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CMYK

Financial Statements prepared inaccordance with US GAAP - Fiscal 2010

1

R N Tata (Chairman)

S Ramadorai (Vice Chairman)

N Chandrasekaran (CEO & Managing Director)

Aman Mehta

V Thyagarajan

Prof. Clayton M Christensen

Dr. Ron Sommer

Laura M Cha

S Mahalingam (CFO & Executive Director)

Phiroz Vandrevala (Executive Director)

Dr. Vijay Kelkar

Ishaat Hussain

Company SecretarySuprakash Mukhopadhyay

Statutory AuditorsDeloitte Haskins & Sells

US GAAP AuditorsDeloitte Haskins & Sells

Registered Office9th Floor, Nirmal Building

Nariman Point, Mumbai 400 021

Tel : 91 22 6778 9595

Fax : 91 22 6778 9660

Website : www.tcs.com

Corporate OfficeTCS House

Raveline Street, Fort

Mumbai 400 001

Tel : 91 22 6778 9999

Fax : 91 22 6778 9000

Email: [email protected]

Registrars & Transfer AgentsTSR Darashaw Limited

6-10, Haji Moosa Patrawala Industrial Estate

20, Dr. E. Moses Road, Mahalaxmi

Mumbai 400 011

Tel : 91 22 6656 8484

Fax : 91 22 6656 8494

E-mail: [email protected]

Website: www.tsrdarashaw.com

Board of Directors

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Annual Report 2009-10

Management TeamFunction Name

Corporate

CEO N Chandrasekaran

CFO S Mahalingam

Corporate Affairs Phiroz Vandrevala

Global Human Resources Ajoyendra Mukherjee

Geography Heads

North America Surya Kant

Europe A S Lakshminarayanan

APAC Girija Pande

Vish Iyer

Masahiko Kaji

Latin America Henry Manzano

MEA Girish Ramachandran

India Srinivasa G Raghavan

Functions

Marketing John Lenzen

Corporate Communication Pradipta Bagchi

R&D K Ananth Krishnan

Human Resources Ritu Anand

Ashok Mukherjee

K Ganesan

Thomas Simon

S Narasimhan

Legal Satya Hegde

Finance B Sanyal

V Ramakrishnan

Pauroos Karkaria

G S Lakshminarayanan

Rajesh Gopinathan

Company Secretary Suprakash Mukhopadhyay

Chief Compliance Officer Ravindra J Shah

Security R K Raghavan

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Management TeamFunction Name

Industry Service Units

Banking & Financial Services Ramanamurthy Magapu

K Krithivasan

Susheel Vasudevan

Tej Paul Bhatla

Insurance Vijaya Deepti

Suresh Muthuswami

Telecom Ravi Viswanathan

Manufacturing Milind Lakkad

Hi Tech Nagaraj Ijari

Carol Wilson

Government Tanmoy Chakrabarty

Retail & Distribution Pratik Pal

Life Sciences & Healthcare Debashis Ghosh

Energy, Resources & Utilities Hasit Kaji

Media and Information Services Kamal Bhadada

Travel & Hospitality S Sukanya

Strategic Growth Units

TCS Financial Services N G Subramaniam

Small & Medium Business Venguswamy Ramaswamy

Platform BPO Raj Agrawal

Service Units

Global Consulting Practice J Rajagopal

Engineering & Industrial Services Regu Ayyaswamy

Infrastructure Services P R Krishnan

BPO Abid Ali Neemuchwala

Assurance Services Siva Ganesan

Enterprise Solutions Krishnan Ramanujam

Alliances K Jayaramakrishnan

Internal IT Alok Kumar

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Management Discussion and Analysis ofResults of Operations and Financial Condition

The following discussion and analysis should be read together with the consolidated US GAAP financial statements of Tata Consultancy Services Limited (hereinafter referred to as TCS Limited or TCS or TCS Ltd. or the Company) for the financial years ended March 31, 2010, 2009 and 2008.

The Company’s financial year ends on March 31. All references to a particular financial year are to the twelve-month period ended March 31 of that year.

Highlights

In fiscal 2010, revenues aggregated $6.3 billion. Revenues from information technology and consultancy services were $6.1 billion - a growth of 6.06% over $5.8 billion in fiscal 2009.

In fiscal 2010, net income aggregated $1.5 billion - a growth of 29.24% over $1.1 billion in fiscal 2009.

On June 12, 2009, the shareholders approved a bonus issue of 978.6 million equity shares. The bonus issue is in the nature of a stock split, effected in the form of one additional share issued for every share held.

For the first three quarters, the Company has paid a total interim dividend of $0.12 (Rs.6) per equity share. On April 19, 2010, the Board of Directors recommended, for approval of shareholders, a final dividend of $0.09 (Rs.4) per share and a special dividend of $0.22 (Rs.10) per share. If approved, the total dividend for fiscal 2010 would aggregate $0.43 (Rs.20) per share, including the three interim quarterly dividends. The resultant payout ratio would be 81.60% of the unconsolidated profits of the Company for fiscal 2010.

Significant accounting policies

Note 2 of ‘Notes to Consolidated Financial Statements’ gives the details of the significant accounting policies used for the preparation and presentation of the financial statements.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Certain prior-year amounts have been reclassified to conform to current year presentation.

The functional currency of Tata Consultancy Services Limited and its Indian subsidiaries is the Indian rupee, whereas the functional currency of foreign subsidiaries is the currency in their countries of incorporation.

The accompanying financial statements are reported in US dollars.

Estimates and assumptions used in the preparation of the consolidated US GAAP financial statements

The preparation of financial statements in conformity with US GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses for the years presented. Actual results could differ from the estimates.

Areas in which significant judgments and estimates are used include, but are not limited to:

• estimated costs for completion of fixed price contracts

• allowances for uncollectible accounts receivable

• useful lives of tangible and intangible assets

• impairment assessment of goodwill, other intangible assets and long-lived assets

• purchase price allocation on acquisition of business

• retirement benefits and

• income taxes.

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Results of operations

(In millions of USD)

Fiscal2010

% of revenues

Fiscal2009

% of revenues

Fiscal2008

% of revenues

Revenues:

Information technology and consultancy services 6,140.3 96.86 5,789.3 96.24 5,339.5 94.77

Sale of equipment and software licenses 199.0 3.14 226.4 3.76 294.9 5.23

Total revenues 6,339.3 100.00 6,015.7 100.00 5,634.4 100.0 0

Cost of revenues:

Cost of information technology and consultancy services 3,241.4 51.13 3,146.7 52.31 2,901.0 51.49

Cost of equipment and software licenses 170.8 2.70 196.3 3.26 242.4 4.30

Total cost of revenues 3,412.2 53.83 3,343.0 55.57 3,143.4 55.79

Gross profit 2,927.1 46.17 2,672.7 44.43 2,491.0 44.21

Operating expenses:

Selling, general and administrative expenses 1,227.2 19.36 1,237.5 20.57 1,200.9 21.31

Research and development expenses 18.3 0.29 10.3 0.17 14.1 0.25

Total operating expenses 1,245.5 19.65 1,247.8 20.74 1,215.0 21.56

Operating income 1,681.6 26.52 1,424.9 23.69 1,276.0 22.65

Other income / (expense):

Interest income 44.6 0.70 22.4 0.36 14.1 0.25

Interest expense (11.4) (0.18) (11.5) (0.19) (11.3) (0.20)

Equity in net earnings of affiliates (0.2) (0.00) (0.2) (0.00) 0.2 0.00

Other non-operating income / (expense), net 15.6 0.25 (108.5) (1.80) 168.4 2.99

Other income, net 48.6 0.77 (97.8) (1.63) 171.4 3.04

Income before income taxes 1,730.2 27.29 1,327.1 22.06 1,447.4 25.69

Income tax expense 261.1 4.12 190.4 3.16 187.5 3.33

Net income 1,469.1 23.17 1,136.7 18.90 1,259.9 22.36

Net income attributable to non-controlling interests (15.5) (0.24) (12.9) (0.22) (10.6) (0.19)

Net income attributable to TCS Limited 1,453.6 22.93 1,123.8 18.68 1,249.3 22.17

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Revenues

The Company derives its revenues primarily from information technology and consultancy services, including software development services, implementation and other related services, re-licensing of third party software products and sales, licensing and sale of its own software, business process outsourcing, sale and maintenance of equipment.

The revenues of the Company are affected by:

• economic conditions in respective geographies

• the financial position of the industries serviced by the Company

• pace of technological changes

• information technology spending of the clients and

• cross currency exchange rate fluctuations.

The revenues of the Company also depend on:

• the ability of the Company to secure business from existing and new clients

• on delivery of products and services that meet the changing IT needs of these clients

• the proportion of work performed at overseas locations and the work performed at its facilities in India.

The Company provides its consultancy services either on turnkey / fixed-price-fixed-time basis or time and material basis. When bidding for turnkey engagements, the Company endeavors to accurately estimate the costs and timing of completion of the projects, based on the processes it plans to use, the employees it plans to deploy and past project experience. For turnkey contracts, the Company bears the risk of cost and time overrun including delays caused by factors beyond its control.

The composition and growth of revenues are shown below:


Fiscal 2010

% Increase / (decrease)

Fiscal 2009


Fiscal 2008

Revenues 6,339.3 5.38 6,015.7 6.77 5,634.4

Information technology and consultancy services 6,140.3 6.06 5,789.3 8.42 5,339.5

% of total revenues 96.86 - 96.24 - 94.77

Sale of equipment and software licenses 199.0 (12.10) 226.4 (23.23) 294.9


The growth of 6.06% in information technology and consultancy services revenues has come through an increased demand in some of the industry segments. Revenues from existing clients constituted 97.48% of revenues in fiscal 2010 (97.14% of revenues in fiscal 2009).

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Composition of revenues by currency% of revenues

Fiscal 2010 Fiscal 2009 Fiscal 2008

US dollar 58.62 58.21 57.05

Sterling pound 13.07 15.58 16.65

Euro 7.78 8.30 7.72

Australian dollar 2.91 1.74 2.58

Canadian dollar 1.62 1.19 1.05

Indian rupee 8.71 9.19 9.84

Others 7.29 5.79 5.11

Total 100.00 100.00 100.00

Revenues by segments

Industry practice-wise analysis of revenues% of revenues


Banking, financial services and insurance (BFSI) 44.93 42.88 44.30

Manufacturing 8.10 9.80 9.68

Retail and distribution 10.60 8.82 6.55

Telecom 14.53 16.21 16.99

Others 21.84 22.29 22.48

Total 100.00 100.00 100.00

Banking, financial services and insurance (BFSI) continues to be the Company’s largest industry practice. In spite of the financial difficulties faced by customers in fiscal 2010, primarily in the BFSI segment, the Company’s revenues from this segment have remained strong. Impressive improvement has been seen in Retail and distribution and also in verticals like Life sciences and healthcare, Energy and utilities included in ‘Others’ reported above. Revenues from Manufacturing and Telecom industry practice were affected adversely due to the economic slowdown in significant markets.

Geography-wise analysis of revenues% of revenues


Americas 52.81 51.32 50.34

United Kingdom 16.17 19.05 19.88

Europe 10.48 10.52 9.32

Iberoamerica 4.72 4.68 4.45

India 8.65 7.87 9.07

Asia Pacific 5.25 4.77 5.26

Middle East and Africa 1.92 1.79 1.68

Total 100.00 100.00 100.00

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Over the last three years, the Company expanded its footprint in Iberoamerica, Middle-East and Africa. Although the economic conditions in North America were adversely affected, our focus on customer needs has resulted in growth in volume of business in this geography. The economic slowdown as well as the adverse foreign exchange fluctuations contributed to the lower growth in Europe and United Kingdom.

Service practice-wise analysis of revenues

% of revenues


Application development and maintenance 48.73 48.48 47.91

Business process outsourcing (BPO) 11.53 7.25 6.30

Enterprise solutions 10.47 12.49 13.23

Infrastructure services 8.36 7.98 6.60

Business intelligence 5.69 8.06 9.75

Assurance services 5.04 4.22 3.87

Engineering and industrial services 4.98 5.96 5.36

Asset leverage solutions 3.29 2.90 3.52

Global consulting 1.91 2.66 3.46

Total 100.00 100.00 100.00

The Company’s relatively newer service offerings such as Infrastructure services, Assurance services and Business process outsourcing have shown significant growth. The increase in revenues from BPO is mainly attributable to the acquisition of TCS e-Serve Limited in December 2008. The decline in Business intelligence and Enterprise solutions is attributable to the general business conditions and reduction in discretionary spending by customers.

Service location analysis of international revenues

% of international revenues


Offshore revenue - India 50.97 44.22 41.92

Offsite revenue - Global Delivery Center (GDC) 5.72 4.59 4.21

Total revenue - Offsite 56.69 48.81 46.13

Total revenue - Onsite 43.31 51.19 53.87

Total 100.00 100.00 100.00

The movement from onsite to offshore and GDC was the result of strategic action by the Company to meet customer expectations for lower costs and also to increase margins. This has resulted in substantial increase in offsite revenues (48.81% in fiscal 2009; 56.69% in fiscal 2010). The corresponding decrease in onsite revenues was from 51.19% in fiscal 2009 to 43.31% in fiscal 2010.

Nature of contractwise international revenues



Time and material 52.18 55.21 55.94

Fixed-price-fixed-time 47.82 44.79 44.06

Total 100.00 100.00 100.00

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Expenditure

Cost of revenues (COR)

Cost of revenues of the Company consists of cost of information technology and consultancy services and cost of equipment and software licenses.

Cost of information technology and consultancy services consists primarily of compensation of personnel engaged in providing consultancy services, employee allowances, payroll related taxes, client specific training expenses, travel expenses, depreciation and amortization of equipment and software, rental expenses, losses incurred on fixed price contracts and communication expenses in relation to delivery of equipment and development of IT services. Cost of services also includes payments to subcontractors, who are consultants hired in order to meet client demand and / or to address specific skill requirements.

Employee cost includes salaries, which comprise fixed component of employee compensation, variable compensation based on the Economic Value Addition (EVA), foreign allowances, employee payroll taxes, staff welfare cost and contribution to retirement funds such as provident fund, social security benefits and other employee benefit funds.

The Company engages in extensive training of new hires as well as periodic training of existing employees to upgrade their skills. Training costs for existing employees are categorized as cost of services if training is related to a particular project; otherwise such costs are considered as selling, general and administrative expenses.

The Company’s cost of revenues composition and growth are shown below:


Fiscal 2010

% Increase/(decrease)

Fiscal 2009

% Increase/(decrease)

Fiscal 2008

Revenues 6,339.3 5.38 6,015.7 6.77 5,634.4

Cost of revenues:

Cost of information technology and consultancy services 3,241.4 3.01 3,146.7 8.47 2,901.0


Cost of equipment and software licenses 170.8 (12.99) 196.3 (19.02) 242.4


Total 3,412.2 2.07 3,343.0 6.35 3,143.4


The significant items of cost of information technology and consultancy services are given below.


Fiscal 2010

% of revenues

Fiscal 2009

% of revenues

Fiscal 2008

% of revenues

Employee costs 2,799.3 44.16 2,692.4 44.76 2,456.5 43.60

Depreciation 94.4 1.49 78.3 1.30 95.9 1.70

Foreign travel 56.3 0.89 70.6 1.17 70.6 1.25

Communication 61.7 0.97 57.0 0.95 51.0 0.91

Other expenses 229.7 3.62 248.4 4.13 227.0 4.03

Total 3,241.4 51.13 3,146.7 52.31 2,901.0 51.49

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The total cost of information technology and consultancy services as a percentage of total revenues decreased from 52.31% in fiscal 2009 to 51.13% in fiscal 2010. This decrease was mainly due to:

• decrease in employee costs (44.16% in fiscal 2010; 44.76% in fiscal 2009)

• decrease in foreign travel costs (0.89% in fiscal 2010, 1.17% in fiscal 2009) primarily due to:

o change in the onsite / offshore business mix

o better cost management

o increase in the use of video and audio conferencing

• lower other expenses (3.62% in fiscal 2010, 4.13 % in fiscal 2009).

