EX-13.1 3 f81400ex13-1.txt EXHIBIT 13.1 EXHIBIT 13.1 Managing enterprises in challenging times Adversity has the effect of eliciting talents, which in prosperous circumstances would have lain dormant Horace (65 - 8 BC) [PHOTO] It is easy for reasonably well-managed companies to do brilliantly in great times. Revenues keep increasing with little managerial stretch; the creeping flab does not come in the way of growing profits; earning targets are exceeded every quarter; and price-earning ratios become stratospheric. The business model seems to work without a hitch. The real qualities of a company come to the fore in tough times. The stamp of an outstanding enterprise is in how it successfully uses adversity to alter, re-engineer and simultaneously grow its businesses. Great companies anticipate shocks and downturns. Managements dig deep into their skill-sets and creativity to design solutions that can deliver in the face of difficulty. Every employee redoubles efforts to drive growth and profitability - not due to the fear of failure, but because of the yearning to win. Inviolate core values are re-affirmed; business teams rejuvenated; innovations tumble out of long unused recesses of the mind; and adrenalin pumps like never before. There is a burning desire to show that it can be done - that the greatest battles can be won in the face of hardship. This year has been most demanding for the software industry, and we believe that the challenges and discontinuities will be with us in the future. We therefore think it will be useful to share with you how Infosys is dealing with this environment. 1 Contents The year at a glance 3 Managing enterprises in challenging times Back to the basics: Imperatives for the technology services industry - S. D. Shibulal 4 Leading the globally-competitive corporation - Claude Smadja 6 Creating a flexible financial model - Marti G. Subrahmanyam 8 Technology - the competitive differentiator - Phaneesh Murthy 10 Awards for excellence - 2001-2002 13 Letter to the shareholder 17 Directors' report 20 Financial statements prepared in accordance with Indian Generally Accepted Accounting Principles (Indian GAAP) Selective financial data 40 Management's discussion and analysis of financial condition and results of operations 42 Auditors' report 58 Balance sheet 60 Profit and loss account 61 Schedules 62 Statement of cash flows 79 Balance sheet abstract and company's general business profile 81 Risk management report 82 Corporate governance report 88 Shareholder information 101 Additional information to shareholders Frequently-asked questions 106 Share performance chart 110 Intangible assets scoresheet 111 Human resources accounting and value-added statement 114 Brand valuation 115 Balance sheet (including intangible assets) 117 Current-cost-adjusted financial statements 118 Economic Value-Added (EVA) statement 120 Ratio analysis 121 Statutory obligations 124 ValueReporting(TM) 125 Management structure 126 Financial statements prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) Summary of selected consolidated financial data 128 Management's discussion and analysis of financial condition and results of operations 129 Report of management 141 Independent auditor's report 141 Balance sheets 142 Statements of income 143 Statements of stockholders' equity and comprehensive income 144 Statements of cash flows 145 Notes to financial statements 146 Information in Form 20-F of United States Securities and Exchange Commission 157 Infosys Foundation 188 Financial statements (unaudited) prepared in substantial compliance with GAAP 189 requirements of Australia, Canada, France, Germany, Japan and the United Kingdom and reports of compliance with respective corporate governance standards Annual General Meeting (AGM) notice
2 The year at a glance
in Rs. crore, except per share data ---------------------------------------------- March 31, 2002 March 31, 2001 Growth % -------------- -------------- -------- For the year Total revenues 2,603.59 1,900.56 37 Export revenues 2,552.47 1,874.02 36 Operating profit (PBIDT) 1,037.63 764.84 36 Profit after tax (PAT) from ordinary activities 807.96 623.32 30 Profit after tax and extraordinary items 807.96 628.81 28 PBIDT as a percentage of total revenues 39.85% 40.24% PAT from ordinary activities as a percentage of total revenues 31.03% 32.80% Earnings per share (from ordinary activities) Basic 122.12 94.23 30 Diluted 121.37 93.93 29 Dividend per share 20.00 10.00 100 Dividend amount 132.36 66.15 100 Capital investment 322.74 463.35 (30) PAT as a percentage of average net worth 46.57% 56.08% At the end of the year Total assets 2,080.31 1,389.64 50 Fixed assets - net 718.24 557.66 29 Cash and cash equivalents 1,026.96 577.74 78 Working capital 1,293.41 797.86 62 Total debt -- -- -- Net worth 2,080.31 1,389.64 50 Equity 33.09 33.08 -- Market capitalization 24,654.33 26,926.35 (8)
Market capitalization is calculated by multiplying the share price at the National Stock Exchange on March 31 of the respective years and the shares outstanding as on that date. [BAR GRAPH]
in Rs. crore Year ended March 31, ------------------------------ 2000 2001 2002 ------ -------- -------- in Rs. crore Total Revenue 882.32 1,900.56 2,603.59
[BAR GRAPH]
in Rs. crore Year ended March 31, ------------------------------ 2000 2001 2002 ------ -------- -------- in Rs. crore Exports 869.70 1,874.02 2,552.47
[BAR GRAPH]
in Rs. crore Year ended March 31, ------------------------------ 2000 2001 2002 ------ -------- -------- in Rs. crore PAT from ordinary activities 285.95 623.32 807.96
3 Back to the basics: Imperatives for the technology services industry [PHOTO OF S. D. SHIBULAL] S. D. Shibulal Executive Director, Infosys, and Head - Customer Delivery The last two years have witnessed an unprecedented upheaval in the technology sector. The rapid increase in high-tech manufacturing capacity, the resultant pile-up of inventories, the demise of companies that depended excessively on this segment, the Internet bubble burst, the near-halt in technology-financing activities - these are now behind us. However, a lingering impact of these events is that technology investments by large corporations are very different from the ebullience of the late 1990s. Growth rates have slackened across industries and, consequently, corporate appetite for new technology initiatives has diminished. These are challenging times for the technology services industry. In fact, given the caution in IT spending, growth rates across this sector have dropped. Moreover, client expectations on quality, cost, timeliness and service have increased, leading to margin pressures on service providers. Consequently, the near-term outlook on corporate performance in this sector is not optimistic. However, technology services companies that adapt their business models to these difficult times will emerge as winners in the marketplace. Business history is replete with cases of how companies, often faced with a bleak operating environment, successfully transformed their business models to emerge stronger. Southwest Airlines transformed its business model through a relentless focus on operating efficiency. Today, it has an undisputed claim on cost leadership in the US market. The transformation of IBM under the leadership of Lou Gerstner has been widely chronicled and acclaimed. Another striking example of corporate transformation is that of GE under the guidance of Jack Welch. His "No. 1, No. 2, fix, close or sell" approach followed by a passionate adoption of globalization, market expansion through services and Six Sigma quality created unprecedented value for GE shareholders. More recently, GE's adoption of an e-business strategy has yielded benefits that easily qualify to be the envy of traditional corporations. Today, while there are several high-quality players in the Indian technology services industry, their strengths are limited to a subset of operating parameters. Technology services companies need to develop an industry-defining business model. I have outlined ten essentials of this model below. 1. The ability to understand a client's business, to identify process pinch-points, and to introduce a credible technology solution through a consultative engagement addressing a business problem. Unlike many of their global counterparts, most Indian IT companies have a long way to go in developing these skills on a large scale. High domain expertise and a deep-seated culture of client focus in every transaction are the key attributes here. 2. A disciplined approach to managing topline visibility. A healthy portfolio of contractually assured open orders, relationship-driven revenue expectations, and one-off engagements is critical. Most Indian companies have begun to address this only as a reaction to the downturn. 3. The ability to maintain skill-sets on a wide spectrum of technologies while ensuring depth that defies easy replication. This could range from the very latest technologies to niche, archaic platforms that have a scare supply of skilled personnel. 4. A de-risked presence across industry verticals. Given the vicissitudes of business cycles, a significant presence in counter-cyclicals can go a long way in ensuring revenue stability. Some of these markets can be difficult to sell to and have therefore not seen adequate penetration efforts by Indian companies. 5. SEI-CMM Level 5 quality processes, execution capability for large multi-year engagements, and sophisticated alliance management for delivering value to clients. Execution capabilities and quality frameworks need to include quantification of payoffs to the client from technology initiatives. Further, the ability to manage large engagements, often leveraging alliances in the process, is critical. 6. Credible global delivery capability. Globalized execution of engagements requires adequate talent and infrastructure in different parts of the world. Further, robust distributed project management methodologies are critical for providing high-quality, rapid time-to-market and cost-effective solutions. 7. The ability to attract and retain high-quality people. Credible and widespread employee equity ownership, a challenging and empowering work environment, world-class physical and technical infrastructure, sensitization to a global workforce, rigorous and ongoing training programs - each of these is necessary for a technology services company to be an employer-of-choice. 4 8. Corporate integrity. Transparency and corporate governance not only attract global capital, but also build credibility with clients, especially in these turbulent times. Stakeholders put a premium on companies that they can trust to be fair and transparent in their dealings. 9. Flexible, client-focused organizational structures. A matrix structure that harnesses the right resources from across the organization for client engagements is critical. In large organizations, formal processes that encourage teamwork among disparate groups through collaborative selling and execution are vital. 10. A globally-respected brand. In addition to operating excellence, this requires well thought out image-building efforts. For Indian companies, the ability to derive high value per marketing dollar is especially critical. Further, thought-leading publications specific to technologies and industry verticals are a powerful means to establishing a credible brand. The world-wide drop in economic growth has, for the first time in recent years, exposed the chinks in the business models of technology service companies. The above ten elements, in my opinion, are key to the sustainability of superior corporate results in this business. Finally, in the long term, industry players that use the slowdown as an opportunity to make their business models more robust and focus on excellence in execution will emerge as the winners of tomorrow. 5 Leading the globally-competitive corporation [PHOTO OF CLAUDE SMADJA] Claude Smadja Independent Director, Infosys, and President, Smadja & Associates: Strategic Advisory Never before have CEOs been confronted with such extensive challenges, and been under such unrelenting pressures. Of course, it has already been several years since the combined impact of globalization and the IT revolution drastically changed the role of the CEO - and the manner in which this new role was fulfilled. But, recent developments have created additional demands that make the CEO's job look something like "mission impossible". Successfully managing enterprises today requires CEOs to reconcile the pressures of almost instantaneous responses to very fast moving developments in the technological, financial and business environment, with the steadiness and calm required to remain focused on long-term strategic priorities and imperatives. They need to not only lead and inspire teams that are entrepreneurial, innovation-driven and aggressive in acquiring new markets, but also to fulfil the highest quality standards and to reflect a set of core social values. In fact, managing a global company today means being able to fully meet the new expectations towards the corporation and its top management. What are these expectations? The first that comes to mind is the need for even greater transparency. Any corporation which falls short of creating the conditions that will convince shareholders and investors that the most stringent accounting standards and best practices of corporate governance are met is bound to pay a heavy price for such a failure. Today's corporation has to consider itself permanently open for inspection. Of course, one can see here the fallout of the Enron debacle. But, the trend towards transparency predates Enron. Two developments were becoming more and more apparent since the mid-1990s. First, global financial markets were going beyond the quality and reliability of the product or service delivered by the corporation. By the end of the 20th century, quality and reliability were taken as given. What has come increasingly into play is the image and reputation of a corporation, its social standards, and its corporate culture. Second, we have seen a perceptible shift in power from management to shareholders and other stakeholders who are being more assertive and are demanding greater say in corporate strategy and decisions, including those that affect the financial health and viability of companies. While these developments have occurred first in the United States, they have gained significant ground in Europe, and are beginning to be felt more and more in Asia and Latin America. These two factors have an impact on the image and positioning of a CEO. No doubt, corporate fashions come and go. Yet, we seem to be moving from the era of the CEO Superstar or Superman, to one where the CEO would rather be celebrated as the gifted conductor, with the ability to set the orientations of a company and also help bring out the best from each member of the team, and each component of the entity known as the "corporation". Another expectation regarding the corporation and its CEO is the ability to assess and manage new dimensions of risk in an ever-changing global business environment. Of course, financial and technological risks have always been part of the matrix of any CEO. But, today, these assume a new dimension. For one, globalization has definitely increased the prospects for financial volatility. For another, the processes of Schumpeterian "creative destruction" are operating at much greater speed - because of time compression, lesser transactional friction, and vastly reduced ability of governments to erect protective walls. Risks facing corporations are no longer additive. They are highly multiplicative, with complex feedback mechanisms and much greater powers of wreaking havoc. But these are not the only risks. What is becoming increasingly important is top management's ability to detect and assess what might be called the global risk. How do we identify what are seemingly unrelated factors which, when they configure in certain ways, can create shockwaves affecting financial and business conditions in the farthest parts of the world? In more ways than one, today's CEOs of large global corporations need to pay as much attention to geopolitical considerations as they normally do to efficiency, productivity and economic rationality. There is a fairly substantial list of global corporations that, in recent years, have paid dearly for their failure to detect emerging global social and political trends. Beyond these requirements, the global CEO must have the capability to master, to embody and to leverage for the benefit of the corporation three additional components of power. First, knowledge power, or the ability to detect and encourage the kind of technological innovations that will not only allow the corporation to remain ahead vis-a-vis the competition, but also ensure that every element of existing technology and 'knowledge capital' at the disposal of the company is optimally leveraged to achieve maximum profitability. In more ways than one, a key function of today's CEO is to be an inspiring Chief Knowledge and Innovation Officer of the corporation. There is no underestimating the centrality of this inspirational role in the context of the knowledge-based global economy of the 21st century. 6 Second, there is the issue of networking power. Through his / her actions and ability to develop and nurture new strategic linkages, the CEO will have to be at the center of a web of complementary networks that can extend the capabilities of the corporation, root it even deeper in the social context from which it draws strength and legitimacy, and further the reach of the company by consolidating its image in a world where branding and intangibles have become important components in defining corporate value. This implies the ability to manage and expand a system of very complex and sometimes contradictory relationships, and to use them for the ultimate benefit of the corporation. Third, there is communication power. At the very least, this involves the capability to deliver messages that contribute to the sustainable value of the corporate brand. More profoundly, it means being able to integrate other groups and constituencies beyond employees and shareholders in the strategic goals pursued by the corporation, in its values and the vision it develops for itself, and in the role that it can play at the national and global levels. Here again, the role of the CEO as the Chief Communication Officer cannot be underestimated. This communication - often as a daily exercise - is the way in which the corporation asserts its position as a creator of wealth and innovation, as well as a repository of social, economic and ethical values. Looking at the complexity of tasks required of CEOs, at the ever-increasing and sometimes contradictory expectations put on them, and at the wide range of qualities demanded of them, it is not surprising that CEOs today are witnessing a sharp reduction in their professional life expectancy. The real wonder and the source of strength of the market economy is that growing complexities and increasing pressures and expectations are proving to be additional incentives in attracting greater and greater numbers of would-be entrepreneurs and CEOs in their attempt to meet the never-ending challenge of value creation. And, the fact is that the opportunities for meeting and besting this challenge have never been greater than in today's knowledge-based global economy. 7 Creating a flexible financial model [PHOTO OF MARTI G. SUBRAHMANYAM] Marti G. Subrahmanyam Independent Director, Infosys and Charles E. Merrill Professor of Finance, Economics and International Business, Stern School of Business, New York University After an extended period of unprecedented growth and soaring stock market values in the 1990s, the sharp downturn in the new millennium has come as a rude wake-up call to companies around the world. During the long boom of the 1990s, many people believed that business cycles were things of the past. Economic events of 2001 and the first quarter of 2002 have proved the optimists wrong. In spite of the tremendous advances in technology over the past decade, the business cycle is very much alive, and it affects companies everywhere. To be sure, better use of information technology in the future may keep inventories and excess supplies in check and, thus, reduce the length and intensity of economic downturns. But, there will be booms and busts. And, the question facing companies in practically every sector - from core industries such as steel to software services in the technology sector - is how to equip themselves for such downturns, present and future. Even companies and industries that have good long-term prospects need to prepare themselves for survival in recessions. A key element of a strategy for survival and even rejuvenation in a downturn is a flexible financial framework within which a company operates. In bad times, a company needs to cut its costs, protect its revenues, and also have a cushion to fall back on to weather the vicissitudes of the downturn. Indeed, the most flexible and nimble players may gain a competitive edge over their less agile rivals in such times. There are several determinants of such financial flexibility: - Low operating leverage - Low financial leverage - High liquidity - High operating margin - High agility in augmenting revenues - Total transparency in financial transactions Although these factors are not all completely within the control of a company, corporate managers enjoy considerable latitude in structuring their business to maximize financial flexibility on each of these fronts. How do these factors contribute to the financial flexibility of a corporation, and how can managers improve their performance on each of these dimensions? Low operating leverage. If this ratio is high, the fixed payout burden is relatively large, and the corporation will face a greater adverse impact in the event of a downturn. To illustrate the importance of this factor, consider the steel industry, which has a high fixed cost component due to large capital requirements. In the current recession, most steel makers are getting hurt not only because their revenues do not cover their costs, but also due to their limited ability to reduce these fixed costs. In contrast, POSCO of Korea reduced its operating leverage by sub-contracting part of its manufacturing, and building on substantial economies of scale in its key operations. It continues to be profitable, and has even increased its earnings in the current recession. Low financial leverage. The higher the financial leverage, the greater is the fixed burden of servicing the debt. A corporation that is already burdened by the stresses of reduction in revenues is affected even more adversely, because of the need to meet the pre-committed debt payments of interest and principal. A combination of high operating and financial leverage makes it a "double-whammy." This is what has badly affected most large companies in the global telecommunications sector such as France Telecom and Deutsche Telekom. Global Crossings is an extreme version of this problem, and had filed for bankruptcy earlier this year. In contrast, Hutchison Whampoa, the Hong Kong conglomerate with extensive telecommunications holdings, is using its low leverage to pick up technologically-valuable assets at bargain-basement prices. High liquidity. Companies that carefully husband their cash resources - in essence create negative financial leverage - have a much better safety net to face a downturn. The networking giant, Cisco Systems, is feeling the pinch of the recession like every other technology company, but with over US$20 billion in cash and marketable securities, it is well equipped to last out a prolonged recession. It may even be able to buy assets and companies at attractive prices. Hence, high liquidity combined with low financial leverage becomes an important strategic tool when times are hard. 8 High operating margin. While the first three factors affect the cost side of the equation, this fourth feature deals with the cushion between the revenues and the costs. An example of high operating margins is the Indian IT services industry, which has demonstrated its financial flexibility in the current recession. The best companies in this industry have been relatively better equipped to weather the storm because they can face the dip in revenue growth without digging too deeply into their cash reserves. High agility in augmenting revenues. When business conditions are adverse, there is tremendous pressure to maintain and even augment revenues. This involves all the tools of marketing, including aggressive pricing, brand loyalty augmentation, and customer relationship management. Wal-Mart Stores, the giant retailer, has managed to grow by double-digit percentages through a combination of these strategies, even in the current period. Total transparency in financial transactions. When times are good - as they were during the dot-com boom only three years ago - very few questions are raised about the financial practices of corporations. In downturns, the capital market becomes much more demanding, and it becomes more difficult for companies to raise external finance. Firms that adhere to the best practices of corporate governance and follow transparent processes in all their financial dealings are more likely to be able to raise capital, should they need it, in a down market. This factor is very much at work even in the ability of countries to raise external finance: witness the problems faced by Argentina, and the downgrading of Japan, an erstwhile strong economy. Recent accounting scandals in the United States and elsewhere, involving companies such as Enron, highlight the importance of this factor. And, it could be argued that even companies that have a viable long-term model may be dragged into default and even bankruptcy, because their financial dealings are under a cloud. Berkshire Hathaway, on the other hand, enjoys a substantial premium over the value of its portfolio holdings, in large part, due to the "clean" reputation it enjoys under Warren Buffet. How can a corporation improve its performance in each of these dimensions and hence its financial flexibility? While there are constraints imposed by technology and the market in certain industries, most firms can still undertake actions to improve their flexibility. For example, a company can reduce its operating leverage by outsourcing services where it has little or no competitive advantage. It can improve its operating margin by moving to lower cost locations, as the apparel industry has done successfully in the past decade. Firms in industries with intrinsically high operating leverage can use debt more judiciously, so as not to exacerbate the overall fixed commitments they make. Lastly, all firms can improve their performance by being more transparent in their financial transactions - so that investors respond favorably when they need to tap the capital market. 9 Technology - the competitive differentiator [PHOTO OF Phaneesh Murthy] Phaneesh Murthy Executive Director, Infosys, and Head - Sales & Marketing, and Communication & Product Services As companies prepare for the next leg of competitive differentiation, a central issue that needs to be addressed is the role of technology in creating and sustaining that delineation. The truth is that today's business leadership is increasingly being technology-driven. Capital One's Information-Based Strategy (IBS), GE's Global Supplier Network (GSN), Wal-Mart's web-enabled sales support network for its 35,000 stores, and Dell's integration of assembly operations with external logistics - these are all compelling examples of technology-driven leadership. At Capital One, a proprietary Information-Based Strategy (IBS) drives continuous product and marketing innovations by allowing the company to test over 100,000 narrowly-defined customer segments, and to develop unique product combinations to profitably service these niches. The success of this program is in the numbers compared to those of their peers - 40% annual revenue growth versus 8% to 10% for peers; 26% annual growth in loans versus 6% to 8% for peers; and a charge-off rate that is 200 basis points better than the industry as a whole. GE's Global Supplier Network (GSN) handles a global network of 36,000 suppliers and supports over 25 divisions of the company. GSN handles over 40% of the corporation's annual spending and more than 90% of the billing. This has helped GE improve its on-time payments by 10%. The tangible benefits realized by GE through his technology-driven program are far more significant - savings of US$1.6 billion in 2001, with estimated savings of over US$10 billion in the coming years. Such efficiency in managing costs has helped GE to sustain earnings growth despite the economic downturn. As we look at what constitutes such technology-driven leadership, we believe that enterprises can evolve through multiple levels - not only in technology sophistication, but also in associated levels of strategy, process, and organization models. The "Enterprise Evolution" path developed by Infosys provides a guiding framework to realize such a leadership. The Enterprise Evolution Model The Enterprise Evolution Model can help a company define an evolution path from cross-functional processes at Level 1 to a dynamic value chain at Level 4. The guiding principle of this evolution is to enhance the scope of enterprise optimization, based on specific business drivers and objectives. Invariably, IT is the pivot to extend reach and to consolidate resources - not just across functions, but also with a focus on corporation-wide asset optimization and value-capture. [CHART "THE ENTERPRISE EVOLUTION MODEL"] Most companies, that we have analyzed at Infosys, including some of today's technology leaders, are at Level 2 with some characteristics of Level 3. Level 3 is a significant shift from value extraction to value creation by driving industry value shifts. Enterprises at this level earn disproportionate profits relative to other players in the industry value chain through cross-enterprise optimization that sharply increases the switching costs for customers and suppliers. The ultimate goal at Level 4 is dynamic innovation on the fly - what we call "Dynovate." At this level, firms will be able to configure and re-configure the value chain for each transaction, in real time. 10 Each level of evolution varies along business, process, organization, and technology dimensions. For example, the focus of strategy in an organization must change from "core and context" ambiguity to extensive outsourcing, tightly integrated cross-company partnering, and eventually dynamic value chain optimization. Transaction models will have to evolve from "one-size fits all" to "pay-by-the-drink", and then to event-driven transactions across dynamic partners. Process sophistication must shift from definition and measurement to continuous improvement and Six Sigma - not only within an enterprise, but also across adjacent partners and eventually multiple value-chain partners. Such evolution implies a shift in enterprise technology capabilities - from widespread information sharing and early enterprise-wide integration of today - to value chain optimization, and event-based, transaction-specific, anytime- anywhere technologies. These technologies will enable organizations to evolve from classical line and support functions to distributed work models, where the home of enterprise intelligence will move from the center to the nodes, and eventually reach a stage where the intelligence is carried in the network. As enterprises chalk an evolution path for themselves, we observe that misalignment of business and organization relative to technology is the crux of the issue. Challenge of enterprise evolution: The highest leverage point [FLOW CHART] The highest leverage point for many of today's Global 2000 firms is also an opportunity - to move from "the corporate many" that have sufficiently high technology maturity to "the select few" that apply this technology maturity with high business maturity. Getting there, however, requires corporations to closely examine where they are today, and then define the journey to where they want to be. Three roles to drive enterprise evolution We believe that this opportunity of business leadership through technology requires today's executives (the CXO and the CIO) to play three key roles: as technology strategists, as ROI hawks, and as change agents.
