods:-

Particulars Year ended Year ended31.3.06 31.3.05

Rs./000s Rs./000s

a. Not later than one year 10,204 6,629

b Later than one year but not later than five years 9,493 8,876

b. Finance LeaseThe Parent has purchased and given on lease computer equipment, peripherals and system software. The details are as follows:

As at As at31.3.06 31.3.05

Rs./000s Rs./000s

a. Total gross investment 45,422 53,209b. Present value of Minimum Lease Payments receivable 15,354 15,761c. Total gross investment for the period 45,422 53,209

• Not later than one year 7,786 7,787• Later than one year but not later than five years 31,147 38,933• Later than five years 6,489 6,489

d. Present value of Minimum Lease Payments receivable 15,354 15,761• Not later than one year 689 407• Later than one year but not later than five years 9,594 10,076• Later than five years 5,071 5,278

e. Unearned Finance Income 30,068 37,448

14. Pending RBI approval, certain anticipated losses for the Parent amounting to Rs. ’(000s) 8,089 (Previous year Rs. ’(000s) 8,089), whichstands provided for, are not written off.

Sanction of Reserve Bank of India for the Parent for expenditure incurred on overseas operations amounting to Rs. ’(000s) 3,436 (Previousyear Rs. ’(000s) 3,436) during the year 1991-92 has not yet been received.

15. Related Party Disclosures

a. List of related partiesi. Company holding substantial interest in voting power of the Parent/Subsidiary

� Tata Sons Limited (the ultimate holding Company)� Tata Consultancy Services Limited (the holding Company)

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ii. Fellow Subsidiaries

Parent� Tata AIG General Insurance Company Limited� Tata AIG Life Insurance Company Limited� Tata Consultancy Services Deutschland GmbH� Tata Consultancy Services Netherlands BV� Tata America International Corporation� Tata Consultancy Services Sverige AB� Tata Teleservices Limited

iii. Key Management Personnel

ParentMr R. Ramanan

b. Transactions/Balances outstanding with Related Parties: (All amounts in Rs./000s)

Transactions/ Holding Fellow Key TotalOutstanding Company Subsidiary ManagementBalances Personnel

Purchase of goods/services 541,764 81,684 — 623,448(note a)

(392,638) (60,863) — (453,501)Sale of goods 1,312,689 32,533 — 1,345,222

(note b)(309,557) (9,260) — (318,817)

Service Income 1,752,206 30,236 — 1,782,442(note c)

(1,063,748) (211,275) — (1,275,023)Managerial Remuneration — — 879 879

— — (783) (783)Debtors/unbilled revenue as at year end 985,207 37,014 — 1,022,221

(note d)(360,198) (111,684) — (471,882)

Creditors / advances as at year end 117,948 16,019 — 133,967(note e)

(16,160) (610) — (16,770)Loans/ advances as at year end — — — —Other transactions * 34,852 — — 34,852

(42,597) (—) — (42,597)*Includes dividend paid to the holding Company

a. Of this amount Rs.’(000s) 70,113 (Previous year Rs.’(000s) 58,317) pertains to Tata America International Corporation.b. Of this amount Rs.’(000s) 32,031 pertains to Tata Teleservices Limited.c. Of this amount Rs.’(000s) 21,088 pertains to Tata Consultancy Services Sverige AB and Rs.’(000s) 6,759 (Previous year Rs.’(000s)

2,867) pertains to Tata America International Corporation.d. Of this amount Rs.’(000s) 21,135 pertains to Tata Teleservices Limited, Rs.’(000s) 8,297 pertains to Tata Consultancy Services

Netherlands BV and Rs.’(000s) 4,908 pertains to Tata Consultancy Services Deutschland GmbH.e. Of this amount Rs.’(000s) 8,641 pertains to Tata Consultancy Services Netherlands BV and Rs.’(000s) 6,738 (Previous year

Rs.’(000s) 610) pertains to Tata America International Corporation.

Note: Amounts in brackets represent previous year’s figures.

16. Earnings per shareUnits Year ended Year ended

31.03.06 31.03.05

Net profit attributable to shareholders Rs./000s 485,475 247,961Weighted average number of equity shares in issue Nos. 000s 15,150 15,150Basic earning per share of Rs. 10 each Rs. 32.04 16.37

The Company does not have any outstanding dilutive potential equity shares.