Employee cost in cost of services


Fiscal2010

% of revenues

Fiscal2009

% of revenues

Fiscal2008

% of revenues

Salaries 1,364.7 21.53 1,257.9 20.91 1,180.3 20.95

Foreign allowances 839.1 13.24 900.9 14.98 823.3 14.61

Subcontractors 351.2 5.54 291.1 4.84 232.3 4.12

Provident and other funds 96.3 1.52 92.8 1.54 81.6 1.45

Staff welfare 94.0 1.48 87.5 1.45 75.9 1.35

Legal expenses 54.0 0.85 62.2 1.04 63.1 1.12

Total 2,799.3 44.16 2,692.4 44.76 2,456.5 43.60

Decrease in employee cost as a percentage of revenues is primarily attributable to:

• decrease in foreign allowances (13.24% in fiscal 2010; 14.98% in fiscal 2009) primarily as a result of movement of project consultants to offshore locations resulting in lower living allowances, offset by :

• increase in headcount in fiscal 2010 (Gross headcount addition was 38,063; net headcount addition was 16,668)

• higher variable allowances included in salaries (4.29% in fiscal 2010 ; 4.12% in fiscal 2009)

• higher cost of subcontractors (5.54% in fiscal 2010; 4.84% in fiscal 2009).

Other expenses in cost of services

Other expenses as a percentage of revenues were at 3.62% in fiscal 2010 as compared to 4.13% in fiscal 2009. The decrease is primarily attributable to:

• lower rates and taxes (0.03% in fiscal 2010; 0.12% in fiscal 2009)

• lower professional fees (0.25% in fiscal 2010; 0.47% in fiscal 2009)

• lower software expenses for internal use (0.60% in fiscal 2010; 0.74% in fiscal 2009).

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Cost of equipment and software licenses

Cost of equipment and software licenses consist of computer equipment and software licenses that the Company sells and includes inward shipping and insurance costs. Expenditure on account of cost of equipment and software licenses has decreased to $170.8 million in fiscal 2010 (2.70% of revenues) from $196.3 million in fiscal 2009 (3.26% of total revenues). The decrease is on account of fewer systems integration projects executed by the Company during fiscal 2010.

Gross profit

Growth in company’s gross profit is shown below:(In millions of USD)

Fiscal2010


Fiscal2009


Fiscal2008

Revenues 6,339.3 5.38 6,015.7 6.77 5,634.4

Gross profit 2,927.1 9.52 2,672.7 7.29 2,491.0

% of revenues 46.17 - 44.43 - 44.21

Gross profit increased to $2,927.1 million in fiscal 2010 (46.17% of revenues in fiscal 2010) from $2,672.7 million in fiscal 2009 (44.43% of revenues in fiscal 2009). Gross profit margin has increased in fiscal 2010 as compared to fiscal 2009, since the increase in cost of revenues (COR) could be controlled at 2.07% over fiscal 2009, compared to the growth of revenues of 5.38% over fiscal 2009.

Operating expenses

The Company’s operating expenses include selling, general and administrative (SG&A) expenses and research and development (R&D) expenses.

The Company’s SG&A expenses primarily comprise compensation for employees in sales, administration and other functions not directly engaged in the IT services delivery process. SG&A also includes expenditure on depreciation and amortisation of client-related intangibles and software, insurance, utilities and rental expenses for administrative offices, business promotion expenses, allowances for uncollectible receivables, travel expenses, legal and professional fees, marketing expenses and other general expenses.

Compensation and other costs relating to employees not allocated to client projects are included in SG&A expenses. Training costs for new hires are considered as SG&A expenses.

The summary of operating expenses is given below:(In millions of USD)

Fiscal 2010


Fiscal 2009


Fiscal 2008

Revenues 6,339.3 5.38 6,015.7 6.77 5,634.4

Operating expenses:

SG&A expenses 1,227.2 (0.83) 1,237.5 3.05 1,200.9


R&D expenses 18.3 77.67 10.3 (26.95) 14.1


Total 1245.5 (0.18) 1,247.8 2.70 1,215.0


Operating expenses as a percentage of revenues have decreased by 1.09% in fiscal 2010 as compared to fiscal 2009. The decrease is attributable to reduction in SG&A expenses partially offset by increase in R&D expenses.

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Selling, general and administrative (SG&A) expenses


Fiscal 2010

% of revenues

Fiscal 2009

% of revenues

Fiscal 2008

% of revenues

Employee costs 745.7 11.76 754.2 12.54 678.5 12.04

Rent and electricity 97.2 1.53 98.1 1.63 88.2 1.56

Depreciation 57.7 0.91 45.5 0.76 47.3 0.84

Travel and conveyance 43.0 0.68 60.0 1.00 81.0 1.44

Marketing and sales promotion 22.1 0.35 20.1 0.33 26.2 0.47

Professional fees 34.4 0.54 42.0 0.70 36.2 0.64

Communication 27.7 0.44 31.7 0.53 32.0 0.57

Provision for doubtful debts 36.1 0.57 14.3 0.24 2.4 0.04

Other expenses 163.3 2.58 171.6 2.84 209.1 3.71

Total 1,227.2 19.36 1,237.5 20.57 1,200.9 21.31

SG&A expenses other than employee costs 481.5 7.60 483.4 8.03 522.4 9.27

SG&A expenses other than employee costs decreased from 8.03% of revenues in fiscal 2009 to 7.60% in fiscal 2010. The decrease is primarily attributable to successful cost management initiatives undertaken across the Company. Significant decrease was recorded in travel and conveyance, communication expenses and other expenses (primarily contributed by reduction in advertisement expenses and training and recruitment expenses).

Employee costs in SG&A expenses


Fiscal 2010

% of revenues

Fiscal 2009

% of revenues

Fiscal 2008

% of revenues

Salaries 569.8 8.99 529.9 8.82 503.3 8.92

Foreign allowances 93.1 1.47 137.4 2.28 99.0 1.76

Staff welfare 42.5 0.67 44.7 0.74 41.0 0.73

Provident and other funds 38.4 0.61 36.5 0.61 28.5 0.51

Commission 1.9 0.02 5.7 0.09 6.7 0.12

Total 745.7 11.76 754.2 12.54 678.5 12.04

Employee costs in SG&A expenses as a percentage of total revenues decreased from 12.54% in fiscal 2009 to 11.76% in fiscal 2010. The decrease is attributable to the Company’s use of offshore leverage resulting in decrease in foreign living allowances (1.47% of fiscal 2010 revenues; 2.28% of fiscal 2009 revenues).

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Research and development (R&D) expenses

The Company’s R&D expenses include all expenditure incurred in various research and development centers in India, which includes employee cost of research personnel, infrastructure maintenance costs and all other expenditure required to carry on research and development activities.


Fiscal2010


Fiscal 2009


Fiscal 2008

Revenues 6,339.3 5.38 6,015.7 6.77 5,634.4

R&D expenses 18.3 77.67 10.3 (26.95) 14.1


R&D expenses in fiscal 2010 were $18.3 million ($10.3 million in fiscal 2009). The increase of 77.67% in R&D expenditure in fiscal 2010 is mainly due to increase in expenditure on R&D and innovation projects having potential revenue generating capabilities. Some of these projects have been certified by Department of Scientific & Industrial Research of Government of India.

Operating income


Fiscal 2010


Fiscal 2009


Fiscal 2008

Revenues 6,339.3 5.38 6,015.7 6.77 5,634.4

Operating income 1,681.6 18.02 1,424.9 11.67 1,276.0


The Company’s operating income in fiscal 2010 was higher by 18.02% at $1,681.6 million as compared to $1,424.9 million in fiscal 2009. As a percentage of total revenues, the Company’s operating profit margin was 26.52% in fiscal 2010 (23.69% in fiscal 2009).

The increase in operating profit margin in fiscal 2010 is attributable to the increase in gross profits and decrease in the operating expenses, as discussed earlier.

Derivative financial instruments

Details of derivative financial instruments as at March 31, 2010 and March 31, 2009 are disclosed in Note 26 of the ‘Notes to Consolidated Financial Statements’. The policies on derivative financial instruments have been brought out in item 2(u) of the ‘Notes to Consolidated Financial Statements’.

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Other income / (expense)

Other income includes interest and dividend income, foreign currency exchange gains and losses, profit / loss on sale of investment, income from rent and miscellaneous income. Other expenses include interest expense on bank overdraft and debt.

The details of other income / (expense) are given in the table below:


Fiscal2010

% of revenues

Fiscal2009

% of revenues

Fiscal2008

% of revenues

Revenues 6,339.3 100.00 6,015.7 100.00 5,634.4 100.00

Interest income 44.6 0.70 22.4 0.36 14.1 0.25

Interest expense (11.4) (0.18) (11.5) (0.19) (11.3) (0.20)

Net interest income / (expense) 33.2 0.52 10.9 0.17 2.8 0.05

Equity in net earnings of affiliates (0.2) (0.00) (0.2) (0.00) 0.2 0.00

Foreign exchange (loss) / gain, net (39.1) (0.61) (166.9) (2.77) 124.5 2.21

Dividend income 2.8 0.04 27.8 0.46 26.9 0.48

Others, net 51.9 0.82 30.6 0.51 17.0 0.30

Total other income / (expense), net 15.4 0.25 (108.7) (1.80) 168.6 2.99

Total 48.6 0.77 (97.8) (1.63) 171.4 3.04

The increase in interest income in fiscal 2010 is mainly attributable to investments in fixed deposits and other interest-bearing instruments including debentures.

Exchange (loss) / gain of $(39.1) million, $(166.9) million and $124.5 million have been recognised in earnings of fiscal 2010, 2009 and 2008 respectively.

The decrease in the foreign exchange loss (net) in fiscal 2010 is attributable primarily to lower losses incurred on the ‘forward and option hedging contracts’. (Loss) / gain from hedging instruments during fiscal 2010, 2009 and fiscal 2008 were $(13.7) million, $(218.0) million and $131.0 million respectively and balance was on account of revaluation of all current assets and liabilities in foreign currencies.

Income tax

Income tax expense comprises of current tax expense and net changes in deferred tax assets or liabilities.

Currently, TCS Limited benefits from certain tax incentives under section 10A of the Indian Income Tax Act 1961, for the export of IT services that it provides from specially designated Software Technology Parks in India (STPs), and other eligible units located in designated Special Economic Zones (SEZs). As a result of these incentives, the Company’s operations have been subjected to relatively low tax liability in India. These benefits for some of the Company’s units have started expiring from April 1, 2005. Under current laws, the tax incentives available to the STP units would terminate after ten years from commencement of operation of the respective units or March 31, 2011, whichever is earlier.

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Income tax expense analysis is given in the table below:


Fiscal 2010

Fiscal 2009

Fiscal 2008

Income before taxes 1,730.2 1,327.1 1,447.4

Income tax expense 261.1 190.4 187.5

Income tax as a % of revenues 4.12 3.16 3.33

Effective tax rate (Income tax expense / Income before taxes) 15.09% 14.35% 12.95%

The increase in effective tax rate for fiscal 2010 as compared to fiscal 2009 is primarily attributable to:

• increase in tax provision for Tata Consultancy Services Limited primarily as a result of expiry of tax holiday for certain STP units

• increase in the profit of our subsidiary in USA resulting in a higher tax provision

• increase in tax provision for our subsidiary in Canada

• additional deferred tax liability on undistributed earnings of certain subsidiaries

• creation of valuation allowance on certain items of deferred tax assets

• decrease in tax provision for one of our BPO subsidiaries in India.

The effective tax rate is lower than the current corporate tax rate in India (33.22%), primarily due to the tax benefits applicable to the STPs and SEZs that the Company operates from.

Net income

Net income of the Company for fiscal 2010 is $1,469.1 million. Details of net income are shown below:


Fiscal 2010


Fiscal2009


Fiscal2008

Revenues 6,339.3 5.38 6,015.7 6.77 5,634.4

Net income 1,469.1 29.24 1,136.7 (9.78) 1,259.9


Net income attributable to non-controlling interests (15.5) 20.16 (12.9) 21.70 (10.6)

% of total revenues (0.24) - (0.22) - (0.19)

Net income attributable to TCS Limited 1,453.6 29.35 1,123.8 (10.05) 1,249.3


The increase in net income as percentage of revenues (23.17% in fiscal 2010; 18.90% in fiscal 2009) is attributable to the increase in operating income, increase in net other income, offset by higher income tax expense as discussed earlier.

The increase in net income attributable to TCS Limited as percentage of revenues (22.93% in fiscal 2010; 18.68% in fiscal 2009) is due to the increase in net income, offset by marginally higher net profits attributable to minority shareholders in two of the subsidiaries in India.

16


Segment results

In order to manage the global operations more effectively, the organization was restructured and the internal review processes were realigned around industry practice. Consequently, industry practice is now considered as the reportable segment.

The Company’s segment-wise operating performance are analyzed in terms of revenues, expenses directly attributable to the segments, allocable expenses and segment results.

The summary of the Company’s segment results is given below:

(in millions of USD)

Fiscal2010

% ofrevenues

Fiscal2009

% ofrevenues

Fiscal2008

% ofrevenues

Segment revenues:

Banking, financial services and insurance (BFSI) 2,848.3 44.93 2,579.7 42.88 2,496.0 44.30

Manufacturing 513.3 8.10 589.3 9.80 545.8 9.68

Retail and distribution 671.8 10.60 530.5 8.82 368.9 6.55

Telecom 921.0 14.53 975.1 16.21 957.1 16.99

Others 1,384.9 21.84 1,341.1 22.29 1,266.6 22.48

Total 6,339.3 100.00 6,015.7 100.00 5,634.4 100.00

Segment results

BFSI 869.4 13.71 723.1 12.02 673.1 11.95

Manufacturing 170.6 2.69 188.4 3.13 204.6 3.63


Telecom 310.9 4.90 322.9 5.37 348.6 6.19

Others 408.3 6.44 363.9 6.05 240.4 4.27

Total 1,959.4 30.90 1,730.0 28.76 1,570.9 27.89

Unallocable expenses (net) 277.8 4.38 305.1 5.07 294.9 5.24

Operating income 1,681.6 26.52 1,424.9 23.69 1,276.0 22.65

Other income / (expense) net 48.6 0.77 (97.8) (1.63) 171.4 3.04

Income before income taxes 1,730.2 27.29 1,327.1 22.06 1,447.4 25.69

Income tax expense 261.1 4.12 190.4 3.16 187.5 3.33

Net income 1,469.1 23.17 1,136.7 18.90 1,259.9 22.36

Net income attributable to non-controlling interests (15.5) (0.24) (12.9) (0.22) (10.6) (0.19)

Net income attributable to TCS Limited 1,453.6 22.93 1,123.8 18.68 1,249.3 22.17

17


Segment results Fiscal 2010

% of segment results

Fiscal 2009


Fiscal2008


BFSI 869.4 44.37 723.1 41.80 673.1 42.85

Manufacturing 170.6 8.71 188.4 10.89 204.6 13.02


Telecom 310.9 15.87 322.9 18.66 348.6 22.19

Others 408.3 20.83 363.9 21.04 240.4 15.31

Total 1,959.4 100.00 1,730.0 100.00 1,570.9 100.00

Segment-wise performances are discussed below:(in millions of USD)

BFSI Fiscal 2010

% of segment revenue

Fiscal 2009


Fiscal 2008


Segment revenue 2,848.3 100.00 2,579.7 100.00 2,496.0 100.00

Segment result 869.4 30.52 723.1 28.03 673.1 26.97

The largest segment is the Banking, financial services and insurance (BFSI). This constituted 44.93% of the Company’s revenues in fiscal 2010 and has contributed 44.37% of total segment results in fiscal 2010. BFSI has shown satisfactory growth in terms of volume as well as profitability, even though customers in this segment were affected relatively more during the economic slowdown.