The CXO-CIO role What your peers say ---------------- ------------------- 1. Technology strategist "When you look at technology, we are less than 5% of the way" - VP, Internet Technology, IBM "Information architecture is as flexible as a building" - Director, Center of Business Innovation "Every person gets the technology they deserve" - Toffler Associates, Consultant 2. ROI hawk "The challenge remains...how to make money on the Internet" - CEO, Genuity "Lots of money on technology initiatives, but ROII (return on Internet investment) isn't necessarily there" - CTO, Merrill Lynch 3. Change agent "The issue isn't technology. The issue is whether an organization can apply new technology" - CMO, SAS Institute "...seriously underestimate the discipline to absorb change" - CIO, CIGNA
Source: Fast Company, Infosys Team Synthesis The issue often is that the CXO-CIO has one or two of the attributes - rarely a judicious balance of the three. Which is why, more than ever before, technology will be driven by the CEOs. 11 This page is intentionally left blank. Awards for excellence "I just try to be the best I can be and hope that is the best ever." Tiger Woods The Awards for excellence, at Infosys, represent an important step in our exciting journey to excellence. We firmly believe that the recognition of excellence is as important as the personal drive of every individual to excel. As we continue to grow from strength to strength as an organization, we constantly try to do better than our best - to ensure that we continue to have an enthusiastic workforce that believes in the organization, its value system and philosophy, and in the aggressive targets it sets for itself. Infosys today is more than 10,000 people strong. The task of selecting a few high achievers from this veritable ocean of talent was indeed a challenging one. The ones who have finally been chosen have demonstrated a commitment to surpassing customers' expectations, and have set high standards in our business and transactions, thereby becoming an exemplar for all. These individuals have shown an unstinting ability to deal with myriad and complex situations, and have adapted to these skillfully. We are proud to present this year's award winners - individuals who believe in competing against themselves; individuals who strive towards self-improvement, towards being better than they were the day before..... 13 Awards for excellence 2001-2002 First Prize - Awards were presented by Mr. N. R. Narayana Murthy, Chairman and Chief Mentor Account / Sales Management [PHOTO] BBU Team - Nigeria Ajith Nair, Anand Sundararaman, Amit Dua, C. S Vinay, T. N. Gopal [PHOTO] [PHOTO] Sales Management Team Toshiba Madhav Mohan, Ayan Chatterjee* Indranil Mukherjee, V. Sriram, Sailaja Chintalagiri, R. Sridhar, Chandra Shekar Kakal* External Customer Delight [PHOTO] [PHOTO] Boeing CRDS Project Nordstrom Rohit Kedia, Venkateswarlu Pallapothu, R. Dinesh, Ganesh Gopalakrishnan, V. R. Renganathan, Madhu Janardan* K. R. Nandakumar*, Pradeep Prabhu*, Dinesh Bajaj* * not present at the function 14 Awards for excellence 2001-2002 Second Prize ------------ Brand Management Program Management Aditi Madhok S. Sukumar 3COM IKON RPT Team Ashish Ray D. A. Balaraj Innovation Rajesh K. Murthy K. P. Manu Ajay Dubey Sreenath Murthy Ravi Kiran Taire Anand Govindarajan Srinivas V. Ravishankar Kayyar Harish Kashyap K. Srikanth G. Lakshmanan BNSF Team Srinivasa N. Karanth V. Raja Alexandre Elvis Rodrigues Umesh B. Prabhu Sandeep Gupta Debashish Banerjee Sanjay Shankar Deshpande M. R. Kishore NML Team A. V. S. B. Shankar N. Shiv Shankar Basab Pradhan Vijay N. Krishna Bhaskar Chicknanjundappa Bibhu R. Pattanayak Toshiba America Devasenapathy Murugappan Muthu Anand Swaminathan Samson David Eric Seubert V. Shubha Third Prize DC Management Infrastructure Systems and Processes Mangalore DC Ferrari CFPM IPM Team Dheeraj Hejmadi V. V. Ananthalakshmi Gaurav Jhamb Gopikrishnan Konnanath Hema Ravichandar Jyoti M. Bhat Keerthinidhi Herle Kaushik Ray Nagajyothi Bathula R. Mosesraj U. B. Pravin Rao S. Nirmala Narendran Koduvattat Raj Kumar Bansal G. Ramesh Richard Lobo Rajiv Raghu Rishikesh V. Rao S. A. Samuel Raj S. Ramesh Rupa G. Kamat Shaji Mathew Samit Deb K. N. V. S. K. Subrahmanyam Sudhir Albuquerque Shivaprasad Gopalrao Kuskur Vishwajit Singh Pune DC Mangalore Team Payana Team S. Babuji Ashok G. Gadavi Badrinarayan Sahoo Chandrakanth Desai Dinesh Kumar Deepak Bhalla Chandraketu Jha Ganesh H. Shenoy Prakash Nagaraj Devadiga M. K. Manjula Geetha Coelho B. Rajesh Priti Jay Rao Leo Daniel D'Silva Sarala Pamidi Shailendra Jha P. Padmanabha Bhat Shailesh Kumar Agrawal Shalini Dongre U. Ramadas Kamath R. Venkat Raghavan Snigdha Mitra Sankaran Velunathan Vikas Ravindra Revankar Uday Bhaskarwar J. Shashikala S. Viswanathan PU Management Internal Customer Delight Banking Business Unit Preeti Chandrashekhar Deepak N. Hoshing R. N. Nagaraj Rangan Varadan Girish G. Vaidya V. Srinivasan Sudhir G. Pai Haragopal Mangipudi D. Thirumaleshwara Bhat Merwin Fernandes T. S. Venkataramanan Special Prize Social Consciousness Value Champions B. M. Rao H. Sudheer M. S. S. R. R. Kumar T. V. Mohandas Pai Prem Shyam Mirchandani U. Ramadas Kamath
15 Board of directors Management council invitees Infosys Foundation N. R. Narayana Murthy Nandita Mohan Gurjar Trustees Nandan M. Nilekani Associate Vice President - Sudha Murty, Chairperson S. Gopalakrishnan Learning and Development - HRD Srinath Batni Deepak M. Satwalekar Sudha Gopalakrishnan Prof. Marti G. Subrahmanyam Eshan Joshi Philip Yeo Manager - Compensation and Benefits - HRD Prof. Jitendra Vir Singh Dr. Omkar Goswami Chandrasekhar Kakal Sen. Larry Pressler Associate Vice President - Rama Bijapurkar Head - Hyderabad Development Center Claude Smadja K. Dinesh Narendran Koduvattat S. D. Shibulal Senior Project Manager - T. V. Mohandas Pai Head - Mangalore Development Center Phaneesh Murthy Srinath Batni Col. C. V. Krishna Associate Vice President - Infrastructure and Security Committees of the board Bikramjit Maitra Audit committee Associate Vice President - Deepak M. Satwalekar, Chairman Head - Bhubaneswar Development Center Rama Bijapurkar Dr. Omkar Goswami N. Shiv Shankar Sen. Larry Pressler Associate Vice President - Claude Smadja Head - Chennai Development Center Prof. Marti G. Subrahmanyam M. Sridhar Compensation committee Manager - Communication Design Group Prof. Marti G. Subrahmanyam, Chairman Dr. Omkar Goswami S. Sukumar Deepak M. Satwalekar Manager - Corporate Planning Prof. Jitendra Vir Singh Philip Yeo Priti Jay Rao Associate Vice President - Nominations committee Head - Pune Development Center Claude Smadja, Chairman Sen. Larry Pressler C. Ravi Prof. Jitendra Vir Singh Associate Vice President - Philip Yeo Head - Mysore Development Center Investors grievance committee Jagdish Vasishtha Philip Yeo, Chairman Project Manager - Rama Bijapurkar Head - Mohali Development Center K. Dinesh Nandan M. Nilekani Padmanabhan Venkataraman S. D. Shibulal Associate Vice President - Quality Implementation T. S. Venkataramanan Associate Vice President - Banking Business Unit Voice of the Youth Ayan Chatterjee Dinesh Ganesan Nitin Gupta Esteban Herrera Vaishali V. Khandekar V. B. Madhavan M. K. Manjula B. Madhu Krishna Rao Karthikeya N. Sarma
16 Letter to the shareholder Dear shareholder, We are pleased to present your company's Annual Report and financial statements for fiscal year 2002. It has been one of the most challenging years for the IT industry all over the world, and your company has not been an exception. Global slowdown, slump in the US economy and falling technology spends, accentuated by the tragedy of September 11, have all taken their toll on the industry. Long accustomed to high double-digit, even triple-digit growth, IT services providers have had to live with a much more modest and intensely more competitive reality. [PHOTO OF S. GOPALAKRISHNAN AND NANDAN M. NILEKANI] S. Gopalakrishnan Nandan M. Nilekani Chief Operating Officer Chief Executive Officer, President and Deputy Managing Director and Managing Director In April 2001, after closely examining all relevant economic and business indicators of the US, the European Union and Japan, your company estimated a revenue growth of 30% for fiscal year 2002. At that time, many felt that we were being unduly pessimistic. To them, the world economy was having a minor hiccup - nothing that could seriously affect the high double-digit growth of India's IT sector. To achieve the revenue target set out in April 2001 despite the effects of September 11 has been satisfying. It reaffirms the resilience of your company's Global Delivery Model, the commitment and dedication of Infoscions, and the enduring nature of the value-based relationships that your company has developed and sustained with its various business partners. Here are some of the key financial results. Under Indian GAAP, your company's revenues grew by 37.0% during fiscal year 2002 - from Rs. 1,900.6 crore in fiscal 2001 to Rs. 2,603.6 crore in fiscal 2002. Profit after tax (PAT) from ordinary activities increased by 29.6%, from Rs. 623.3 crore to Rs. 808.0 crore. Notwithstanding intense pricing pressures, Infosys succeeded in maintaining superior profit margins. For fiscal year 2002, profit before interest, depreciation and taxes (PBIDT) as a share of total revenues stood at 39.9%; and PAT from ordinary activities as a share of total revenues was 31.0%. Basic earnings per share from ordinary activities increased by 29.6% to Rs. 122.1. Under US GAAP, revenues increased from $413.9 million in fiscal year 2001 to $545.1 million in fiscal year 2002 - a growth of 31.7%. Operating income increased by 29.8%, from $137.5 million in fiscal 2001 to $178.5 million in fiscal 2002. Net income grew by 24.6%, from $131.9 million in fiscal 2001 to $164.5 million in fiscal 2002. Operating income as a share of revenues was 32.8%, while net income as a share of revenue stood at 30.2%. Basic earnings per share increased by 24.9% to $2.51. Your company succeeded in meeting its financial targets in an extremely adverse environment. It was done by driving volumes, adding several new clients, having a repeat business rate as high as 87.6%, and by tight cost control in virtually all areas. Despite 37.0% higher revenue under Indian GAAP, your company cut costs amounting to 2.4% of its income. Indeed, the cost reductions could have been as high as 3.5% had it not been for the unanticipated increase in personnel cost in the US due to significantly higher floor pay imposed upon H1-B visa holders. To us, the more important story is how your company treated the adverse global circumstances of fiscal year 2002 as an opportunity to restructure and move towards becoming a finely aligned, integrated, end-to-end services provider in all key areas of the IT space. This is what we want to share with you in the rest of this letter. Clients have always been central to your company. Even so, a deeper understanding of the heterogeneous needs of various clients is more important than ever before. First, competition is much more intense, and there are enough global IT services providers to nibble at anybody's market share. Second, the days of "me-too" IT spends are over. The economic downturn has accelerated a process of change where corporate clients are very careful about their IT spending. They expect to rapidly maximize returns on such expenditure, and seek strategic initiatives that enhance infrastructure efficiencies, provide quick and demonstrable cost savings, while improving their customer satisfaction. Third, the focus is rapidly shifting towards working with fewer, more reliable vendors, who have the capability to deliver, implement and maintain a full range of IT services. In this scenario, the future growth of your company depends on being a best-in-class, end-to-end solutions provider, and your company has already begun work towards achieving that goal. There have been several new services initiatives. For instance, an investment up to $5 million has been approved for your company's foray into Business Process Management (BPM). A separate company is being formed. It will be headquartered in Bangalore, and will leverage the obvious cost advantages of operating in India. The initial BPM focus will be in the areas of transaction processing and accounting services. One of the key target verticals will be financial services. Another new focus area is IT outsourcing. Your company has taken over the IT departments of two corporate clients - a leading international networking equipment manufacturer and a global financial services major. In both instances, your company provides 24 hours a day, 7 days a week (24x7) support to mission-critical applications. Your company has also developed and deployed new e-business solutions for one such client. In addition, your company has also started marketing its systems integration services. However, your company has to pass many more milestones in its quest for being a complete end-to-end services provider. As a part of reaching out to and strengthening relationships with customers, your company now has over 70 account managers who have clearly defined tasks of servicing the needs of each and every client. In fiscal year 2002, there were 143 Infoscions directly and exclusively involved in sales and marketing. 17 In a very arduous year, your company succeeded in attracting the business of 116 new clients, of which 62 were added in the difficult period of September 2001 to March 2002. Your company now has 25 five-million-dollar clients (versus 19 in fiscal year 2001), and 16 ten-million-dollar clients (versus 11 in fiscal year 2001). Your company's Banking Business Unit (BBU) added 11 new customers during the year for its FINACLE(TM), BankAway(TM), and PayAway(TM) applications - four in India and seven overseas. In the process, BBU's revenues grew by over 100.0% during fiscal year 2002, and crossed the Rs. 100.0 crore threshold. Steps have been taken to strengthen FINACLE(TM) - the core-banking product - by acquiring new functionalities and modules. These are to be integrated with the core product, and will not only enrich FINACLE(TM) but also provide crucial time-to-market advantages over competitors. Your company has also expanded its presence in pharmaceuticals and medical care. Your company is helping an international pharmaceutical major to design and develop a mail-order pharmacy and a durable medical equipment claims process. Another success has been the business of a pharmacy benefit company, for whom Infosys is recommending the re-engineering of multiple applications. A major company in the medical sector has retained your company to assess business and IT processes, and to create its IT blueprint for the next three to five years. With the deregulation of utilities, companies urgently need to develop and implement scalable and risk-free technology platforms. Your company has been commissioned by CustomerWorks, a joint venture between two of Canada's largest utility organizations, to execute a high-level, customer-focused risk assessment program. Servicing customers requires upgradation of people and processes. Throughout fiscal year 2002, these two areas have occupied a large portion of senior management's time. The HR challenges are to recruit, retain and enable the best and the brightest; create a readily deployable global talent pool; sustain high levels of employee motivation; enable competency-based roles within the company; and hard-wire the DNA of a high performance work ethic throughout the organization. Although there is much more to be done, your company has begun to achieve these objectives. Here are some facts: - Notwithstanding the difficulties of fiscal year 2002, your company hired 1,548 people. Net addition for the year was 907, and the period-end headcount was 10,738. - Your company continues to have one of the lowest attrition rates among comparable IT services providers in India. - Lateral hiring and local recruitment is on the rise. Today, there are Infoscions from 29 nationalities - developments that help your company to not only concentrate on domain expertise, but also to have the cultural wherewithal to understand the needs of international clients. - The organization is being restructured into a role-based organization. All practices and units are being aligned to competency-based streams. - Your company has some of the most demanding in-house training programs in the IT world - 14.5 weeks of an integrated training program for new recruits, plus several continuing executive education programs in technical, managerial and process related areas, which average about ten days per person, per year. In addition, there are intensive programs at the new Infosys Leadership Institute, Mysore, which merits a separate paragraph. - Given the challenging times, it is critical to sustain and sharpen employee motivation. There is a new emphasis on continuous communication across all groups and all employee levels; on institutionalizing knowledge management and dissemination; and on active participation in employee satisfaction programs, whose results are better monitored and much more widely shared. Moreover, there has been a major shift towards transparent and well-designed objective-driven appraisals and performance-linked pay. The culture of a high performance work ethic is built around this Integrated Performance Management System. - All these initiatives are solidly integrated in your company's IT systems and processes. Your company has developed several internal systems, including the balanced scorecard and 360(degree) appraisals to continuously monitor employee aspirations and performance. In addition, your company has adopted the Malcolm Baldrige framework and the Six Sigma initiative to align with businesses and streamline its processes to address the challenges of growth and scalability. These programs are paying off. This is reinforced through both internal and external benchmarks. In the Internal Employee Satisfaction Survey, scores indicate that employee satisfaction has gone up by 12.0% over last year. In 2002, for the second year in succession, your company was declared the best employer in India in the Business Today-Hewitt survey. Your company was also declared by Dataquest-NFO-MBL India survey as the best employer in the Indian software industry, as well as IT's best employer in another Dataquest-IDC survey. Leadership development is critical to a company's growth. The Infosys Leadership Institute (ILI) at Mysore commenced its programs during the year. Today, the ILI campus has a built-up area of 162,000 square feet. In a short span, ILI completed a round of "Leaders Teach Series" consisting of 11 workshops; executed 12 internal consulting engagements; rolled out counseling process to the high potential employees of your company; and designed and launched a pilot program on 'Mentoring'. Further, the director of ILI has conducted 5 external programs. Going forward, ILI will train 220 high potential employees for a duration of five days each; conduct 35 leadership development programs of 2.5 days each; provide counseling sessions to each high potential employee; execute consulting projects to internal and external customers; and publish papers and conduct external seminars. That brings us to finance. Your company's policy is to maintain sufficient cash in the balance sheet to meet the following objectives: - To fund the ongoing capex requirements to meet its growth objectives; - To fund the operational expenses and other strategic initiatives for the next one year; and - To maintain business continuance in case of exigencies. 18 This year, too, your company received recognition from several organizations. The details are available in the Director's report. As in the last year, the senior management of your company conducted relevant studies to understand IT market trends for fiscal year 2003. Despite early signs of a slow global economic revival, your company believes that conditions will remain tough for all. Your company has, therefore, projected 17.0% to 20.0% revenue growth for fiscal year 2003. This estimate is based on our current understanding of the marketplace. Naturally, we hope that conditions will improve. We will proactively update our investors in the event of any material development. As a global corporation, your company focuses on succession planning and management continuity. In keeping with this, Mr. N. R. Narayana Murthy assumed the role of Chairman and Chief Mentor. In his new role, he mentors your company's core management team in transforming the company into a world-class, next-generation organization that provides technology-leveraged business solutions to corporations across the globe. He is also working with leading thought-leaders all over the world to enhance the leadership position of Infosys. As already announced, Mr. Nandan M. Nilekani donned the mantle of Chief Executive Officer, while Mr. S. Gopalakrishnan has taken over the function of Chief Operating Officer. During the year, Mr. Ramesh Vangal retired as director. Your company is grateful to Mr. Vangal for his invaluable contributions during his tenure, and wishes him the very best in his future endeavors. Mr. Claude Smadja, Principal Advisor to the World Economic Forum and Director of Smadja & Associates: Strategic Advisory, was inducted as an additional director. Your company's vision is to be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people. With your support, and the dedication of all fellow Infoscions, we will achieve that goal. /s/ S. GOPALAKRISHNAN Bangalore S. Gopalakrishnan April 10, 2002 Chief Operating Officer and Deputy Managing Director /s/ NANDAN M. NILEKANI Nandan M. Nilekani Chief Executive Officer, President and Managing Director Forward-looking statements in this letter should be read in conjunction with the following cautionary statements. Certain expectations and projections regarding future performance of the company referenced in this Annual Report are forward-looking statements. These expectations and projections are based on currently available competitive, financial, and economic data along with the company's operating plans and are subject to certain future events and uncertainties, that could cause actual results to differ materially from those that may be indicated by such statements. 19 Directors' report To the members, Your directors are pleased to present their report on the business and operations of your company for the year ended March 31, 2002.
in Rs. crore except Financial results per share data * ------------------- ---------------------- Year ended March 31 2002 2001 ------------------- -------- -------- Income 2,603.59 1,900.56 Software development expenses 1,224.82 870.83 Gross profit 1,378.77 1,029.73 Selling and marketing expenses 129.79 92.07 General and administration expenses 211.35 172.82 Operating profit (PBIDT) 1,037.63 764.84 Interest -- -- Depreciation 160.65 112.89 Operating profit after interest and depreciation 876.98 651.95 Other income 66.41 59.37 Provision for investment -- 15.29 Profit before tax and extraordinary item 943.39 696.03 Provision for tax 135.43 72.71 Profit after tax before extraordinary item 807.96 623.32 Extraordinary item Transfer of intellectual property right (net of tax) -- 5.49 Profit after tax and extraordinary item 807.96 628.81 Appropriations Interim dividend 49.63 16.53 Final dividend - Proposed (Subject to deduction of tax, if any) 82.73 49.62 Total dividend 132.36 66.15 Dividend tax 5.06 8.70 Transferred to general reserve 670.54 553.96 -------- -------- Earnings per share (equity shares, par value Rs. 5 each) Basic 122.12 95.06 Diluted 121.37 94.76 -------- --------
*1 crore equals 10 million. 1 lakh equals 100,000. Results of operations - Total revenues grew to Rs. 2,603.59 crore from Rs. 1,900.56 crore, a growth rate of 36.99%. - Operating profit grew to Rs. 1,037.63 crore (39.85% of total revenues) from Rs. 764.84 crore (40.24% of total revenues), a growth rate of 35.66%. - Profit after tax, from ordinary activities, increased to Rs. 807.96 crore (31.03% of total revenue) from Rs. 623.32 crore (32.80% of total revenue), an increase of 29.62%. Dividend An interim dividend of Rs. 7.50 per share (150% on par value of Rs. 5) was paid in November 2001. Your directors now recommend a final dividend of Rs. 12.50 per share (250% on par value of Rs. 5) aggregating Rs. 20.00 per share (400% on par value of Rs. 5), for the current year. The total amount of dividend is Rs. 132.36 crore, as against Rs. 66.15 crore for the previous year. Dividend (including dividend tax), as a percentage of profit after tax from ordinary activities, is 17.01%, as compared to 12.01% in the previous year. Until March 31, 2002, the receipt of dividend was tax-free in the hands of the shareholders, under the Indian Income Tax Act, 1961. Effective April 1, 2002, the dividend income is proposed to be taxed in the hands of the shareholders and, accordingly, is subject to deduction of tax, if any. The tax on distributed profits, paid by the company on the interim dividend was Rs. 5.06 crore. As per the proposed tax regulations, there is no distribution tax on the profits distributed after March 31, 2002. Increase in share capital Your company issued 28,013 shares on the exercise of stock options, issued under the 1998 and 1999 employee stock option plans. Due to this, the outstanding issued, subscribed and paid-up equity share capital increased from 6,61,58,117 shares, during the previous year, to 6,61,86,130 shares in the year under review. Business The year had been one of the most challenging years for your company. The impact of the global slowdown coupled with the tragedy of September 11 posed tremendous challenges. Despite this, your company performed well and showed all-round growth. Under Indian GAAP, revenues grew by 37% over fiscal year 2001 while net profits from ordinary activities witnessed an increase of 30%. In April 2001, your company estimated a 20 revenue growth of 30% for fiscal year 2002 and has achieved that despite all odds including the tragedy of September 11. Your company continues to focus on building long-term relationships with Global 2000 corporations worldwide. This is reflected in its repeat business rate of 88%. Your company signed up 116 new clients, a substantial number of whom are large corporations, and had a total client base of 293 at the end of the year. Further, your company had 83 million-dollar clients (80 in the previous year), 25 five-million-dollar clients (19 in the previous year) and 16 ten-million-dollar clients (11 in the previous year). During the previous year, due to the changes in the capital markets and general economic conditions, your company expressed its intention to reduce its exposure to venture-funded companies. We are pleased to announce that your company has been highly successful in transitioning its revenues from venture-funded companies to Fortune 500 companies and other well established corporations. The year also saw your company scaling up on the human resources and infrastructure front. Net of separations, 907 employees were added, taking the total strength to 10,738. Your company added another 9.97 lakh square feet of physical infrastructure space, taking the total space available to 26.63 lakh square feet. The number of overseas marketing offices as on March 31, 2002 was 24, compared to 21 as on March 31, 2001. Your company's software export revenues aggregated Rs. 2,552.47 crore, up 36.20% from Rs. 1,874.02 crore the previous year. During the year, 71.2% of the revenues came from North America, 19.5% from Europe, and 7.3% from the rest of the world. The share of the fixed-price component of the business was 31.6%, as compared to 28.2% during the previous year. Revenue productivity, in dollar terms, declined by 4.4%. Your company remains optimistic about the long-term opportunities while at the same time meeting the short-term challenges. Your company responded to the challenges by enhancing customer focus and by building an efficient sales engine. Your company is closely monitoring the market situation, and believes that its unique business model and prudent risk-management practices, coupled with a strong customer base and deep client relationships, gives it a sustainable long-term competitive advantage. Your company will aggressively pursue new opportunities, and will ensure adequate internal preparedness to take maximum advantage of such opportunities. Banking Business Unit (BBU) The Banking Business Unit has shown remarkable growth during this year. Your company's product -- FINACLE(TM), is an integrated core banking solution that is centralized, multi-currency and multi-language-enabled, functionally-rich, and addresses both retail and corporate banking requirements. During the year, your company took several steps to strengthen FINACLE(TM) by adding new functionalities and modules. Targeted at the banking industry, FINACLE(TM) CRM is a new product offering from your company. It covers areas such as Sales, Marketing, Support, 360 degree View, Loan origination, and Analytics. Banks can effectively deploy FINACLE(TM) CRM to gain competitive advantage by proactively addressing customer's needs and expectations. FINACLE(TM) CRM integrates banks' multiple channels such as call centers, branches, fax and web while providing comprehensive access to various product processing systems at the back end, thus, greatly enhancing the bank's ability to maintain relationships and improve profitability with customers. FINACLE(TM) has a market share of over 60% among the Indian banks that have adopted technology modernization measures -- out of 6 old generation private sector banks, 5 out of the 8 new generation private sector banks and 1 out of 2 public sector banks in India are now powered by FINACLE(TM). The Banking Business Unit has consolidated its position in the African market, and has also expanded into the Middle East. During the year, it acquired 11 new clients, 4 in India and 7 overseas, for FINACLE(TM), BankAway(TM), and PayAway(TM) applications. The Banking Business Unit undertook engagements for the Kenya Commercial Bank, Kenya -- the biggest bank in East Africa, and the First Bank of Nigeria, Nigeria -- the biggest bank in West Africa, during the year. FINACLE(TM) was ranked among the top three best selling retail banking systems in the world by IBS publishing, UK for the year 2000-2001. Development centers in India Your company incurred capital expenditure aggregating Rs. 322.74 crore as compared to Rs. 463.35 crore during the previous year. Of the total capital expenditure, Rs. 67.40 crore was spent on technological infrastructure as compared to Rs. 113.84 crore in the previous year. In Bangalore, the Management Development Center was completed with a built-up area of 75,500 square feet. An additional 60,000 square feet of software development space to accommodate 600 professionals and one more software development block of 93,827 square feet with a capacity of 577 seats were completed. Additionally, civil works were completed for two more software development blocks with a built-up area of 2,06,000 square feet. The existing capacity at Bangalore comprises 11,16,000 square feet capable of accommodating 5,050 professionals. Phase II of the Pune campus is progressing as per schedule. One software development block of 1,14,440 square feet to accommodate 800 professionals and a dining block of 17,000 square feet were completed. One more software development block of 800 seats capacity was completed and the employee care center is under completion. Civil works were completed for the customer care center. Currently, the campus has a built-up area of 3,33,500 square feet with a capacity of 2,076 seats. In Bhubaneswar, a second software development block of 75,000 square feet to accommodate 600 professionals and a food court of 28,000 square feet were completed. Currently, the campus has a built-up area of 1,89,000 square feet with a capacity of 1,200 seats. In Chennai phase I, one more software development block of 75,000 square feet capable of accommodating 600 professionals and a food court of 30,000 square feet were completed. Construction of phase II of the campus is on schedule. In phase II, one software development block of 600 seats capacity was completed. Civil works were completed for one more software development block. Currently, the campus has a built-up area of 1,98,000 square feet with a capacity of 1,300 seats. In Hyderabad, one software development block of 1,23,000 square feet with a seating capacity of 325 professionals was completed. The remaining 355 seats in this block will be completed as and when required. Construction of the food court is proceeding as per schedule. Civil works were completed for one more software development block. Currently, the campus has a built-up area of 1,35,800 square feet with a capacity of 325 seats. 21 In Mysore, one software development block of 1,06,000 square feet with a seating capacity of 200 professionals was completed. The remaining 400 seats in this block will be completed as and when required. The Infosys Leadership Institute ("ILI") with a built-up area of 1,62,000 square feet and the hostel facilities with a built-up area of 91,750 square feet were also completed. The food court is nearing completion. Currently, the campus has a built-up area of 3,79,000 square feet. As of March 31, 2002, the company had 26,69,600 square feet of space capable of accommodating 12,050 professionals and 9,31,000 square feet under completion. Overseas branches To accelerate the sales effort in overseas markets, sales offices were opened in the Netherlands, Singapore and Switzerland. During the coming year, additional sales offices are expected to be opened in North America, Europe and Asia. Expansion of the overseas sales network will help your company access new markets and broaden its client base. As at the year-end, your company had 24 marketing offices overseas. Yantra Corporation Yantra Corporation provides e-business software solutions for managing supply chain transactions across the extraprise. Yantra has built a high-quality management team and has taken several initiatives to implement its growth objectives. During the year, your company swapped 55,00,000 common stock in Yantra Corporation, USA ("Yantra") for a fully paid warrant to purchase 55,00,000 common stock. As a result of this, your company holds around 44% of the outstanding common stock of Yantra. Accordingly, Yantra is no longer a subsidiary of the company as per the Companies Act, 1956 as at March 31, 2002. Your company holds around 16% of Yantra, on a fully diluted basis. Strategic investments Your company had made selective investments in leading-edge companies and select venture capital funds that have the potential to yield substantial business benefits. Benefits from these investments are primarily in the form of revenue and net income enhancements, through technology partnerships and access to the latest technological developments. Your company has leveraged the expertise derived from its investee companies to deliver value to large clients across the globe. During the year, your company invested Rs. 10.32 crore in Workadia Inc. USA ("Workadia") purchasing 22,00,000 fully paid Series "B" convertible preferred stock, par value of US$0.0002, at US$1.00 each (adjusted for stock splits). Workadia will provide companies with comprehensive, customizable business intranets through browser accessed hosted portals, and also offer consulting services to help customers select and deploy their intranet applications, content and services. Your company is foraying into Business Process Management ("BPM") and the board of directors of your company has approved an investment of up to US$5 million for this initiative. The initial focus of BPM services will be in the areas of transaction processing and accounting services and these services will be offered in multiple forms -- as business process re-engineering, shared services platform and business intelligence services. It will leverage the obvious cost advantages of doing the work from India. Financial services will be one of the key target verticals. The frameworks developed for the BPM offering is based on your company's InFlux(TM) methodology. These frameworks will enable client processes to be transitioned and executed smoothly. Human resource management The key resource for your company is its employees. Your company has been able to create a favorable work environment that encourages innovation and meritocracy. Your company has put in place a scalable recruitment and human resource management process, enabling it to attract and retain high-caliber employees. Your company added 907 employees, net of separations, taking the total strength to 10,738 -- up from 9,831 at the end of the previous year. Entry-level engineers are put through intensive technical training and are also exposed to cross-functional training that helps hone their soft skills. Further, all employees are eligible for your company's stock option plan. Your company's attrition rate, at 6.2% for the year (11.2% for the previous year), is testimony to its ability to attract and retain high-quality talent. In order to ensure a safe and congenial workplace, your company has formulated and implemented a policy against sexual harassment. Process improvements have also been made in the areas of recruitment, training and visa processing. The efforts of your company in the area of employee management and HR practices have been widely acclaimed in various fora. Your company was adjudged the Best Indian software company in the Software's Best Employers study, a Dataquest survey, in May 2001. It then emerged first among Indian IT's Best Employers, a Dataquest -- IDC India survey, in August 2001. Further, your company went on to become the best employer in India for the second time in a row, in the Best Employers in India study, a Business Today -- Hewitt listing of the 25 most desirable companies to work for in India. Quality Your company firmly believes that "Pursuit of Excellence" is one of the most critical components for competitive success in the global market. Your company has achieved high maturity through rigorous adherence to highly evolved processes, which have been systematically benchmarked against world-class operating models, viz. ISO 9001-TickIT, SEI-CMM and Baldrige. Your company is rated at Level 5 of the Capability Maturity Model (CMM), which is the world-class benchmark in software process management. To address the challenges of the future and to ensure performance improvement in an integrated manner, your company has launched the Infosys Excellence Initiative (IEI), which is a single umbrella for all quality initiatives within the organization. This initiative spans various functions in the organization, namely core delivery processes, functional and cross-functional processes, and organizational management processes. It envisages leveraging CMM Level 5 for delivery processes, the Malcolm Baldrige framework for organizational management processes and Six Sigma Cross Functional Process Mapping (CFPM) techniques for improving cross-functional processes. 22 Your company's best practices and processes in the area of project management are showcased in the book "Software Project Management in Practice" by Dr. Pankaj Jalote (Addison Wesley, 2002) published under the SEI series. Your company has helped many of its clients improve their processes and systems by providing high-end software process consulting services, which is a testimony to its process leadership. Infosys Leadership Institute Located on 217 acres of land in Mysore, India, and operationalized during the year, the Infosys Leadership Institute's (ILI) mandate is to enable and empower the present and future leaders of your company to achieve its vision. The ILI campus includes state-of-the-art leadership development, training, and learning facilities, including comfortable hostels for the participant Infoscions. Since its inception, ILI has designed and facilitated a series of highly successful, innovative, and dynamic leadership workshops led by your company's board members under the "Leader Teach Series." Other high-value added services taken up by ILI include counseling high-potential Infoscions in their leadership journey and internal consultancy assignments including facilitating strategy-planning and team building sessions. InStep global internship program InStep, your company's Global Internship Program, plays an important role in increasing the brand awareness of your company internationally. By attracting students from the top academic institutions around the world, InStep has not only built brand equity for your company, but is also key to its International Recruitment Initiative. Through the internship program, your company selects students, for summer projects, from the leading educational institutions across the globe and places them in live business and technical projects in your company's offices worldwide. Since its inception, the program has recruited interns from diverse milieu. Interns range from IT students from Ecole Des Mines De Nantes to business students from Stanford. This year, your company has held InStep Information Sessions in the US, UK, Japan, France, India and Canada, and has received over 1,000 applications for just 20 internship positions. The new information infrastructure Your company firmly believes that its internal IT initiatives are key drivers of scalable and sustained corporate excellence. The key, ongoing focus last year has been to - drive information availability to a global work force, - integrate cross-functional processes, - enable scalable, sustained excellence in execution, - enhance employee and process productivity, and - further strengthen our client partnerships. Towards this, your company's Information Systems (IS) team - deployed an exhaustive home grown suite of solutions for Integrated Project Management (IPM) to scale and sustain excellence in execution in its core delivery processes; - deployed an extranet for connecting our worldwide workforce, enabling them with a rich set of online corporate resources on a robust, secure and scalable delivery channel; - custom-built a CRM solution integrating key processes across the service chain and across the customer life cycle. Built leveraging state- of-the-art technologies and our extranet, this program is currently under deployment throughout our customer touch-points worldwide; - is currently focusing on a future ready, globally scalable .NET infrastructure that leverages investments made in its intranet backbone, secure extranet, SAP R/3 4.6 and state-of-the-art Storage Area Network to enhance global delivery and 24 x 7 operations; - has further enriched the large automation footprint with a range of custom-built, web-enabled systems that address your company's changing business needs; and - initiated a Balanced Score Card implementation to strategically align IS initiatives for maximizing contributions to your company's global competencies and strategic business objectives. Currently in an advanced state of implementation, key learnings from this exercise have already been used successfully to enhance our engagement opportunities with some of our customers. Additional information to shareholders In earlier years, your company provided additional information in the form of intangible assets scoresheet, human resources accounting, value-added statement, brand valuation, economic value-added statement, current-cost-adjusted financial statements, and financial statements in substantial compliance with GAAP of six countries, in addition to the US and India. This information is provided in this year's Annual Report also. Corporate governance The current economic downturn, the unprecedented events of September 11, the Enron issue and recent business failures have combined to create a very challenging financial reporting environment. All these have resulted in a larger focus on corporate governance issues by companies. Your company continues to be a pioneer in benchmarking its corporate governance policies with the best in the world, and its efforts are widely recognized by investors in India and abroad. Your company has complied with all the recommendations of the Kumar Mangalam Birla Committee on Corporate Governance constituted by the Securities and Exchange Board of India (SEBI). For fiscal 2002, the compliance report is provided in the Corporate governance report in this Annual Report. The auditor's certificate on compliance with the mandatory recommendations of the committee is annexed to this report. In addition, your directors have documented your company's internal policies on corporate governance. In line with the committee's recommendations, the management's discussion and analysis of the financial position of the company is provided in this Annual Report and is incorporated here by reference. Your company has also continued its practice of providing a compliance report on various corporate governance recommendations in vogue in six countries, in their national languages, for the benefit of our shareholders in those countries. 23 Responsibility statement of the board of directors The directors' responsibility statement setting out the compliance with the accounting and financial reporting requirements specified under Section 217 (2AA) of the Companies (Amendment) Act, 2000, in respect of the financial statements, is annexed to this report. Employee Stock Option Plan (ESOP) Your company has introduced various stock option plans for its employees. Details of these, including grants to senior management, are given below. Senior management includes directors of your company and members of its management council. 1994 Stock Offer Plan (the 1994 plan) The 1994 plan came to an end in fiscal 2000; no further options will be issued under this plan. 1998 Stock Option Plan (the 1998 plan) Your company has issued 9,08,500 ADS-linked stock options to 494 employees during the year under the 1998 plan. Details of such options granted under the 1998 plan are given below.