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viii. OTHER INFORMATIONSegment assets 2,768,744 1,715,866 230,811 139,919 4,855,340

(2,741,223) (1,190,218) (151,864) (81,856) (4,165,161)Unallocable assets 2,170,573

(1,805,571)TOTAL ASSETS 7,025,913

(5,970,732)Segment liabilities 1,793,982 621,300 186,820 121,377 2,723,479

(1,604,608) (413,710) (101,109) (67,558) (2,186,985)Unallocable liabilities 2,181,311

(2,060,178)TOTAL LIABILITIES 4,904,790

(4,247,163)Capital Expenditure 31,752 38,194 1,289 17,430

(12,774) (45,816) (6,354) (12,447)Depreciation 15,800 30,433 4,104 6,573

(19,736) (43,530) (5,323) (8,673)Non-cash expenses other 44,794 70,965 4,632 487than depreciation (39,401) (185,338) (11,838) (503)

i. Unallocated assets include investments, advance tax and tax deducted at source.ii. Unallocated liabilities include secured/unsecured loans, deferred tax/current tax liabilities, proposed dividend and tax on proposed

dividend.iii Amounts in brackets represent previous year’s figures.

17. Segment Informationa. Financial information about the primary business segments is given below: (All amounts in Rs./000s)

Customer System ITES Education TotalServices Integration and Training

i. SEGMENT REVENUE

– Sales and Service 5,282,687 2,893,094 314 249 381,870 8,871,900(5,052,081) (2,555,284) (191,531) (275,269) (8,074,165)

– Other Income 1,984 8,306 558 569 11,417(14,873) (18,915) (239) (5,938) (39,965)

ii. SEGMENT RESULTS 330,044 500,051 15,099 73,205 918,399(325,175) (336,989) (10,260) (34,263) (706,687)

iii. UNALLOCABLE EXPENSES 221,865(net of unallocable income) (317,649)

iv. OPERATING PROFIT 696,534(389,038)

v. INTEREST EXPENSE (NET) 36,494(41,850)

vi. PROVISION FOR TAX– Current Income Tax 153,058

(105,818)

– Deferred Income Tax 4,208(-6,591)

– Fringe benefit Tax 17,299(—)

vii. NET PROFIT 485,475(247,961)

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71

b. Geographical Segment(All amounts in Rs./000s)

India United States United Others Totalof America Kingdom

SEGMENT REVENUE— Sales and Services 7,382,650 1,275,524 104,514 109,212 8,871,900

(6,536,154) (904,342) (79,702) (553,967) (8,074,165)— Other Income 11,417 — — — 11,417

(39,965) (—) (—) (—) (39,965)TOTAL ASSETS 6,151,434 439,921 65,201 369,357 7,025,913

(5,266,695) (296,553) (37,247) (370,238) 5,970,732)TOTAL LIABILITIES 4,669,923 146,950 28,711 59,206 4,904,790

(4,021,503) (121,749) (10,203) (93,708) (4,247,163)Note : Amounts in brackets represent previous year’s figures.

18. Previous year’s figures have been presented for the purpose of comparison and have been regrouped where necessary.





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NOTES

CMC-Conso-54.p65 6/5/2006, 6:11 PM72

Affix RevenueStamp

of Re. 1

CMC Limited

Registered Office: CMC Centre, Old Mumbai Highway, Gachibowli, Hyderabad - 500032, A.P.

ATTENDANCE SLIP

Folio No.

I certify that I am a registered Shareholder/Proxy for registered Shareholder of the Company.

I hereby record my presence at the 30th Annual General Meeting of the Company at Bhartiya Vidya Bhavan Auditorium, BVB HyderabadKendra, No. 5-9–1105, Basheerbagh-King Koti Road, Hyderabad-500 029, A.P., on Tuesday, June 27, 2006 at 2.30 p.m.

Note:Please sign this attendance slip and hand it over at the attendance counter at the ENTRANCE OF THE MEETING HALL.