Telecom Fiscal2010


Fiscal2009


Fiscal2008


Segment revenue 921.0 100.00 975.1 100.00 957.1 100.00

Segment result 310.9 33.76 322.9 33.11 348.6 36.42

The second largest segment for the Company is Telecom which constituted 14.53% of the Company’s revenues in fiscal 2010 and contributed 15.87% of total segment results. Telecom witnessed pull back in terms of volume. Some of the major customers cut down their spending on outsourcing. However, the Company put multiple levers into play in order to manage operations more effectively and improved the overall profitability.


Retail & distribution

Fiscal 2010


Fiscal 2009


Fiscal 2008


Segment revenue 671.8 100.00 530.5 100.00 368.9 100.00

Segment result 200.2 29.80 131.7 24.83 104.2 28.25

The third largest segment for the Company is Retail and distribution. This segment constituted 10.60% of the Company’s revenues in fiscal 2010 and has contributed 10.22% of total segment results. Retail segment has shown substantial improvement over last fiscal. Volume grew by 26.63%, with an impressive improvement in profitability.

18



Manufacturing Fiscal 2010


Fiscal 2009


Fiscal 2008


Segment revenue 513.3 100.00 589.3 100.00 545.8 100.00

Segment result 170.6 33.24 188.4 31.97 204.6 37.49

The fourth largest segment for the Company is Manufacturing which constituted 8.10% of the Company’s revenues in fiscal 2010 and has contributed 8.71% of total segment results. Manufacturing lagged in terms of volume of business. Major customers in this segment, primarily in automobile and aerospace sectors were worst affected by the economic slowdown. However, the segment improved its profitability by superior cost management and transformational initiatives undertaken for major customers.


Others Fiscal2010


Fiscal2009


Fiscal2008


Segment revenue 1,384.9 100.00 1,341.1 100.00 1,266.6 100.00

Segment result 408.3 29.48 363.9 27.13 240.4 18.98

‘Others’ segment includes:

• Life sciences and healthcare

• Energy, resources and utilities

• Travel, transportation and hospitality

• Third party products

• Hi-Tech

• S-Governance

• Miscellaneous

‘Others’ segment constituted 21.84% of the Company’s revenues in fiscal 2010 and has contributed 20.83% of total segment results. The combined performance of ‘Others’ segment reflected a moderate growth in volume and an impressive improvement in profitability.

19

Financial position

Liquidity and capital resources

The Company’s growth has been financed largely by cash generated from operations.

As at March 31, 2010, the Company had cash and cash equivalents of $228.2 million as compared to $288.2 million as at March 31, 2009.

The Company believes that it has sufficient cash from operations to meet its working capital requirements. In addition, it has short-term working capital facilities with various commercial banks. The available lines of credit with banks were $246.8 million as at March 31, 2010.

Working capital

As at March 31, 2010, the Company had $1,794.9 million in working capital as compared to $1,086.4 million as at March 31, 2009.


As at March 31, 2010


Increase / (decrease)

Current assets:

Cash and cash equivalents 228.2 288.2 (60.0)

Bank deposits 813.1 226.0 587.1

Accounts receivable (net) 1,293.4 1,212.9 80.5

Unbilled revenues 267.4 291.9 (24.5)

Inventories 3.9 7.1 (3.2)

Prepaid expenses and other current assets (net) 469.4 276.6 192.8

Total 3,075.4 2,302.7 772.7

Current liabilities:

Accrued expenses and other current liabilities 1,044.0 961.9 82.1

Unearned and deferred revenues 162.8 153.0 9.8

Short-term debt 51.4 101.4 (50.0)

Mandatorily redeemable preference shares 22.3 - 22.3

Total 1280.5 1,216.3 64.2

Working capital 1794.9 1,086.4 708.5

20


Analysis of working capital(In millions of USD)



Current assets 3,075.4 2,302.7Current liabilities 1,280.5 1,216.3Working capital 1,794.9 1,086.4Current ratio 2.40 1.89Capital employed (total shareholder equity + non-current liabilities) 4,868.6 3,292.9Working capital as a percentage of capital employed 36.87% 32.99%Total assets 6,149.1 4,509.2Working capital as a percentage of total assets 29.19% 24.09%

The current ratio improved from 1.89 as at March 31, 2009 to 2.40 as at March 31, 2010 primarily due to increase in bank deposits during fiscal 2010.

The ratio of working capital to capital employed increased to 36.87% as at March 31, 2010 as compared to 32.99% as at March 31, 2009, while working capital to total assets ratio increased to 29.19% as at March 31, 2010 as compared to 24.09% as at March 31, 2009.

Cash flows

The Company’s cash flows from operating, investing and financing activities as reflected in the consolidated statement of cash flows are summarised below:

Cash flows summary (In millions of USD)


Cash and cash equivalents at the beginning of the year 288.2 266.1 282.8

Net cash provided by operating activities 1,616.5 1184.9 985.7

Net cash used in investing activities (1,196.7) (755.5) (672.7)

Net cash used in financing activities (500.3) (357.8) (353.0)

Net (decrease) / increase in cash and cash equivalents (80.5) 71.6 (40.0)

Effect of foreign exchange on cash 20.5 (49.5) 23.3

Cash and cash equivalents at the end of the year 228.2 288.2 266.1

21

Cash flows from operating activities(In millions of USD)


Net income 1,469.1 1,136.7 1,259.9

Adjustments: Depreciation and amortisation 153.0 124.5 143.8

Gain on sale of equity accounted affiliates / subsidiaries - - (1.2)

Others (95.9) (65.6) (78.6)

Operating profit before working capital changes 1,526.2 1,195.6 1,323.9

Effect of working capital changes 90.3 (10.7) (338.2)

Cash generated from operations 1,616.5 1,184.9 985.7

Cash inflows from operating activities primarily contributed to the generation of cash in fiscal 2010. There have been significant improvements in collection of receivables and reduction in unbilled revenues which have also resulted in release of cash.

Cash flows from investing activities(In millions of USD)


Net (purchase) / sale of available-for-sale investments (139.4) 211.8 (332.3)

Net (purchase) / sale of property, plant and equipment (220.0) (242.4) (300.7)

Purchase of subsidiaries and business, net of cash acquired (including additional consideration) (2.6) (497.9) (38.6)

Inflow on account of purchase price adjustment 9.5 - -

Bank deposits, net (538.5) (213.8) 2.5

Others (305.7) (13.2) (3.6)

Net cash used in investing activities (1,196.7) (755.5) (672.7)

Net cash used in investing activities was $1,196.7 million in fiscal 2010 ($755.5 million in fiscal 2009).

Net cash used in investing activities primarily consists of:

• net purchase of properties $220.0 million in fiscal 2010 ($242.4 million in fiscal 2009)

• purchase of subsidiaries including additional consideration of $2.6 million in fiscal 2010 ($497.9 million in fiscal 2009)

• inflow on account of purchase price adjustment of $9.5 million in fiscal 2010 in respect of one of the subsidiaries

• purchase of available-for-sale investments such as mutual funds, net of disposals, of $139.4 million (proceeds from available-for-sale investments, net of purchases, of $211.8 million in fiscal 2009)

• investments in bank fixed deposits, predominantly short-term in nature, of $538.5 million in fiscal 2010 ($213.8 million in fiscal 2009)

• investments in debentures of $262.3 million.

22


Cash flows from financing activities



Proceeds from issuance of long-term debt 0.3 1.0 -

Net change in bank overdrafts and cash credits 12.0 (11.5) (6.6)

Proceeds from issuance of mandatorily redeemable preference shares, net of expenses

- - 24.5

Dividends paid (410.7) (345.7) (370.0)

Others (101.9) (1.6) (0.9)


The most significant item is outflows on account of dividend, which has gone up in fiscal 2010 to $410.7 million ($345.7 million in fiscal 2009). Other items include repayment of debt of $100.0 million during fiscal 2010 by one of our subsidiaries in the USA.

Short-term debt

The changes in short-term debt as at March 31 for the year ended 2010 are shown below:




Increase/ (decrease)

Foreign currency bank loans 0.3 101.0 (100.7)

Cash credits and overdrafts 0.2 0.2 -

Current portion of long-term debt 0.3 0.2 0.1

Other short-term debt 12.8 - 12.8

Put-call option liability 37.8 - 37.8

Total 51.4 101.4 (50.0)

Foreign currency bank loan of $100 million taken by Company’s subsidiary in the USA was repaid by the subsidiary in fiscal 2010.

As part of the agreement with Pearl Group Services Limited (‘Pearl’), Tata Consultancy Services Limited has a call option to buy the minority interest of 24% in the Company’s subsidiary Diligenta Limited, at a fixed price at the end of the fourth year and ‘Pearl’ has a put option to sell the shares to the Company at the same price at the end of fifth year. Since the option could mature in less than one year, the liability has been considered as short-term debt as on March 31, 2010 (considered as long-term debt as on March 31, 2009, as period of maturity was more than one year).

Mandatorily redeemable preference shares

During the fiscal 2008, Tata Consultancy Services Limited arranged an unsecured long-term debt of $24.9 million by issuance and allotment of 1,000 million ‘redeemable preference shares’. This debt would be redeemable at par at the end of six years from the date of allotment, but may be repayable at any time after 3 years from the date of allotment at the option of the debt holder. The debt has been considered as a current liability as on March 31, 2010 (since the period of maturity was more than one year as on March 31, 2009 the debt was then considered as a non-current liability).

This debt carries a fixed and variable cumulative dividend liability as disclosed in note 17 of the notes to consolidated financial statements.

23

Long-term debt

The Company’s long-term debt as at March 31, 2010 was $2.4 million ($34.7 million as at March 31, 2009).

The changes in long-term debt as at March 31, 2010 are shown below:




Increase /(decrease)

Foreign currency debt 1.2 1.0 0.2

Put-call option liability - 32.4 (32.4)

Unsecured debt 1.5 1.5 -

Less: Current portion (0.3) (0.2) (0.1)

Total 2.4 34.7 (32.3)

Shareholders’ equity

Equity shares

Issued and fully paid-up share capital was $21.5 million as at March 31, 2009. Post the issue of stock dividend in the ratio of 1:1, the issued and fully paid-up share capital has increased to $41.8 million as at March 31, 2010.

Accumulated other comprehensive (loss) / income (AOCI)

Balance in AOCI, as at March 31, 2009 was a net loss of $556.5 million, which has reduced to a net loss of $23.7 million as at March 31, 2010.

The change is on account of:

• net foreign currency translation gain of $382.3 million arising out of revaluation of the Company’s monetary assets and liabilities

• net gain of $150.4 million arising out of effective cash flow hedges

• gain of $3.7 million on account of actuarial gains and losses towards employee benefit plans not recognised in income statement

• loss of $3.5 million on account of unrealized loss on available-for-sale securities, net of realised earnings and taxes.

Retained earnings

Retained earnings were $3,073.9 million as at March 31, 2009 and have increased to $4,116.8 million as at March 31, 2010. This increase is due to addition of net income attributable to TCS Limited of $1,453.6 million for fiscal 2010 and dividend payouts of $410.7 million (including tax on dividend) during fiscal 2010.

Assets

Investments

Investments as at March 31, 2010 were $842.0 million ($339.6 million as at March 31, 2009). Investments were made primarily in various mutual funds and debentures. Available-for-sale investments, primarily mutual funds at fair value were $570.1 million as at March 31, 2010 ($320.2 million as at March 31, 2009). Other categories of investments held by the Company were ‘investments held-to-maturity, at amortized cost’ of $270.8 million as at March 31, 2010, including debentures of $268.9 million ( $18.3 million as at March 31, 2009).

24


Property, plant and equipment, net

Property, plant and equipment, net, increased to $928.4 million as at March 31, 2010 from $738.9 million as at March 31, 2009. This includes capital work-in-progress of $210.1 million as at March 31, 2010 ($125.1 million as at March 31, 2009).

Significant net increases are in the following asset categories arising out of TCS capital expenditure program to meet its increasing business requirements:

• land and buildings ($531.2 million as at March 31, 2010; $424.5 million as at March 31, 2009)

• computer equipment ($356.4 million as at March 31, 2010; $269.2 million as at March 31, 2009)

• furniture, fixtures and office equipment ($337.0 million as at March 31, 2010; $262.7 million as at March 31, 2009).

Risks

Vulnerability from concentration occurs when entities fail to diversify in order to mitigate risks. The financial risks the Company is exposed to, among others, are in the areas of

(a) credit concentration for credits extended to clients,

(b) geographic concentration of credit risks relating to customers,

(c) concentration of cash and cash equivalents and bank deposits in geographies.

Client concentration analysis of international revenues

International revenues of the Company by client concentration are summarized below:



Top client 8.22% 4.67% 6.53%

Top 5 clients 21.78% 18.57% 18.86%

Top 10 clients 30.25% 26.86% 29.13%

TCS Limited’s aggregate credit exposure

Additional details of concentrations of credit risks are disclosed in Note 5 of the ‘Notes to Consolidated Financial Statements’.

CAUTIONARY STATEMENT

Certain statements made in the Management Discussion and Analysis Report relating to the Company’s objectives, projections, outlook, expectations, estimates, etc. may constitute ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections, etc., whether express or implied. Several factors could make significant difference to the Company’s operations. These include climatic conditions and economic conditions affecting demand and supply, government regulations and taxation, natural calamities, etc. over which the Company does not have any direct control.