Description Details ----------- ------- 1. Total number of shares 3.20 million ADS representing 1.60 million shares 2. The pricing formula Not less than 90% of the fair market value as on date of grant 3. Ratio of ADS to equity shares One share represents two ADSs 4. Options granted during the year 9,08,500 options representing 4,54,250 equity shares 5. Weighted average price per option granted $ 49.50 (Rs. 2,415.10); 100% of fair market value on the during the year date of grant 6. Options vested (as of March 31, 2002) 3,29,054 options representing 1,64,527 equity shares 7. Options exercised during the year 55,966 options representing 27,983 equity shares 8. Money raised on exercise of options $9,51,422 (Rs. 4.59 crore) 9. Options forfeited during the year 1,55,546 options representing 77,773 equity shares 10. Total number of options in force at the end of the year 22,62,494 options representing 11,31,347 equity shares 11. Grant to senior management No. of options No. of options -------------- -------------- Brian Joseph King 11,500 T. P. Prasad 3,000 Sanjay Joshi 20,000 Srinjay Sengupta 4,000 Subhash B. Dhar 6,000 V. Sriram 3,000 Ashok Vemuri 10,000 Jan DeSmet 3,000 Basab Pradhan 4,000 ------ Total options granted to senior management during the year 64,500 ------ 12. Employees receiving 5% or more of the total number of options granted during the year: Nil
1999 Stock Option Plan (the 1999 plan) Your company has issued 20,50,500 stock options to 6,063 employees and 8 independent directors during the year under the 1999 plan. The details of such options granted under the 1999 plan are given below.
Description Details ----------- ------- 1. Total number of shares 66,00,000 shares 2. The pricing formula At the fair market value as on date of grant 3. Options granted during the year 20,50,500 options representing 20,50,500 equity shares 4. Weighted average price per option granted Rs. 3,094.41 (100% of fair market value on the date of grant) during the year 5. Options vested (as of March 31, 2001): 4,48,530 options representing 4,48,530 equity shares 6. Options exercised during the year 30 options representing 30 equity shares 7. Money raised on exercise of options: Rs. 0.01 crore. 8. Options forfeited during the year 1,75,635 options representing 1,75,635 equity shares 9. Total number of options in force at the end of the year 46,68,815 options representing 46,68,815 equity shares
24
Description Details ----------- ------- 10. Grant to senior management and independent directors No. of options No. of options Deepak M. Satwalekar 7,000 B. G. Srinivas 12,000 Ramesh Vangal* 7,000 Satyendra Kumar 10,000 Prof. Marti G. Subrahmanyam 6,000 Sanjay Purohit 2,290 Philip Yeo 3,000 G. K. Jayaram 15,000 Prof. Jitendra Vir Singh 2,000 V. Balakrishnan 2,000 Dr. Omkar Goswami 2,000 H. R. Binod 1,500 Sen. Larry Pressler 2,000 U. Ramadas Kamath 1,500 Rama Bijapurkar 2,000 Y. Parameswar 2,000 Ravindra Muthya Pranesha Rao 3,000 Girish G. Vaidya 3,000 Mohan Sekhar 8,000 J. Sivashankar 2,000 ------ Total options granted to senior management during the year 93,290 ------ * Resigned during the year and hence forfeited the option. 11. Employees receiving 5% or more of the total number of options granted during the year: Nil
Liquidity Your company continues to be debt-free, and maintains sufficient cash to meet its strategic objectives. Your company believes in maintaining adequate liquidity in the balance sheet to maintain a fine balance between the need to provide adequate returns to the shareholders and the need to cover the financial and business risks that management foresees in the business. Liquidity enables your company to reduce financial risk and allows a rapid shift in direction should the market so demand. During the current year, internal cash accruals have more than adequately covered working capital requirements, capital expenditure of Rs. 322.74 crore and dividend payments, and have resulted in a surplus of Rs. 449.22 crore. As on March 31, 2002, your company had liquid assets of Rs. 1,026.96 crore, as against Rs. 577.74 crore at the previous year-end. These funds have been invested both in rupee and dollar deposits with banks and highly rated financial institutions. Your company believes that the existing cash is adequate to meet its capital expenditure and working capital requirements for the near future. Research and education initiatives During the year, your company trained around 771 entrants as part of its entry-level training program. Further, continuing education has been imparted, both in advanced technologies as well as in managerial skills. The total training imparted by your company to its employees during the year aggregated about 1,21,700 trainee person days. The Infosys Fellowship Program instituted by your company at 14 premier academic institutions in India to support research work leading to a Ph.D. has been well received, and the number of fellowships instituted in the areas of information technology, management and law has been increased from 42 to 54. Your company spent around 0.57% of its revenue on R & D activities during the year. Your company is making steady progress in its journey towards realizing its vision of leveraging the collective knowledge of the organization for competitive advantage and delivering better customer value. The program, inaugurated during August 2000, has reached a state of maturity evident in the active generation and widespread use of reusable knowledge, as testified by the 200+ (and increasing every month) knowledge assets published per month in the company's intranet Knowledge Management (KM) portal, and the download of one knowledge asset for use every 2 work-minutes. Your company's KM program has received widespread recognition amongst customers, practitioners, benchmarking agencies and academicians. Your company was one among the 37 finalists (the first Indian company to achieve this distinction) for the 2001 MAKE (Most Admired Knowledge Enterprises) awards. Your company's KM Program is being used as case studies in two of India's leading management schools. The program is also featured as a case in a chapter dedicated to it in a book titled "Knowledge and Business Process Management" being published by the Idea Group Publishing, Hershey, PA, USA. This is in addition to several publications in national and international journals, and presentations at various conferences and KM community forums. An important indicator of the recognition for the company's KM initiatives worldwide was an invited lecture from your company at the event, "Knowledge Exchange Partnership for Global IT Organizations (KEP GIT)", presented to a select group of CIOs of top-rung global IT companies. Infosys Foundation Your company is committed to contribute to its social milieu and, in 1996, established Infosys Foundation as a not-for-profit trust to support initiatives that benefit society-at-large. The Foundation supports programs and organizations devoted to the cause of the destitute, rural poor, the mentally challenged, senior citizens and illiterates. It also helps preserve certain arts and cultural activities of India which are under threat of fading out. Grants to the foundation during the year aggregated Rs. 3.75 crore, as compared to Rs. 5.26 crore in the previous year. A summary of the work done by the Foundation appears in the Infosys Foundation section of this report. On your behalf, your directors express their gratitude to the honorary trustees of the Foundation for sparing their valuable time and energy for the activities of the Foundation. Community services Your company, through its Computers@Classrooms initiative launched in January 1999, has donated 1,185 computers to 435 institutions across India. Your company has also applied to the relevant authorities for permission to donate an additional 382 computers to 149 institutes in the near future. Microsoft continues to participate in this initiative by donating relevant software and we would like to place on record our appreciation for its continued support. 25 Awards Your directors are happy to report some of the awards that your company received during the year. - First rank among 37 India-based companies in the Review 200 - Asia's Leading Companies survey 2001 - by the Far Eastern Economic Review - First rank in the Best Employer Study by the Business Today-Hewitt study for the second year in succession - First rank in the Dataquest "Employee Perception Survey" carried out in the top 20 Indian software companies - First rank in the Business World's survey of "India's Most Respected Company" - Corporate Citizenship Award by The Economics Times of India - The Institute of Company Secretaries of India National Award for Excellence in Corporate Governance by the Ministry of Law, Justice and Company Affairs, Department of Company Affairs, Government of India - Golden Peacock Award for Excellence in Corporate Governance in the Global Category by the World Council for Corporate Governance, London - No. 1 rank in the CG watch 2002, the CLSA study on corporate governance practices in emerging markets - Award recognizing contributions in the social area using IT by Computer World magazine - The Institute of Chartered Accountants of India award for best presented annual report in 2001 for the seventh successive year - Best regional software house award by Financial Technology Asia - Asiamoney award for best investor relations in India for 2001, best managed company in India for 2001 and best managed company of the decade in India 1991-2001 - Award for outstanding contribution towards the promotion of Indo-German Economic Relations-2001 by the Indo-German Chamber of Commerce Fixed deposits Your company has not accepted any fixed deposits and, as such, no amount of principal or interest was outstanding as of the balance sheet date. Directors During the year, Mr. Ramesh Vangal retired as a director and your directors inducted Mr. Claude Smadja, Principal Advisor of the World Economic Forum, as an additional director of the company, in his place. His appointment requires the approval of the members at the ensuing Annual General Meeting. As per Article 122 of the Articles of Association, Mr. Nandan M. Nilekani, Mr. K. Dinesh, Mr. Philip Yeo, Mr. T. V. Mohandas Pai and Mr. Phaneesh Murthy retire by rotation in the forthcoming Annual General Meeting. All of them, being eligible, offer themselves for reappointment. Auditors The auditors, Bharat S Raut & Co. Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept office, if reappointed. FII investment limit Recently, the Government of India raised the investment limit in an Indian company for Foreign Institutional Investors (FII) from 49% to the maximum level approved under the FDI for that industry, subject to the approval of the board of the investee company and a special resolution by the shareholders of such a company. The maximum FDI level applicable for the software industry is 100%, at present. Your directors are of the opinion that it would be in the interest of the company to increase the limit of such investment to 100%. The necessary resolutions are being placed before the members in the ensuing Annual General Meeting. Conservation of energy, research and development, technology absorption, foreign exchange earnings and outgo The particulars as prescribed under subsection (1)(e) of section 217 of the Companies Act, 1956, read with the Companies (Disclosure of particulars in the report of Board of Directors) Rules, 1988, are set out in the annexure included in this report. Particulars of employees As required under the provisions of section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of employees) Rules, 1975, as amended, the names and other particulars of employees are set out in the annexure included in this report. Acknowledgments Your directors thank the company's clients, vendors, investors and bankers for their continued support during the year. Your directors place on record their appreciation of the contribution made by employees at all levels, who, through their competence, hard work, solidarity, cooperation and support, have enabled the company to achieve consistent growth. Your directors thank the Government of India, particularly the Ministry of Communication and Information Technology, the Department of Electronics, the Customs and Excise Departments, the Software Technology Parks - Bangalore, Chennai, Hyderabad, Mohali, Mysore, Pune, Bhubaneswar and New Delhi, the Ministry of Commerce, the Ministry of Finance, the Reserve Bank of India, VSNL, the Department of Telecommunications, the state governments, and other government agencies for their support, and look forward to their continued support in the future. For and on behalf of the board of directors /s/ NANDAN M. NILEKANI Bangalore Nandan M. Nilekani April 10, 2002 Chief Executive Officer, President and Managing Director /s/ N. R. NARAYANA MURTHY N. R. Narayana Murthy Chairman and Chief Mentor 26 Annexure to the directors' report a) Particulars pursuant to Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988 1. Conservation of energy The operations of your company are not energy-intensive. However, adequate measures have been taken to reduce energy consumption by using energy-efficient computers and by the purchase of energy-efficient equipment. Your company constantly evaluates new technologies and invests in them to make its infrastructure more energy-efficient. Currently, your company uses CFL fittings and electronic ballast to reduce the power consumption of fluorescent tubes. A building automation system to control the working of air conditioners and to make them more energy-efficient has been implemented. Air conditioners with energy efficient screw compressors for central air conditioning are used and air conditioners with split air conditioning for localized areas are used. High efficiency, hydro-pneumatic pumps are being used in water pumping systems. As energy costs comprise a very small part of your company's total expenses, the financial impact of these measures is not material. In addition, your company is using amorphous core transformers in place of conventional transformers in all its locations, which operate at an efficiency of 97%. Your company is also using power factor correctors at the supply level of the state grid power to achieve high energy efficiency. 2. Research and Development (R & D) Research and development of new services, designs, frameworks, processes and methodologies continue to be of importance at your company. This allows your company to enhance quality, productivity and customer satisfaction through continuous innovation. a. R & D initiative at institutes of national importance This initiative has been described in the research and education initiatives section in the directors' report. b. Specific areas for R & D at your company Since business paradigms and technologies are changing constantly, continuous investments in research and development are of paramount importance. Your company has taken the approach that its research must be beneficial to the company and to its clients either in the short-term or in the medium-term. As in earlier years, your company continues to conduct research in the areas of software engineering, project management, global delivery, emerging technologies, and new tools and techniques. Research has been continuing in the areas of software architecture and performance engineering. This is to help deliver high-performance and high-transaction-volume software solutions to clients. Research has also been continued in object and component technologies to create modules that enable repeatability across projects. Your company continues to undertake research in the following areas: - E-commerce: Your company carried out extensive research in the areas of legacy integrations, web services and other technologies of interest. - Concept centers: Initiatives were taken to set up concept centers in advanced technologies and, presently, are in advanced stages of conclusion. - General software engineering: Your company is constantly improving its methodologies to increase quality and productivity, and to reduce time-to-market for its clients. - Products: Your company continues to enhance and develop additional products in the banking area. Your company has various groups engaged in R & D. The Education and Research (E & R) department conducts short-term and long-term research in the areas of knowledge management, performance testing, e-commerce, education and training methodologies, and technology-based mechanisms for delivery of education. During the year, the E & R team published 25 papers in leading international/national journals and conferences. Some of your company employees were invited to deliver presentations. The Infosys Performance Testing Center established last year has provided performance solutions to a number of development projects. c. Benefits derived as a result of R & D activity Your company has been able to maintain margins despite changes in technology and increased personnel costs. Further, the Infosys Performance Testing Center and the e-commerce research labs have been instrumental in building expertise in the areas of software performance solutions, testing, architecture and prototype development. d. Future plan of action There will be continued focus on, and increased investment in, the above R & D activities. Future benefits are expected to flow in from initiatives undertaken this year.
e. Expenditure on R & D for the year ended March 31 in Rs. crore -------------------- 2002 2001 ------ ------ Revenue expenditure 14.40 14.97 Capital expenditure 0.46 2.14 ------ ------ Total R & D expenditure 14.86 17.11 ------ ------ R & D expenditure as a percentage of total revenue 0.57% 0.90% ------ ------
27 3. Technology absorption, adaptation and innovation During the year, your company successfully migrated the enterprise messaging infrastructure to the Microsoft Exchange 2000 backbone. Further, your company made significant additions to the number of servers used for software development, and to the number of file and print servers. During the year, your company also implemented video streaming and web-casting facility using Multicast technology to reach out to all employees. Your company has strengthened video conferencing capabilities for internal use and customer communication by deploying high-end Accord Video Bridges and Polycom Conferencing systems. Remote access facility to your company's network is extended to its employees worldwide by value added services such as IPASS and Extranet. Your company entered into special agreements with telecom service providers to extend voice communication from customers to employees' residences and vice versa using Voice VPN technology. Your company further invested in middleware technologies, mobile technologies and legacy modernization technologies. Your company has set up laboratories and Centers of Excellence for technology research and competency building. Your company joined several technical standards organizations, and continues to be capable of providing total technology solutions to its clients using new technologies and tools. 4. Foreign exchange earnings and outgo a. Activities relating to exports, initiatives taken to increase exports, development of new export markets for products and services, and export plans Your company has had a strong export focus in the past, and expects its export thrust to continue in the future. In fiscal 2002, 98.04% of revenues were derived from exports. Over the years, your company has established a substantial direct marketing network all over the world and now has marketing offices in North America, Europe and the Asia Pacific region. These offices are staffed with sales and marketing specialists who sell your company's services to large, international clients. During the year, your company opened marketing offices in the Netherlands, Singapore, and Switzerland. Your company also launched a global initiative to increase the awareness of the Infosys brand, and of its products and services. Several press and public relations exercises were launched in the US to enhance your company's visibility. Further, your company plans to take part in several international exhibitions to promote its products and services. The long-term goal of your company is to be a highly respected name in the global market for its services and products, and to continue to realize a significant portion of its revenue from exports. b. Foreign exchange earned and used for the year ended March 31
in Rs. crore ---------------------- 2002 2001 -------- -------- Foreign exchange earnings 2,495.50 1,728.23 Foreign exchange outgo (including capital goods and imported software packages) 1,072.15 727.53
For and on behalf of the board of directors /s/ NANDAN M. NILEKANI Bangalore Nandan M. Nilekani April 10, 2002 Chief Executive Officer, President and Managing Director /s/ N. R. NARAYANA MURTHY N. R. Narayana Murthy Chairman and Chief Mentor 28 Annexure to the directors' report b) Information as per Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of employees) Rules, 1975, and forming part of the directors' report for the year ended March 31, 2002
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- 1. Aashish Bansal Business Development Manager B.Tech., PGD 37 17.02.2000 2. Abhay M. Kulkarni Delivery Manager B.E. 35 26.02.1990 3. Ajay Dubey Vice President B.Tech. 44 07.06.1993 4. Ajita Kini Principal B.Sc., PGD 36 16.10.2000 5. Akash Maiti Senior Associate B.E.(H), M.A., PGD 31 05.07.2000 *6. Akihiro Komiyama Business Development Manager MBA 42 19.11.2001 7. Albena De Assis Software Developer B.Sc. 27 17.07.2000 8. Albert Denis Lewis Senior Program Manager MS, MBA 42 05.02.2001 *9. Alex W. Yang Senior Associate BS, MBA 33 30.07.2001 *10. Alexander Graham Mcgregor Account Manager B.Sc., Diploma 49 16.07.2001 Pringle *11. Alexander Zmoira Senior Principal BS, MBA 37 25.06.2001 12. Alexandre Elvis Rodrigues Business Development Manager B.Tech., MBA 31 03.08.1998 13. Amar Vaidya Business Development Manager B.E., MBA 32 30.11.2000 14. Ameer Saithu Associate B.Tech., PGD 29 27.03.2000 *15. Amit Khetarpal Business Development Manager B.E., MBA 34 10.09.2001 16. Amit Kumar Bhadra Senior Manager and Head B.Sc., M.Sc. 36 22.01.1998 Implementation - Internet Banking Banking Business Unit *17. Amit Nangalia Software Engineer B.A. 23 25.06.2001 18. Amitabh Pushparaj Mudaliar Senior Associate B.E., PGD 30 20.03.2000 19. Amy (Yuen Chun) Wong Software Engineer B.Sc. 24 22.01.2001 *20. Amy Veloz Administrative Assistant BBA 29 21.06.2001 21. Anand Krishna Senior Principal B.E., MBA 36 12.07.2000 22. Anand Narayanaswamy Programmer Analyst B.Com. 28 02.04.2001 *23. Anand P. Arkalgud Business Development Manager B.E., MBA 30 19.11.2001 *24. Anand Subramanian Senior Associate B.Com., CA 29 08.06.2000 25. Anand Uppili Business Development Manager B.E.(H) 35 14.12.2000 26. Ananda Rao Business Development Manager B.E., M.Sc. 43 25.10.1999 27. Anant Natekar Project Manager B.E. 26 09.02.2001 28. Andi Berkowitz Administrative Assistant B.A., ASL 49 12.04.1999 29. Andreas Suwe Project Manager BLaws, Diploma 35 05.03.2001 *30. Andrew K. Noel Business Development Manager B.Com. 26 13.08.2001 *31. Andrew R. Friedman Principal B.Sc., MBA 39 26.11.2001 *32. Aniket Kishore Ullal Business Development Manager B.A., PGD 26 28.05.2001 *33. Aniket Rajiv Maindarkar Business Development Manager B.Sc., MBA 30 01.06.2001 34. Anil Roy Programmer Analyst B.E. 27 19.02.2001 35. Anilkumar Nechiyil Project Manager B.Sc. 41 03.01.2001 36. Ankur Gupta Business Development Manager B.A.(H), PGD, ACA 29 17.07.2000 37. Ankush Patel Business Development Manager B.E., MBA 34 01.10.1999 38. Anthony de Laat Delivery Manager B.A., M.Sc., B.Sc. Engg 45 12.03.2001 39. Anup Ashok Basrurkar Business Development Manager B.Com.(H), CA 37 12.06.2000 40. Anup Vittal Business Support Manager B.Sc., M.Sc. 35 05.03.2001 41. Anupam Bhatnagar Business Development Manager B.A.(H), LLB, PGD 30 03.08.2000 *42. Anurag Gupta Business Support Manager B.Sc., MCA 37 15.01.2002 43. Ardhendu Sekhar Das Delivery Manager B.E. 36 23.01.1998 44. Arindom Basu Senior Principal B.E.(H), PGD 35 05.02.2001 45. Arjun K. Rao Software Engineer B.E., MS 25 22.01.2001 46. Aroun Balakrishnan Programmer Analyst B.Tech 28 05.03.2001 *47. R. Arun Kumar Business Development Manager B.Tech., PGD 31 05.06.1999 48. Arun Ramu Delivery Manager B.Tech. 41 28.08.2000
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ---------- ------------------ --------------------------------- 1. Aashish Bansal 13 69,47,276 HSBC Capital Markets India Pvt. Ltd., Senior Manager 2. Abhay M. Kulkarni 14 13,95,046 Tisco, Graduate Trainee 3. Ajay Dubey 22 14,10,039 ANZ Bank, Technical Team Leader 4. Ajita Kini 13 69,54,835 KPMG Consulting Pvt. Ltd., Manager 5. Akash Maiti 7 56,69,877 Andersen Consulting, Senior Consultant *6. Akihiro Komiyama 16 14,34,941 Breit Consulting Co. Ltd., Managing Director 7. Albena De Assis 4 18,38,591 Siemens, Software Developer 8. Albert Denis Lewis 20 53,47,099 Profitech, Consultant *9. Alex W. Yang 7 36,48,434 Onsite Access Inc., Senior Manager - e-business *10. Alexander Graham Mcgregor 29 21,34,427 Syntel Inc., Senior Project Manager Pringle *11. Alexander Zmoira 8 58,63,700 Intnl Business CGE&Y, Senior Manager - Consulting Services 12. Alexandre Elvis Rodrigues 8 65,86,274 Modi Xerox, Production Sales Manager 13. Amar Vaidya 9 38,27,807 Andersen Consulting, Consultant 14. Ameer Saithu 6 44,27,826 PricewaterhouseCoopers, Consultant *15. Amit Khetarpal 9 13,05,279 Booz-Allen & Hamilton, Associate 16. Amit Kumar Bhadra 16 12,42,890 Unit Trust Of India, Asst. General Manager *17. Amit Nangalia 1 23,26,380 - 18. Amitabh Pushparaj Mudaliar 7 48,76,264 PricewaterhouseCoopers, Consultant 19. Amy (Yuen Chun) Wong 2 27,12,009 Hewitt Associates, Quality Assurance Analyst *20. Amy Veloz 11 14,48,417 Eclubbuy San Juan Capistrano, Senior Product Marketing Associate/Supervisor 21. Anand Krishna 12 32,68,355 Pricewaterhouse Coopers, Sr. Manager - Transaction Services 22. Anand Narayanaswamy 8 26,81,659 Paras International Gmbh, Prokurist (General Manager) *23. Anand P. Arkalgud 8 12,52,483 Techone Inc., Sr. Manager - Business Development *24. Anand Subramanian 6 23,03,116 Arthur Andersen, Senior Consultant 25. Anand Uppili 14 42,13,097 Tellabs International Inc., Product Manager 26. Ananda Rao 15 51,86,288 Se IT Technologies, Regional General Manager 27. Anant Natekar 4 28,90,794 Fourth Technologies Inc., Consultant 28. Andi Berkowitz 12 22,23,183 Newton Wellesley Chinopractic, Office Manager 29. Andreas Suwe 8 28,72,812 Tucows Inc., Project Manager *30. Andrew K. Noel 4 21,53,446 Kumaran Systems Inc., Account Manager *31. Andrew R. Friedman 15 22,38,281 Convergent Group, Director - Customer Relationship Mgmt. Prac. *32. Aniket Kishore Ullal 5 13,51,808 Indstudent.Com, Co-Promoter *33. Aniket Rajiv Maindarkar 8 36,29,255 Patni Computer Systems, Manager - Business Development 34. Anil Roy 5 36,45,569 Air Check Virginia, Database Administrator 35. Anilkumar Nechiyil 19 43,83,543 First Data Merchant Services, Project Technical Leader 36. Ankur Gupta 7 52,67,844 Arthur Andersen India Pvt. Ltd., Senior Consultant 37. Ankush Patel 10 80,34,989 Nortel Networks, Account Manager 38. Anthony de Laat 20 38,30,416 OAO Technologies Canada, Delivery Director 39. Anup Ashok Basrurkar 11 70,51,561 Citibank N. A., Vice President 40. Anup Vittal 12 43,58,382 Honeywell International, Engineer/Scientist III 41. Anupam Bhatnagar 5 44,62,253 Arthur Andersen, Consultant *42. Anurag Gupta 15 5,13,665 American Express Bank Ltd., Director 43. Ardhendu Sekhar Das 14 12,90,051 Fujitsu Network Communications Inc., Database Administrator 44. Arindom Basu 11 86,17,218 Andersen Consulting, Sr. Manager 45. Arjun K. Rao 2 27,12,009 Recruitmentindia.Com, Webmaster/ Technical Lead 46. Aroun Balakrishnan 6 30,22,062 Blockbuster Inc., Senior Programmer Analyst *47. R. Arun Kumar 9 78,44,081 Nokia Private Limited, Sales Manager - West & South India 48. Arun Ramu 19 12,27,557 Trigent Software, General Manager