I/We..........................................................................................................................................................................................................................................................................

of................................................................................................................................................................................................................................................................................(Write full address)

......................................................................................................................................................being a Member(s) of CMC LIMITED, hereby appoint

................................................................................................................ of ........................................................................................................................(Write full address)

...................................................................................................................................................................................................................................................................................

or failing him/her...............................................................................of...............................................................................................................................................................

....................................................................................as my/our proxy to attend and vote for me/us and on my/our behalf at the 30th Annual GeneralMeeting to be held on Tuesday, June 27, 2006 at 2.30 p.m. and at any adjournment thereof.

AS WITNESS under my/our hands this day of , 2006

Folio No. .......................................................... DP/ID/No. .................................................................. Client ID No. .............................................................

Signature ......................................................... .............................

NOTES :1. The Proxy need NOT be a member.2. The Proxy Form must be deposited at the Registered Office not less than 48 hours before the scheduled time for holding the meeting.

DP IDClient ID

CMC Limited

Registered Office: CMC Centre, Old Mumbai Highway, Gachibowli, Hyderabad - 500032, A.P.

PROXY FORM

Proxy+Form.p65 6/5/2006, 6:13 PM73

CMC Limited

Twenty ninth annual report 2004 - 2005

Proxy+Form.p65 6/5/2006, 6:13 PM74

CMC Limited

April 25, 2006

The Shareholders ofCMC Limited

Re: Payment of Dividend by Electronic Clearing Services (ECS)

Dear Shareholder,

We are pleased to inform you that the Board of Directors at their meeting held on April 15, 2006 have recommended payment of dividendfor the year ended March 31, 2006 @ Rs. 5 per equity share. This dividend will be paid after the same is declared at the 30

th Annual General

Meeting scheduled to be held on June 27, 2006.

In accordance with SEBI’s directions vide their Circular No. DCC/FITT/Cir-3/2001 dated October 15, 2001, arrangements have been made tocredit your dividend amount directly to your bank account through the Electronic Clearing Service (ECS).

We, therefore, request you to furnish your bank details in the ECS Mandate Form printed overleaf together with a xerox copy ofyour cheque leaf and return to our Registrars, Karvy Computershare Private Limited on or before June 20, 2006 in case you holdshares in physical form. The said details in respect of the shares held in electronic form should be sent to your respective DepositoryParticipant and not to the Registrar as the Registrar is obliged to use only the data provided by the Depository while makingpayment of dividend. Please mention the correct 9 digit MICR Code for giving the ECS credit to your account.

In case of receiving your request after the due date, the mandate will not be considered for this dividend. However, the same will be used forfuture dividend payments, unless the same is amended or revoked by you.

In the absence of adequate response from the shareholders of any particular centre(s), the Company reserves its right of paying the dividendby dividend warrants.

Thanking you,

Yours faithfully,

For CMC Limited

VIVEK AGARWALCompany Secretary & Head - Legal

Proxy+Form.p65 6/5/2006, 6:13 PM75

RE: PAYMENT OF DIVIDEND BY ELECTRONIC CLEARING SERVICES (ECS)

Shareholders authorization to receive dividend through Electronic Credit Service Mechanism

1. Name of the first/sole shareholder

2. Folio No./D.P. ID & Client ID Nos.

3. Name of the Bank in full

4. Branch, Address & Tel No.

5. 9-digit code number of the Bank and Branch

appearing on the MICR cheque

6. Account Number (as given on the cheque book)

7. Account type (Please tick)

(Please attach a photocopy of a cheque issued to you by your bank, for verification of the above particulars.)

I hereby declare that the particulars given above are correct and complete. If the transaction is delayed or not effected at all for any reasons(s),

beyond the control of the Company, I will not hold the Company responsible. I agree to discharge the responsibility expected of me as a

participant under the scheme.

Date :

Place : Signature

Encl: Copy of the cheque leaf

NOTES

1. In case you hold shares in physical form, please send the aforesaid form duly filled in and signed by all the shareholders to our Registrars

M/s Karvy Computershare Private Limited at their Office - Karvy House 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad - 500034.

2. In case you hold shares in D’mat form, please furnish the aforesaid details to your depository participant and not to the Registrars.

MANDATE FORM

Savings Bank Current Cash Credit

Proxy+Form.p65 6/5/2006, 6:13 PM76

cmc annual report 2005 06

Economy & Finance