25

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders ofTata Consultancy Services Limited:

We have audited the accompanying consolidated balance sheets of Tata Consultancy Services Limited and its subsidiaries (collectively referred to as “TCS Limited” or the “Company”) as of March 31, 2009 and 2010, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2010, all expressed in US dollars. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of TCS Limited as of March 31, 2009 and 2010, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte Haskins & SellsCHARTERED ACCOUNTANTS

Mumbai, India

May 11, 2010

26


Consolidated Balance Sheets As of March 31, 2009 and March 31, 2010

As of March 31,2009

As of March 31, 2010

(In millions of USD, except shares and per share data)

ASSETS:Current assets:

Cash and cash equivalents $288.2 $228.2 Bank deposits 226.0 813.1 Accounts receivable (net of allowances of $34.2 million and $74.9 million, respectively) 1,212.9 1,293.4 Unbilled revenues 291.9 267.4 Inventories 7.1 3.9 Prepaid expenses and other current assets (net of allowances of $5.9 million and $7.2 million, respectively) 276.6 469.4 Total current assets 2,302.7 3,075.4 Investment in debentures issued by Tata Sons Limited and its subsidiary - 268.9 Other investments 339.6 573.1 Equity method investment in affiliates 0.8 0.4 Property, plant and equipment, net 738.9 928.4 Intangible assets, net 163.2 157.7 Goodwill 510.6 564.0 Other non-current assets 453.4 581.2 Total assets $4,509.2 $6,149.1

LIABILITIES AND SHAREHOLDERS’ EQUITY:Liabilities:Current liabilities:

Accrued expenses and other current liabilities $961.9 $1,044.0 Unearned and deferred revenues 153.0 162.8 Short-term debt 101.4 51.4 Mandatorily redeemable preference shares - 22.3 Total current liabilities 1,216.3 1,280.5 Long-term debt 34.7 2.4 Mandatorily redeemable preference shares 19.7 - Other non-current liabilities 91.4 120.5 Total liabilities 1,362.1 1,403.4

Commitments and contingencies (see note 28) - - Shareholders’ equity:

Equity shares: par value $0.02 (Re.1) per share; authorised 2,250,000,000 equity shares; issued and fully paid-up 1,957,220,996 equity shares 21.5 41.8 Additional paid-in-capital 546.7 526.6 Accumulated other comprehensive (loss) / income (556.5) (23.7)Retained earnings 3,073.9 4,116.8 Total TCS Limited shareholders’ equity 3,085.6 4,661.5 Non-controlling interests 61.5 84.2 Total shareholders’ equity 3,147.1 4,745.7 Total liabilities and shareholders’ equity $4,509.2 $6,149.1

See accompanying notes to consolidated financial statements

27

Consolidated Statements of IncomeFor the years ended March 31, 2008, 2009 and 2010

Year ended March 31, 2008




Revenues:

Information technology and consultancy services $5,339.5 $5,789.3 $6,140.3

Sale of equipment and software licenses 294.9 226.4 199.0

Total revenues 5,634.4 6,015.7 6,339.3

Cost of revenues:

Cost of information technology and consultancy services 2,901.0 3,146.7 3,241.4

Cost of equipment and software licenses 242.4 196.3 170.8

Total cost of revenues 3,143.4 3,343.0 3,412.2

Gross profit 2,491.0 2,672.7 2,927.1

Operating expenses:

Selling, general and administrative expenses 1,200.9 1,237.5 1,227.2

Research and development expenses 14.1 10.3 18.3

Total operating expenses 1,215.0 1,247.8 1,245.5

Operating income 1,276.0 1,424.9 1,681.6

Other income / (expense):

Interest income 14.1 22.4 44.6

Interest expense (11.3) (11.5) (11.4)

Equity in net earnings of affiliates 0.2 (0.2) (0.2)

Other non-operating income / (expense), net 168.4 (108.5) 15.6

Other income, net 171.4 (97.8) 48.6

Income before income taxes 1,447.4 1,327.1 1,730.2

Income tax expense 187.5 190.4 261.1

Net income 1,259.9 1,136.7 1,469.1

Net income attributable to non-controlling inter-ests

(10.6) (12.9) (15.5)

Net income attributable to TCS Limited $1,249.3 $1,123.8 $1,453.6

Weighted average number of shares used in computing basic and diluted earnings per share: 1,957,220,996 1,957,220,996 1,957,220,996

Basic and diluted earnings per share: $0.64 $0.57 $0.74


28


Consolidated Statements of Changes in Shareholders’ EquityFor the years ended March 31, 2008, 2009 and 2010

Share Capital

Number of shares

Equity share

capital

Additional paid-in-capital

Accumulated other

comprehensive (loss) / income

Retained earnings

Total TCS Share-

holders’ equity

Non-controlling

interest

Total Compre-hensive income


Balance as of March 31, 2007 978,610,498 $21.5 $546.7 $76.7 $1,417.8 $2,062.7 $48.8 $2,111.5

Cumulative effect of change in accounting principle in respect of uncertain tax positions (1.3) (1.3) (1.3)

Acquisition of subsidiary (5.0) (5.0)

Sale of subsidiary shares to non-controlling interest 0.8 0.8

Net income 1,249.3 1,249.3 10.6 1,259.9 $1,259.9

Unrealised gain on available-for-sale securities, net of realised earnings and taxes 4.7 4.7 4.7 4.7

Foreign currency translation adjustment 168.3 168.3 3.8 172.1 172.1

Effective portion of loss on derivative instruments (22.2) (22.2) (22.2) (22.2)

Employee benefit plans, net of tax (4.2) (4.2) (4.2) (4.2)

Comprehensive income $1,410.3

Dividends paid, including tax on dividend (370.0) (370.0) (1.7) (371.7)

Balance as of March 31, 2008 978,610,498 $21.5 $546.7 $223.3 $2,295.8 $3,087.3 $57.3 $3,144.6

Acquisition of subsidiary 4.5 4.5

Sale of subsidiary shares to non-controlling interest 0.9 0.9

Net income 1,123.8 1,123.8 12.9 1,136.7 $1,136.7

Unrealised loss on available-for-sale securities, net of realised earnings and taxes (2.4) (2.4) (2.4) (2.4)

Foreign currency translation adjustment (631.3) (631.3) (11.8) (643.1) (643.1)

Effective portion of loss on derivative instruments (140.9) (140.9) (140.9) (140.9)

Employee benefit plans, net of tax (5.2) (5.2) (5.2) (5.2)

Comprehensive income $345.1


Balance as of March 31, 2009 978,610,498 $21.5 $546.7 $(556.5) $3,073.9 $3,085.6 $61.5 $3,147.1

29

Consolidated Statements of Changes in Shareholders’ Equity (continued)For the years ended March 31, 2008, 2009 and 2010

Share Capital

Number of shares

Equity share

capital

Additional paid- in-capital

Accumulated other

comprehensive (loss) / income

Retained earnings

Total TCS Share-

holders’ equity

Non-controlling

interest

Total Compre-hensive income


Balance as of March 31, 2009 978,610,498 $21.5 $546.7 $(556.5) $3,073.9 $3,085.6 $61.5 $3,147.1

Sale of subsidiary shares to non-controlling interest 0.2 (0.1) 0.1 1.0 1.1

Net income 1,453.6 1,453.6 15.5 1,469.1 $1,469.1

Unrealised loss on available-for-sale securities, net of realised earnings and taxes (3.5) (3.5) (3.5) (3.5)

Foreign currency translation adjustment 382.3 382.3 8.5 390.8 390.8

Effective portion of gain on derivative instruments, net of tax 150.4 150.4 0.4 150.8 150.8

Employee benefit plans, net of tax 3.7 3.7 3.7 3.7

Comprehensive income $2,010.9

Issue of stock dividend 978,610,498 20.3 (20.3)


Balance as of March 31, 2010 1,957,220,996 $41.8 $526.6 $(23.7) $4,116.8 $4,661.5 $84.2 $4,745.7


30


Consolidated Statements of Cash Flows For the years ended March 31, 2008, 2009 and 2010




(In millions of USD)Cash flows from operating activities:Net income $1,259.9 $1,136.7 $1,469.1 Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortisation 143.8 124.5 153.0 Loss / (Gain) on sale of property, plant and equipment 0.4 (3.2) 0.5 Deferred income taxes (83.3) (70.5) (102.0)Equity in net earnings of affiliates (0.2) 0.2 0.2 Gain on sale of available-for-sale investments (3.9) (11.7) (33.0)Effective interest on investment in debentures - - (1.7)Gain on sale of equity accounted affiliates (0.2) - - Non-cash interest on put-call option liability 3.8 3.5 3.6 Gain on sale of subsidiaries (1.0) - - Allowances for doubtful debts and advances 4.6 16.1 36.5

Net change in:Accounts receivable (292.8) (82.3) (4.4)Unbilled revenues (137.8) (13.5) 56.6 Inventories (0.3) 1.5 3.9 Prepaid expenses and other current assets (22.4) (16.1) (45.2)Other non-current assets (44.5) (107.7) (42.4)Accrued expenses and other current liabilities 131.3 161.3 120.9 Unearned and deferred revenues 20.4 27.1 (7.8)Other non-current liabilities 7.9 19.0 8.7 Net cash provided by operating activities 985.7 1,184.9 1,616.5

Cash flows from investing activities:Bank deposits (1.2) (258.8) (805.7)Purchase of available-for-sale investments (7,112.0) (6,507.4) (11,904.5)Purchase of property, plant and equipment (302.9) (252.6) (222.8)Government grant received - 2.5 - Purchase of subsidiaries and business, net of cash acquired (including additional consideration and purchase price adjustment) (38.6) (497.9) 6.9Acquisition of intangible assets - (0.4) (1.6)Proceeds from sale of subsidiary 0.5 0.5 0.5 Proceeds from sale of available-for-sale investments 6,779.7 6,719.2 11,765.1 Proceeds from sale of investments in affiliates 0.9 - - Proceeds from sale of property, plant and equipment 2.2 10.2 2.8 Proceeds from bank deposits 3.7 45.0 267.2 Inter-corporate deposits (10.5) (33.5) (51.0)Proceeds from inter-corporate deposits 5.5 17.7 8.7 Investments in debentures issued by Tata Sons Limited and its subsidiary - - (262.3)Net cash used in investing activities (672.7) (755.5) (1,196.7)

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Consolidated Statements of Cash Flows (continued)For the year ended March 31, 2008, 2009 and 2010





Cash flows from financing activities:

Proceeds from issuance of long-term debt - 1.0 0.3

Repayment of short-term debt - - (100.0)

Repayment of long-term debt - (0.2) (0.3)

Net change in bank overdrafts and cash credits (6.6) (11.5) 12.0

Proceeds from issuance of mandatorily redeemable preference shares with Tata Sons Limited, net of expenses 24.5 - -

Dividends paid by subsidiaries (1.7) (2.3) (2.7)

Dividends paid (370.0) (345.7) (410.7)

Proceeds from issue of shares to non-controlling interests by subsidiaries 0.8 0.9 1.1


Net change in cash (40.0) 71.6 (80.5)

Effect of foreign exchange on cash 23.3 (49.5) 20.5

Cash and cash equivalents, beginning of the year 282.8 266.1 288.2

Cash and cash equivalents, end of the year $266.1 $288.2 $228.2

Supplementary cash flow information:

Interest paid $6.5 $6.9 $5.0

Income taxes paid $265.8 $246.1 $404.7

Supplementary disclosure of cash flow non-cash investing activities:

Payable for purchase of property, plant and equipment $13.8 $4.0 $5.6


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Notes To Consolidated Financial Statements

1. Background and Operations

Tata Consultancy Services Limited and its subsidiaries (collectively TCS Limited) provide a wide range of information technology and consultancy services including systems hardware and software, communications and networking, hardware sizing and capacity planning, software project management solutions, technology education services and business process outsourcing.

As of March 31, 2010, Tata Sons Limited owned 73.75% of Tata Consultancy Services Limited’s equity share capital and has the ability to control its operating and financial policies.

2. Summary of Significant Accounting Policies

a. Basis of presentation

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

b. Basis of consolidation

TCS Limited consolidates all entities in which it has a controlling interest. TCS Limited did not have variable interests in any variable interest entities during the periods presented.

Inter-company transactions, balances and unrealised profits and losses on such transactions are eliminated on consolidation.

The results of entities with controlling interests acquired have been consolidated from the date of acquisition, except for those entities that have been accounted for as business combinations under common control. Purchase consideration paid in excess of the fair value of net assets acquired has been recognised as goodwill. The excess of fair value of the net assets acquired over the sum of (1) the fair value of the consideration transferred, (2) the fair value of any previously held equity interest, and (3) the fair value of any non-controlling interest is recognised as a gain in the income statement in the period in which the business combination occurs.

TCS Limited adopted ASC 810-10 (formerly SFAS No.160), Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51(Accounting Standards Codification Topic 810, Consolidations) on April 1, 2009. ASC 810 establishes requirements for ownership interests in subsidiaries held by parties other than the Company (commonly referred as “minority interests” or “non-controlling interests”) to be clearly identified, presented and disclosed in the consolidated balance sheet within equity (as opposed to liability or mezzanine equity). Accordingly, non-controlling interest has been retrospectively reclassified and reported within equity as a separate component from TCS’s shareholders’ equity.

c. Equity method investment in affiliates

Entities where TCS Limited has the ability to exert significant influence, generally where TCS Limited owns between 20% and 50% of the voting stock of the investee company are accounted for using the equity method. Investment in equity method investee is initially recorded at cost and is adjusted in subsequent period to reflect TCS Limited share of earnings or loss of the equity method investee and any impairment. Inter-company unrealised profits and losses on transactions with these entities are eliminated.

TCS Limited’s equity method affiliates are as follows:

Name of Affiliates Country of Incorporation



Voting Power% %

Exegenix Research Inc.(affiliate till June 5, 2009) Canada 49.9 -Firstech Solution Co. Limited(affiliate till January 12, 2009) Thailand 15.4 -National Power Exchange Limited (from December 11, 2008) India 50.0 50.0

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d. Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses for the years presented. Actual results could differ from these estimates. Material estimates in these financial statements that are susceptible to change as more information becomes available include costs to complete for fixed price contracts, allowances for uncollectible accounts receivable, useful lives of intangible and tangible assets, impairment assessments of goodwill and long-lived assets, retirement benefits and income taxes.

e. Revenue recognition

TCS Limited earns revenues primarily from providing information technology and consultancy services, including services under contracts for software development, implementation and other related services, re-licensing of third party software products and sales, licensing and sale of its own software, business process outsourcing and maintenance of equipment.

TCS Limited recognises revenue as follows:

Revenues from bundled contracts that involve supplying computer equipment, licensing software and providing services are recognised separately for each of the elements based on the nature of each element and their proportional fair values. The fair value of each element is determined by reference to the price charged when the same element is sold separately.

Revenues from contracts priced on a time and material basis are recognised as services are rendered and as related costs are incurred.

Revenues from software development contracts, which are generally time bound fixed price contracts, are recognised over the life of the contract using the percentage-of-completion method, with contract costs determining the degree of completion. Revenue recognition using the percentage-of-completion method in conformity with American Institute of Certified Public Accountants’ Statement of Position No. 81-1 (subsequently codified under ASC 605-35-05-01), is based on the guidance in Statement of Position 97-2, Software Revenue Recognition (subsequently codified under ASC 985-605-05), to account for revenues under fixed price arrangements for software development and related services. Losses on such contracts are recognised when probable. Revenues in excess of billings are recognised as unbilled revenues in the balance sheet; to the extent billings are in excess of revenues recognised, the excess is reported as unearned and deferred revenue in the balance sheet.

Revenues from business process outsourcing contracts priced on the basis of time and material or unit of delivery are recognised as services are rendered or the related obligation is performed.

Revenues from the sale of computer equipment are recognised upon delivery, which is when title passes to the customer. TCS Limited acts as a reseller of third party computer equipment products; such revenues are reported gross as TCS Limited acts as a principal, has pricing authority and bears inventory and credit risk.

Revenues from the sale of internally developed and manufactured systems and third party software products which do not require significant modification are recognised upon delivery of a license, which is when the absolute right to use passes to the customer and TCS Limited does not have any material remaining service obligations. TCS Limited acts as a relicensor of third party software licenses. Revenues from such products are reported gross as TCS Limited acts as a principal, has pricing authority and bears inventory and credit risk.

Revenues from maintenance contracts and from finite period software licenses granted are recognised on a pro-rata basis over the period of the contract.

TCS Limited recognises volume discount obligations as a reduction of revenue in proportion to the revenue recognised from the customer to the total expected revenue.

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TCS Limited reports billed out-of-pocket expenses as revenue.

All revenues are recognised only when collectability of the resulting receivable is reasonably assured, and are reported net of discounts and indirect and service taxes.

f. Cost recognition

Costs and expenses are recognised when incurred and have been classified according to their primary functions in the following categories:

Cost of information technology and consultancy services

These costs primarily include employee compensation of personnel when engaged in providing services, travel expenses, employee allowances, payroll related taxes, client specific training expenses, depreciation and amortisation of production related equipment and software, rental expenses, losses incurred on fixed price contracts and communication costs.

Cost of equipment and software licenses

These costs consist of the cost of resold computer equipment and re-licensed software, and include inward shipping and insurance costs.

Selling, general and administrative expenses

Selling costs primarily include employee compensation for sales and marketing personnel, travel costs, advertising, business promotion expenses, allowances for delinquent receivables, outward shipping expenses, rental expenses for sales and marketing offices and market research costs.

General and administrative costs primarily include employee compensation for administrative, supervisory, managerial and practice management personnel, depreciation and amortisation of non-production equipment and software, rental expenses for administrative offices, insurance, electricity, telecommunication costs, legal and professional fees, impairment of goodwill, long-lived assets and intangibles, valuation allowances and other general expenses.

Research and development expenses

Research and development (R&D) expenses include all costs relating to TCS Limited’s research and development center and costs incurred for the development of software to be sold.