29 Annexure to the directors' report (contd.)
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- *49. Ashim Kumar Ghosh Delivery Manager B.Tech.(H), M.Sc., PGD 47 02.01.2002 50. Ashish Pandita Software Analyst B.E. 28 27.11.2000 *51. Ashok V. Arunachalam Principal Architect B.Tech., MS 38 03.05.1999 52. Ashok Vemuri Regional Manager Sales BSCH, PGD 33 01.10.1999 *53. Ashwani Rishi Business Development Manager B.E. 43 02.10.2001 54. Atul Kishore Seth Senior Associate B.Com., MMS 30 17.07.2000 55. Ayan Chatterjee Business Development Manager B.A.(H), PGD 30 02.11.1998 56. S. Babuji Business Manager B.E. 52 17.12.1997 *57. Badarinath Devalla Senior Technical Architect B.E., MS, PHD 31 14.01.2002 *58. M. S. Balaji Programmer Analyst B.E. 26 04.09.2001 59. Balaji Yellavalli Senior Principal B.Tech., PGD 33 18.09.2000 60. D. R. Balakrishna Resident Project Manager B.E. 30 07.02.1994 61. P.R. Balakrishnan Business Development Manager B.Tech., MBA 29 15.11.1999 62. V. Balakrishnan Vice President - Finance and B.Sc., ACS, CA 37 02.09.1991 Company Secretary 63. Balashankar Business Manager B.E. 46 17.12.1997 64. P. Balasubramanian Senior Vice President - Domain B.Tech, M.Tech, Ph.D. 52 01.10.1995 Competency Group 65. A. Balu Account Manager B.E., Diploma 30 07.11.1994 66. Balwant Chitubhai Surti Senior Consultant - Business B.Com., LLB, M.Com, CAIIB 41 16.08.1999 Consulting Group - Banking Business Unit 67. Bartley Richard Higgins Business Development Manager B.A.(H), M.A. 53 20.02.1997 68. Basab Pradhan Regional Manager & Vice President B.Tech., PGD 36 03.10.1994 - Sales *69. Bernard J. Decunha Business Development Manager B.A. 36 31.05.2001 70. Bhaskar Ghosh Divisional Manager B.Sc., MBA 42 03.02.1997 71. Bibhu R. Pattanayak Delivery Manager B.Sc., B.Tech., M.Tech. 44 11.08.1997 72. Biji P. Thomas Associate B.E., PGD 27 24.04.2000 73. Bikramjit Maitra Associate Vice President - B.Sc., B.Tech. 47 22.02.1999 Head - Development Center Bhubaneswar 74. Bindu Ajay Badola Senior Consultant B.E. 32 09.10.2000 (Enterprise Solutions) 75. H. R. Binod Associate Vice President B.E. 39 02.08.1993 Commercial & Facilities *76. Blandine Galland Consultant (Enterprise Solutions) Diploma 45 04.10.2001 *77. Brian Joseph King Associate Vice President & Head - B.A., B.Sc. 42 23.04.2001 Business Development (Engineering Services & Consultancy Practice) *78. Brian Y. Chu Software Engineer BS 23 25.06.2001 *79. Brit Lane Software Developer B.Sc. 25 08.05.2000 80. Bryan Michael Mallinson Software Developer BBM 25 15.01.2001 81. Buuquang Kha Software Developer B.Sc. 24 15.01.2001 *82. Casey Michael Nolan Software Engineer BBA 23 25.06.2001 83. Chandra Shekar Kakal Associate Vice President - B.E., MBA 41 01.03.1999 Head - Development Center, Hyderabad *84. Christopher See Software Developer B.Sc. 25 13.08.2001 85. Col. C. V. Krishna Associate Vice President - B.E., MBA 55 01.04.1998 Infrastructure & Security 86. Constantine Donny Mangos Software Developer B.Com., B.A. 24 21.08.2000 87. Craig Daniel DeDecker Software Engineer BBA 23 22.01.2001 *88. Dave Pennington Business Development Manager B.A. 46 13.11.2001 89. David Spencer Principal B.A., B.Sc., MBA 37 18.09.2000 90. Dean E. Whiteside Legal Counsel - Marketing B.A. 36 26.05.1998 *91. Deanne Ruth D'Souza Resident Project Coordinator B.Sc., MCA 26 29.06.1998
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ---------- ------------------ --------------------------------- *49. Ashim Kumar Ghosh 21 4,21,919 Kirloskar Computer Services & Kirloskar Software, Managing Director/CEO 50. Ashish Pandita 4 21,39,076 Robert Bosch India Ltd., Software Developer *51. Ashok V. Arunachalam 12 1,51,158 New Bridge Networking Corporation, Manager 52. Ashok Vemuri 10 73,12,424 Bank Of America, Assistant Vice President *53. Ashwani Rishi 22 21,96,596 Syntel Inc., Practice Vice President 54. Atul Kishore Seth 8 42,66,847 Ernst & Young Consulting India Pvt. Ltd., Senior Consultant 55. Ayan Chatterjee 9 85,15,526 Andersen Consulting, Consultant 56. S. Babuji 29 14,40,982 Mahindra British Telecom Ltd., Chief Manager *57. Badarinath Devalla 3 8,88,675 VPI Systems, Senior Technical Consultant *58. M. S. Balaji 6 11,78,088 Tata Elxsi Ltd., IT Analyst 59. Balaji Yellavalli 12 75,89,775 Feedback Ventures Ltd., Chief Executive Officer 60. D. R. Balakrishna 8 31,07,215 HCLl-HP, Customer Relations 61. P.R. Balakrishnan 7 52,56,901 Arthur Andersen, Senior Consultant 62. V. Balakrishnan 15 17,37,431 Amco Batteries Ltd., Senior Accounts Executive 63. Balashankar 22 12,26,173 Bharat Electronics Ltd., Manager & Dept. Head - R & D 64. P. Balasubramanian 29 20,34,065 Hitek Software Engineers Ltd., CEO\Technical Director 65. A. Balu 12 35,60,946 Adarsha Polytechnic, Teacher 66. Balwant Chitubhai Surti 20 12,37,414 The Saraswat Co-Operative Bank Limited, Senior Manager - IT 67. Bartley Richard Higgins 15 92,20,398 Wireless S/W, Developer 68. Basab Pradhan 13 1,10,81,173 Lipton India Ltd., Manager *69. Bernard J. Decunha 11 40,53,547 Polaris Software Labs, Regional Manager 70. Bhaskar Ghosh 21 15,09,507 Philips India Ltd., Sr. Marketing Manager 71. Bibhu R. Pattanayak 19 13,68,613 AT&T, Project Manager 72. Biji P. Thomas 5 40,93,576 Andersen Consulting, Senior Consultant 73. Bikramjit Maitra 22 15,69,884 R. S. Software, Vice President 74. Bindu Ajay Badola 10 29,45,460 Tata Infotech Ltd., Systems Specialist 75. H. R. Binod 16 15,65,473 Mico, Senior Engineer - Technical Sales *76. Blandine Galland 20 19,91,977 3Com Europe - Hemel Hempstead, IT Applications Manager *77. Brian Joseph King 22 76,60,760 Electronic Data Systems Inc., Director *78. Brian Y. Chu 1 25,09,029 - *79. Brit Lane 3 7,74,581 Tha Cain Gang Ltd., Developer 80. Bryan Michael Mallinson 1 15,93,453 - 81. Buuquang Kha 1 15,93,453 - *82. Casey Michael Nolan 1 25,08,981 - 83. Chandra Shekar Kakal 19 16,33,441 Ramco Systems, Product Manager *84. Christopher See 1 10,95,696 - 85. Col. C. V. Krishna 26 14,47,943 Indian Army, General Engineering 86. Constantine Donny Mangos 3 17,27,937 Spectrum United Mutual Funds, Accounts Administrator 87. Craig Daniel DeDecker 3 27,12,009 Economy Advertising, System Admin Intern *88. Dave Pennington 22 15,55,791 Evoke Software Corporation, Account Manager 89. David Spencer 16 81,99,311 Spherion, Senior Manager 90. Dean E. Whiteside 8 37,92,833 Bank Of America, Systems Administrator *91. Deanne Ruth D'Souza 4 15,42,412 -
30 Annexure to the directors' report (contd.)
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- 92. Debashish Banerjee Project Manager B.E., PGD 37 02.04.2001 *93. Debasis Sahoo Resident Project Manager B.Tech 29 09.04.2001 94. Debjit Datta Chaudhuri Business Development Manager BSCH, PGD 29 13.10.1998 95. Deepak Jha Associate B.Tech., PGD 29 18.12.2000 96. Deepak Natraj Ramamurthi Senior Manager - New Initiatives B.Com.(H), CA 36 10.07.2000 *97. Deepak Rao Senior Principal B.Tech., PGD 38 01.02.2001 *98. Deepak Sachdeva Business Development Manager B.Tech., PGD 32 20.06.2001 99. Deepak Sundarrajan Project Manager B.E. 29 19.02.2001 100. V. G. Dheeshjith Associate Vice President - B.Sc., M.E. 38 14.09.1987 Delivery (Asia Pacific) *101. Diane Irene McKenzie Executive Assistant PUC 45 22.05.2001 102. Dileep Arvind Kasargod Senior Associate B.Tech., PGD 35 18.09.2000 103. Dinesh Ganesan Delivery Manager B.Sc., MBA 33 14.12.1998 104. Dinesh Krishnaswamy Director and Head - Human B.Sc., M.Sc. 47 01.09.1981 Resources Development, Information Systems, Quality & Productivity and Communication Design Group 105. R. Dinesh Delivery Manager B.E. 33 01.10.1990 *106. Dnyanesh Patkar Senior Associate B.Sc., M.E., MBA 30 24.10.2001 *107. Douglas R. Honabach Senior Associate B.A., MBA 32 30.07.2001 108. Duncan Zhang Software Developer B.Tech. 25 08.05.2000 *109. Dustin Derek Weeks Programmer Analyst B.A., M.A. 33 02.07.2001 110. Easaw Pallipeedikayil Easaw Business Development Manager B.E., PGD 32 07.04.2000 *111. Eric Carl Hecht Business Development Manager B.Sc. 39 14.05.2001 *112. Eric S. Paternoster Associate Vice President B.Sc., MBA 49 25.02.2002 113. Eric Seubert Senior Principal B.Sc., MBA 35 28.08.2000 *114. Esteban Herrera Senior Associate B.Sc. 27 16.10.2001 *115. Estela Solano Administrative Assistant Diploma 24 05.07.2001 *116. Eugene Mortensen Senior Consultant (Domain B.A., M.Sc., PGD 61 07.06.2001 Competency Group) 117. Eugene Roitman Software Developer B.Sc. 25 21.08.2000 *118. Francesca Picci Software Developer B.A., MS 25 17.08.2001 *119. Ganesh Balakrishnan Project Manager MTech, M.Sc. 35 01.04.1997 120. Ganesh Gopalakrishnan Divisional Manager B.E.(H), PGD 39 02.05.1994 121. Gaurav Johri Business Development Manager B.Tech., PGD 31 01.09.1997 122. Gaurav Rastogi Business Development Manager B.E., PGD 29 05.02.2001 123. Gautam P. Thakkar Principal B.Sc. 33 17.07.2000 124. G. Geetha Group Project Manager B.E. 36 01.12.1995 125. George Ignatius Associate B.Tech(H), PGD 27 11.09.2000 126. George Varghese Business Development Manager B.Com. 34 26.09.1996 *127. Gerald H. Ross Principal B.Sc. 38 11.02.2002 128. Gigi Chiao Chih Tsang Software Developer BSCH 23 15.01.2001 129. Girish Anant Pashilkar Senior Associate B.Tech., PGD 30 20.03.2000 130. Girish G. Vaidya Senior Vice President - Banking B.E., PGD 51 22.01.1999 Business Unit *131. Gnanavel Dhandapani Resident Project Manager B.E. 30 23.07.2001 132. Gopal Devanahalli Business Development Manager M.Sc.(Tech), PGD 33 01.10.1999 133. S. Gopalakrishnan Deputy Managing Director, Chief B.Sc., M.Tech 46 01.02.1981 Operating Officer and Head - Customer Service & Technology 134. Gopikrishnan Konnanath Resident Project Manager B.E. 31 07.11.1994 135. Gopinath Sutar Senior Principal B.Tech., PGD 35 01.10.1999 *136. Graham Russell Smithers Consultant (Enterprise Solutions) B.Tech. 42 04.10.2001
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ----------- ------------------ --------------------------------- 92. Debashish Banerjee 16 43,19,262 Psinet Consulting Solutions Global Group, Managing Principal (Director) *93. Debasis Sahoo 7 33,32,218 Silverline Tech. Inc., A. P. M. 94. Debjit Datta Chaudhuri 8 64,47,854 Wipro Finance Ltd., Officer 95. Deepak Jha 5 35,67,692 Andersen Consulting, Consultant 96. Deepak Natraj Ramamurthi 12 12,06,306 Ernst & Young, Head - Assurance Business *97. Deepak Rao 16 61,38,579 KPMG Consulting, Executive Consultant *98. Deepak Sachdeva 8 12,98,669 Citibank N. A., AVP 99. Deepak Sundarrajan 7 30,72,999 Humana Inc., Designer 100. V. G. Dheeshjith 15 13,25,126 - *101. Diane Irene McKenzie 15 11,86,913 Hewitt Associates, Executive Assistant 102. Dileep Arvind Kasargod 10 35,92,706 HCL Perot Systems, Associate 103. Dinesh Ganesan 12 12,68,216 CMC Ltd., Designer 104. Dinesh Krishnaswamy 26 20,97,907 Patni Computer Systems Pvt. Ltd., Senior Software Engineer 105. R. Dinesh 12 13,19,580 - *106. Dnyanesh Patkar 6 23,05,322 Diamondcluster International, Manager - Business Strategy & Operations *107. Douglas R. Honabach 3 5,69,036 Accenture, Manager 108. Duncan Zhang 2 17,27,937 - *109. Dustin Derek Weeks 6 3,33,905 Okumura Kikai, Assistant Product Manager 110. Easaw Pallipeedikayil Easaw 8 45,46,205 Apex Systems, Sr. Marketing Executive *111. Eric Carl Hecht 16 28,63,261 Compumod Pty. Ltd., National Sales Manager *112. Eric S. Paternoster 27 8,34,336 CAP Gemini Ernst & Young, Vice President/Partner 113. Eric Seubert 12 88,98,499 Interim Technology Consulting, Director - E-Business Practice *114. Esteban Herrera 6 25,31,992 Riverton Corporation, Director - Collaborative Commerce Prac. *115. Estela Solano 4 15,90,115 Brassring, Support Engineer *116. Eugene Mortensen 31 45,99,386 DMR Consulting Group Inc., Project Mgr. - Mgmt. Consultant 117. Eugene Roitman 4 16,47,486 Levitronics Corp., Analyst *118. Francesca Picci 1 21,24,780 - *119. Ganesh Balakrishnan 10 3,42,797 Tata Unisys Ltd, Systems Analyst 120. Ganesh Gopalakrishnan 15 15,24,160 Asian Paints India Ltd., Systems Executive 121. Gaurav Johri 8 42,99,488 Microland, Business Development 122. Gaurav Rastogi 5 42,40,002 Amrop International, Senior Consultant 123. Gautam P. Thakkar 12 66,32,149 Andersen Consulting, Manager 124. G. Geetha 15 12,19,998 ITI Limited, Senior Engineer 125. George Ignatius 4 33,31,814 Andersen Consulting, Consultant 126. George Varghese 11 50,45,719 Hitachi, Systems Administrator *127. Gerald H. Ross 15 8,27,651 PricewaterhouseCoopers LLp, Key Senior Manager 128. Gigi Chiao Chih Tsang 1 15,93,453 - 129. Girish Anant Pashilkar 8 70,51,476 Arthur Andersen, Senior Consultant 130. Girish G. Vaidya 27 22,40,109 ANZ Grindlays Bank Ltd., Head & Director - Operations *131. Gnanavel Dhandapani 9 23,61,715 PKS Information Services Inc., Programmer/Analyst 132. Gopal Devanahalli 10 63,83,219 Ford Credit Kotak Mahindra Ltd., Regional Manager 133. S. Gopalakrishnan 22 19,92,457 Software Sourcing Co., V. P. Technical Group 134. Gopikrishnan Konnanath 8 15,43,191 BPL Systems & Projec, Trainee 135. Gopinath Sutar 13 90,50,535 A. T. Kearney, Manager *136. Graham Russell Smithers 25 18,61,415 3Com Europe Ltd., Hemel Hempstead, Network Equipment Manufacturer
31 Annexure to the directors' report (contd.)
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- 137. Guhan Kumaran Project Manager B.E.(H) 27 26.06.1995 *138. Guruprasad Krishnamurthy Business Support Manager B.Sc., MS 38 25.06.2001 *139. Hanif Kanjer Business Development Manager B.E., MBA 33 31.07.2001 140. Haragopal Mangipudi Associate Vice President and Head LLB, B.Sc., PGD 40 08.12.1993 Professional Services Group - Banking Business Unit *141. Hariharan S. Murthy Regional Manager & Associate Vice B.E., PGD 37 01.09.1994 President - Sales 142. Haris Ashraf Beg Programmer Analyst B.Sc. Engg, M.Sc. Engg 29 13.10.1997 143. Helen Kim Associate Manager - HRD B.A., MED 25 05.07.2000 144. Hema Ravichandar Senior Vice President - HRD B.A., PGD 40 30.12.1998 *145. Henri Mabille Senior Principal Diploma 49 01.03.2000 146. Hoi tung (Harry) Cheung Software Developer B.Com., BSCH 25 05.06.2000 147. Hugh Gordon Read Software Developer B.Sc. 25 21.08.2000 *148. Ikuko Kawashima Consultant (Enterprise Solutions) PUC 35 09.01.2002 *149. Ivan H. Brock Project Manager B.Sc., PHD 37 12.02.2001 150. Ivan Sussman Business Development Manager B.Sc. 29 26.03.2001 *151. Jae Hyun Kim Business Development Manager BBA, MBA 32 27.12.2001 *152. Jagdish N. Jois Program Manager B.Com.(H), MBA 44 04.02.2002 153. Jahir Hussain Programmer Analyst B.Sc., M.Sc. 32 29.01.2001 154. Jaime Salvador Arguello Software Engineer B.Sc. Engg. 24 22.01.2001 *155. Jamuna Ravi Delivery Manager B.E. 39 19.11.2001 156. Jan DeSmet Vice President - Infosys Business BBA, MBA 42 04.01.1999 Consulting Services 157. Jasmeet Singh Business Development Manager B.Tech., MBA 30 30.10.2000 158. Jason McEwan Software Developer B.Sc. 24 21.08.2000 159. G. K. Jayaram Advisor To Management Council B.Sc., B.E., PGD, Ph.D. 61 05.01.2001 and Head - Infosys Leadership Institute 160. Jayaraman Thiyagarajan Group Project Manager B.Sc., MCA 40 29.01.2001 *161. Jayashree Seshadri Software Developer B.Sc., MCA 26 22.05.2001 *162. Jenifer K. Adkins Sales Administrator Diploma 35 26.06.2000 163. Jennifer La Vonne Dean Executive - HRD B.Sc., Master of Public Adm 27 24.04.2000 *164. Jennifer Leigh Griffith Marketing Associate B.A. 28 30.04.2001 165. Jessica M. Chisholm Administrative Assistant B.A. 24 14.02.2001 *166. Jingfang (Jenny) Wei Software Engineer B.Sc. 22 25.06.2001 167. Jitin Goyal Business Development Manager B.E., PGD 31 21.12.1998 *168. Jo Ando Business Analyst B.A. 28 25.12.2001 169. Joan Lin Software Analyst B.E. 31 21.08.2000 *170. John Andrew Sakell Software Developer B.Sc. 31 22.05.2001 *171. John Creighton Senior Associate B.E., MS, MBA 31 18.03.2002 172. John Li Software Developer BSCH, Diploma 27 21.08.2000 *173. John Oscar Fogarty Business Development Manager B.A., MBA 31 20.02.2001 174. Jonathan Masterton Software Analyst BSCH 28 24.07.2000 175. Joydeep Mukherjee Delivery Manager B.Tech. 33 22.06.1992 176. Judith Ann Ondina Administrative Assistant B.A. 53 16.07.1999 177. Kajendran Balasundaram Software Developer B.Sc. 27 21.08.2000 178. Kala Swaminathan Business Development Manager B.Sc. 33 27.01.1999 *179. Kalyana C. Gangavarapu Business Support Manager B.Tech., Ph.D. 32 12.12.2000 180. Kanna Venkatasamy Senior Associate B.E., PGD 28 06.03.2001 181. Kapil Jain Business Development Manager B.E., MS, MBA 35 30.10.2000 182. Karen J. Hutton Marketing Manager B.A. 41 05.01.1998 183. Kelvin Goseng Software Developer BSCH 25 21.08.2000 184. Ken Jian Wong Software Developer B.Sc. 24 15.01.2001 *185. Kerri-anne Scarcella Sales Administrator BBA 31 11.06.2001 *186. Kevin Thomas Owens Manager - HRD B.A., MS 42 08.08.2001
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ---------- ------------------ --------------------------------- 137. Guhan Kumaran 7 26,18,737 - *138. Guruprasad Krishnamurthy 10 31,77,911 Eforce Inc., Project Manager *139. Hanif Kanjer 11 17,28,493 DSQ Software, Director - Business Development 140. Haragopal Mangipudi 15 12,05,759 Canara Bank, Officer *141. Hariharan S. Murthy 14 79,85,722 Redington Pvt Ltd, Marketing Manager 142. Haris Ashraf Beg 4 3,33,527 - 143. Helen Kim 2 27,28,340 Elite Educational Institute, Admin Assistant 144. Hema Ravichandar 19 15,51,674 Empower Associates, Propreitor *145. Henri Mabille 25 20,41,399 SIA SA Group, Financial Director Group 146. Hoi tung (Harry) Cheung 5 16,84,459 The Muses Arts & Recreation Center, Web Manager 147. Hugh Gordon Read 2 17,44,375 - *148. Ikuko Kawashima 12 9,00,178 Manugistics Japan K. K., Technical Consultant *149. Ivan H. Brock 8 23,22,205 Escom Software Services, Development Manager 150. Ivan Sussman 6 20,98,927 Citicorp, Executive Marketing Manager & Business Planner *151. Jae Hyun Kim 6 9,45,671 Locus Corporation (Telecommunication Si), Manager & System Consultant World Wide Sales *152. Jagdish N. Jois 18 8,03,203 Netfi Inc., Co-Founder, Principal Strategic Consultant 153. Jahir Hussain 8 36,51,941 Complete Business Solutions Inc., Manager 154. Jaime Salvador Arguello 4 26,55,521 Washington University, Web Master *155. Jamuna Ravi 17 5,09,629 Trigent Software Limited, Vice President - Head Operations 156. Jan DeSmet 18 1,10,44,742 Diamond Technology Partners, Senior Principal 157. Jasmeet Singh 7 48,11,901 Deutsche Bank, Sales Manager 158. Jason McEwan 5 17,20,892 Information Technology Services, Network Consultant 159. G. K. Jayaram 31 20,57,922 Transformation Systems Inc., Chairman 160. Jayaraman Thiyagarajan 16 12,23,323 Complete Business Solutions (I) Pvt. Ltd., Senior Manager - Projects *161. Jayashree Seshadri 2 14,16,293 Bold Link Technologies, Consultant *162. Jenifer K. Adkins 17 2,80,531 Credit Lyonnais, Executive Assistant/Office Manager 163. Jennifer La Vonne Dean 4 20,53,054 Oakland Ready To Learn, Project Administrator *164. Jennifer Leigh Griffith 6 21,73,246 Freelancer, Technical Writer 165. Jessica M. Chisholm 3 22,20,375 Linotext America Inc., Account Manager *166. Jingfang (Jenny) Wei 0.3 9,22,855 - 167. Jitin Goyal 8 72,11,109 CitiBank, Manager *168. Jo Ando 3 9,33,149 Andersen Consulting (Accenture), Technology Analyst 169. Joan Lin 7 19,85,679 Infotech Consulting Co., Java Developer *170. John Andrew Sakell 1 14,69,067 - *171. John Creighton 12 2,13,538 Diamondcluster International, Business Strategy Consultant 172. John Li 3 16,98,549 York Chinese Christian Fellowship, Secretary *173. John Oscar Fogarty 9 31,14,183 Morgan Stanley Dean Witter, Vice President - Financial Advisior 174. Jonathan Masterton 3 23,19,413 Logica UK Ltd., Team Leader 175. Joydeep Mukherjee 10 13,22,733 - 176. Judith Ann Ondina 18 26,40,265 Sprint, Human Resource Co-ordinator 177. Kajendran Balasundaram 4 16,98,549 Queen's University, Student Software Engineer 178. Kala Swaminathan 11 41,62,414 Parametric Technology Corporation, Regional Manager *179. Kalyana C. Gangavarapu 11 43,00,497 Oracle Corp., Practice Director 180. Kanna Venkatasamy 6 25,08,336 ICICI Econet, Assistant Vice President 181. Kapil Jain 11 41,57,579 HSBC, Manager - Corporate Finance Advisory 182. Karen J. Hutton 19 43,76,823 Feist & Hutton, Senior Consultant 183. Kelvin Goseng 2 16,40,441 - 184. Ken Jian Wong 1 15,93,453 - *185. Kerri-anne Scarcella 11 11,90,621 i2 Technologies, Executive *186. Kevin Thomas Owens 13 28,04,978 Northern Illinois University, Research Assistant/Project Co-Ordinator