The R&D center’s expenses primarily consist of employee compensation for research personnel, facilities expenses for the R&D center and the cost of software and equipment for which there is no future use within the enterprise. Property, plant and equipment that have an alternative future use within the enterprise are capitalised and depreciated over their estimated useful lives.

g. Foreign currency

The functional currency of Tata Consultancy Services Limited and its Indian subsidiaries is the Indian Rupee, whereas the functional currency of foreign subsidiaries is the currency in their countries of incorporation.

Foreign currency transactions are translated into the functional currency at exchange rates prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are translated into the functional currency using exchange rates prevailing on the balance sheet dates. Gains and losses arising on conversion of foreign currency denominated monetary assets and liabilities are included in net income.

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Assets and liabilities of entities with functional currency other than reporting currency have been translated to the reporting currency using exchange rates prevailing on the balance sheet date. Income statement items have been translated using the quarterly weighted average exchange rates. Translation adjustments have been reported as a component of other comprehensive income in the statement of changes in shareholders’ equity.

The consolidated financial statements have been presented in US Dollars as the reporting currency. Effective April 1, 2008 TCS Limited changed its reporting currency to US Dollars from Indian Rupees. The consolidated financial statements for fiscal 2008 have been retrospectively revised to reflect US Dollar as the reporting currency. Change in reporting currency was to facilitate the investor’s ability to evaluate TCS Limited’s performance and financial position in comparison to similar companies domiciled in different foreign jurisdictions.

h. Income taxes

Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year.

Current income taxes:

The current income tax expense includes Indian income taxes payable for Tata Consultancy Services Limited’s worldwide operations after taking credit for benefits available for operations in Software Technology Parks (or STPs) and Special Economic Zones (or SEZs) and export earnings, and after offsetting benefits under double tax avoidance treaties for foreign taxes payable in overseas jurisdictions.

The domestic operations are carried out through 34 “undertakings” established in STPs and 14 “undertakings” established in SEZs, which are separate entities under Indian income tax laws entitled to tax holidays and other undertakings.

Current income tax is payable in each of Tata Consultancy Services Limited’s overseas branches and is computed in accordance with the tax laws applicable in the jurisdiction in which each of the branches operate. The amounts paid are generally available for offset as tax credits in India towards the income tax liability computed on Tata Consultancy Services Limited’s worldwide income.

The current income tax expense for overseas subsidiaries has been computed based on the laws applicable to each entity in the jurisdiction in which that entity operates.

Payments of advance taxes and income taxes payable in the same tax jurisdictions are offset.

Deferred income taxes:

Deferred tax assets and liabilities are recognised for the future tax consequences of temporary differences between the carrying values of assets and liabilities and their respective tax bases, and unutilised business loss carry forwards. Deferred tax assets and liabilities are computed separately for each taxable entity in the consolidated enterprise and for each taxable jurisdiction. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realised and are separately estimated at each such entity without offsetting.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be received or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the income statement in the period of enactment of the change.

For domestic operations carried out in STPs and SEZs, deferred tax liabilities, if any, have been established for the tax consequences of those temporary differences between the carrying values of assets and liabilities and their respective tax bases that reverse after the tax holiday ends. No deferred tax asset has been recognised for the reduction in taxes attributable to such tax holidays.

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For taxable entities and undertakings that are not entitled to tax holidays, deferred tax assets and liabilities are recognised for the future tax consequences of temporary differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realised.

Uncertain tax position are recognised using the more likely-than-not threshold determined solely based on technical merits that the tax positions will sustain upon examination. Tax positions that meet the recognition threshold are measured as the largest amount of benefit that is greater than fifty percent likely of being realised upon settlement with relevant taxing authority that has full knowledge of all relevant information.

i. Cash and cash equivalents

TCS Limited considers all highly liquid financial instruments including bank deposits, which are readily convertible into cash and have original maturities of three months or less from the date of purchase, to be cash equivalents.

j. Concentrations of credit risk

Financial instruments that potentially subject TCS Limited to concentrations of credit risk principally consist of cash and cash equivalents and bank deposits, accounts receivable, unbilled revenues and investment in debentures issued by Tata Sons Limited and its subsidiary.

k. Inventories

Stores and spares inventories are stated at cost determined on a weighted average basis. Raw materials, sub-assemblies and components are valued at lower of cost and market value and their costs are determined on a weighted average basis.

Purchased goods in transit are stated at their cost.

Finished goods produced or purchased are stated at the lower of cost and market value. Cost is determined using the specific identification method and includes direct material and labour costs and a proportion of manufacturing overheads. Work-in-progress is stated at lower of cost or market value.

Obsolete or slow moving inventories are written down based on management’s specific analysis of future sales forecast and economic conditions.

l. Goodwill and other intangible assets

Purchased intangible assets, other than goodwill, consist of amounts allocated to customer relationships on acquisition of a business, acquisition of intellectual property rights and acquired contract rights. The intangible assets are amortised on a straight-line basis. The following table summarises the nature of intangibles and the estimated useful lives.

Nature of intangibles Useful lives

Customer-related intangibles 3-10 years

Technology-related intangibles 3-10 years

Software licenses License period

Acquired contract rights 5-12 years

Goodwill is assessed for impairment annually on March 31 or when events or circumstances indicate that the implied fair value of goodwill is less than its carrying amount. Goodwill impairment assessment is a two-step test. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the

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reporting unit is considered not impaired; however if the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the impairment loss, if any. TCS Limited uses an income-based approach to determine the fair value of the reporting unit by estimating the present value of the future cash flows after considering current economic conditions and trends, estimated future operating results and growth rates, and anticipated future economic and regulatory conditions. When required to perform the second step, TCS Limited compares the implied fair value of goodwill of reporting units with the carrying amount of that goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss equal to that excess amount is recognised, not to exceed the goodwill carrying amount. TCS Limited determines the implied fair value of goodwill for a reporting unit by assigning the fair value of the reporting unit to all of the assets and liabilities of that unit (including any unrecognised intangible assets) as if the reporting unit had been acquired in a business combination. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. This assignment process is only for the purpose of testing goodwill impairment and TCS Limited does not adjust the carrying amount of the recognised assets and liabilities (other than goodwill, if appropriate) or recognise previously unrecognised intangible assets in the consolidated balance sheet as a result of this assignment process.

m. Investments

Equity securities and investments in mutual funds with readily determinable fair market values are classified as available-for-sale securities and recorded at fair value. Unrealised gains and losses on such securities, net of applicable taxes, are reported in accumulated other comprehensive income, a separate component of shareholders’ equity. Realised gains and losses on sale of securities are recorded on the trade date and the costs of investments sold are determined using the weighted average method.

Equity securities that do not have readily determinable fair market values are classified as available-for-sale securities and accounted at original cost.

Declines in the fair values of investments below cost that are other than temporary are reflected in earnings as realised losses. Fair values of equity securities carried at cost are estimated if there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.

Debt securities for which management has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and are reported at amortised cost.

TCS Limited does not have any securities classified as trading.

n. Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided for property, plant and equipment so as to expense the cost over their estimated useful lives at the following basis and rates:

Type of asset Method Rate

Buildings on freehold land Declining balance method 2.5% - 7.39%

Buildings on leasehold land Straight line method Lease period

Computer equipment Straight line method 16% - 50%

Automobiles Declining balance method 25% - 40%

Plant and machinery Straight line method 33.3%

Furniture and fixtures Straight line method 10% - 100%

Office equipment Declining balance method 13.9%

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Depreciation is not recorded on capital work in progress until construction and installation are complete and the asset is ready for its intended use.

Property, plant and equipment exclude computers and other assets individually costing $1,000 (Rs 50,000) or less which are not capitalised except when they are part of a larger capital investment programme.

o. Impairment or disposal of long-lived assets (excluding goodwill)

Whenever events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, TCS Limited subjects such assets to a test of recoverability based on the undiscounted cash flows from use and disposition of the asset. If the asset is impaired, TCS Limited recognises an impairment loss as the difference between the carrying value of the asset and fair value. As of March 31, 2009 and 2010, none of TCS Limited’s long-lived assets was considered impaired.

p. Compensated absences

TCS Limited provides for the cost of vacation earned but not taken, based on the number of days of carry forward entitlement at each balance sheet date.

q. Long-term debt

TCS Limited reports long-term debt at the outstanding principal balance. Interest costs are accounted for on accruals basis and charged to the statement of income using the effective interest method.

r. Earnings per share

Basic earnings per share are computed by dividing net income attributable to shareholders of Tata Consultancy Services Limited by the weighted average number of equity shares outstanding during the period. Tata Consultancy Services Limited did not have any potentially dilutive securities in any of the periods presented.

s. Comprehensive income

Comprehensive income includes all changes in equity from transactions and other events and circumstances from non-shareholder sources. Comprehensive income comprises unrealised gains and losses on available-for-sale securities, translation adjustments arising on the translation of financial statements from functional currency to reporting currency, effective portion of gain / loss on derivative instruments, defined benefit pension and other post-retirement plans and net income.

t. Segment information

Consequent to the reorganisation of global operations with the objective of making industry practice the focal point for performance evaluation and internal financial reporting and decision making, TCS Limited has changed its segment information reporting to four business segments providing products and services based on industry practice of its customers. These reportable segments are: Banking, Financial Services and Insurance (BFSI), Manufacturing, Retail and Distribution and Telecom. All other operating segments fall below the quantitative thresholds for reporting purposes. Segment-wise information has been provided in Note 27.

u. Derivative financial instruments

TCS Limited uses foreign currency option and forward contracts to manage its exposure to foreign exchange. TCS Limited recognises the outstanding contracts at fair value. The option and forward contracts are designated and documented as hedges at the inception of the contract. The effectiveness of option and forward contracts to reduce the risk associated with the exposure being hedged is assessed and measured at inception and on an ongoing basis. Any amounts excluded from the assessment of hedge effectiveness, as well as the ineffective portion of designated hedges are reported in earnings immediately.

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Changes in fair value of derivative instruments designated and qualifying as hedges are recognised as a component of the accumulated other comprehensive income in the statement of changes in shareholders’ equity and is reclassified into earnings when the related hedge items impact earnings. Changes in fair value of derivative financial instruments that are not designated as a hedge are recorded immediately in earnings.

When the financial instrument is terminated or settled prior to the expected maturity or realisation of the underlying item, hedge accounting is discontinued prospectively. Gains or losses from changes in fair value of discontinued derivative instruments are recognised in earnings when the hedged transaction occurs. Fair value adjustments, recognised for cash flow hedges after settlement or termination, continue to be reported in accumulated other comprehensive income until the related hedged items impact earnings. For anticipated transactions that are no longer probable, recognised fair value adjustments within accumulated other comprehensive income are reported immediately in current earnings.

v. Newly issued accounting pronouncements

In June 2009, the FASB issued ASC 860 (formerly SFAS No. 166), Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140. SFAS No. 166 removes the concept of a qualifying special-purpose entity from Statement 140 and removes the exception from applying FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to qualifying special-purpose entities. This statement also requires that a transferor recognise and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. This statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. Adoption of ASC 860 is not expected to have any effect on TCS Limited’s financial statements.

In June 2009, the FASB issued ASC 810 (formerly SFAS No. 167), Amendments to FASB Interpretation No.46 (R). SFAS No. 167 amends Interpretation 46(R) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. Adoption of ASC 810 is not expected to have any effect on TCS Limited’s financial statements.

In October 2009, the FASB issued ASU 2009-13 on Multiple-deliverable Revenue Arrangements. The ASU amends the guidance in ASC 605-25 on multiple-element revenue arrangements. It addresses the unit of accounting for arrangements involving multiple deliverables. It also addresses how arrangement consideration should be allocated to the separate units of accounting, when applicable. Although the ASU retains the criteria from Issue 00-21 for when delivered items in a multiple-deliverable arrangement should be considered separate units of accounting, it removes the previous separation criterion under Issue 00-21 that objective and reliable evidence of the fair value of any undelivered items must exist for the delivered items to be considered a separate unit or separate units of accounting. The ASU is effective for fiscal years beginning on or after June 15, 2010. The effect on adoption of ASC 605-25 on TCS Limited’s financial statements is being evaluated.

In October 2009, the FASB issued ASU 2009-14 on Software Revenue Recognition. It amends ASC 985-605 and ASC 985-605-15-3 (Issue 03-5) to exclude from their scope all tangible products containing both software and non software components that function together to deliver the product’s essential functionality. The ASU is effective for fiscal years beginning on or after June 15, 2010. The requirements of this ASU and its impact on TCS Limited’s financial statements are being evaluated.

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In December 2009, the FASB issued ASU 2009-17, which codifies Statement 167 and revises the former guidance under Interpretation 46(R). The amendments in ASU 2009-17 replace the quantitative-based risks-and-rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has (1) the power to direct the activities of a variable interest entity that most significantly affect the entity’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity. The ASU also requires additional disclosures about a reporting entity’s involvement with variable interest entities and about any significant changes in risk exposure as a result of that involvement. ASU 2009-17 is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009. Early application is not permitted. The requirements of this ASU are not expected to have any impact on TCS Limited’s financial statements.

In January 2010, the FASB issued additional disclosure requirements to ASU 820-10 on fair value measurements. According to the guidance, the fair value hierarchy disclosures are to be further disaggregated by class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. In addition, significant transfers between Levels 1 and 2 of the fair value hierarchy will be required to be disclosed. These additional requirements are effective January 1, 2010 for quarterly and annual reporting. In addition, the guidance requires more detailed disclosures of the changes in Level 3 instruments. These changes will be effective January 1, 2011 and its impact on TCS Limited’s financial statements are being evaluated.

In April 2010, the Emerging Issues Task Force (EITF) reached a final consensus on milestone method of revenue recognition and published ASU 2010-17, Revenue Recognition – Milestone Method (Topic 605). The scope of this ASU is limited to arrangements that include milestones relating to research or development deliverables. The consensus specifies guidance that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance applies to milestones in arrangements within the scope of this consensus regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting. The final consensus will be effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early application is permitted. Companies can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. The requirements of this ASU and its impact on TCS Limited’s financial statements are being evaluated.

On March 5, 2010, the FASB issued ASU 2010-11, Derivatives and Hedging (Topic 815) – Scope Exception related to Embedded Credit Derivatives to clarify the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Specifically, only one form of embedded credit derivative qualifies for the exemption – one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. This guidance also has transition provisions, which permit entities to make a special one-time election to apply the fair value option to any investment in a beneficial interest in securitised financial assets, regardless of whether such investments contain embedded derivative features. This guidance is effective on the first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of any fiscal quarter beginning after March 5, 2010. The requirements of this ASU and its impact on TCS Limited’s financial statements are being evaluated.

3. Acquisitions

On December 31, 2008 Tata Consultancy Services Limited acquired a 96.26 percent equity interest in TCS e-Serve Limited, (formerly known as Citigroup Global Services Limited), a business process outsourcing (referred to as “BPO”) provider within the banking and financial services (referred to as “BFS”) sector from Citigroup Inc.(Seller), for $504.5 million including acquisition cost of $2.5 million. Purchase price

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allocated to the fair values of assets acquired and liabilities assumed includes Acquired Contract Rights, an intangible asset, that has been valued at $114.4 million, to be amortised over the contractual period of 9.5 years. The excess of purchase consideration over net assets and the identified intangible asset has been recognised as goodwill of $305.0 million.

TCS e-Serve Limited is an established BPO service provider in India. The acquisition will enhance TCS Limited’s BPO service capabilities in the BFS sector. Tata Consultancy Services Limited is entitled to an indemnification on certain contingent claims on TCS e-Serve Limited and is required to refund to the Seller payments previously made against such claims.