32 Annexure to the directors' report (contd.)
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- *187. Kishen Bhagavan Group Client Relations Manager B.E., MS 43 19.11.2001 188. N. V. Krishna Business Development Manager B.E., PGD 32 20.10.1999 189. Krishnamoorthy Business Manager B.Tech., M.Sc. Engg 40 13.01.1986 Ananthasivam 190. T. S. Krishnamurthy Business Manager B.E. 39 26.10.1987 191. Krithika Muthukrishnan Associate B.E., PGD 27 06.03.2000 192. Kshitij Kumar Project Manager B.Tech. 29 27.06.1994 193. Kumail Murtaza Jaffer Software Developer BCS 27 15.01.2001 *194. Lalitha Sekar Delivery Manager B.E., M.E. 39 18.07.2000 195. Latha Kalainesan Group Project Manager B.Sc., M.A. 38 22.08.1997 196. Laura Beth Rehrig Software Engineer B.Sc. 23 22.01.2001 *197. Lila R. Rommelmann Administrative Assistant B.A. 27 21.06.2001 198. Lokesh Prasad Business Development Manager B.Tech.(H), PGD 28 04.05.1998 *199. Madan Mohan Account Manager B.Tech. 34 05.07.2001 200. Madhav Mohan Business Development Manager B.Sc., MMS 32 01.10.1999 *201. Madhusudhan Kashyap Programmer Analyst B.E. 30 14.05.2001 202. Mahesh Desai Business Development Manager B.E., PGD 29 03.06.1996 203. Mahesh Makhija Senior Associate B.Tech., PGD 32 04.09.2000 204. Mahitha Sridhar Krishnan Software Developer B.Sc., MCA 24 15.01.2001 205. Maki Ishibashi Administrative Assistant Diploma 28 13.07.2000 *206. Mallik Tadepalli Resident Project Manager B.E.(H) 29 01.10.2001 *207. Mallika Sasikumar Associate B.Com., CA 27 08.05.2000 208. Manish Goyal Programmer Analyst B.E. 29 27.11.2000 209. Manish Jha Business Manager B.Tech., PGD 37 26.02.2001 210. Manish Kumar Sarraf Business Development Manager B.Com.(H), PGD 33 19.06.2000 *211. Manish Mohan Business Development Manager B.A. 29 28.08.2001 *212. Manish Subramanian Principal B.E.(H), PGD 33 01.02.2002 213. Manish Verma Business Development Manager B.Tech., MBA 33 09.12.1999 214. N. Manohara Principal Architect B.E. 33 22.07.1991 215. Mary Ann Usher Administrative Assistant B.A. 46 21.06.1999 216. Mayur Pendse Software Developer B.Sc. 24 21.08.2000 *217. Mehul Desai Associate B.Sc. 26 11.06.2001 *218. Melisa Watson Executive - HRD B.A. 28 05.06.2001 219. Merlyn Lee Business Development Manager B.E., M.Sc. 49 05.03.2001 220. Merwin Fernandes Associate Vice President and Head Sales & Marketing - Banking Business Unit B.Com. 42 06.08.1997 221. Michael Glen Software Developer B.Sc. 25 21.08.2000 *222. Michael H. Sir Senior Principal B.Sc., MS 36 29.10.2001 *223. Michele E. Mcfadden Administrative Assistant B.A. 29 21.05.2001 *224. Mita Bedi Software Engineer B.E. 22 14.01.2002 225. M. M. Mohan Associate Vice President - HRD B.Com., PGD 57 11.07.1992 226. Mohan Sekhar Vice President - Delivery (Canada B.E., MS 39 17.08.1998 & East North America) 227. T. V. Mohandas Pai Director, Head (Finance & B.Com., LLB, FCA 43 17.10.1994 Administration) and Chief Financial Officer *228. Mohanraj Kanniappan Programmer Analyst B.Sc., M.Sc. 28 04.06.2001 229. Mohit Joshi Business Development Manager B.A.(H), MBA 27 07.12.2000 *230. Mohit Madnani Senior Associate B.E., MS 26 18.03.2002 *231. Nachiket Vibhakar Business Development Manager B.A., B.Sc., M.A. 33 29.11.1999 Sukhtankar 232. R. N. Nagaraj Senior Manger & Head User LLB, B.Sc., M.A., CAIIB 47 06.03.1995 Education Team - Banking Business Unit
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ---------- ------------------ --------------------------------- *187. Kishen Bhagavan 14 18,21,233 BBO Inc., Manager - Customer Support 188. N. V. Krishna 9 73,01,212 Hindustan Lever Limited, Area Sales Manager 189. Krishnamoorthy 19 14,41,082 Urban Transport Development Corpn., Research Assistant Ananthasivam 190. T. S. Krishnamurthy 17 14,88,215 Zenith Electro Systems, Engineer 191. Krithika Muthukrishnan 5 29,24,355 Tata Strategic Management Group, Associate Consultant 192. Kshitij Kumar 8 28,05,783 - 193. Kumail Murtaza Jaffer 1 15,93,453 - *194. Lalitha Sekar 14 5,12,352 LTITL, Manager 195. Latha Kalainesan 13 12,20,450 Riyam Computer Services, Project Leader 196. Laura Beth Rehrig 4 27,08,237 PIL Inc., Cooperative Associate *197. Lila R. Rommelmann 6 16,71,250 Compton Presentation Systems, Marketing & Client Services 198. Lokesh Prasad 4 56,47,496 - *199. Madan Mohan 11 28,86,465 Tata Consultancy Services, Consultant 200. Madhav Mohan 10 94,73,990 Bank Of America, AVP & Regional Sales Manager *201. Madhusudhan Kashyap 6 32,63,123 IT Solutions (USA), Consultant 202. Mahesh Desai 7 46,49,015 Pertech Computers Ltd., Marketing 203. Mahesh Makhija 7 48,48,948 Andersen Consulting, Consultant 204. Mahitha Sridhar Krishnan 2 16,59,826 Samtech Inc., Programmer/Consultant 205. Maki Ishibashi 6 20,21,140 Tokyo Executive Center Inc., Secretary *206. Mallik Tadepalli 10 18,91,400 Covansys, Manager *207. Mallika Sasikumar 7 24,08,507 Arthur Andersen, Senior Consultant 208. Manish Goyal 7 32,67,007 ELC Systems, Consultant 209. Manish Jha 14 29,61,862 i-Flex Solutions, Consultant 210. Manish Kumar Sarraf 11 45,36,459 Deutsche Bank, Senior Manager *211. Manish Mohan 5 20,64,367 Nortel Networks, Account Manager - Global Professional Services *212. Manish Subramanian 9 7,74,767 Accceture, Senior Manager 213. Manish Verma 10 65,30,581 Hindustan Lever Ltd., Senior Product Manager 214. N. Manohara 11 13,56,882 Larsen & Toubro, Trainee 215. Mary Ann Usher 17 17,94,763 Racal Datacon Inc., Sales Support Representative 216. Mayur Pendse 6 16,47,486 Mainline Foods/Dairy Queen, Night Supervisor *217. Mehul Desai 5 30,27,159 PricewaterhouseCoopers Limited, Senior Consultant *218. Melisa Watson 3 12,65,295 JP Morgan Chase, HR Representive 219. Merlyn Lee 23 54,71,930 Tata Engineering Company, Trainee Engineer & Production Engineer 220. Merwin Fernandes 21 13,73,352 DSQ Software Ltd, Business Development 221. Michael Glen 3 16,91,504 Industry Canada, Support Analyst *222. Michael H. Sir 13 30,44,063 Bourbon Street Capital, Director of Strategic Consulting *223. Michele E. Mcfadden 12 12,74,650 Eagletech Consulting, Executive Assistant *224. Mita Bedi 0.2 3,15,437 - 225. M. M. Mohan 32 12,76,461 Motor Industries Company Ltd., Asst. Officer - HRD 226. Mohan Sekhar 15 15,28,295 AT&T, Head 227. T. V. Mohandas Pai 22 19,95,503 Prakash Leasing Limited, Executive Director *228. Mohanraj Kanniappan 5 24,39,759 RBS Link Tracking V4.0, Software Engineer 229. Mohit Joshi 6 40,63,446 ABN Amro Bank, Manager *230. Mohit Madnani 3 1,85,700 Diamondcluster International Inc., Sr. Associate - Strategy Consulting *231. Nachiket Vibhakar 8 48,19,251 Andersen Consulting, Manager Sukhtankar 232. R. N. Nagaraj 26 12,15,958 State Bank of Hyderabad, Manager (Credit)
33 Annexure to the directors' report (contd.)
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- 233. Nagarajan Venkateswaran Business Support Manager B.Tech., MS 41 17.04.2000 234. Nanaz Rohani Administrative Assistant B.Sc. 28 26.07.2000 235. Nandan M. Nilekani Chief Executive Officer; President, B.Tech 46 01.07.1981 and Managing Director and Chairman - Management Council 236. Nandita Mohan Gurjar Associate Vice President - HRD B.A., M.A. 41 20.12.1999 *237. Naomi Grossack Sales Administrator BBM 27 26.06.2000 238. Narayan O. S. Nandigam Business Development Manager B.E., MBA 31 07.12.2000 239. Narayan Ramanna Budanur Senior Consultant (Enterprise B.E. 34 01.03.2001 Solutions) 240. N. R. Narayana Murthy Chairman and Chief Mentor B.E., M.Tech 55 18.03.1982 241. Narendran Koduvattat Senior Project Manager - B.Sc. 35 08.03.1993 Head - Development Center, Mangalore 242. Narsimha Rao Mannepalli Delivery Manager B.E., PGD 34 29.01.2001 *243. B. Natarajan Business Development Manager B.Tech., PGD 28 15.05.2000 244. Neelesh Marik Business Development Manager B.Tech., PGD 34 15.11.1999 245. Neeraj Dubey Software Analyst B.E.(H) 35 20.11.2000 246. Olga Shnaider Software Developer B.A.(H) 31 15.01.2001 247. Omar Dominguez Software Developer B.Sc. 28 04.07.2000 *248. Oscar Sagahon Group Client Relations Manager B.Sc. 57 27.09.2001 249. Owhen Astorga Payroll Executive B.A., Diploma 38 18.06.1999 *250. D. Padmanabhan Associate Vice President - Banking B.Sc. 38 02.11.1992 Business Unit 251. Padmanabhan Associate Vice President - Delivery B.E., M.E. 47 05.03.2001 Venkataraman - Quality Implementation 252. Palachandra Seetharam Project Manager B.E. 33 31.07.2000 *253. Pankaj Gupta Senior Associate B.Tech., PGD 30 01.10.2001 254. Parag Suhas Damle Associate B.E. 27 05.01.2001 255. Y. Parameswar Associate Vice President - B.E., M.Tech. 46 14.10.1996 Communication & Product Services *256. Paras Goel Senior Associate B.Tech., MBA 28 23.07.2001 257. M. A. Parthasarathy Delivery Manager B.E., PGD 52 30.08.1999 258. Paul Maillard Software Developer BSCH 27 18.09.2000 *259. Peter Bogaert Business Support Manager MBA 42 16.07.2001 *260. Peter J. Magagna Business Development Manager B.A. 30 15.08.2001 *261. Peter Kazumi Shiba Software Engineer B.A. 22 25.06.2001 *262. Peter L. Tannenwald Group Client Relations Manager B.Sc. 38 05.12.2001 263. Phaneesh Murthy Director - Sales & Marketing and B.Tech., PGD 38 08.10.1992 Communication & Product Services *264. Phillina M. Reyes Marketing Coordinator B.A. 26 07.05.2001 265. H. R. Prabhakara Delivery Manager AMIE, M.Tech. 41 04.03.1996 266. M. S. S. Prabhu Senior Vice President - Engineering B.E., Ph.D. 54 01.08.1997 Services & Consultancy Practice 267. Pradeep Kullangi Gopala Associate B.E., PGD 28 21.02.2001 Acharya 268. Pradeep Prabhu Business Development Manager B.Com. 33 04.11.1991 *269. Prakash Chellam Business Development Manager B.E., PGD 25 30.07.2001 270. Pramod V. Ponkshe Account Manager B.E. 37 11.01.2001 *271. Prasad D. Auty Project Manager B.E., M.Tech. 34 01.05.1997 272. T. P. Prasad Regional Manager & Associate Vice B.E., PGD 37 04.09.1995 President - Sales 273. Prasanna Vishnu Vatkar Business Development Manager B.E., PGD 31 19.03.2001 274. Pratap Ranjan Sarker Business Development Manager BCS, MBA 31 18.12.2000 275. Praveen Kumar Principal B.E., MS, PHD 34 31.01.2000 276. Praveen Mahadani Business Development Manager B.Tech., MBA, PGD 35 19.03.2001 *277. Praveen Rao Pejaver Project Manager B.E., PGD 32 30.04.2001 278. U. B. Pravin Rao Vice President - Delivery (Europe) B.E. 40 04.08.1986
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ---------- ------------------ --------------------------------- 233. Nagarajan Venkateswaran 19 59,11,281 Synthel Inc., Troy, Michigan, Delivery Manager 234. Nanaz Rohani 6 23,71,661 Stanford University, Academic Affairs Co-Ordinator 235. Nandan M. Nilekani 24 20,21,455 Patni Computer Systems Pvt. Ltd., Asst. Project Manager 236. Nandita Mohan Gurjar 12 14,53,139 Wipro Infotech Software & Services, Corporate Manager - HRD *237. Naomi Grossack 6 21,96,325 Communications Collaborative, Contractor 238. Narayan O. S. Nandigam 8 37,26,965 ICICI Ltd., Asst. Vice President 239. Narayan Ramanna Budanur 8 55,29,909 Deloitte Touche Tohmatsu, Senior Consultant 240. N. R. Narayana Murthy 33 20,95,270 Patni Computer Systems Pvt. Ltd., Head - Software Group 241. Narendran Koduvattat 15 14,26,706 PSI Data Systems Ltd., Senior Software Engineer 242. Narsimha Rao Mannepalli 12 12,35,542 Ramco Systems, Project Director - E-Commerce Solutions *243. B. Natarajan 6 26,36,190 Arthur Andersen India Pvt. Ltd., Senior Consultant 244. Neelesh Marik 10 70,02,499 Andersen Consulting, Manager 245. Neeraj Dubey 14 21,59,329 Cit Canada Inc., Consultant 246. Olga Shnaider 5 15,93,453 Future Shop Ltd., Computer Sales Specialist 247. Omar Dominguez 5 18,38,591 Electronic Data Systems, Information Analyst Associate *248. Oscar Sagahon 36 22,20,375 EDS, Consultant 249. Owhen Astorga 19 24,06,600 Palex Inc., Payroll Administrator *250. D. Padmanabhan 18 8,19,674 PSI Data Systems Ltd., Product Support Manager 251. Padmanabhan 23 16,75,680 Delphi Automotive Systems, Vice President Software Operation Venkataraman 252. Palachandra Seetharam 11 29,13,340 CAP Gemini America, Senior Consultant *253. Pankaj Gupta 7 26,08,875 Booz-Allen & Hamilton, Lead Associate 254. Parag Suhas Damle 6 34,93,046 Anderson Consulting, Consultant 255. Y. Parameswar 22 14,45,930 C-Dot, Divisional Manager *256. Paras Goel 3 28,01,254 Deloitte Consulting, Consultant 257. M. A. Parthasarathy 30 15,61,040 IMR Global Ltd., Group Manager 258. Paul Maillard 5 20,31,635 Contax Inc., Junior Business Consultant *259. Peter Bogaert 19 33,86,423 Marsh, Senior Vice President *260. Peter J. Magagna 9 31,19,412 Xpedior, Manager - Business Development *261. Peter Kazumi Shiba 1 25,40,157 - *262. Peter L. Tannenwald 17 14,32,500 Concero Lp, Regional Managing Director 263. Phaneesh Murthy 15 1,91,73,711 Sonata Software, Regional Manager *264. Phillina M. Reyes 3 20,04,497 Mckinley Medical, Lllp, Marketing Coordinator 265. H. R. Prabhakara 17 13,05,074 ITI Limited, Senior Engineer 266. M. S. S. Prabhu 28 16,67,683 Tata Consultancy Services, Vice President 267. Pradeep Kullangi Gopala 5 34,24,271 PricewaterhouseCoopers, Consultant (Level 3) Acharya 268. Pradeep Prabhu 12 55,53,796 Saxena Software Consultants, Senior Executive *269. Prakash Chellam 4 20,59,186 Planetasia.Com Ltd., Program Manager 270. Pramod V. Ponkshe 17 55,59,354 Foxboro Japan Corporation, Project Manager *271. Prasad D. Auty 11 3,74,113 Citicorp Overseas, Consultant 272. T. P. Prasad 13 89,34,807 Wipro Infotech, Regional Sales Manager 273. Prasanna Vishnu Vatkar 9 31,85,849 Tata Consultancy Services, Assistant Consultant 274. Pratap Ranjan Sarker 8 44,23,066 IBM, National Business Manager 275. Praveen Kumar 7 82,81,126 Andersen Consulting, Manager 276. Praveen Mahadani 12 52,36,279 Femina Hygienical Products, National Sales & Marketing Mgr. *277. Praveen Rao Pejaver 11 14,31,402 Deutscae Software India (Ltd.), Senior Systems Analyst 278. U. B. Pravin Rao 17 16,26,665 Indian Inst. of Science, Trainee
34 Annexure to the directors' report (contd.)
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- 279. Priti Jay Rao Associate Vice President - B.Sc., M.Sc. 42 02.07.1997 Head - Development Center, Pune 280. V. S. Purushottam Senior Associate B.E., PGD 30 01.12.2000 *281. Rachna S. Korhonen Business Development Manager B.Sc. 37 19.11.2001 282. Raghunath Basavanahalli Business Development Manager BS in Engg 35 09.03.2001 283. Raghupathi N. Cavale Business Manager B.E., MS 40 13.12.1999 284. Rahul Madhav Godbole Business Development Manager B.A., M.A., MBA 36 15.11.1999 285. Rahul Shantaram Deo Resident Project Manager B.E. 33 09.03.2001 *286. Rahul Sharma Programmer Analyst B.Tech., MBA 27 04.06.2001 *287. Raja Narasimhan Delivery Manager B.Com. 37 15.01.2002 288. K. S. Rajasekaran Senior Manager - Business B.Sc., M.Sc., PGD 43 08.11.1983 Consulting Group - Banking Business Unit *289. Rajat Jain Principal B.Sc., CFA, PGD 36 01.08.2001 *290. Rajeev Minocha Business Development Manager B.E., PGD 37 26.08.1999 *291. Rajesh K. Renganathan Resident Project Manager B.E. 28 02.07.2001 *292. Rajesh Krishnan Business Support Manager B.E., MS 39 29.11.2001 293. Rajeswari Palaniappan Programmer Analyst B.Sc., MCA 35 01.08.2000 294. Rajiv Kuchhal Associate Vice President B.Tech. 36 05.02.1990 295. Raju Bannur Delivery Manager B.E., M.Tech. 38 17.01.2000 *296. Raju Nooka Rampa Senior Associate B.Tech., PGD 31 28.05.2001 297. N. S. Rama Business Manager B.E. 52 31.03.1999 298. Ramachandran Kallankara Delivery Excellence Manager B.Tech., PGD 39 10.05.1993 299. U. Ramadas Kamath Associate Vice President - BBM, CA 41 01.07.1994 Accounts & Administration 300. P. Ramamurthy Manager & Head Customer B.E., M.E. 34 04.09.1992 Relationship Management Implementation - Banking Business Unit *301. Ramesh Kannan Business Development Manager B.Tech. 30 09.05.2001 302. Ramesh M. Adkoli Divisional Manager B.Sc. (Applied), MCA 42 17.06.1991 303. Rangarajan Padmanabhan Regional Manager - Banking M.Sc., PGD 33 21.08.1996 Business Unit *304. S. Rangarathnam Manager - Network Services - B.Sc., B.E. 47 15.02.1993 Computers & Communications Division *305. Raquel Vargas Sales Administrator BBA 29 07.08.2001 306. C. Ravi Associate Vice President - B.E. 36 02.05.1988 Head - Development Center, Mysore *307. Ravi Jagannatha Account Manager B.E. 33 17.09.2001 308. Ravi Kumar Shelvankar Business Development Manager B.E., MS 33 02.01.1997 *309. Ravindra Muthya Pranesha Rao Vice President - Education & Research B.Sc., M.Sc., Ph.D. 54 13.08.2001 310. M. R. Ravishankar Business Manager B.E., M.E. 36 16.01.1998 *311. Reggie Koshy George Account Manager B.Sc., MCA 35 04.02.2002 312. Ribhu Kansal Project Manager B.E., PGD 28 10.05.1999 *313. Richard Joseph Kacheroski Software Engineer BBA 26 25.06.2001 *314. Richard Neil Gustafson Resident Project Manager B.A. 29 07.01.2002 315. Ritesh Mohan Idnani Business Development Manager B.Com., MBA 29 01.10.1999 *316. Rohit Bhanot Business Development Manager B.Sc. Engg, MBA 29 04.12.2001 *317. Rohit Khanna Business Development Manager B.Com., MBA, MCA 39 06.03.2002 318. Romit Dey Business Development Manager B.Sc., MBA 30 03.10.2000 *319. Roopesh Joshi Senior Technical Architect B.E., M.Tech. 41 03.10.2001 320. Rupali Saluja Associate B.E., PGD 27 25.09.2000 *321. Rushil Raj Shakya Software Engineer B.Sc. 25 25.06.2001 *322. Sachin Kuchhal Project Manager B.E., PGD 29 16.04.2001 323. Sajan Verghis Mathew Delivery Manager B.E. 36 21.07.1991 324. Sam Ho Software Developer BSCH 27 06.11.2000 325. Samir Agrawal Associate B.Tech., PGD 30 24.03.2000
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ---------- ------------------ --------------------------------- 279. Priti Jay Rao 21 15,74,354 L & T Ltd., Heading Software Development Centre 280. V. S. Purushottam 8 43,88,339 LG Commerz Now Pvt. Ltd., Head - Strategy & Consulting *281. Rachna S. Korhonen 11 16,63,371 Consultancy Services (Self), Consultant, International Strategy 282. Raghunath Basavanahalli 14 50,37,608 HCL Technologies America Inc., Account Manager 283. Raghupathi N. Cavale 17 14,93,965 PricewaterhouseCoopers, SAP Consultant 284. Rahul Madhav Godbole 11 62,99,455 Infrastructure Leasing & Financial Services Ltd., Senior Manager 285. Rahul Shantaram Deo 10 53,83,559 NIIT Limited, Group Consultant *286. Rahul Sharma 5 23,64,123 Dell Computer Corporation, Operations Consulting Practicum *287. Raja Narasimhan 18 4,43,092 American Express Bank Ltd., Development Leader 288. K. S. Rajasekaran 18 13,25,115 - *289. Rajat Jain 13 45,56,093 Asera, Engagement Manager *290. Rajeev Minocha 14 1,14,401 Prefetti India Limited, Managing Director *291. Rajesh K. Renganathan 7 25,97,815 DLP Direct - Pershing Technology Group, Senior Programmer *292. Rajesh Krishnan 14 14,58,524 Cambridge Technology Partners, Senior Management Consultant 293. Rajeswari Palaniappan 13 37,55,831 Complete Business Solutions Inc., Manager 294. Rajiv Kuchhal 16 14,75,064 Telecommunications Consultants India Ltd., Engineer 295. Raju Bannur 13 13,89,710 IMR Global, Group Manager *296. Raju Nooka Rampa 8 22,65,855 PricewaterhouseCoopers, Principal Consultant 297. N. S. Rama 31 14,32,413 Satyam Computer Services, Consultant 298. Ramachandran Kallankara 15 12,51,458 Canbank Financial Services, Project Executive 299. U. Ramadas Kamath 17 13,50,633 Manipal Printers & Publishers Ltd., Accountant 300. P. Ramamurthy 11 12,15,405 National Infomatics Centre, Systems Analyst *301. Ramesh Kannan 9 30,46,432 Cygnet Software Limited, Manager - Sales 302. Ramesh M. Adkoli 17 48,54,321 Ballarpur Industries Ltd., Production Incharge 303. Rangarajan Padmanabhan 11 13,20,675 Wipro Infotech, Manager *304. S. Rangarathnam 24 5,43,386 Fidelity Computers, Software Engineer *305. Raquel Vargas 7 10,29,633 Ramco Systems, Consultant 306. C. Ravi 14 14,03,742 - *307. Ravi Jagannatha 10 20,21,114 i2 Technologies, Senior Solutions Consultant Supporting Prod.Mgmt. 308. Ravi Kumar Shelvankar 9 68,10,504 ITW Signode Ltd, Senior Executive - Sales *309. Ravindra Muthya Pranesha Rao 28 10,96,785 HCL Technologies, Head - Sdc & Vice President 310. M. R. Ravishankar 14 12,75,667 TCS, Associate Consultant *311. Reggie Koshy George 11 5,90,048 IBM GSA, Project Manager 312. Ribhu Kansal 5 25,97,743 NIIT Ltd., Senior Systems Associate *313. Richard Joseph Kacheroski 1 25,44,937 - *314. Richard Neil Gustafson 6 8,25,401 Bitcyber Group, Lead Consultant 315. Ritesh Mohan Idnani 7 68,46,239 PricewaterhouseCoopers, Senior Consultant *316. Rohit Bhanot 6 11,13,768 Mckinsey & Company, Senior Associate *317. Rohit Khanna 15 2,86,214 BA Port Technologies Inc., Advisor/Consultant 318. Romit Dey 8 54,88,367 PricewaterhouseCoopers, Principal Consultant *319. Roopesh Joshi 9 20,92,930 OSI Consulting Inc., Consultant 320. Rupali Saluja 4 26,12,393 Ernst Young Consulting India Ltd., Senior Consultant *321. Rushil Raj Shakya 1 25,08,981 - *322. Sachin Kuchhal 5 12,50,400 American Express Technologies, Team Leader 323. Sajan Verghis Mathew 14 14,98,196 Radio Craft (P) Ltd, Software Engineer 324. Sam Ho 5 21,46,335 Aim Funds Management Inc., Senior Software Developer 325. Samir Agrawal 7 44,27,826 A. T. Kearney, Associate