Purchase consideration paid for this acquisition has been allocated as follows:


Net assets acquired, at fair value

Investments $16.5

Property, plant and equipment 20.6

Fair value of intangible assets 114.4

Net working capital 75.5

Other non-current liabilities (27.5)

Fair Value of net assets on date of acquisition 199.5

Goodwill 305.0

Purchase consideration $504.5

Proforma results for TCS e-Serve Limited acquisition

The following unaudited proforma financial information presents the combined results of operations of TCS Limited and TCS e-Serve Limited as if the acquisition had occurred as of the beginning of each of the periods presented. The unaudited proforma results for all periods presented include amortisation charges for identified intangible assets, eliminations of intercompany transactions and related tax effects.

The unaudited proforma results were as follows for the fiscal years ended March 31, 2008 and 2009:

Year endedMarch 31, 2008


(In millions of USD, except per share data)

Revenue $5,868.5 $6,218.6

Net income 1,295.5 1,112.1

Earnings per share 0.66 0.57

The proforma financial information is presented for informational purposes and is not indicative of the results of operations that may have been achieved if the acquisition had taken place at the beginning of each of the periods presented.

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4. Cash and cash equivalents

Cash and cash equivalents consist of the following:

As of March 31,2009


(In millions of USD)Held within India $44.3 $36.8 Held outside India 243.9 191.4 Total $288.2 $228.2

5. Concentrations of credit risk

Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counter parties whose aggregate credit exposure is material in relation to TCS Limited’s total credit exposure.

TCS Limited has a customer concentration of risk, as illustrated in the table below showing the aggregated accounts receivable and unbilled revenues for five largest customers as of March 31, 2009 and 2010, respectively.

TCS Limited’s exposure to other customers is diversified and no other single customer explains more than 2.0% of outstanding accounts receivable and unbilled revenues as of March 31, 2009 and 2010.

As of March 31, 2009(In millions of USD, except percentages)

Total accounts receivable and

unbilled revenues Percentage Customer A $71.9 4.8 Customer B 54.2 3.6 Customer P 52.5 3.5 Customer D 35.4 2.4 Customer R 33.5 2.2 Others 1,257.3 83.5 Total $1,504.8 100.0

As of March 31, 2010(In millions of USD, except percentages)

Total accounts receivable and

unbilled revenues Percentage Customer A $105.2 6.7 Customer B 44.9 2.9 Customer P 38.1 2.4 Customer D 37.9 2.4 Customer R 34.7 2.2 Others 1,300.0 83.4 Total $1,560.8 100.0

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TCS Limited also has a geographic concentration of credit risk with exposure to customers based in the United States of America and the United Kingdom comprising 40.7% and 16.1% of the balances as of March 31, 2009 and 42.2% and 14.8% of the balances as of March 31, 2010, respectively.

TCS Limited also has a geographic concentration of credit risk relating to cash and cash equivalents held with banks in India, South Africa, the United Kingdom and the United States of America comprising 15.4%, 13.5%, 10.7% and 6.1% of the balances as of March 31, 2009 and 16.1%, 13.2%, 6.9% and 6.2% of the balances as of March 31, 2010, respectively.

TCS Limited has a geographic concentration of credit risk relating to bank deposits with banks in India comprising 97.6% and 96.4% of the balances as of March 31, 2009 and 2010 respectively.

6. Inventories

Inventories consist of the following:As of March 31,

2009 As of March 31,

2010


Stores and spares $0.3 $0.3 Raw materials 2.7 1.1 Goods in transit 0.7 0.2 Computer and equipment held for resale 3.2 2.2 Work in progress 0.2 0.1 Total $7.1 $3.9

In fiscals 2009 and 2010 there was no impairment loss in respect of inventories.

7. Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:




Prepaid expenses $95.8 $128.3 Advance to suppliers 8.5 8.9 Employee loans and advances (net of allowances of $3.8 million and $4.9 million, respectively) 25.1 33.9 Income taxes paid in advance 6.7 22.9 Deferred income taxes 26.1 79.2 Foreign currency derivative assets 3.5 20.1 Inter-corporate deposits 19.7 64.6 Other current assets (net of allowances of $2.1 million and $2.3 million, respectively) 91.2 111.5

Total $276.6 $469.4

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8. Investment in Non-Convertible Debentures of Tata Sons Limited and its subsidiary

During the fiscal 2010, Tata Consultancy Services Limited subscribed to the privately placed unsecured, unlisted redeemable non-convertible debentures issued by Tata Sons Limited and its subsidiary Panatone Finvest Limited for a consideration of $217.8 million and $44.5 million respectively. The debentures issued by Tata Sons Limited would be redeemable at par in three equal installments at the end of second, third and fourth year respectively from the date of allotment while the debentures issued by Panatone Finvest Limited would be redeemed at the end of the third year. The non-convertible debentures issued by Tata Sons Limited and its subsidiary Panatone Finvest Limited carry an effective interest of 8.50% and 8.75%, respectively.

Fair value

Gross unrecognised

gains

Gross unrecognised

losses

Amortised Cost

(In millions of USD)Debentures with Tata Sons Limited and its subsidiary:As of March 31, 2010: Investments in debt securities $267.9 $- $(1.0) $268.9 Total $267.9 $- $(1.0) $268.9

The contractual maturity of debentures with Tata Sons Limited and its subsidiary as of March 31, 2010 is as follows

Year ending March 31, Debt securities(In millions of USD)

2012 $74.2

2013 118.72014 76.0Total $268.9

9. Other investments

Other investments consist of the following:



(In millions of USD)Investments available-for-sale, at fair value $320.2 $570.1 Investments held-to-maturity, at amortised cost 18.3 1.9 Investments at cost, net 1.1 1.1 Total $339.6 $573.1

45

Information on unrealised gains and losses on available-for-sale investments at March 31, 2009 and March 31, 2010 is as follows:

Cost Gross unrealised

gains

Gross unrealised

losses

Fair value


Available-for-sale securities:

As of March 31, 2009:

Investments in mutual funds $313.0 $6.5 $(0.9) $318.6

Investments in debt securities 1.6 - - 1.6

Total available-for-sale securities $314.6 $6.5 $(0.9) $320.2


Investments in mutual funds $567.3 $1.1 $- $568.4

Investments in debt securities 1.7 - - 1.7

Total available-for-sale securities $569.0 $1.1 $- $570.1

Information on unrecognised gains and losses for held-to-maturity investments is as follows:

Fair value Gross unrealised

gains

Gross unrealised

losses

Amortised Cost


Held-to-maturity securities:


Investments in debt securities $16.6 $- $- $16.6

Investments in preference securities 1.6 - (0.1) 1.7

Total held-to-maturity securities: $18.2 $- $(0.1) $18.3


Investments in debt securities $0.8 $- $- $0.8

Investments in preference securities 1.0 - (0.1) 1.1

Total held-to-maturity securities: $1.8 $- $(0.1) $1.9

Dividends on investments for fiscals 2008, 2009 and 2010 were $26.9 million, $27.8 million and $2.8 million, respectively.

The proceeds and gross realised gains from sale of available-for-sale securities for fiscal 2008 were $6,779.7 million and $3.9 million, respectively. Unrealised gain of $3.6 million was reclassified from accumulated other comprehensive income to earnings on sale of these securities.



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10. Property, plant and equipment

Property, plant and equipment by asset category are as follows:




Land $61.1 $68.1

Buildings 363.4 463.1

Computer equipment 269.2 356.4

Automobiles 9.3 6.8

Plant and machinery 26.3 33.2

Furniture, fixtures and office equipment 262.7 337.0

Property, plant and equipment, at cost 992.0 1,264.6

Less: Accumulated depreciation (378.2) (546.3)

613.8 718.3

Capital work-in-progress 125.1 210.1

Property, plant and equipment, net $738.9 $928.4

Depreciation expense was $125.8 million, $106.2 million and $126.0 million in fiscals 2008, 2009 and

2010, respectively.

In fiscal 2009 the useful life of computer equipment of Tata Consultancy Services Limited had been reviewed by the management and the original estimate of the useful life of these assets has been increased from two to four years. The remaining depreciable amount is charged over the revised remaining useful life of these assets. Consequently, depreciation for fiscal 2009 is lower and the profit for fiscal 2009 is higher by $39.3 million, and the earnings per share is higher by $0.02.

During the fiscal 2009, Tata America International Corporation (“TAIC”), a wholly owned subsidiary, received $2.5 million consequent to a grant agreement entered with a State Development Department, USA in respect of TAIC’s new office established in the State of Ohio, with an obligation to create new employment positions during the term of the agreement. The carrying amount of the related property, plant and equipment has been reduced by $2.5 million. The grant is recognised as income over the life of the property, plant and equipment by way of reduced depreciation charge.

Included in property, plant and equipment are the following assets taken on capital lease :




Computer equipment $1.6 $1.9

Furniture, fixtures and office equipment 7.3 8.2

Leased property 8.9 10.1

Less: Accumulated depreciation (1.6) (3.1)

Leased property, net $7.3 $7.0

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11. Intangible assets

Intangible assets

Gross cost

Additions / (Deductions)

Foreign currency exchange gain/(loss)

Accumulated amortisation

Net carrying

value

(In millions of USD)As of March 31, 2009:Customer-related intangibles $23.0 $- $1.0 $(14.2) $9.8 Technology-related intangibles 24.4 - 0.7 (11.0) 14.1 Acquired contract rights 48.3 113.7 (9.1) (18.0) 134.9 Software licenses 11.1 1.2 0.2 (9.3) 3.2 Others 4.7 - (0.3) (3.2) 1.2 Total $111.5 $114.9 $(7.5) $(55.7) $163.2

As of March 31, 2010:Customer-related intangibles $23.0 $- $2.2 $(16.6) $8.6 Technology-related intangibles 24.4 - 4.1 (13.8) 14.7 Acquired contract rights 162.0 - 5.7 (34.9) 132.8 Software licenses 12.3 1.6 0.6 (13.2) 1.3 Others 4.7 - (0.2) (4.2) 0.3 Total $226.4 $1.6 $12.4 $(82.7) $157.7

The estimated amortisation for each of the five fiscal years subsequent to March 31, 2010 is as follows:

Year ending March 31, Amortised Cost(In millions of USD)

2011 $23.8

2012 22.92013 21.72014 20.82015 19.9

Thereafter 48.6Total $157.7

Amortisation expense was $18.0 million, $18.3 million and $27.0 million in fiscals 2008, 2009 and 2010, respectively.

12. Goodwill



(In millions of USD)Balance at the beginning of the year $276.9 $510.6 Addition during the year 305.6 1.6 Foreign currency translation adjustment (71.9) 51.8 Balance at the end of the year $510.6 $564.0

48


TCS Limited performed its annual impairment test as of March 31, 2010. TCS Limited estimated the fair values of the reporting units using an income-based approach and estimated future cash flows after considering current economic conditions and trends, estimated future operating results and growth rate, and anticipated future economic and regulatory conditions. The estimated cash flows were developed using internal forecasts. The discount rates used for the reporting units were based on the historical market returns of the comparable companies. As of March 31, 2010, the fair values of all reporting units exceed the carrying amounts and no impairment loss was recognised in fiscal 2010.

As of March 31, 2010, goodwill amounting to $33.1 million is deductible for tax purposes.

13. Other non-current assets

Other non-current assets consist of the following:




Non-current portion of employee loans $8.1 $4.0

Prepaid rent 25.2 28.5

Rent deposits 67.5 79.0

Income taxes paid in advance 121.3 185.1

Deferred income taxes 161.2 248.6

Restricted cash 1.1 9.3

Long-term bank deposits 18.5 1.0

Others 50.5 25.7

Total $453.4 $581.2

14. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following:




Accounts payable, including retentions $208.0 $279.6

Accrued expenses 234.4 278.4

Accrued compensation expenses 116.1 170.2

Income taxes payable 115.3 123.4

Indirect taxes payable 66.8 63.7

Deferred income taxes 48.1 54.4

Foreign currency derivative liabilities 136.2 26.5

Other current liabilities 37.0 47.8

Total $961.9 $1,044.0

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15. Income taxes

The income tax expense consists of the following:





Current income tax expense:

Domestic $119.3 $111.4 $194.7

Foreign 151.5 149.5 168.4

Total $270.8 $260.9 $363.1

Deferred income tax expense:

Domestic $(81.9) $(83.0) $(93.0)

Foreign (1.4) 12.5 (9.0)

Total $(83.3) $(70.5) $(102.0)

Total income tax expense $187.5 $190.4 $261.1

The reconciliation of estimated income tax expense at Indian statutory income tax rate to income tax expense reported in statement of income is as follows:





Income before income taxes $1,447.4 $1,327.1 $1,730.2

Indian statutory income tax rate 33.990% 33.990% 33.990%

Expected income tax expense 492.0 451.1 588.1

Tax effect of:

Adjustments to reconcile expected income tax expense to reported income tax expense:

Tax effect of permanent differences:

Tax holidays and income exempt from tax (394.2) (361.8) (407.2)

Undistributed earnings in branch, subsidiaries and affiliates 9.3 8.9 1.4

Income taxed at different rates 85.8 75.7 68.7

Others, net (5.4) 16.5 10.1

Total income tax expense $187.5 $190.4 $261.1

Under Section 10A of the Indian Income Tax Act, 1961, Tata Consultancy Services Limited and its subsidiaries in India are entitled to tax holidays for its various Software Technology Park (STP) units located across India. These tax holidays are available for a period of ten fiscal years from the date of commencement of operations. The Indian Government, through the Finance Act, 2009, has extended the tax holiday for all STP units until March 31, 2011 such that the tax holiday will now be available until the earlier of fiscal year 2011 or ten years after the commencement of the tax holiday for each such STP unit.

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In addition, Tata Consultancy Services Limited and its subsidiaries in India benefit from the tax exemption available for units set up under the Special Economic Zone Act, 2005 (SEZ). These tax holidays are available for a period of fifteen fiscal years from the date of commencement of operations. Under the SEZ scheme, the unit which begins providing services on or after April 1, 2005 will be eligible for deductions of 100% of profits or gains derived from export of services for the first five years, 50% of such profit or gains for a further period of five years and 50% of such profit or gains for the balance period of five years subject to fulfillment of certain conditions.

The per share (basic) effect of the tax holiday was $0.20, $0.18 and $0.21 for fiscals 2008, 2009 and 2010.

The tax effects of significant temporary differences are as follows:



(In millions of USD)Tax effect of:

Deductible temporary differences: Property, plant and equipment $- $3.7 Retirement benefits and compensated absences 12.9 18.2 Receivables, loans and advances 6.5 37.4 Allowances for diminution in value of investments 0.6 0.8 MAT credit entitlement 152.8 242.8 Operating loss carry forward 2.8 8.1 Intangibles and goodwill 8.0 6.5 Others 4.5 12.8 Deferred tax asset 188.1 330.3 Less: Valuation allowance (0.8) (2.5) Net deferred tax asset $187.3 $327.8 Current $26.1 $79.2 Non-current 161.2 248.6 Total $187.3 $327.8

Taxable temporary differences: Property, plant and equipment $14.8 $18.0 Retirement benefits and compensated absences 0.6 0.1 Branch profit tax 21.5 9.8 Undistributed earnings of subsidiaries and affiliates 23.6 52.7 Unrealised gain on available-for-sale securities 2.1 - Others 44.3 54.1 Deferred tax liability $106.9 $134.7 Current $48.1 $54.4 Non-current 58.8 80.3 Total $106.9 $134.7

Valuation allowance has been recognised on deferred tax assets relating to impairment of certain securities carried at cost and uncollected export receivables estimated to be non-recoverable. TCS Limited has not recognised valuation allowances on operating losses of certain subsidiaries and branches as TCS Limited expects these subsidiaries and branches to return to tax profitability in near future.

51

Under the Indian Income Tax Act, 1961, unabsorbed business losses expire 8 years after the year in which they originate. In respect of certain foreign subsidiaries, business losses can be carried forward indefinitely unless there is a substantial change in the ownership.