35 Annexure to the directors' report (contd.)
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- *326. Samir Bali Senior Principal B.A.(H), LLB, PGD 37 28.08.2000 *327. Samuel Hoi Ming Chan Software Developer B.Sc. 25 15.01.2001 328. Sanat Rao Senior Manager And Head Business B.Com., PGD 37 20.12.1999 Consulting Group - Banking Business Unit 329. Sandeep Chadha Project Manager B.Tech 34 15.02.2001 330. Sandeep Deepak Dadlani Business Development Manager B.E., MMS 27 15.01.2001 *331. Sandeep Kale Programmer Analyst B.E. 29 05.09.2001 332. Sandeep Saxena Programmer Analyst B.Tech., PGD 27 03.05.2000 333. Sandeep Srivastava Business Manager B.Tech. 37 10.05.1999 *334. Sanjay Bhargava Business Development Manager B.Tech., MBA 44 08.08.2001 335. Sanjay Dalwani Business Development Manager B.E., PGD 34 08.12.2000 336. Sanjay Dutt Business Development Manager B.Tech(H), PGD 33 20.12.1999 *337. Sanjay Joshi Chief Marketing Officer B.Tech., M.Sc., MMS 38 14.05.2001 338. Sanjay Khanduri Business Development Manager B.Tech., PGD 30 30.11.2000 339. Sanjay Mohan Principal B.Sc., PGD, M.E. 34 30.10.2000 340. Sanjay Pathak Technical Architect B.Tech., M.Tech., PHD 32 13.12.2000 341. Sanjay Purohit Senior Manager - Corporate B.E. 35 27.12.2000 Services Group - Quality & Productivity, Secretary - Management Council 342. Sanjay Viswanathan Business Development Manager B.A., Diploma, MBA, PGD 32 06.10.2000 343. V. R. Sanjeev Business Manager B.E., PGD 44 12.02.1998 344. Sarojendu Majumdar Business Support Manager M.Sc. 45 30.10.2000 *345. Sasmita Mohapatra Programmer Analyst B.E. 27 03.07.2000 346. B. K. Sathisha Business Development Manager B.E., M.E. 33 05.01.1998 *347. Satish G. Bableshwar Business Manager B.E. 34 23.06.1988 348. Satrajit Pal Account Manager B.E. 32 12.03.2001 349. Satyendra Kumar Vice President - Quality & Productivity B.Sch., M.Sc. 48 27.09.2000 350. Saumitra Madhukar Bhide Business Development Manager B.Sc. Engg, M.A., MBA 32 09.03.2001 351. Savio D'Souza Account Manager B.Sc., MCA 32 23.06.1992 *352. Scott Jostes Principal BBA 35 11.02.2002 353. Seshadri Bhoovaraghan Programmer Analyst B.E. 28 04.12.2000 354. Seshadri Parthasarathy Resident Project Manager B.Tech. 30 18.12.2000 355. P. Seshan Business Manager B.E.(H), PGD 41 02.11.1990 *356. Seth Van Winkle Principal BBA, MBA 33 03.12.2001 357. Shailendra Jha Business Manager B.E.(H) 41 01.12.2000 358. Shailesh Joshi Account Manager B.E. 43 18.12.2000 *359. Shaji Farooq Senior Principal B.Tech., MBA, Ph.D. 40 04.02.2002 *360. Sharad K. Hegde Senior Vice President - Banking B.Tech, PGD 43 01.07.1983 Business Unit 361. Shashidhar B. Project Manager B.E. 31 14.02.2001 Ramakrishnaiah *362. Shashikala Sivapragasam Software Developer B.Sc. 23 22.05.2001 363. S. D. Shibulal Director and Head - Customer Delivery B.Sc., M.Sc., MS 47 01.09.1981 364. Shirish Agnihotri Business Manager B.Sc. Engg, M.Sc. 47 24.01.2001 365. N. Shiv Shankar Associate Vice President - B.Tech. 40 04.08.1999 Head - Development Center, Chennai *366. Shivendra Kumar Group Client Relations Manager B.Tech., M.Tech 49 08.11.2001 367. V. Shubha Delivery Manager B.E. 42 02.08.2000 368. Shveta Arora Senior Associate B.E., PGD 29 07.02.2000 369. Sion (Xiao) Peng Software Developer B.Sc. 29 15.01.2001 370. N. S. Siva Kumar Business Development Manager B.Com. 34 14.04.1997 371. J. Sivashankar Associate Vice President - B.Tech., MMS 42 22.01.1999 Information Systems 372. Snigdha Mitra Delivery Manager B.Sc., M.Sc., PGD 46 19.10.2000
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ---------- ------------------ --------------------------------- *326. Samir Bali 13 19,10,000 Coopers Lybrand, Principal Consultant *327. Samuel Hoi Ming Chan 1 7,56,899 - 328. Sanat Rao 11 13,21,923 Citicorp Information Technology Ltd, Consultant - Data Warehousing Unit 329. Sandeep Chadha 14 50,44,119 Lockheed Martin Ims, Project Leader 330. Sandeep Deepak Dadlani 5 32,45,461 Citibank, Product Manager - Cash Management *331. Sandeep Kale 7 15,62,435 Patni Computer Systems, Software Engineer 332. Sandeep Saxena 4 25,90,321 Indian Oil Corpn. Ltd., Aviation Officer 333. Sandeep Srivastava 15 15,25,943 Satyam Computer Services Ltd., Senior Consultant *334. Sanjay Bhargava 21 35,48,350 Paypal Inc., VP - International Payments 335. Sanjay Dalwani 12 48,28,822 HCL Technologies America Inc., Account Manager 336. Sanjay Dutt 11 66,17,077 A. T. Kearney Limited, Manager - Strategy & Re-Engg. *337. Sanjay Joshi 13 89,29,632 Freightwise Inc., Chief Marketing Officer 338. Sanjay Khanduri 6 38,77,061 Citibank, Asst. Manager 339. Sanjay Mohan 8 62,57,822 CAP Gemini America Inc., Principal Consultant 340. Sanjay Pathak 9 31,80,122 US Interactive, Senior Systems Architect 341. Sanjay Purohit 12 13,31,511 Tata Quality Management Services, Senior Consultant 342. Sanjay Viswanathan 10 51,59,520 Hinduja Group Worldwide, Vice President Business Development 343. V. R. Sanjeev 21 12,04,431 C-Dot, Divisional Manager 344. Sarojendu Majumdar 22 51,20,153 British Telecom, Integration Manager *345. Sasmita Mohapatra 7 9,73,273 Secor Consulting Ltd., Consultant 346. B. K. Sathisha 12 85,95,624 Larsen & Toubro, Planning *347. Satish G. Bableshwar 14 12,43,461 - 348. Satrajit Pal 12 44,35,505 RS Software, Project Manager & Technical Consultant 349. Satyendra Kumar 26 21,29,849 IMR Global, Vice President 350. Saumitra Madhukar Bhide 7 39,27,658 PricewaterhouseCoopers, Consultant - Senior Consultant Level 351. Savio D'Souza 10 12,11,355 - *352. Scott Jostes 11 7,95,849 Arthur Anderson LLP, Senior Manager 353. Seshadri Bhoovaraghan 8 35,34,487 Sabre Inc., Senior Consultant 354. Seshadri Parthasarathy 10 31,77,676 CAT, Consultant 355. P. Seshan 19 12,80,419 Stanford Business Software India Pvt. Ltd., Senior Programmer *356. Seth Van Winkle 6 21,30,844 Accenture, Strategy Practice Senior Manager 357. Shailendra Jha 20 12,61,613 Zensar Technologies Ltd., General Manager 358. Shailesh Joshi 19 33,63,945 GE Global Exchange Service, Senior Project Manager Extranet Development *359. Shaji Farooq 14 11,30,768 Diamond Cluster International Inc., Principal *360. Sharad K. Hegde 21 13,20,267 Patni Computer Systems Pvt. Ltd., Software Engineer Trainee 361. Shashidhar B. 9 44,72,838 Mediaserv Information Architects Inc., Sr. Solutions Consultant Ramakrishnaiah *362. Shashikala Sivapragasam 1 14,99,697 - 363. S. D. Shibulal 26 18,71,189 Sun Micro Systems, Sr. I. R. Manager 364. Shirish Agnihotri 18 61,00,024 MCK Comm. Inc., Calgary, Director - Product Management 365. N. Shiv Shankar 20 16,81,333 PRT, Senior Manager *366. Shivendra Kumar 25 21,81,172 Punj Lloyd Inc., President 367. V. Shubha 21 14,32,958 Bosch, Senior Project Manager 368. Shveta Arora 6 49,80,866 A. T. Kearney, Associate 369. Sion (Xiao) Peng 4 15,93,453 Fuzhou TV station, News reporter 370. N. S. Siva Kumar 14 31,06,121 JK Technosoft, Country Manager - Products 371. J. Sivashankar 18 14,56,643 Anuvin Business Solutions, Director 372. Snigdha Mitra 22 15,25,713 ADP Inc., Project Manager
36 Annexure to the directors' report (contd.)
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- *373. P. R. Sobha Meera Regional Manager and B.E., PGD 34 12.04.1995 Associate Vice President - Sales *374. Sohel Aziz Senior Technical Architect B.Sc., MBA 30 01.11.2001 375. Sohrab Peshoton Kakalia Principal Architect B.Sc., B.Sc. Engg. 37 11.09.2000 *376. Sonal Kapoor Software Engineer B.A. 22 25.06.2001 377. Sourish Chaudhuri Program Manager B.E., PGD 30 31.01.2001 378. Sreenivas Bhashyam Asuri Business Development Manager B.E. 34 04.12.2000 *379. Sreenivas Gunturi Business Manager B.E., M.Tech. 39 18.02.1998 380. Srikantan Moorthy Delivery Manager B.E. 39 07.12.2000 381. S. Srikanth Senior Associate B.E., PGD 30 11.10.1999 382. Srinath Batni Director and Head - Delivery B.E., M.E 47 15.06.1992 (West North America) 383. Srinath Kashyap Business Development Manager B.E. 36 04.12.1997 384. P. Srinath Business Development Manager B.Tech., PGD 32 23.11.1998 385. B. G. Srinivas Associate Vice President - Delivery B.E. 41 03.05.1999 (Enterprise Solutions) 386. C. S. Srinivas Business Manager B.E. 45 15.10.1998 387. V. Srinivas Business Development Manager B.Tech.(H), PGD 32 03.06.1996 388. Srinivasan Raghavan Business Development Manager B.E. 34 01.12.1997 389. Srinivasan Raghavan Delivery Manager B.E. 43 23.06.2000 390. Srinivasaraghavan Business Manager B.Tech., M.Tech., Ph.D. 40 02.11.1999 Gopalakrishnan 391. Srinjay Sengupta Regional Manager and BSCH, PGD 34 01.07.1996 Associate Vice President - Sales 392. V. Sriram Regional Manager and B.E., PGD 37 03.01.1997 Associate Vice President - Sales *393. Srividhya Ramakrishnan Business Development Manager B.Sc., PGD 30 03.04.2000 *394. Subbaraya M. Sastry Business Support Manager B.Tech., PGD 42 13.04.1995 395. Subhash B. Dhar Regional Manager and B.E., PGD 35 24.02.1997 Associate Vice President - Sales 396. G. V. Subramanyam Associate Vice President - Software B.E. 35 15.06.1988 Engineering & Technology Labs *397. Suchitra Eswaran Marketing Analyst B.Com., MBA 25 15.01.2001 398. Sudhanshu Asthana Programmer Analyst B.Sc., MS, MCA 35 01.03.2001 399. Sudhir Albuquerque Delivery Manager B.E. 33 01.10.1990 400. Sudhir Chaturvedi Business Development Manager B.E., PGD, MBA 32 15.05.2000 *401. Sudhir Singh Business Development Manager B.Tech., PGD 30 02.07.2001 402. Sudhir Subramanya Holla Senior Associate B.E., PGD 31 10.11.1999 403. Sudip Singh Business Development Manager B.Tech., PGD 29 12.06.2000 404. Sudipta Mitra Associate BBA, MBA 29 08.01.2001 *405. Sukruthi Mohan Project Manager B.E. 29 18.06.2001 406. K. Sundar Raman Delivery Manager B.Tech. 42 22.01.1996 407. Sunil Talloo Program Manager BSCH, MBM, MCA 35 11.01.2001 408. Suranjan Pramanik Senior Associate B.Tech., PGD 33 05.06.2000 409. J. K. Suresh Group Manager - Education & Research B.Tech., MS, Ph.D. 42 27.07.1998 410. Suresh Rajappa Project Manager B.E. 31 05.03.2001 411. K. Surya Prakash Senior Project Manager B.E. 33 23.07.1990 412. Sven Andersen Norgaard Software Engineer B.A. 24 22.01.2001 413. Swaroop Krishna Software Developer B.E. 33 31.07.2000 *414. Sylvia Quiroga Principal BBA, MBA 35 13.06.2001 415. Sze Kit Lo Software Developer B.Sc., MS 28 21.08.2000 *416. Terence Lincoln Hook Group Client Relations Manager BBA 44 05.11.2001 417. Terence Wong Software Developer B.E. 26 20.11.2000 *418. Thirumalaisamy Dhandaydham Project Manager B.Sc., MCA 37 27.04.2001 419. Thothathri Visvanathan Delivery Manager B.E. 39 06.07.2000
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ---------- ------------------ --------------------------------- *373. P. R. Sobha Meera 11 1,20,49,896 Sonata Software, Marketing Executive *374. Sohel Aziz 8 18,42,911 Q Corporation, Strategy Consultant 375. Sohrab Peshoton Kakalia 14 59,12,596 PSI Data Systems Ltd., Manager - Business Unit *376. Sonal Kapoor 1 22,60,294 - 377. Sourish Chaudhuri 7 17,07,492 Asian Paints (I) Ltd., Manager - Systems Dev. 378. Sreenivas Bhashyam Asuri 11 36,41,980 Autodesk, Industry Manager *379. Sreenivas Gunturi 17 5,67,153 IBM Global Services, Project Manager 380. Srikantan Moorthy 17 12,39,719 Inventa Corporation, General Manager 381. S. Srikanth 7 55,25,184 Pricewaterhouse, Consultant 382. Srinath Batni 24 17,72,625 PSI Bull (I) Ltd., Senior Manager Marketing Technical Support 383. Srinath Kashyap 13 56,77,848 TCS, Sales - Associate Consultant 384. P. Srinath 8 66,68,703 Citibank N. A., Manager 385. B. G. Srinivas 17 15,78,427 Asea Brown Boveri, Manager ERP 386. C. S. Srinivas 20 14,60,425 Tektronics, Manager - India Engineering 387. V. Srinivas 8 76,55,040 IDM, Marketing Executive 388. Srinivasan Raghavan 13 63,50,731 ABB, Project Manager 389. Srinivasan Raghavan 21 15,63,928 Tata Infotech Ltd., Group Manager 390. Srinivasaraghavan 11 12,13,768 Peritus Software Services, Program Manager Gopalakrishnan 391. Srinjay Sengupta 11 1,07,37,086 Procter & Gamble, Manager 392. V. Sriram 14 75,37,132 Wipro, Business Person *393. Srividhya Ramakrishnan 7 47,35,334 Asian Paints (I) Ltd, Product Executive, Branch Executive *394. Subbaraya M. Sastry 18 5,25,346 Verifone, Manager - MIS Development 395. Subhash B. Dhar 13 66,01,631 Ravi Database Consul, VP Marketing 396. G. V. Subramanyam 14 12,56,244 - *397. Suchitra Eswaran 4 23,24,199 Hutchinson Max Telecom, Sales Officer 398. Sudhanshu Asthana 6 31,99,654 Preis24.Com AG., Trainee 399. Sudhir Albuquerque 12 13,97,124 - 400. Sudhir Chaturvedi 7 59,27,016 Ernst & Young UK Ltd., Senior Business Analyst *401. Sudhir Singh 7 22,19,059 Hindustan Lever Ltd., Senior Brand Manager 402. Sudhir Subramanya Holla 8 57,37,759 Andersen Consulting, Senior Consultant 403. Sudip Singh 6 36,79,116 Tata Administrative Services, Associate Manager 404. Sudipta Mitra 4 32,46,083 Anderson Consulting, Consultant *405. Sukruthi Mohan 7 22,26,737 Merrill Lynch, Client Bookkeeping System, Senior Programmer/Analyst 406. K. Sundar Raman 20 12,07,986 Indian Organic Chemi, Manager 407. Sunil Talloo 10 47,75,593 Cambridge Technology Partners, Associate Director - 2 408. Suranjan Pramanik 11 50,01,795 Ernst & Young Consulting India Pvt. Ltd., Senior Consultant 409. J. K. Suresh 19 12,07,265 ADA, Dy. Project Director 410. Suresh Rajappa 6 31,55,511 C. S. Solutions Inc., Analyst/IT Consultant 411. K. Surya Prakash 12 12,48,859 - 412. Sven Andersen Norgaard 6 27,12,009 Oral B laboratories, Information Technology Intern 413. Swaroop Krishna 7 19,01,052 CGI Group Inc., Programmer *414. Sylvia Quiroga 12 51,24,323 Dell Computer Corporation, Program Strategist/Project Manager 415. Sze Kit Lo 4 17,11,732 Philips Electronics - Advance Transformer, Design Engineer II *416. Terence Lincoln Hook 11 23,35,810 Satyam Europe, Vice President And Sales Director 417. Terence Wong 3 17,46,701 The Peer Group, Software Developer *418. Thirumalaisamy Dhandaydham 14 47,05,529 Intelligroup, Senior Consultant 419. Thothathri Visvanathan 16 14,30,600 CSAI, Senior Consultant
37 Annexure to the directors' report (contd.)
Sl. Age Date of No. Name Designation Qualification (Years) Joining --- ---- ----------- ------------- ------- ------- *420. Tim Miner Associate Vice President B.E. 42 30.07.2001 421. Todd A. MacCallum Business Development Manager B.A., MBA 32 22.01.2001 *422. Toi Hanna Sales Administrator PUC 27 13.07.2001 *423. Tom (Jia-Cheng) Lin Software Engineer B.Sc. 22 25.06.2001 *424. Too Hui Swan (Josephine) Business Development Manager B.E. 27 30.04.2001 *425. Toshifumi Katsuya Resident Project Manager B.A. 42 07.01.2002 *426. Toshikazu Tamada Group Client Relations Manager Blaws 47 18.02.2002 427. Tulika Misra Programmer Analyst B.Tech. 27 10.11.1997 *428. Tyler Halt Ladner Software Engineer B.Sc. 23 25.06.2001 429. Uday Bhaskarwar Delivery Manager B.Tech. 31 22.06.1992 *430. Upendra Kohli Business Development Manager B.E., MBA 32 18.06.2001 *431. Usha Sampath Delivery Manager B.E.(H) 40 02.08.2000 *432. Venkatakrishnan Project Manager B.E. 31 23.04.2001 Venkataraman *433. Venkatesh Srinivasan Principal B.Com., ICWA, ACA 31 21.08.2000 434. Venkateswarlu Pallapothu Delivery Manager B.E., M.Tech. 41 29.03.1999 435. Victoria Shea Manager - HRD B.A. 34 05.04.2000 *436. C. Vijay Kumar Associate Vice President - B.E., PGD 39 03.11.1987 Infrastructure Development 437. Vijay Ratnaparkhe Business Manager B.E., M.Tech. 37 11.05.1998 438. V. Vinayak Pai Senior Manager - Finance B.Com., CA 31 03.04.1995 439. Vineet Toshniwal Business Development Manager B.E., MBA 30 19.06.2000 440. Vivek Bhatnagar Business Development Manager B.E., PGD, MS 33 03.07.2000 441. M. K. Vivekanand Account Manager B.E. 33 25.10.2000 *442. Wasifur Rahman Senior Principal M.Sc., M.A. (Honours) 37 22.01.2002 *443. Wee Hung Chong Software Developer B.Sc. 24 13.08.2001 *444. Wei Wei Cao Group Client Relations Manager B.E., M.Sc. 34 15.10.2001 445. Yanet Garcia Administrative Assistant B.A.(H) 29 25.05.2000 *446. Yannis Gikas Business Development Manager B.A., MBA 29 04.05.2001 447. Yashesh Mahendra Kampani Principal B.Com., Graduate CWA, ACA 31 11.09.2000 448. Yezdi M. Mehta Business Development Manager B.Com., MBA 36 21.11.1997 449. Ying (Karen) Li Software Developer B.Sc. 22 08.05.2000 450. Ying Wang Software Developer B.Sc. 25 21.08.2000 451. Yosra Amer Software Developer BSCH 24 21.08.2000 *452. Zach Altmix Simmons Software Engineer BBA 23 25.06.2001
Sl. Experience Gross No. Name (Years) Remuneration (Rs.) Previous Employment - Designation --- ---- ---------- ------------------ --------------------------------- *420. Tim Miner 16 59,10,734 Marchfirst Laguna Hills Practice, Managing Partner & Chief Strategist 421. Todd A. MacCallum 10 56,68,416 Reylon Technology Inc., Business Development Executive *422. Toi Hanna 1 12,36,725 Layerone Inc., Executive Assistant *423. Tom (Jia-Cheng) Lin 1 25,08,981 - *424. Too Hui Swan (Josephine) 4 23,98,823 Scient International Pte Ltd., Business Analyst (Senior) *425. Toshifumi Katsuya 19 11,10,275 Reasoning Software K.K., Technical Support Manager *426. Toshikazu Tamada 24 6,49,037 Sprint International, Managing Director, President 427. Tulika Misra 5 28,54,916 Tata Consultancy Services, Assistant Systems Analyst Trainee *428. Tyler Halt Ladner 1 27,34,982 - 429. Uday Bhaskarwar 10 13,02,833 - *430. Upendra Kohli 10 22,41,556 Ericsson Hewlett Packard Telecommunications, Business Manager *431. Usha Sampath 18 2,91,879 BOSCH, Senior Manager *432. Venkatakrishnan 9 25,81,548 Tata Consultancy Services, Project Manager Venkataraman *433. Venkatesh Srinivasan 11 1,53,182 Arthur Andersen, Experienced Manager 434. Venkateswarlu Pallapothu 18 15,64,962 Tata Consultancy Services, Senior Consultant 435. Victoria Shea 14 20,56,439 EDS System House, Staffing Specialist *436. C. Vijay Kumar 14 7,11,761 - 437. Vijay Ratnaparkhe 14 13,13,814 COSL, Consultant 438. V. Vinayak Pai 10 14,25,688 Sajawat Industries Ltd., Chief Accountant 439. Vineet Toshniwal 7 48,18,281 Bank Of America, Assistant Vice President 440. Vivek Bhatnagar 9 50,23,358 Andersen Consulting, Senior Consultant 441. M. K. Vivekanand 11 54,95,153 HCL Technologies, Business Development Manager *442. Wasifur Rahman 14 20,48,450 Scient, Director Of Strategy Consulting/Client Director *443. Wee Hung Chong 1 10,65,066 - *444. Wei Wei Cao 13 16,96,094 Nuance Communications, Channel Manager 445. Yanet Garcia 5 12,98,413 California Staffing Services, Admin. Assistant/Receptionist *446. Yannis Gikas 5 36,68,970 Andersen Consulting S. A., Business Consultant 447. Yashesh Mahendra Kampani 7 65,64,591 PricewaterhouseCoopers, Manager 448. Yezdi M. Mehta 12 79,57,253 Dictaphone Corporation, Manager - Systems Marketing 449. Ying (Karen) Li 2 16,47,486 Dept. of Economics, University of Toronto, Database Design & Maintenance 450. Ying Wang 2 16,47,486 - 451. Yosra Amer 2 16,91,504 - *452. Zach Altmix Simmons 1 25,08,981 -
* Employed for part of the year. Notes: Remuneration comprises basic salary, allowances and taxable value of perquisites. None of the employees is related to any director of the company None of the employees owns more than 1% of the outstanding shares of the company as on March 31, 2002. For and on behalf of the board of directors /s/ NANDAN M. NILEKANI /s/ N. R. NARAYANA MURTHY Nandan M. Nilekani N. R. Narayana Murthy Chief Executive Officer, President and Chairman and Chief Mentor Managing Director Bangalore April 10, 2002 38 Annexure to the directors' report (contd.) c) The directors' responsibility statement as required under section 217 (2AA) of the Companies (Amendment) Act, 2000 The financial statements are prepared in conformity with the accounting standards issued by the Institute of Chartered Accountants of India and the requirements of the Companies Act, 1956, to the extent applicable to the company; on the historical cost convention; as a going concern and on the accrual basis. There are no material departures from prescribed accounting standards in the adoption of the accounting standards. The accounting policies used in the preparation of the financial statements have been consistently applied, except where otherwise stated in the notes on accounts. The board of directors and the management of your company accept responsibility for the integrity and objectivity of these financial statements. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the form and substance of transactions, and reasonably present the company's state of affairs and profits for the year. To ensure this, the company has taken proper and sufficient care in installing a system of internal control and accounting records; for safeguarding assets, and, for preventing and detecting frauds as well as other irregularities; which is reviewed, evaluated and updated on an ongoing basis. Our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the company have been followed. However, there are inherent limitations that should be recognized in weighing the assurances provided by any system of internal controls and accounts. The financial statements have been audited by Bharat S Raut & Co., Chartered Accountants, and the independent auditors. The audit committee of your company meets periodically with the internal auditors and the independent auditors to review the manner in which the auditors are performing their responsibilities, and to discuss auditing, internal control and financial reporting issues. To ensure complete independence, the independent auditors and the internal auditors have full and free access to the members of the audit committee to discuss any matter of substance. For and on behalf of the board of directors /s/ NANDAN M. NILEKANI Bangalore Nandan M. Nilekani April 10, 2002 Chief Executive Officer, President and Managing Director /s/ N. R. NARAYANA MURTHY N. R. Narayana Murthy Chairman and Chief Mentor d) Auditors' certificate on compliance with mandatory recommendations of Kumar Mangalam Birla Committee Report on Corporate Governance We have examined the relevant records of Infosys Technologies Limited (the company) for the year ended March 31, 2002 relating to compliance with the requirements of corporate governance as contained in clause 49 of the listing agreement of the company with the National Stock Exchange, Stock Exchange, Mumbai and Bangalore Stock Exchange and state that in our opinion, and to the best of our knowledge and according to the information and explanations given to us, the company has complied with the mandatory requirements contained in the aforesaid clause 49. for Bharat S Raut & Co. Chartered Accountants /s/ S. BALASUBRAHMANYAM Bangalore S. Balasubrahmanyam April 10, 2002 Partner 39 Selective financial data
in Rs. crore except per share data, other information and ratios --------------------------------------------------------------------------------------------------- Particulars 1981-82 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002 ------- -------- -------- -------- -------- -------- -------- --------- --------- --------- For the year Revenue 0.12 28.90 55.42 88.56 139.21 257.66 508.89 882.32 1,900.56 2,603.59 Operating profit (PBIDT) -- 8.52 17.58 31.37 46.79 85.90 201.63 346.57 764.84 1,037.63 Interest -- 0.05 -- -- 0.61 -- -- -- -- -- Depreciation -- 0.81 4.60 8.63 10.52 22.75 35.89 53.23 112.89 160.65 Provision for taxation -- 0.76 1.94 4.31 5.25 5.50 22.94 39.70 72.71 135.43 Profit after tax from ordinary activities 0.04 8.09 13.32 21.01 33.68 60.36 132.92 285.95 623.32 807.96 Dividend -- 1.17 2.31 3.63 3.99 7.03 12.11 29.76 66.15 132.36 Return on average networth (%) 96.88 39.61 29.71 29.53 34.96 42.24 54.16 40.63 56.08 46.57 Return on average capital employed (PBIT / average capital employed) (%) 96.88 43.14 31.79 33.12 40.16 46.09 63.51 46.27 62.62 54.37 As at the end of the year Share capital -- 3.35 7.26 7.26 7.26 16.02 33.07 33.08 33.08 33.09 Reserves and surplus 0.04 25.35 55.20 72.58 105.58 156.94 541.36 800.23 1,356.56 2,047.22 Loan funds -- -- 6.34 4.26 -- -- -- -- -- -- Gross block -- 8.27 25.32 46.86 71.29 105.14 168.92 284.03 631.14 960.60 Capital investment -- 7.13 25.23 15.55 27.31 34.41 71.68 159.87 463.35 322.74 Net current assets 0.06 13.94 32.47 41.17 54.20 97.23 472.96 612.13 797.86 1,293.41 Debt-equity ratio -- -- 0.10 0.05 -- -- -- -- -- -- Market capitalization NA 191.02 348.42 355.67 731.04 2,963.42 9,672.80 59,338.17 26,926.35 24,654.33 Per share data Basic earnings from ordinary activities (Rs.) -- 1.22 2.01 3.18 5.09 9.13 20.71 43.23 94.23 122.12 Dividend per share (Rs.)* -- 1.75 2.25 2.50 2.75 3.00 3.75 4.50 10.00 20.00 Book value (Rs.) -- 4.34 9.44 12.07 17.06 26.15 86.84 125.97 210.05 314.31 Other information Number of shareholders 7 6,033 6,526 6,909 6,414 6,622 9,527 46,314 89,643 88,650 Credit rating from CRISIL Commercial paper -- -- "P1+" "P1+" "P1+" "P1+" "P1+" "P1+" "P1+" "P1+" Non-convertible debentures -- -- "AA" "AA" "AA" "AA" "AA" "AA" "AAA" "AAA" ----- -------- -------- -------- -------- -------- -------- --------- --------- ---------
* Calculated on a per share basis, not adjusted for bonus issues in previous years. Note: The above figures are based on Indian GAAP. 40 Selective financial data [GRAPH]
1996 1997 1998 1999 2000 2001 2002 ------ ------ -------- -------- --------- --------- --------- in Rs. crore Revenue 88.56 139.21 257.66 508.89 882.32 1,900.56 2,603.59
[GRAPH]
1996 1997 1998 1999 2000 2001 2002 ------ ------ -------- -------- --------- --------- --------- in Rs. crore Operating profit 31.37 46.79 85.90 201.63 346.57 764.84 1,037.63
[GRAPH]
1996 1997 1998 1999 2000 2001 2002 ------ ------ -------- -------- --------- --------- --------- in Rs. crore Profit after tax from ordinary activities 21.01 33.68 60.36 132.92 285.95 623.32 807.96
[GRAPH]
1996 1997 1998 1999 2000 2001 2002 ------ ------ -------- -------- --------- --------- --------- in Rs. crore Market capitalization 355.67 731.04 2,963.42 9,672.80 59,338.17 26,962.35 24,654.33
[GRAPH]
1996 1997 1998 1999 2000 2001 2002 ------ ------ -------- -------- --------- --------- --------- in Rs. Earnings per share from ordinary activities 3.18 5.09 9.13 20.71 43.23 94.23 122.12
[GRAPH]
1996 1997 1998 1999 2000 2001 2002 ------ ------ -------- -------- --------- --------- --------- in Rs. Book value 12.07 17.06 26.15 86.84 125.97 210.05 314.31
41 Management's discussion and analysis of financial condition and results of operations Overview The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, and Generally Accepted Accounting Principles (GAAP) in India. There are no material departures from prescribed accounting standards in the adoption of the accounting standards. The management of Infosys accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the form and substance of transactions, and reasonably present the company's state of affairs and profits for the year. A. Financial condition 1. Share capital
Year ended March 31 2002 2001 ------------------- ----------------------- ----------------------- Nos. Rs. crore Nos. Rs. crore ----------- --------- ----------- --------- Balance at the beginning of the fiscal year 6,61,58,117 33.08 6,61,50,700 33.08 Shares issued during the year upon conversion of: - options issued under 1998 plan 27,983 0.01 6,217 -- - options issued under 1999 plan 30 -- 1,200 -- Balance at the end of the fiscal year 6,61,86,130 33.09 6,61,58,117 33.08 Add: Forfeited shares -- -- -- -- ----------- ------ ----------- ------ Total 6,61,86,130 33.09 6,61,58,117 33.08 ----------- ------ ----------- ------
At present, the company has only one class of shares - equity share of Rs. 5 each, par value. The authorized share capital of the company is Rs. 50 crore divided into 10 crore equity shares of Rs. 5. During the year, 14 employees exercised 55,966 ADSs (equivalent to 27,983 equity shares of par value of Rs. 5 each) issued under the 1998 Stock Option Plan. Also, during the year, one employee exercised 30 equity shares issued under the 1999 Stock Option Plan. Consequently, the issued, subscribed and outstanding shares increased by 28,013 equity shares. In comparison, during the previous year, 20 employees exercised 12,434 ADSs (equivalent to 6,217 equity shares of par value of Rs. 5 each) issued under the 1998 Stock Option Plan and 22 employees exercised 1,200 equity shares under the 1999 stock option plan leading to an increase in issued, subscribed and outstanding shares by 7,417 equity shares. 2. Reserves and surplus The addition to the share premium account of Rs. 4.59 crore during the year is due to the premium received on issue of 28,013 equity shares of par value of Rs. 5 each on exercise of options issued under the 1998 and 1999 Stock Option Plans. During the previous year, an amount of Rs. 2.37 crore was added to the share premium account on account of premium received on issue of 7,417 equity shares of par value of Rs. 5 each on exercise of options issued under the 1998 and 1999 Stock Option Plans. Consequent to the standard on accounting for taxes on income becoming mandatory effective April 1, 2001, the company recorded the cumulative net deferred tax credit of Rs. 15.53 crore until April 1, 2001, as an addition to the general reserves. 3. Fixed assets