Under the Indian Income Tax Act, 1961, Tata Consultancy Services Limited and its subsidiaries in India are liable to pay Minimum Alternate Tax (MAT) in the tax holiday period. MAT paid can be carried forward for a period of 10 years and can be set off against the future tax liabilities. Consequently, TCS Limited has recognised a deferred tax asset of $242.8 million as of March 31, 2010.

Deferred tax liabilities of $35.3 million on undistributed earnings of certain foreign subsidiaries have not been recognised, as it is the intention of TCS Limited to reinvest the foreign earnings of these subsidiaries for an indefinite period of time. TCS Limited has also not provided deferred tax liability on $94.9 million of undistributed earnings of certain other foreign subsidiaries, as it is TCS Limited’s policy to indefinitely reinvest these earnings in their operations.

Tax expense / (benefit) allocated to each component of other comprehensive income are as follows:




(In millions of USD)Unrealised (loss) / gain on available-for-sale securities $2.5 $(1.7) $(2.3)Employee benefit plans 0.6 (1.8) 0.1Unrealised gain on effective hedges - - 4.5Total $3.1 $(3.5) $2.3

TCS Limited adopted the provisions of ASC 740-10 (formerly FASB Interpretation No. 48), Accounting for Uncertainty in Income Taxes, on April 1, 2007. This Interpretation requires that TCS Limited recognise in financial statements the impact of a tax position, if that position is more likely than not to be sustained based on the technical merits of the position.

A reconciliation of the beginning and ending amounts of unrecognised tax benefits is given below:



(In millions of USD)Balance at the beginning of the year $3.5 $4.3Increases due to tax positions related to prior years 0.9 33.0Increases due to tax positions related to the current year 0.6 2.6Decreases due to tax positions related to prior years (0.6) (0.5)Decreases due to tax positions related to the current year (0.1) -Decreases due to settlements with taxing authorities - (0.3)Decreases due to lapse of statute of limitation - (1.0)Balance at the end of the year $4.3 $38.1

TCS Limited classifies interest and penalties related to unrecognised tax benefits as part of income tax expense. TCS Limited has accrued for interest and penalties related to unrecognised tax benefits of $4.0 million as of March 31, 2010.

As of March 31, 2010, TCS Limited has unrecognised tax benefits of $38.1 million, which if ultimately recognised, will reduce the TCS Limited’s annual effective tax rate. Quantification of amounts of uncertain tax position as disclosed above that may change within twelve months of the reporting date is not practicable.

52


TCS Limited files numerous consolidated and separate income tax returns in India, United States federal and state jurisdictions, United Kingdom and in several other foreign jurisdictions. On an ongoing basis TCS Limited is routinely subject to examination by taxing authorities. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, TCS Limited believes that its unrecognised tax benefits reflect the outcome that is more likely than not to occur. TCS Limited adjusts these unrecognised tax benefits, as well as the related interest and penalties, in light of changing facts and circumstances. The resolution of a matter could be recognised as an adjustment to provision for income taxes and effective tax rate in the period of resolution, and may also require the outflow of cash.

TCS Limited has ongoing disputes with Indian Income tax authorities relating to tax treatment of certain items. These mainly include disallowed expenses, tax treatment of certain expenses claimed by TCS Limited as deductions, and computation of, or eligibility of, certain tax incentives or allowances. As of March 31, 2010, TCS Limited has demands from direct tax authorities in India, which are being contested by TCS Limited on appeal amounting to $105.0 million. Demands from direct tax authorities include $47.3 million in respect of TCS e-Serve Limited. TCS e-Serve Limited has also paid advance taxes aggregating $36.1 million against the disputed amounts for the relevant assessment years. Tata Consultancy Services Limited is indemnified by Citigroup Inc. against TCS e-Serve Limited’s tax claim and would be required to refund Citigroup Inc. payments previously made against such claims.

The number of years that are subject to tax assessments varies depending on tax jurisdiction. The major tax jurisdictions of TCS Limited include India, United States of America and United Kingdom. In India, tax filings from fiscal 2007 are subject to examination by the taxing authorities. In United States of America, the federal statute of limitation applies to fiscals 2006 and earlier and applicable state statutes of limitation vary by state. In United Kingdom, tax filings from fiscal 2008 are subject to examination by the taxing authorities.

16. Short-term debt

Short-term debt consists of the following:



(In millions of USD)Foreign currency bank loans $101.0 $0.3 Cash credits and overdrafts 0.2 0.2 Current portion of long-term debt 0.2 0.3 Other short-term debt - 12.8 Put-call option liability - 37.8

Total $101.4 $51.4

Available lines of credit $313.9 $246.8Total debt outstanding Maximum amount outstanding $101.5 $141.7 Average amount outstanding $2.3 $79.4 Weighted average interest rate 1.8% 0.9%

Cash credits and overdrafts are secured against accounts receivable and inventories. All other debts are unsecured.

53

In March 2006, Tata Consultancy Services Limited, through its subsidiary Diligenta Limited (“Diligenta”), acquired, on a going concern basis, certain businesses of Pearl Group Services Limited (“Pearl”). Pearl has a minority interest of 24% in Diligenta Limited. Tata Consultancy Services Limited has a call option to buy this minority interest of 24% at a fixed price at the end of the fourth year and Pearl has a put option to sell the shares to Tata Consultancy Services Limited at the same price at the end of fifth year. An additional consideration of $45.8 million (£30.2 million) has been recorded and TCS Limited has consolidated 100% of Diligenta at the inception of this arrangement. As at March 31, 2010, Tata Consultancy Services Limited has not exercised the call option.

17. Mandatorily redeemable preference shares with Tata Sons Limited

During the fiscal 2008, Tata Consultancy Services Limited arranged an unsecured long-term debt of $24.9 million (Rs.1,000.0 million) by issuance and allotment of 1,000,000,000 Redeemable Preference Shares of face value of $0.02 (Re.1) each to Tata Sons Limited. This debt would be redeemable at par at the end of six years from the date of allotment but may be repayable at any time after 3 years from the date of allotment at the option of the debt holder. This debt carries a fixed cumulative dividend of 1% per annum and a variable non-cumulative dividend of 1% of the difference between the rate of dividend declared during the year on the par value of equity shares of Tata Consultancy Services Limited and the average rate of dividend declared on the par value of equity shares of Tata Consultancy Services Limited for three years preceding the year of issue of the above debt.

18. Long-term debt

Long-term debt consists of the following:



(In millions of USD)Foreign currency debt $1.0 $1.2 Put-call option liability 32.4 - Unsecured debt 1.5 1.5 Less: Current portion (0.2) (0.3) Total $34.7 $2.4

19. Other non-current liabilities

Other non-current liabilities consist of the following:



(In millions of USD)Deferred income taxes $58.8 $80.3 Employee benefits liabilities 16.1 20.7 Others 16.5 19.5 Total $91.4 $120.5

20. Shareholders’ equity

Authorised and issued share capital

Stock-split

On June 12, 2009, the shareholders of Tata Consultancy Services Limited approved a bonus issue of 978,610,498 equity shares. The bonus issue is in the nature of a stock split effected in the form of a stock dividend with one additional share issued for every share held. In accordance with Indian law, $20.3 million has been capitalised from additional paid-in capital as share capital on allotment of bonus shares.

Earnings per share amount has been adjusted retrospectively for all the periods presented.

54


21. Retirement and post-retirement benefits

Defined benefit retirement plan

In accordance with Indian law, Tata Consultancy Services Limited and its subsidiaries in India provide for gratuity, a defined benefit retirement plan covering eligible employees in India. The plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment in an amount equivalent to 15 to 30 days’ salary payable for each completed year of service. Vesting occurs upon completion of five continuous years of service. The measurement date used for determining retirement benefits for gratuity is March 31. Certain overseas subsidiaries of TCS Limited also provide for retirement benefit pension plans in accordance with the local laws.

The following table sets out the funded status of the defined benefit retirement plans and the amounts recognised in the financial statements:

As of March 31, 2009 As of March 31, 2010

Domestic plans

Foreign plans

Total Domestic plans

Foreign plans

Total


Change in benefit obligations:

Benefit obligation, beginning of the year $82.8 $29.7 $112.5 $83.8 $31.5 $115.3

Exchange loss / (gain) (19.1) (5.5) (24.6) 12.1 1.8 13.9

Plans assumed on acquisition of subsidiaries 4.0 - 4.0 - - -

Plan participant’s contribution - 1.1 1.1 - 1.3 1.3

Service cost 13.4 3.4 16.8 16.2 3.6 19.8

Interest cost 6.3 1.1 7.4 7.0 1.3 8.3

Actuarial loss / (gain) 1.5 3.2 4.7 (1.8) 2.4 0.6

Past Service Cost - - - - 0.7 0.7

Benefits paid (5.1) (1.5) (6.6) (6.6) (4.1) (10.7)

Benefit obligation, end of the year $83.8 $31.5 $115.3 $110.7 $38.5 $149.2

Change in plan assets:

Fair value of plan assets, beginning of the year $66.5 $31.0 $97.5 $70.9 $27.1 $98.0

Exchange gain / (loss) (14.5) (5.2) (19.7) 9.1 1.6 10.7

Actual return on plan assets 6.5 (3.2) 3.3 8.0 4.4 12.4

Employer contributions 16.3 4.9 21.2 15.8 4.3 20.1

Plan assets obtained on acquisition of subsidiaries 1.2 - 1.2 - - -

Plan participant’s contribution - 1.1 1.1 - 1.3 1.3

Benefits paid (5.1) (1.5) (6.6) (6.6) (4.1) (10.7)Fair value of plan assets, end of the year $70.9 $27.1 $98.0 $97.2 $34.6 $131.8

Funded status:

Deficit of plan assets over

obligations $(12.9) $(4.4) $(17.3) $(13.5) $(3.9) $(17.4)

Accrued liability $(12.9) $(4.4) $(17.3) $(13.5) $(3.9) $(17.4)

55


Domestic plans

Foreign plans


Foreign plans

Total

(In millions of USD)Category of assets: Corporate bonds $- $11.7 $11.7 $- $16.6 $16.6 Equity shares - 3.8 3.8 - 6.9 6.9 Special deposit scheme 0.3 - 0.3 0.4 - 0.4 Index linked gilt - 4.5 4.5 - 6.6 6.6 Insurer managed funds 70.6 - 70.6 96.8 - 96.8 Cash and bank balances - 0.3 0.3 - 0.3 0.3 Others - 6.8 6.8 - 4.2 4.2Total $70.9 $27.1 $98.0 $97.2 $34.6 $131.8

Net periodic gratuity cost consists of the following components:




Domestic plans

Foreign plans


Foreign plans


Foreign plans

Total

(In millions of USD)Service cost $12.5 $4.7 $17.2 $13.4 $3.4 $16.8 $16.2 $3.6 $19.8Interest cost 5.9 0.9 6.8 6. 3 1.1 7.4 7.0 1.3 8.3Amortisation of net actuarial loss - - - - - - - 0.3 0.3Past service cost - - - - - - - 0.7 0.7Expected return on plan assets (5.1) (1.3) (6.4) (5.4) (1.5) (6.9) (6.8) (1.5) (8.3)Net periodic gratuity cost $13.3 $4.3 $17.6 $14.3 $3.0 $17.3 $16.4 $4.4 $20.8

The assumptions used in accounting for the gratuity plan are set out below:




Domestic plans

Foreign plans

Domestic plans

Foreign plans

Domestic plans

Foreign plans

% % % % % %

Discount rate 8.0 3.5 - 6.9 7.5 - 8.0 3.5 - 6.3 7.5 3.0 - 6.3Rate of increase in compensation levels of covered employees 4.0 - 6.0 1.5 - 3.4 4.0 - 15.0 1.5 - 3.3 4.0 –12.0 1.5 - 3.3Rate of return on plan assets 7.0 - 8.9 4.5 - 5.7 8.0 - 9.2 4.5 - 5.6 8.0 4.0 - 5.6

TCS Limited’s overall expected long-term rate of return on assets has been determined based on a consideration of assessed risks of asset management, available market information, historical results of the return on plan assets and the provisions of Indian law which specify the instruments in which investments can be made.

56


Accumulated benefit obligation was $83.2 million and $75.8 million as of March 31, 2009 and 2010, respectively.

The estimated benefit payments expected to be paid for future service are as follows:

Year ending March 31, Domestic plans Foreign plans Total (In millions of USD)

2011 8.3 2.6 10.92012 12.0 1.8 13.82013 13.4 1.8 15.22014 13.8 1.8 15.62015 15.6 2.1 17.72016-2020 93.0 11.3 104.3

The expected benefits are based on the same assumptions as are used to measure TCS Limited’s gratuity obligations as of March 31, 2010. TCS Limited is expected to contribute $15.3 million to gratuity funds in fiscal 2011 comprising domestic component of $11.4 million and foreign component of $3.9 million.

An amount of $3.3 million in accumulated other comprehensive income pertains to actuarial gains and losses that have not yet been recognised as a component of net periodic benefit cost for fiscal 2010.

Defined benefit medical plan

The medical plan liability arises on the retirement and death of an employee. The aforesaid liability is calculated on the basis of fixed annual amount per employee (based on the basic salary) for qualifying employees.

The most recent actuarial valuation of plan assets and the present value of the defined obligation were carried out on March 31, 2010. The present values of the defined obligation and the related current service cost and past service cost were measured using the Projected Unit Credit Method.

The following tables set out the reconciliation of the benefit obligation of the medical plan and amounts recognised in TCS Limited’s financial statements as at March 31, 2010.


As of March 31,2010

(In millions of USD)Change in benefit obligations:

Benefit obligation, beginning of the year $1.3 $0.9Exchange Difference (0.2) 0.2Interest cost 0.1 0.1Actuarial gain on obligation (0.2) 0.1Benefits paid (0.1) (0.1)

Benefit obligation, end of the year $0.9 $1.2

Net periodic post-retirement medical cost consists of the following components:




(In millions of USD)Current service cost $0.1 $- $-Interest cost 0.1 0.1 0.1 Net cost $0.2 $0.1 $0.1

Principal actuarial assumptions:




% % %Discount rate 8.0 7.5 7.5

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Defined contribution plans

Superannuation

In addition to gratuity benefits, all eligible employees are entitled to benefits under Superannuation, a defined contribution plan. TCS Limited makes monthly contributions until retirement or resignation of the employee. TCS Limited recognises such contributions as an expense when incurred. TCS Limited has no further obligation beyond its monthly contribution.

TCS Limited contributed $14.5 million, $17.0 million and $16.3 million to the Employees’ Superannuation Fund in fiscals 2008, 2009 and 2010, respectively.

Providentfund

In accordance with Indian law, all eligible employees of Tata Consultancy Services Limited and its subsidiaries in India are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and employer contribute monthly at a determined rate (up to 12% of employee’s salary). Tata Consultancy Services Limited and its subsidiaries in India are liable for future provident fund benefits to the extent of its annual contribution and any shortfall in fund assets based on government specified minimum rates of return and recognises such contributions and shortfall, if any, as an expense in the year incurred.

Tata Consultancy Services Limited and its subsidiaries in India contributed $50.4 million, $50.1 million and $55.8 million to the provident fund in fiscals 2008, 2009 and 2010, respectively.

ForeignDefinedContributionPlan

TCS Limited and its subsidiaries contributed $7.5 million, $11.0 million and $11.2 million in fiscals 2008, 2009 and 2010, respectively, towards foreign defined contribution plan.

22. Other non-operating income / (expense), net





Gain on sale of subsidiaries $1.0 $- $- Gain on sale of equity accounted affiliates

0.2 - -

Foreign exchange (loss) / gain on derivative instruments designated as cash flow hedges 60.7 (125.0) (38.6)Foreign exchange gain / (loss) on other derivative instruments 70.3 (93.0) 24.9 Foreign exchange (loss) / gain, others (6.5) 51.1 (25.4)Dividend income 26.9 27.8 2.8 Others, net 15.8 30.6 51.9 Total $168.4 $(108.5) $15.6

In fiscal 2008, TCS Limited through its wholly owned subsidiary, TCS Iberoamerica SA, sold its interest in two of its subsidiaries Pentacrom S.A. and Pentacrom Servicios S.A. for a profit of $1.0 million.