in Rs. crore As of March 31 ------------------------------- Particulars 2002 2001 Growth % ------ ------ -------- Original cost Land - free-hold 15.86 9.04 75.44 - lease-hold 27.84 27.58 0.94 Buildings 285.33 157.71 80.92 Plant and machinery 183.87 112.05 64.10 Computer equipment 287.89 223.94 28.56 Furniture and fixtures 159.46 100.47 58.71 Vehicles 0.35 0.35 -- Total 960.60 631.14 52.20 Less: accumulated depreciation 393.03 244.13 60.99 Net block 567.57 387.01 46.65 Add: capital work-in-progress 150.67 170.65 (11.71) Net fixed assets 718.24 557.66 28.79 Depreciation as a % of total revenues 6.2% 5.9% NA Accumulated depreciation as a % of gross block 40.9% 38.7% NA
During the year, the company added Rs. 342.72 crore to its gross block of assets, including investment in technology assets of Rs. 67.40 crore. The company invested Rs. 6.82 crore on acquisition of 30 acres of free-hold land in Hyderabad, India, for its software development center. The company paid Rs. 0.26 crore for registration of 8 acres of lease-hold land acquired during the previous year at Electronics City, 42 Bangalore, India. During the year, the company operationalized new software development centers at Bangalore, Chennai, Pune, Bhubaneswar, Mangalore, Hyderabad and Mysore and, consequently, the investment in buildings increased by Rs. 127.62 crore. Due to all these new centers being operationalized during the year, technology assets, plant and machinery, and furniture and fixtures increased by Rs. 67.40 crore, Rs. 76.29 crore and Rs. 64.33 crore, respectively. As of March 31, 2002, the company had 26,69,600 square feet of space capable of accommodating 12,050 professionals and 9,31,000 square feet under construction. During the previous year, the company added Rs. 349.66 crore to its gross block, including investment in technology assets of Rs. 113.84 crore. The capital work-in-progress as at March 31, 2002 and 2001 represents advances paid towards acquisition of fixed assets, and the cost of assets not put to use. During the year, the company donated 441 computer systems costing Rs. 2.68 crore (book value Rs. 21), furniture costing Rs. 0.57 crore (book value Rs. 0.03 crore) and plant and machinery costing Rs. 0.27 crore (book value Rs. 0.06 crore) to certain educational institutions and the same is disclosed under the heading Deductions during the year, under both Digital cost and Depreciation. The corresponding amount for computer systems during the previous year was Rs. 2.06 crore (book value Rs. 4). The company has a capital commitment of Rs. 63.53 crore as of March 31, 2002, as compared to Rs. 158.25 crore as of March 31, 2001. The company believes that it will be able to fund its expansion plans from internal accruals and liquid assets. The company may also take recourse to borrowings to meet its capital expenditure, should it be deemed necessary. 4. Investments The company has made several strategic investments aggregating Rs. 66.79 crore in various companies. These investments are strategic in nature and are aimed at procuring substantial business benefits to Infosys. Such investments are also envisaged in select venture capital funds. Benefits from these investments are primarily in the form of revenue and net income enhancements, through technology partnerships and access to the latest technological developments. 4.1 Yantra Corporation
Particulars Year of Investment Investment ----------- investment in $ million in Rs. crore ---------- ------------- ------------- Investment by way of cash remittance towards issue March 31, 1996 0.50 1.74 of 25,00,000 shares of common stock at $0.20 per share, par value of $0.01 per share Investment by way of transfer of product "EAGLE" March 31, 1997 1.00 3.59 for a consideration of 50,00,000 shares of common stock at $0.20 per share, par value of $0.01 per share Investment by way of cash remittance towards issue March 31, 1998 1.50 5.45 of 20,00,000 shares of convertible preferred stock at $0.75 per share, par value of $0.01 per share Sale of 13,63,637 shares of convertible preferred stock March 31, 1999 (1.02) (3.72) at $1.10 per share, par value of $0.01 per share Provision for investments March 31, 1999 (1.98) (7.06) Swap of 55,00,000 common stock for 1 warrant with right to purchase 55,00,000 common stock March 31, 2002 -- -- Balance as on March 31, 2002 -- --
During the year, Infosys swapped 55,00,000 common stock in Yantra Corporation, USA for one warrant with the right to purchase 55,00,000 common stock. As a result of this, Infosys holds only 44% of the outstanding common stock of Yantra. Accordingly, Yantra is no longer a subsidiary of Infosys within the meaning of the Companies Act, 1956, as at March 31, 2002. Infosys holds 16% of Yantra on a fully diluted basis. During the year, Mr. S. Gopalakrishnan, Chief Operating Officer and Deputy Managing Director of Infosys resigned from the board of Yantra Corporation. Mr. Phaneesh Murthy, member of the board of Infosys, holds 74,992 shares in Yantra Corporation. These shares were issued at a price of $0.10 each. Infosys' cumulative billings from Yantra are Rs. 53.49 crore ($12.45 million) and the amount due is Rs. 0.34 crore ($0.07 million) as of March 31, 2002. 4.2 EC Cubed Inc., USA. During the previous year, EC Cubed Inc., one of the investee companies, filed for liquidation as they were unable to raise further capital due to adverse market conditions. Pending the conclusion of liquidation proceedings, the company has provided for the entire investment amounting to Rs. 13.08 crore. Infosys' cumulative billings from EC Cubed Inc. are Rs. 23.02 crore ($5.17 million) and the amount due is Rs. 4.67 crore ($1.00 million), which was provided for in full during the previous year. 4.3 Alpha Thinx Mobile Phone Services AG., Austria. During the previous year, Alpha Thinx Phone Services AG ("Alpha Thinx"), one of the investee companies, filed for liquidation as it was unable to raise further capital due to adverse market conditions. Pending the conclusion of liquidation proceedings, the company has provided for the entire investment amounting to Rs. 2.21 crore. Infosys' cumulative billings from Alpha Thinx are Rs. 6.58 crore ($1.44 million) and the amount due is Rs. 1.49 crore ($0.32 million), which are provided for in full during the previous year. 43 4.4 Asia Net Media (BVI) Limited During the previous year, Infosys invested an amount of Rs. 6.85 crore ($1.50 million) in Asia Net Media (BVI) Limited ("Asia Net") towards issue of 3,00,00,000 ordinary shares of par value $0.01 each, at an issue price of $0.05 per ordinary share. Asia Net intends to leverage under-exploited offline brands in media and entertainment by delivering them through online channels and to establish a synergistic network of companies in this space. Infosys' cumulative billings from Billboard Live International (BLI), in which Asia Net Media holds controlling interest through a fully-owned subsidiary, are Rs. 5.32 crore ($1.19 million) and, as of March 31, 2002, the amount due is Rs. 1.84 crore ($0.38 million). 4.5 CiDRA Corporation, USA During the previous year, Infosys invested an amount of Rs. 13.40 crore ($3.00 million) in CiDRA Corporation, USA towards issue of 33,333 fully paid Series D Convertible Preferred Stock, par value of $0.01 each, at $90 per share. CiDRA is a developer of photonic devices for high-precision wavelength management and control for next-generation optical networks. Infosys' cumulative billings from CiDRA are Rs. 15.68 crore ($3.38 million) and, as of March 31, 2002, the amount due is Rs. 1.19 crore ($0.24 million). 4.6 JASDIC Park Company, Japan Infosys invested an amount of Rs. 0.75 crore (Yen 24 million) towards the issue of 480 shares of JASDIC Park Company thereby holding a 12.5% equity stake in it. JASDIC is an Indo-Japanese consortium founded by Mr. Kenichi Ohmae, a well-known management strategist, along with a few Japanese companies and three Indian companies including Infosys. The aim of JASDIC is to provide high-quality software services from India for the Japanese market. This is in line with Infosys' strategy to diversify its geographic client base. Infosys' cumulative billings from JASDIC are Rs. 48.75 crore ($10.96 million) and, as of March 31, 2002, the amount due is Rs. 1.11 crore ($0.23 million). 4.7 M-Commerce Ventures Pte. Ltd, Singapore During the previous year, Infosys invested an amount of Rs. 1.84 crore (S $0.70 million) in M-Commerce Ventures Pte. Ltd., Singapore (MCV), towards the issue of 70 capital units. Each capital unit represents one ordinary share of S$1 each, issued at par, and nine redeemable preference shares at a par value S $1 each, with a premium of S $1,110 per redeemable preference share. MCV is promoted by the Economic Development Board, Singapore and intends to focus on companies offering mobile portals, personal information management and messaging, bandwidth optimization and other key enablers of m-commerce. MCV is an incubation fund in the m-commerce space and Infosys has committed to invest an aggregate amount of S$1.00 million in the fund. As of March 31, 2002, Infosys has an investment of S $0.70 million in MCV. MCV has agreed to position Infosys as a preferred technology partner to its investee companies. Mr. Philip Yeo, a non-executive director of Infosys, is the chairman of the board of directors of EDB Investments Pte Ltd (EDBI). EDBI is the fund manager of M-Commerce Ventures Pte Ltd. 4.8 OnMobile Systems Inc., USA During the previous year, Infosys invested an amount of Rs. 8.95 crore ($2.00 million) in OnMobile Systems Inc. (formerly Onscan Inc.) towards the issue of 1,00,000 common stock at $0.4348 each, fully paid, par value $0.001 each; 1,00,000 Series A Voting Convertible Preferred Stock at $0.4348 each, fully paid, par value $0.001 each; and 44,00,000 series A Non-voting Convertible Preferred Stock at $0.4348 each, fully paid, par value $0.001 each. OnMobile Systems Inc. was incubated by Infosys and the investment was made in the form of transfer of intellectual property rights in Onscan - a web-focused wireless-enabled notification product. The income arising out of the transfer of the product, amounting to Rs. 5.49 crore (net of tax), was disclosed as an extraordinary item in the profit and loss account of the previous year. Infosys' cumulative billings from OnMobile Systems Inc. are Rs. 24.76 crore ($5.30 million) and, as of March 31, 2002, the amount due is Rs. 1.41 crore ($0.29 million). Mr. S. D. Shibulal, a director of Infosys, is the chairman of the board of OnMobile Systems Inc. Mr. S. Gopalakrishnan and Mr. S. D. Shibulal, members of the board of Infosys hold 2,00,000 and 5,00,000 shares, respectively, in OnMobile Systems Inc., acquired at a price of $0.0435 per share. Mr. V. Balakrishnan, Vice President - Finance and Company Secretary, Infosys, holds 1,00,000 stock options in OnMobile Systems Inc. granted at an exercise price of $0.0435 per option. 4.9 Stratify Inc., (formerly PurpleYogi Inc.), USA During the previous year, Infosys invested an amount of Rs. 2.33 crore ($0.50 million) in Stratify Inc., (formerly PurpleYogi Inc.), towards the issue of 2,76,243 fully paid Series D Convertible Preferred Stock, par value of $0.001 each, at $1.81 per share. Stratify Inc. is a developer of infrastructure software for information networks that enables intelligent content management and efficient enterprise-wide knowledge management. 4.10 Workadia Inc., USA During the current year, Infosys invested an amount of Rs. 10.32 crore ($2.20 million) in Workadia Inc., USA ("Workadia") purchasing 22,00,000 fully paid Series "B" convertible preferred stock, par value of US$0.0002, at US$1.00 each. Workadia provides companies with comprehensive, customizable business intranets through browser accessed hosted portals, and also offers consulting services to help customers select and deploy their intranet applications, content and services. Infosys' cumulative billings from Workadia are Rs. 18.07 crore ($3.81 million) and, as of March 31, 2002, the amount due is Rs. 2.78 crore ($0.57 million). 44 4.11 Other investments Infosys invested Rs. 10 and Rs. 10,350 respectively in Software Services Support Education Center Limited and The Saraswat Co-operative Bank Limited, respectively. 4.12 Summary
in Rs. crore ------------ Cumulative investments upto March 31, 2002 66.79 Cumulative billings upto March 31, 2002 from all investee companies 195.67 Less: Provisions made for investments (22.35) Account receivables written-off/provided (6.16) ------ Net amount 167.16
5. Deferred tax assets The standard on accounting for taxes on income became mandatory effective April 1, 2001. Accordingly, the company recorded deferred tax assets in the book aggregating Rs. 24.22 crore as of March 31, 2002. The deferred tax assets represent timing differences in the financial and tax books arising out of depreciation on assets, investment provisions and provision for sundry debtors. 6. Sundry debtors Sundry debtors amount to Rs. 336.73 crore (net of provision for doubtful debts amounting to Rs. 19.23 crore) as at March 31, 2002, as compared with Rs. 302.37 crore (net of provision for doubtful debts amounting to Rs. 18.17 crore) as at March 31, 2001. These debtors are considered good and realizable. The need for provisions is assessed based on various factors including collectibility of specific dues, risk perceptions of the industry in which the customer operates and general economic factors which could affect the customer's ability to settle. Provisions are generally made for all debtors outstanding for more than 180 days as also for others depending on the management's perception of the risk. Debtors are at 12.93% of revenues for the year ended March 31, 2002, as compared to 15.91% for the previous year, representing an outstanding of 47 days and 58 days of revenues for the respective years. The age profile is as given below:
As of March 31 Period in days 2002 2001 -------------- ---- ---- 0 - 30 69.0% 69.2% 31 - 60 30.0% 26.6% 61 - 90 0.5% 1.7% More than 90 0.5% 2.5% ----- ----- 100.0% 100.0% ===== =====
The movement in provisions for doubtful debts during the year is as follows:
in Rs. crore --------------------- Year ended March 31 2002 2001 ------------------- ----- ----- Opening balance 18.17 2.21 Add: Amount provided during the year 13.09 19.28 Less: Amount written-off during the year 12.03 3.32 ----- ----- Closing balance 19.23 18.17 ===== =====
Provision for bad and doubtful debts and bad debts written-off as a percentage of revenue are 0.50% and 1.03% in fiscal 2002 and 2001, respectively. 7. Cash and cash equivalents
in Rs. crore. ---------------------- As of March 31 2002 2001 -------- -------- Cash balances 0.03 0.01 Bank balances in India current accounts 12.23 9.63 deposit accounts 551.62 181.89 EEFC accounts in foreign currency 10.52 3.17 Bank balances - overseas current accounts 50.41 54.00 deposit accounts 147.41 136.36 -------- -------- Total cash and bank balances 772.22 385.06 Add: Deposits with financial institutions/body corporate 254.74 192.68 -------- -------- Total cash and cash equivalents 1,026.96 577.74 ======== ======== Cash and cash equivalents as a % of total assets 49.4% 41.6% Cash and cash equivalents as a % of revenues 39.4% 30.4%
The bank balances in India include both rupee accounts and foreign currency accounts. They also include Rs. 1.12 crore and Rs. 0.48 crore in the unclaimed dividend account for the years ended March 31, 2002 and 2001. The bank balances in overseas deposit accounts represent deposits maintained with State Bank of India, Nassau, New York. The bank balances in overseas current accounts are maintained to meet the expenditure of the overseas branches in the US and other countries, and to meet project-related expenditure overseas. 45 The deposit account represents deposits for short tenures and the details are given below:
in Rs. crore --------------------- As of March 31 2002 2001 -------------- -------- -------- ABN Amro Bank 48.16 -- Bank of America 85.16 20.01 Citibank N.A 100.77 50.63 Deutsche Bank 6.00 50.45 ICICI Bank Limited 48.68 -- Punjab National Bank 96.00 -- Standard Chartered Bank 92.48 50.22 The Bank of Nova Scotia 64.67 5.16 UTI Bank Limited 9.70 5.42 -------- -------- Total 551.62 181.89 ======== ========
8. Loans and advances Advances are primarily towards amounts paid in advance for value and services to be received in future. Unbilled revenues comprise the revenue recognized in relation to efforts incurred on fixed-price and time and material contracts not billed as of the year-end. Advance income tax represents payments made towards tax liability for the years ended March 31, 2002 and 2001, and also refunds due for the previous years. The company's liability towards income tax is fully provided for. The details of advance income tax are given below:
in Rs. crore --------------------- As of March 31 2002 2001 -------------- -------- -------- Domestic tax 80.71 43.56 Overseas tax 155.54 80.18 -------- -------- Total 236.25 123.74 ======== ========
Loans to employees are made to enable the purchase of assets by employees and to meet any emergency requirements. These increased significantly during the year, due to an increase in the number of employees availing such loans. The details of these loans are given below:
in Rs. crore --------------------- As of March 31 2002 2001 -------------- -------- -------- Housing loan 47.74 25.85 Soft loan 12.60 10.15 Vehicle loan 18.50 12.47 Marriage loan 1.85 1.24 Other loans 0.83 0.75 -------- -------- Total 81.52 50.46 ======== ========
During the year, the company provided an amount of Rs. 0.42 crore towards doubtful loans and advances to employees as compared to Rs. 0.07 crore in the previous year. Electricity and other deposits represent electricity deposits, telephone deposits, insurance deposits and advances of a similar nature. The rent deposits are towards buildings taken on lease by the company for its software development centers in various cities. These include the deposits paid by the company to house its staff, which amounted to Rs. 3.65 crore for the current year as compared to Rs. 2.55 crore for the previous year. The company's treasury policy calls for investing surpluses with highly rated companies, banks and financial institutions for short maturities with a limit on investments in individual entities. Deposits with financial institutions and body corporate represent surplus money deployed in the form of short-term deposits. The details of such deposits are given below:
in Rs. crore --------------------- As of March 31 2002 2001 -------------- -------- -------- GE Capital Services India 100.87 50.58 Housing Development Finance Corporation Limited 101.10 50.87 ICICI Limited 52.77 50.87 IDBI Limited -- 40.36 -------- -------- Total 254.74 192.68 ======== ========
The above amounts include interest accrued but not due amounting to Rs. 2.74 crore during the year ended March 31, 2002 as compared to Rs. 2.68 crore during the previous year. Mr. Deepak M. Satwalekar, Director, is also a director of HDFC. Prof. Marti G. Subrahmanyam, Director is also a director in ICICI Limited. Mr. N. R. Narayana Murthy, Chairman and Chief Mentor was a director in ICICI Limited until March 27, 2002. Except as directors in these financial institutions, these persons have no direct interest in these transactions. 9. Current liabilities Sundry creditors for goods represent the amount payable to vendors for the supply of goods. Sundry creditors for accrued salaries and benefits include the provision for bonus and incentive payable to the staff and also the company's liability for leave encashment valued on an actuarial basis. The details of the same are as follows: 46
in Rs. crore --------------------- As of March 31 2002 2001 -------------- -------- -------- Accrued salaries payable 2.77 3.80 Accrued bonus and incentive payable to employees 30.71 34.64 Leave provision - as per actuarial valuation 22.99 18.98 -------- -------- Total 56.47 57.42 ======== ========
Sundry creditors for other liabilities represent amounts accrued for various other operational expenses. Retention monies represent monies withheld on contractor payments pending final acceptance of their work. Withholding and other taxes payable represent tax withheld on benefits arising out of exercise of stock options issued under the 1998 and 1999 Employee Stock Option Plan by various employees, and also other local taxes payable in various countries on the services rendered by Infosys. All these taxes will be paid in due course. Advances received from clients denote monies received for the delivery of future services. Unclaimed dividends represent dividend paid, but not encashed by shareholders, and are represented by a bank balance of equivalent amount. 10. Unearned revenue Unearned revenue as at March 31, 2002 and 2001 consists primarily of advance client billing on fixed-price, fixed-timeframe contracts for which related costs were not yet incurred. 11. Provisions Provisions for taxation represent estimated income tax liabilities, both in India and abroad. The details are as follows:
in Rs. crore ----------------------- As of March 31 2002 2001 -------------- -------- -------- Domestic tax 71.36 41.67 Overseas tax 168.21 81.23 -------- -------- Total 239.57 122.90 ======== ========
Tax on dividend denotes taxes payable on final dividend declared for the year ended March 31, 2001. As per the recent Finance Bill presented to the parliament by the Government of India, effective April 1, 2002, no dividend tax is payable on the dividends declared by the company. However, such dividends are taxable in the hands of the receiving shareholders. Proposed dividend represents the final dividend recommended to the shareholders by the board of directors, and will be paid after the Annual General Meeting, upon approval by the shareholders. The provision for post-sales client support is towards likely expenses for providing post-sales client support on fixed-price contracts. B. Results of operations 1. Income
in Rs. crore Year ended March 31 ------------------------------------------------------- Particulars 2002 % 2001 % Growth % ------------------- -------- ------ -------- ------ -------- Software development services and products Overseas 2,552.47 98.04 1,874.02 98.60 36.20 Domestic 51.12 1.96 26.54 1.40 92.61 -------- ------ -------- ------ ------ Total 2,603.59 100.00 1,900.56 100.00 36.99 ======== ====== ======== ====== ======
The company's revenues are generated principally on fixed-timeframe or time-and-material basis. Revenues from services provided on a time-and-material basis are recognized in the month that services are provided and related costs are incurred. Revenues from fixed-timeframe projects are recognized upon the achievement of specified milestones identified in the related contracts, in accordance with the percentage of completion method. The segmentation of software services is as follows:
Year ended March 31 Revenues by project type 2002 2001 ------------------------ -------- -------- Fixed price 31.60% 28.20% Time and material 68.40% 71.80% -------- -------- Total 100.00% 100.00% ======== ========
The company's revenues are also segmented into onsite and offshore revenues. Onsite revenues are those services which are performed at client sites as part of software projects, while offshore services are those services which are performed at the company's software development centers located in India. The details of software services and products are as follows:
Year ended March 31 Revenues by location 2002 2001 -------------------- ------- ------- Onsite 50.80% 51.50% Offshore 49.20% 48.50% ------- ------- Total 100.00% 100.00% ======= =======
The services performed onsite typically generate higher revenues per-capita, but at lower gross margins than the same quantum of services performed at the company's own facilities. Therefore, any increase in the onsite effort puts pressure on the margins of the company. The details are as follows: 47
Year ended March 31 ------------------- Person-months (%) 2002 2001 ------------------- -------- -------- Onsite 30.70% 34.00% Offshore 69.30% 66.00% -------- -------- Total 100.00% 100.00% ======== ========
The growth in software development services and product revenues is due to an all-round growth in various segments of the business mix and is mainly due to growth in business volumes. The details of the same are given below:
Year ended March 31 2002 2001 ------------------- --------- --------- Income from software development services and products ($million) Onsite 276.72 213.03 Offshore 268.33 200.82 --------- --------- Total 545.05 413.85 ========= ========= Person-months Onsite 24,173 19,425 Offshore 54,472 37,676 Billed-total 78,645 57,101 Non-billable 29,262 15,799 Training 4,266 11,828 --------- --------- Total software professionals 1,12,173 84,728 Support 12,179 9,691 --------- --------- Total for the company 1,24,352 94,419 ========= ========= Increase in billed person-months Onsite 4,748 7,842 % change 24.4% 67.7% Offshore 16,796 13,618 % change 44.6% 56.6% Total 21,544 21,460 % change 37.7% 60.2% Increase in income from software development services and products ($million) Volume variance Onsite 52.07 66.74 % change 24.4% 67.7% Offshore 89.51 59.36 % change 44.6% 56.6% Total volume variance 141.58 126.10 % change 34.2% 62.0% Price variance Onsite 11.62 47.72 % change 5.5% 48.4% Offshore (22.00) 36.59 % change (11.0%) 34.9% Total price variance (10.38) 84.31 % change (2.5%) 41.4% Total variance Onsite 63.69 114.46 % change 29.9% 116.1% Offshore 67.51 95.95 % change 33.6% 91.5% Total revenue variance 131.20 210.41 % change 31.7% 103.4%
Details of geographical and business segmentation of revenues are provided in the Risk management report in this Annual Report. 48 2. Expenditure
Year ended March 31 in Rs. crore ------------------- ------------------------------------------------------- Particulars 2002 % 2001 % Growth % ------------------- -------- ------ -------- ------ -------- Income from software services and products 2,603.59 100.00 1,900.56 100.00 36.99 Software development expenses 1,224.82 47.04 870.83 45.82 40.65 Gross profit 1,378.77 52.96 1,029.73 54.18 33.90 Selling and marketing expenses 129.79 4.99 92.07 4.84 40.97 General and administration expenses 211.35 8.12 172.82 9.09 22.29 Total operating expenses 1,565.96 60.15 1,135.72 59.75 37.88 Operating profit 1,037.63 39.85 764.84 40.24 35.67 Interest -- -- -- -- -- Depreciation 160.65 6.17 112.89 5.94 42.31 Operating profit after interest and depreciation 876.98 33.68 651.95 34.30 34.52 Other income 66.41 2.55 59.37 3.12 11.86 Provision for investments -- -- 15.29 0.80 -- Profit before tax and extraordinary item 943.39 36.23 696.03 36.63 35.54 Provision for tax 135.43 5.20 72.71 3.83 86.26 Profit after tax before extraordinary item 807.96 31.03 623.32 32.80 29.62 Extraordinary item - transfer of intellectual property right (net of tax) -- -- 5.49 0.29 -- Net profit after tax and extraordinary item 807.96 31.03 628.81 33.09 28.49 -------- ------ -------- ------ ------
2.1 Software development expenses
Year ended March 31 in Rs. crore ------------------- ------------------------------------------------------- Particulars 2002 % 2001 % Growth % ------------------- -------- ------ -------- ------ -------- Salaries and bonus including overseas staff expenses 976.11 37.49 605.51 31.86 61.20 Staff welfare 6.14 0.23 7.63 0.40 (19.53) Contribution to provident and other funds 25.63 0.98 31.00 1.63 (17.32) Foreign travel expenses 113.12 4.34 133.66 7.03 (15.37) Consumables 3.22 0.12 5.87 0.31 (45.14) Cost of software packages for own use 34.44 1.32 31.84 1.67 8.17 service delivery to clients 9.17 0.35 5.70 0.30 60.88 Computer maintenance 7.11 0.27 7.13 0.38 (0.28) Communication expenses 36.11 1.39 31.47 1.66 14.74 Consultancy charges 10.12 0.39 9.19 0.48 10.12 Provision for post-sales client support 3.65 0.14 1.83 0.10 99.45 -------- ------ -------- ------ ------ Total software development expenses 1,224.82 47.04 870.83 45.82 40.65 ======== ====== ======== ====== ====== Revenues 2,603.59 100.00 1900.56 100.00 36.99 -------- ------ -------- ------ ------
Employee costs consist of salaries paid to employees in India and include overseas staff expenses. The total software professionals person months increased to 112,173 for the year ending March 31, 2002 from 84,728 person months during the previous year. Of this, the onsite and offshore person months are 24,173 and 54,472 for the year ending March 31, 2002 as compared to 19,425 and 37,676 for the previous year. The non-billable and trainees person months increased to 33,528 during the year ending March 31, 2002 from 27,627 person months during the previous year. The company added 907 employees (net) during the year as compared to 4,442 (net) during the previous year. The utilization rates of the employees are as below:
Year ended March 31 2002 2001 ------------------- ------ ------ Including trainees 70.10% 67.40% Excluding trainees 72.90% 78.30%