In fiscal 2008, TCS Limited sold its interest in Conscripti (Pty) Ltd, an equity accounted affiliate. The carrying amount of Conscripti (Pty) Ltd was $0.7 million and the sale proceeds were $0.9 million.

23. Shipping and handling costs

Selling, general and administrative expenses for fiscals 2008, 2009 and 2010, include shipping and handling costs of $1.0 million, $0.7 million and $0.5 million, respectively.

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24. Leases

TCS Limited has leased property, equipment and automobiles under operating lease arrangements. Operating lease rent expense was $61.9 million, $65.1 million and $87.8 million in fiscals 2008, 2009 and 2010, respectively.

The following is a summary of future minimum lease rental commitments towards non-cancellable operating leases and capital leases:

Year ending March 31, Operating lease Capital lease(In millions of USD)

2011 $90.5 $2.0 2012 85.5 1.6 2013 73.3 1.6 2014 65.7 1.6 2015 57.0 1.6 Thereafter 263.3 3.3Total minimum lease commitments $635.3 $11.7

Present value of minimum lease commitments of assets acquired under capital lease amounting to $6.9 million.

The capital lease arrangement is renewable at the option of the lessee.

25. Estimated fair value of financial instruments

Effective April 1, 2008, TCS Limited adopted ASC 820 (formerly SFAS No. 157) limited to financial assets and liabilities, which primarily relate to TCS Limited’s investments and derivative contracts.

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels:

• Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.

• Level 2 - Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

• Level 3 - Inputs which are unobservable reflecting internal assumptions are used in pricing assets or liabilities.

The following table summarises financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820:

As of March 31, 2009: Level 1 Level 2 Level 3 Total


Investments – available-for-sale securities $320.2 $- $- $320.2 Derivative financial assets - 3.5 - 3.5 Derivative financial liabilities - 136.2 - 136.2

As of March 31, 2010: Level 1 Level 2 Level 3 Total


Investments – available-for-sale securities $570.1 $- $- $570.1 Derivative financial assets - 20.1 - 20.1 Derivative financial liabilities - 25.8 - 25.8

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26. Derivative financial instruments

TCS Limited’s revenues are denominated in foreign currency predominantly US Dollar, Sterling Pound and the Euro. In addition to these currencies, TCS Limited also does business in Australian Dollar, Canadian Dollar, South African Rand and Swiss Franc. Given the nature of the business, a large portion of the costs are denominated in Indian Rupee. This exposes TCS Limited to profit / loss on currency fluctuations.

TCS Limited monitors and manages the financial risks relating to its operations by analysing its foreign exchange exposures by the level and extent of currency risks.

Tata Consultancy Services Limited and its subsidiaries use various derivative financial instruments governed by policies approved by the board of directors such as foreign currency option contracts as well as forward contracts to manage and mitigate its exposure to foreign exchange rates. The counter party is generally a bank. These contracts are for a period between one day and eight years.

Tata Consultancy Services Limited and its subsidiaries report quarterly to its risk management board, an independent body that monitors foreign exchange risks and policies implemented to manage its foreign exchange exposures. TCS Limited has developed software platform to monitor, manage and report foreign exchange exposures relating to hedging transactions on a periodic basis.

The following are outstanding Foreign Exchange Forward contracts, which have been designated as cash flow hedges:

As of March 31, 2009 As of March 31, 2010Foreign Currency

Number of Contracts

Notional amount of Forward contracts

Fair ValueLoss

Number of Contracts

Notional amount of Forward contracts

Fair Value Gain

(In millions) (In millions of USD)


US Dollar 14 153.5 $(18.1) 20 51.2 $2.7

The following are outstanding Currency Option contracts, which have been designated as cash flow

hedges:

As of March 31, 2009 As of March 31, 2010Foreign Currency

Number of Contracts

Notional amount

of Option contracts

Fair ValueLoss

Number of Contracts

Notional amount

of Option contracts

Fair Value Loss



US Dollar 56 1,081.7 $(117.3) 56 639.8 $(12.1)Euro 1 5.0 (1.1) - - -Sterling Pound 1 4.0 (0.2) - - -

Net loss on derivative instruments of $4.4 million recognised in accumulated other comprehensive income as of March 31, 2010, is expected to be reclassified into earnings by March 31, 2011.

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The movement in accumulated other comprehensive income during fiscals 2009 and 2010 for derivatives designated as cash flow hedges is as follows:



(In millions of USD)Balance at the beginning of the year $(3.8) $(143.9)Gains / (losses) transferred to income statement on occurrence of forecasted hedge transaction (18.5) 15.6Net change in the fair value of effective portion of cash flow hedges (net of deferred taxes of $Nil and $4.5 million, respectively) (103.1) 135.2Net derivative gain / (loss) related to a discontinued cash flow hedges (19.3) 0.2Foreign currency translation adjustment 0.8 (12.6)Amount transferred to non-controlling interests during the year - (0.4)Balance at the end of the year $(143.9) $(5.9)

In addition to the above cash flow hedges, TCS Limited has outstanding foreign exchange forward contracts and currency option contracts with notional amounts aggregating $832.2 million and $779.9 million as on March 31, 2009 and 2010, respectively. Although these contracts are effective as hedges from an economic perspective, they do not qualify for hedge accounting. Exchange gain of $70.3 million, an exchange loss of $93.0 million and an exchange gain of $24.9 million on foreign currency forward exchange contracts and currency option contracts have been recognised in earnings in fiscals 2008, 2009 and 2010, respectively.

27. Segment information

Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker, in deciding how to allocate resources and assess performance. TCS Limited’s chief operating decision maker is the Chief Executive Officer and Managing Director.

Consequent to the reorganisation of its global operations with the objective of making industry practice its focal point for performance evaluation and internal financial reporting and decision making, in fiscal 2010, TCS Limited has reviewed and revised the manner in which it views the business risks and returns and monitors its operations. Accordingly TCS Limited has changed its segment information reporting to four business segments providing products and services. These reportable segments are: Banking, Financial Services and Insurance (BFSI), Manufacturing, Retail and Distribution, Telecom. All other operating segments fall below the quantitative thresholds for reporting purposes. Segment information previously reported based on geography in fiscals 2008 and 2009 has been restated to present business segment following the change in the composition of the operating segments.

Income and direct expenses directly identifiable to segments are reported under each reporting segment, while common expenses which are not directly identifiable to each reporting segment have been allocated to each reporting segment on the basis of associated revenues of each segment. All other expenses which are not attributable or allocable to segments have been disclosed as unallocable.

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Summarised segment information for the years ended March 31, 2008, 2009 and 2010 is as follows:

Year ended March 31, 2008(In millions of USD)

Segment Income Statement: Banking, Financial

Services and Insurance

Manufacturing Retail and Distribution

Telecom Others Total

Revenues $2,496.0 $545.8 $368.9 $957.1 $1,266.6 $5,634.4Identified operating expenses 1,382.5 244.9 199.6 439.6 802.8 3,069.4Allocated expenses 440.4 96.3 65.1 168.9 223.4 994.1Segment result $673.1 $204.6 $104.2 $348.6 $240.4 $1570.9Unallocable expenses 294.9Operating income 1,276.0Other income / (expense), net 171.4Income before income taxes 1,447.4Income tax expense 187.5Net income $1,259.9






Revenues $2,579.7 $589.3 $530.5 $975.1 $1,341.1 $6,015.7Identified operating expenses 1,428.9 303.2 310.8 490.5 754.9 3,288.3Allocated expenses 427.7 97.7 88.0 161.7 222.3 997.4Segment result $723.1 $188.4 $131.7 $322.9 $363.9 $1730.0Unallocable expenses 305.1Operating income 1,424.9Other income / (expense), net (97.8)Income before income taxes 1,327.1Income tax expense 190.4Net income $1,136.7Segment assets:Segment total assets $1,328.6 $150.1 $185.5 $303.8 $491.5 $2,459.5Unallocable assets 2,049.7Total assets $4,509.2






Revenues $2,848.3 $513.3 $671.8 $921.0 $1,384.9 $6,339.3Identified operating expenses 1,541.5 263.9 368.4 468.7 763.9 3,406.4Allocated expenses 437.4 78.8 103.2 141.4 212.7 973.5Segment result $869.4 $170.6 $200.2 $310.9 $408.3 1,959.4Unallocable expenses 277.8Operating income 1,681.6Other income / (expense), net 48.6Income before income taxes 1,730.2Income tax expense 261.1Net income $1,469.1Segment assets:Segment total assets $1,438.3 $140.9 $178.3 $306.2 $549.8 $2,613.5Unallocable assets 3,535.6Total assets $6,149.1

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Allocation of goodwill and intangible assets by segments for fiscals 2009 and 2010 is as follows:


Industry Practice Goodwill Intangible assets

Goodwill Intangible assets


Banking, Financial Services and Insurance $476.4 $163.1 $525.2 $157.6

Manufacturing 2.5 - 2.9 -

Retail and Distribution 2.6 - 2.9 -

Telecom 8.6 0.1 9.7 0.1

Others 20.5 - 23.3 -

Total $510.6 $163.2 $564.0 $157.7

Geographical revenues are allocated based on the location of the customers. Information regarding geography revenues is as follows:

Geography Year ended March 31, 2008




Americas $3,087.1 $3,369.2 $3,647.2

Europe 1,645.1 1,778.5 1,689.4

India 510.8 473.7 548.4

Others 391.4 394.3 454.3

Total $5,634.4 $6,015.7 $6,339.3

The country-wise contribution to the consolidated revenues for the three years presented below is as follows:

Country Year ended March 31, 2008



(Percentage of total revenues)

United States of America 55% 56% 58%

United Kingdom 20% 19% 16%

India 9% 8% 9%

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28. Commitments and contingencies

Commitments and contingent liabilities are as follows:

Capital commitments

As of March 31, 2010, $261.0 million was contractually committed for purchase of property, plant and equipment and $2.0 million for purchase of investments.

Contingencies

Propertymatters

Lessors of certain properties leased under tenancy agreements have claimed additional rent and other expenses of $41.1 million. These claims are being contested in the courts by TCS Limited. Pending resolution of the matter, an amount of $30.3 million has been accrued based on management’s estimate. Interest and penalty, if any, has not been determined. Tata Consultancy Services Limited is entitled to an indemnification up to $10.9 million against one of the above referred claim.

Guaranteesandlettersofcredit

Tata Consultancy Services Limited has issued counter guarantees to Bank of America of $2.0 million and $1.2 million on behalf of TCS Asia Pacific Pte Ltd. and on behalf of Tata Information Technology (Shanghai) Company Limited, both 100% owned subsidiaries respectively, in consideration of Bank of America issuing credit lines, guarantees and other financial facilities in various currencies to these subsidiaries.

Tata Consultancy Services Limited has issued counter guarantees for $4.6 million, valid till October 23, 2010 on behalf of its 100% owned subsidiary TCS Iberoamerica SA and its subsidiaries (“Ibero”), in consideration of the bank providing bank guarantee facilities to Ibero to assist in their bidding for contracts with some customers.

Tata Consultancy Services Limited has provided guarantees aggregating to $382.8 million (GBP 252.5 million) to third parties on behalf of its subsidiary Diligenta Limited.

Tata Consultancy Services Limited has provided counter guarantees for $2.0 million to third parties on behalf of its 100% owned subsidiary TCS FNS Pty Limited and its subsidiary.

Tata Consultancy Services Limited has provided guarantees aggregating to $19.7 million to third party on behalf of its subsidiary Tata Consultancy Services Limited Canada Inc.

Tata America International Corporation (“TAIC”) has issued a counter guarantee to American International Group, Inc. (“AIG”) for $15.9 million for a performance bond issued by AIG, for the performance of CMC Americas Inc. pursuant to a technology services contract between CMC Americas Inc. and their customer. TAIC in turn will be obtaining a guarantee from CMC Ltd, India, which is pending clearance from the regulatory authorities.

Indirect tax matters

TCS Limited has ongoing disputes with Indian tax authorities mainly relating to treatment of characterisation and classification of certain items. As of March 31, 2010, TCS Limited has demands from various indirect tax authorities in Indian jurisdiction, which are being contested by TCS Limited on appeal amounting to $27.1 million.

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Other claims

The share purchase agreement for acquisition of Comicrom S.A. provides for additional consideration, contingent upon certain conditions being met, including achieving specified earning levels in the acquired business in future years. The additional contingent consideration payable to the seller is subject to maximum amount of $59.9 million. A sum of $20.5 million has been paid or accrued to the previous owners of Comicron S.A. upto March 31, 2010 and has been capitalised to goodwill. The balance contingent consideration would be recorded as and when the contingency is resolved and the consideration is paid or becomes payable.

TCS Limited has examined the social security and tax aspects of contracts with legal entities which provide services to an overseas subsidiary and, based on legal opinion, concludes that the subsidiary is in compliance with the related statutory requirements.

29. Related party transactions

Tata Consultancy Services Limited’s principal related parties consist of its holding company Tata Sons Limited and its subsidiaries, its own subsidiaries, affiliates and its key managerial personnel. TCS Limited routinely enters into transactions with its related parties in the ordinary course of business. Transactions and balances with its own subsidiaries and affiliates are eliminated on consolidation. TCS Limited’s related party balances and transactions are summarised as follows:

Transactions with related parties are as follows:





Revenues from sale of services and licenses $76.2 $62.8 $70.7

Other non-operating income 0.3 - 0.1

Purchases of goods and services 64.6 76.3 78.4

Brand equity contribution 11.9 13.8 14.2

Dividend paid 240.7 221.8 259.6

Purchase of property, plant and equipment 0.3 0.9 4.5

Inter-corporate deposits 5.0 17.3 27.4

Mandatorily redeemable preference shares with Tata Sons Limited 24.9 - -

Interest income 0.2 2.3 7.5

Interest expense - 1.5 3.6

Allowances for doubtful debts and advances 0.9 0.2 3.4

Purchase of investment in affiliates - 0.5 -

Purchase of debentures in Tata Sons Limited and its subsidiary - - 262.3

Issue of bonus shares - - 15.3

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Balances receivable from related parties are as follows:

As of March 31,2009

As of March 31,2010


Accounts receivable and unbilled revenues (net) $20.0 $20.8

Advances and deposits 29.3 60.3

Investments in debentures issued by Tata Sons Limited and its subsidiary - 268.9

Total $49.3 $350.0

Balances payable to related parties are as follows:




Payables $29.2 $21.5

Advances received and deposits - 0.4

Mandatorily redeemable preference shares with Tata Sons Limited 19.7 22.3

Interest payable on preference shares 1.4 3.8

Total $50.3 $48.0

30. Dividends

The dividends declared by Tata Consultancy Services Limited are in Indian Rupees and are based on the profits available for distribution as reported in the unconsolidated statutory financial statements of Tata Consultancy Services Limited prepared in accordance with Indian GAAP. Accordingly, the net income reported in these financial statements may not be fully distributable. As of March 31, 2009 and 2010, incomes (net of dividend tax) available for distribution were $2,482.0 million (Rs.105,966.0 million) and $3,084.8 million (Rs.137,512.2 million), respectively. Subsequent to March 31, 2010, Tata Consultancy Services Limited has proposed dividend of $0.3 (Rs.14) per share in respect of fiscal 2010.

31. Subsequent events

TCS Limited has evaluated subsequent events through May 11, 2010, the date on which the financials were available for issue.

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Financial Statements prepared inaccordance with US GAAP - Fiscal 2010

financial statements prepared in accordance with us gaap ... · r&d k ananth krishnan human...

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