The Foreign travel expenses, representing cost of travel abroad for software development constituted approximately 4% and 7% of total revenue for the years ended March 31, 2002 and 2001, respectively. Cost of software packages for own use represents the cost of software packages and tools procured for internal use by the company for enhancing the quality of its services and also for meeting the needs of software development. The cost of software packages purchased for own use is approximately 1% and 2% of the revenues for the year ending March 31, 2002 and 2001, respectively. The company's policy is to charge such purchases to the profit and loss accounts in the year of purchase. A major part of the company's revenue comes from offshore software development. This involves the large-scale use of satellite connectivity in order to be online with clients. The communication expenses represent approximately 1% and 2% of revenues for the years ended March 31, 2002 and 2001, respectively. The company also utilizes outside consultants for part of its software development work. During the year, the company spent Rs. 10.12 crore towards consultancy as compared to Rs. 9.19 crore during the previous year, resulting in an increase of 10.12%. This increase is due to an increase in number of consultants hired during the year. The company uses these consultants mainly to meet mismatch in certain skill-sets that are required in various projects and will continue to use external consultants for some of its project work on a need basis. 49 The company provided an amount of Rs. 3.65 crore and Rs. 1.83 crore towards post-sales client support for the year ended March 31, 2002 and 2001, respectively. This represents a provision for post-sales obligations of the company in respect of the outstanding fixed-price projects as at the year-end. 2.2 Selling and marketing expenses
in Rs. crore Year ended March 31 -------------------------------------------------------- Particulars 2002 % 2001 % Growth% ------------------- -------- ------ -------- ------ -------- Salaries and bonus including overseas staff expenses 61.04 2.34 44.25 2.33 37.94 Staff welfare 0.27 0.01 0.83 0.04 (67.47) Contribution to provident and other funds 0.22 0.01 0.24 0.01 (8.33) Foreign travel expenses 18.66 0.72 10.72 0.56 74.07 Consumables 0.02 -- -- -- Cost of software packages for own use 0.58 0.02 0.02 -- 2800 Computer maintenance -- -- 0.06 -- -- Communication expenses 0.38 0.01 0.05 -- 660 Traveling and conveyance 3.14 0.12 2.35 0.12 33.62 Rent 4.30 0.17 2.47 0.13 74.09 Telephone charges 3.26 0.13 2.34 0.12 39.32 Professional charges 5.90 0.23 4.78 0.25 23.43 Printing and stationery 1.55 0.06 0.96 0.05 61.46 Advertisements 0.31 0.01 0.73 0.04 (57.53) Brand building 13.16 0.51 10.52 0.55 25.10 Office maintenance 0.31 0.01 0.77 0.04 (59.74) Repairs to plant and machinery 0.01 -- 0.17 0.01 (94.12) Power and fuel 0.06 -- 0.08 -- (25.00) Insurance charges -- -- 2.33 0.12 -- Rates and taxes 0.33 0.01 0.85 0.04 (61.18) Bank charges and commission 0.03 -- 0.05 -- (40.00) Commission charges 10.82 0.42 1.79 0.09 504.47 Marketing expenses 4.67 0.18 4.27 0.22 9.37 Sales promotion expenses 0.44 0.02 0.70 0.04 (37.14) Other miscellaneous expenses 0.33 0.01 0.74 0.04 (55.41) -------- ------ -------- ------ -------- Total selling and marketing expenses 129.79 4.99 92.07 4.84 40.97 ======== ====== ======== ====== ======== Revenues 2,603.59 100.00 1,900.56 100.00 36.99 -------- ------ -------- ------ --------
The company incurred Selling and marketing expenses at 4.99% of its revenue during fiscal 2002 as compared to 4.84% during the previous year. Employee costs consist of salaries paid to sales and marketing employees and include the bonus payments made to sales personnel. The number of sales and marketing personnel increased from 104 as of March 31, 2001 to 143 as of March 31, 2002 while the number of marketing offices increased from 25 to 28 as of March 31, 2002. Foreign travel expenses, Traveling and conveyance, Telephone expenses and Marketing expenses increased due to the increased levels of business and increase in number of marketing offices and personnel. Cost of software packages for own use represents software procured for internal use by the sales and marketing team. Rent increased due to new office spaces taken in the Netherlands, Singapore and Switzerland. Brand building expenses include expenses incurred for participation in various seminars and exhibitions, both in India and abroad, various sales and marketing events organized by the company and other advertisement and sales promotional expenses. The company added 116 new customers during the year as compared to 122 during the previous year. Commission charges primarily consist of expenses incurred by the Banking Business Unit with regard to agents' fees paid for sourcing business from Asian and African countries. It also includes commission paid for software service revenues derived from some of the European countries and the US. The export revenue from the banking product - FINACLE(TM) during the year, is Rs. 52.66 crore as compared to Rs. 21.09 crore during the previous year. 50 2.3 General and administration expenses
in Rs. crore Year ended March 31 ------------------------------------------------------- Particulars 2002 % 2001 % Growth% -------- ------ -------- ------ ------- Salaries and bonus including overseas staff expenses 45.48 1.75 26.11 1.37 74.19 Contribution to provident and other funds 2.98 0.11 2.22 0.12 34.23 Foreign travel expenses 4.81 0.18 2.84 0.15 69.37 Traveling and conveyance 15.48 0.59 16.06 0.85 (3.61) Rent 20.11 0.77 14.48 0.76 38.88 Telephone charges 11.45 0.44 11.68 0.61 (1.97) Professional charges 16.23 0.62 15.62 0.82 3.91 Printing and stationery 4.75 0.18 5.30 0.28 (10.38) Advertisements 2.78 0.11 5.58 0.29 (50.18) Office maintenance 13.81 0.53 12.07 0.64 14.42 Repairs to building 8.50 0.33 3.95 0.21 115.19 Repairs to plant and machinery 2.48 0.10 2.09 0.11 18.66 Power and fuel 18.90 0.73 11.71 0.62 61.40 Insurance charges 5.34 0.21 2.84 0.15 88.03 Rates and taxes 3.93 0.15 0.97 0.05 305.15 Donations 5.12 0.20 7.22 0.38 (29.09) Auditors remuneration 0.25 0.01 0.22 0.01 13.64 Bad debts written-off -- -- 0.28 0.01 -- Provision for bad and doubtful debts 13.09 0.50 19.28 1.01 (32.11) Provision for doubtful loans and advances 0.42 0.02 0.07 -- 500.00 Bank charges and commission 0.68 0.03 0.54 0.03 25.93 Freight charges 0.52 0.02 0.56 0.03 (7.14) Professional membership and seminar participation fees 2.20 0.08 2.17 0.11 1.38 Commission to non-wholetime directors 0.98 0.04 0.59 0.03 66.10 Transaction processing fee and filing fees 4.78 0.18 1.53 0.08 212.42 Other miscellaneous expenses 1.16 0.04 1.87 0.10 (37.97) Postage and courier 3.23 0.12 2.28 0.12 41.67 Books and periodicals 1.14 0.04 1.69 0.09 (32.54) Research grants 0.75 0.03 1.00 0.05 (25.00) -------- ------ -------- ------ ------ Total general and administration expenses 211.35 8.12 172.82 9.09 22.29 ======== ====== ======== ====== ====== Revenues 2,603.59 100.00 1,900.56 100.00 36.99 -------- ------ -------- ------ ------
The company incurred General and administration expenses amounting to 8.12% of its total revenue during fiscal 2002 as compared to 9.09% during the previous year. Employee costs consist of salaries in India including overseas staff expenses paid to general and administration employees. The number of administration personnel increased from 859 as of March 31, 2001 to 874 as of March 31, 2002. Rent expenses increased by approximately 39% during the year due to additional office properties leased during the year and increases in rentals of certain properties previously taken on lease. Professional charges increased by approximately 4%, due to increased globalization of the business. These charges include fees paid for availing services such as tax consultancy, US GAAP audit, and recruitment and training. Advertisement expense decreased by 50% due to decrease in advertisements for recruitment purposes both in India and abroad. Provision for bad and doubtful debts decreased from Rs. 19.28 crore during the previous year to Rs. 13.09 crore during the current year. The company management evaluates all customer dues to the company for collectibility and makes adequate provisions, wherever necessary. The company normally provides for all debtors' dues outstanding for 180 days or longer. The need for provisions is assessed based on various factors including collectibility of specific dues, risk perceptions of the industry in which the customer operates, and general economic factors which could affect the customer's ability to settle. Provision for bad and doubtful debts and Bad debts written-off as a percentage of revenue are 0.50% and 1.03% in fiscal 2002 and 2001, respectively. The Transaction processing fee and filing fees represent processing fees paid for overseas residence permits and also processing fees to obtain immediate cash payment from one of the customers. The increase in all other expenses is primarily due to an increased level of business. 3. Operating profits During the current year, the company earned an operating profit (profit before interest, depreciation and tax) of Rs. 1,037.63 crore representing 39.85% of total revenues as compared to Rs. 764.84 crore, representing 40.24% of total revenues during the previous year. 4. Interest The company continued to be debt-free during the current year. 5. Depreciation The company provided a sum of Rs. 160.65 crore and Rs. 112.89 crore towards depreciation for the years ended March 31, 2002 and 2001, representing 6.17% and 5.94% of total revenues, respectively. The depreciation for the years ended March 31, 2002 and 2001 includes an amount of Rs. 21.17 crore and Rs. 34.99 crore, respectively, towards 100% depreciation on assets costing less than Rs. 5,000 each. The depreciation as a percentage of average gross block is 20.18% and 24.67% for the years ended March 31, 2002 and 2001, respectively. 51 Depreciation charge includes an amount of Rs. 0.46 crore and Rs. 2.14 crore towards depreciation provided, in full, on assets acquired for research and development activities for the years ended March 31, 2002 and 2001, respectively. 6. Other income Other income includes interest received on deposits with banks and other financial institutions, exchange differences and other miscellaneous income. The average yield on the deposits earned by the company is given below:
in Rs. crore ------------------ Year ended March 31 2002 2001 ------------------- ------ ------ Average cash and cash equivalents 802.35 543.06 Interest received including exchange variation on FC deposits 57.88 58.64 Average yield 7.21% 10.80%
The decrease in yield is primarily due to a reduction in general interest rates in the economy. 7. Provision for investment During the previous year, two of the investee companies, EC Cubed Inc. and Alpha Thinx Mobile Phone Services AG, filed for liquidation. Pending the conclusion of liquidation proceedings, the company has provided Rs. 15.29 crore towards the entire amount of these investments. 8. Provision for tax The company has provided for its tax liability both in India and overseas. The present Indian corporate tax rate is 35.70% (comprising a base rate of 35% and a surcharge of 2% on the base rate). Export profits are entitled to benefit under two schemes of the Government of India. Under the first scheme (Section 80HHE of the Income Tax Act), a proportion of the profits of the company attributable to export activities is deductible from the income subject to tax. Such deductions are being phased out equally over a period of five years starting fiscal 2000. Under the second scheme, the profits attributable to the operations of the company under the 100% export oriented unit scheme - Software Technology Park (STP) scheme - are entitled to a tax holiday for a consecutive period of 10 years from the financial year in which the unit started producing computer software or March 31, 2000, whichever is earlier. For the year ended March 31, 2002, approximately 96% of software revenues came from software development centers operating under the Software Technology Park scheme. The Government of India recently introduced the Finance Bill in the parliament. As per the provisions of the bill, 10% of the profits earned by units operating under the STP scheme will be taxed at the regular rates of taxation during the financial year 2002-03. The details of the operationalization of various software development centers and the year upto which the exemption under the Software Technology Park Scheme is available are provided below:
Location of the STP Year of Exemption Exemption ------------------- commencement claimed from available up to ------------ ------------ --------------- Electronics City, Bangalore 1994-1995 1996-1997 2003-2004 Mangalore 1995-1996 1998-1999 2004-2005 Pune 1996-1997 1998-1999 2005-2006 Bhubaneswar 1996-1997 1998-1999 2005-2006 Chennai 1996-1997 1998-1999 2005-2006 Bannerghatta Road, Bangalore 1997-1998 1998-1999 2006-2007 Phase I, Electronics City, Bangalore 1998-1999 1998-1999 2007-2008 Phase II, Electronics City, Bangalore 1999-2000 1999-2000 2008-2009 Hinjewadi, Pune 1999-2000 1999-2000 2008-2009 Mysore 1999-2000 1999-2000 2008-2009 Hyderabad 1999-2000 1999-2000 2008-2009 Mohali 1999-2000 1999-2000 2008-2009 Sholinganallur, Chennai 2000-2001 2000-2001 2008-2009 Konark, Bhubaneswar 2000-2001 2000-2001 2008-2009 Mangala, Mangalore 2000-2001 2000-2001 2008-2009
The company has provided a sum of Rs. 1.40 crore during the year ended March 31, 2001, in respect of tax liabilities of earlier years, consequent to the finalization of the tax assessments. The additional liability has arisen due to certain disallowances in India which are contested in appeal, and additional payments overseas. The company pays taxes in the various countries in which it operates on the income that is sourced to those countries. The details of provision for taxes are as follows:
in Rs. crore Year ended March 31 ------------------------ Particulars 2002 2001 ------------------- -------- -------- Overseas tax 112.19 48.31 Domestic tax 31.00 23.00 -------- -------- 143.19 71.31 Deferred taxes (7.76) -- Prior year taxes -- 1.40 -------- -------- Total tax 135.43 72.71 ======== ========
52 9. Net profit The net profit of the company from ordinary activities amounted to Rs. 807.96 crore and Rs. 623.32 crore for the years ended March 31, 2002 and 2001, respectively. This represents 31.03% and 32.80% of total revenue for the respective years. Excluding other income of Rs. 66.41 crore (2.55% of revenues) in the current year as compared to Rs. 59.37 crore (3.12% of revenues) in the previous year, the net profit would have been Rs. 741.55 crore (28.48% of revenues) in the current year as compared to Rs. 563.95 crore (29.67% of revenues) in the previous year. 10. Extraordinary item Infosys announced an incubation scheme for its employees to launch their own ventures while continuing to derive benefits from a close association with the company. Infosys launched Yantra in 1996 under this scheme, which is in the e-fulfillment space. Infosys had piloted another such venture - OnMobile Systems Inc. (formerly Onscan Inc.), which is in the wireless space. During the previous year, the company transferred its intellectual property rights in the Onscan product - a web-enabled notification product to OnMobile Systems Inc. The product was transferred for a gross consideration of Rs. 8.93 crore (US$ 2 million), received in the form of equity, preferred voting and preferred non-voting securities of OnMobile Systems Inc. The income from the transfer of Rs. 5.49 crore (net of tax) is disclosed as an extraordinary item in the profit and loss account. 11. Liquidity The growth of the company has been financed largely through cash generated from operations and, to a lesser extent, from the proceeds of equity issues and borrowings. As of March 31, 2002, the company had cash and cash equivalents of Rs.1,026.96 crore. The cash and cash equivalents increased by Rs. 449.22 crore during the year despite a spending of Rs. 322.74 crore towards creating physical and technology infrastructure. The company's treasury policy calls for investing only in highly rated banks, financial institutions and companies for short maturities with a limit for individual entities. The company retains the money both in rupee and foreign currency accounts. The bank balances in overseas accounts are maintained to meet the expenditure of the overseas branches in the U.S. and other countries, and to meet project-related expenditure overseas. The company's policy is to pay dividend upto 20% of the after-tax profits of the company. The pay-out ratio of the company during the year ending March 31, 2002, 2001 and 2000 are 17.01%, 12.01% and 11.55%, respectively. The company's policy is to maintain sufficient cash in the balance sheet to meet the following objectives: - To fund the ongoing capex requirements to meet its growth objectives; - To fund the operational expenses and other strategic initiatives for the next one year; and - To maintain business continuance in case of exigencies. The company's policy is to earn a minimum return of twice the cost of capital on average capital employed and thrice the cost of capital on average invested capital. The current estimated cost of capital is 17.17%. At present, the company earns 54.37% return on average capital employed and 83.10% return on average invested capital. The company aims at maintaining sufficient cash balances to meet its strategic objectives and at the same time maintaining adequate returns on its investments. 12. Stock option plans 12.1 1994 Employee Stock Offer Plan The company instituted an Employee Stock Offer Plan (ESOP) in 1994 for all eligible employees. Under the plan, warrants were transferred to employees deemed eligible by the advisory board constituted for the purpose. Accordingly, 60,00,000 warrants (as adjusted for the 1:1 bonus issue in October 1997 and March 1999 and 2-for-1 stock split in February 2000) were issued by the company to the Infosys Technologies Limited Employees Welfare Trust, to be held in trust and transferred to selected employees from time to time. Warrants were issued at Rs. 0.50 each and entitled the holder thereof to apply for and be issued one equity share of par value of Rs. 5 each at a price of Rs. 50, after a period of five years from the date of issue. The warrants and the shares to be issued were subject to a lock-in period of five years from the date of issue. The warrants expire on September 30, 1999, and are convertible before their expiration. All warrants were converted into shares. Under the ESOP scheme, the warrant holders are entitled to convert the warrants before any bonus or rights issue. The company issued bonus shares in the ratio of 1:1 during October 1997 and March 1999. Accordingly, the warrant holders, including the Trust and the employees, were given an option to convert their warrants, and all warrants were converted into shares. They were also issued bonus shares, being holders of shares as on the record date. The company effected a stock-split (i.e., a subdivision of every equity share of par value of Rs. 10 each into two equity shares of par value of Rs. 5 each) in February 2000. The number of warrants issued and shares outstanding, after adjusting for the 2-for-1 stock split in fiscal 2000, is given below:
Warrants subject to lock-in Right to shares ------------------------------------------------------------- ----------------------- Shares issued Bonus shares Warrants on conversion issued on Shares transferred to of warrants, converted offered to Year ended No. of employees subject to warrants, free No. of employees March 31 employees (Net) lock-in from lock-in employees (Net) ---------- --------- -------------- ------------- -------------- --------- ---------- 1998 314 4,53,400 4,53,400 4,53,400 -- -- 1999 966 7,22,400 7,22,400 7,22,400 499 2,95,400 2000 -- -- -- -- 13 26,000 ------- --------- --------- --------- ------- --------- Total 1,051 11,75,800 11,75,800 11,75,800 512 3,21,400 ======= ========= ========= ========= ======= =========
53 By November 2001, the lock-in period ended in respect of 1,91,400 shares of par value of Rs. 5 each, held by 144 employees for warrants issued in August 1996. Employees hold 11,75,800 shares of par value of Rs. 5 each subject to lock-in and 3,21,400 rights to shares of par value of Rs. 5 each, as at March 31, 2002. 1,498 employees hold shares/rights to shares as of March 31, 2002, after netting the employees who have received shares/rights to shares in several years. Details of net warrants/rights to shares issued to employees
Warrants/rights Warrants/rights to shares issued to shares forfeited ------------------------ ---------------------- No. of No. of No. of No. of Year ended March 31 employees shares employees shares* ------------------- --------- --------- --------- -------- 1995 106 2,88,200 32 75,600 1996 144 3,16,000 42 72,800 1997 193 2,49,200 49 57,800 1998 368 5,40,800 54 87,400 1999 1,750 11,56,200 285 1,38,400 2000 14 30,000 1 4,000
* 1,41,800 shares/rights to shares forfeited after the bonus issue are included in the respective years. Warrants originally allotted to ITL Employees' Welfare Trust 7,50,000 Less: Net warrants issued to eligible employees before bonus issue in October 1997 3,76,400 Warrants held by Trust immediately before bonus issue in October 1997 and converted to shares 3,73,600 Add: Bonus shares allotted to the Trust in October 1997 3,73,600 Shares held by the Trust immediately after bonus issue in October 1997 7,47,200 Add: Shares surrendered to the Trust after bonus issue in October 1997 26,500 Less: Net rights to shares issued to eligible employees before bonus issue in March 1999 6,64,300 Shares held by the Trust immediately before bonus issue in March 1999 1,09,400 Add: Bonus shares allotted to the Trust in March 1999 1,09,400 Shares held by the Trust immediately after bonus issue in March 1999 2,18,800 Less: Net rights to shares issued to eligible employees after bonus issue in March 1999 1,64,000 Add: Shares surrendered to the Trust after the bonus issue in March 1999 13,000 Add: Rights to shares surrendered to the Trust after the bonus issue in March 1999 31,400 Less: Net rights to shares issued to eligible employees in June 1999 15,000 Shares held by the Trust immediately before stock-split (i.e., the subdivision of equity shares of par value of Rs. 10 each into 2 equity shares of par value of Rs. 5 each) in February 2000 84,200 Add: Additional shares of par value of Rs. 5 per share allotted to the Trust in February 2000 84,200 Shares held by the Trust immediately after the split of face value to Rs. 5 per share (in February 2000) 1,68,400 Shares held by the Trust as of March 31, 2000 1,68,400 Add: Shares surrendered to the Trust during the year 2000-01 79,200 Add: Rights to shares surrendered to the Trust during the year 2000-01 10,600 Less: Rights to shares exercised by legal heirs of employees who died while in service 800 Shares held by the Trust as on March 31, 2001 2,57,400 Add: Shares surrendered to the Trust during the year 2001-02 54,000 Add: Rights to shares surrendered to the Trust during the year 2001-02 8,600 Shares held by the Trust as on March 31, 2002 3,20,000
Details of shares of par value of Rs. 5 each held by employees under the Employee Stock Offer Plan (ESOP) 1994 subject to lock-in are given in the table below.
2002 2001 ----------------------- ----------------------- No. of No. of No. of No. of Period of lock in shares employees shares employees ----------------- -------- --------- -------- --------- 2-3 years -- -- 7,50,200 994 1-2 years 7,22,400 966 4,79,600 329 0-1 years 4,53,400 314 1,91,400 144
Currently, 1,498 employees hold shares under the 1994 Stock Offer Plan. As on March 31, 2002, 512 employees hold rights to 3,21,400 shares of par value of Rs. 5 each, which are subject to a lock-in of 2-3 years. In the event of an employee leaving Infosys before the vesting period, the shares under lock-in are transferred to the Infosys Technologies Ltd. (ITL) Employees Welfare Trust. As on March 31, 2002, the ITL Employees Welfare Trust holds 3,20,000 shares of par value of Rs. 5 each. 12.2 1998 Employee Stock Option plan (1998 plan) One of the objectives of the American Depositary Share (ADS) issue and the consequent listing on the NASDAQ stock exchange was to institute an ADS-linked stock option plan to attract the best and the brightest from across the world. The necessary resolutions authorizing the board to formulate the scheme were approved by the shareholders in the Extraordinary General Meeting held on January 6, 1999. Accordingly, the directors had put in place an ADS-linked stock option plan termed as the "1998 Stock Option Plan". The compensation committee of the board administers the 1998 plan. The Government of India has approved the 1998 plan, subject to a limit of 14,70,000 equity shares of par value of Rs. 5 each representing 29,40,000 ADSs to be issued under the plan. The plan is effective for a period of 10 years from the date of its adoption by the board. The compensation committee of the board shall determine the exercise price for the ADS-linked stock option, which will not be less than 90% of the fair market value on the date of grant. 54 The details of the grants made (adjusted for stock-split, as applicable) under the plan are provided below:
Options granted Options forfeited ----------------------------------------- ---------------------- No. of No. of Grant price at No. of No. of Month of grant employees* ADSs market per ADS employees ADSs -------------- ---------- -------- -------------- --------- -------- 2001 Apr 10 22,100 $ 71.45 5 16,920 May 32 35,000 $ 73.50 3 20,340 Jun 17 40,700 $ 70.70 3 10,960 Jul 27 33,200 $ 56.89 2 2,900 Aug 27 43,000 $ 61.50 2 6,520 Sep 8 10,200 $ 48.00 3 4,000 Sep (annual grant) 277 4,18,500 $ 39.00 -- -- Oct 9 21,000 $ 36.04 5 31,900 Oct 91 1,43,550 $ 49.33 -- -- Nov 9 25,400 $ 49.50 3 11,340 Dec 11 38,200 $ 63.49 2 4,200 2002 Jan 3 8,500 $ 74.91 6 23,206 Feb 10 33,900 $ 58.90 4 10,440 Mar 5 35,250 $ 69.40 3 12,820 -------- -------- -------- -------- Total 536* 9,08,500 41 1,55,546 ======== ======== ======== ========
-------------- *Includes 62 employees who were granted ADS options twice. Therefore, the effective number of employees granted options is 474. During the year, 55,966 options issued under the 1998 plan were exercised and the remaining ADS options unexercised and outstanding as at March 31, 2002 were 22,62,494. Details of the number of ADSs options granted and exercised are given below.
Granted Exercised Balance ------------------------ --------------------- --------- No. of No. of Year employees ADSs (net) employees ADSs ADSs ---- --------- ---------- --------- ------- --------- 1999 29 3,81,000 32 90,700 2,90,300 2000 58 2,41,300 5 1,500 2,39,800 2001 705 8,48,774 -- -- 8,48,774 2002 476 8,83,620 -- -- 8,83,620 --------- ------ --------- Total 23,54,694 92,200 22,62,494 ========= ====== =========
12.3 1999 Employee Stock Option Plan (1999 plan) The shareholders approved the 1999 plan in June 1999. The 1999 plan provides for the issue of 66,00,000 equity shares to employees, adjusted for the stock split. The 1999 plan is administered by a compensation committee of the board comprising of five members, all of whom are independent directors on the board of directors. Under the 1999 plan, options were issued to employees at an exercise price not less than the fair market value. Fair market value means the closing price of the company's shares on the stock exchange where there is the highest trading volume on the date of grant and if the shares are not traded on that day, the closing price on the next trading day. Under the 1999 plan, options may also be granted to employees at exercise prices that are less than the fair market value only if specifically approved by the members of the company in a general meeting. The details of the grants made (adjusted for stock-split, as applicable) under the plan are provided below:
Options granted Options forfeited ------------------------ ---------------------- No. of No. of Grant price No. of No. of Month of grant employees* options Rs. employees options -------------- ---------- -------- ----------- --------- -------- 2001 Apr 92 27,050 3,828.05 40 10,490 Apr 8# 31,000 3,215.60 -- -- May 3,040 3,61,400 3,902.50 84 15,330 Jun 152 26,800 3,807.90 138 22,170 Jul 299 42,450 3,502.50 136 31,150 Aug 167 29,900 3,616.85 88 22,140 Sep 345 51,050 3,473.05 38 5,230 Sep 2,183 8,83,170 2,579.75 -- -- Oct 35 13,450 2,426.50 42 14,350 Oct 985 4,60,430 3,016.75 -- -- Nov 52 20,150 2,965.20 31 9,480 Dec 77 32,750 4,406.45 49 8,620 2002 Jan 59 24,650 4,436.10 44 13,890 Feb 58 26,700 3,745.50 30 5,550 Mar 39 19,550 4,189.85 20 17,235 ------ --------- --- -------- Total 7,591* 20,50,500 740 1,75,635 ====== ========= === ========
-------------- * Includes 1,520 employees who were granted options twice. Therefore, the effective number of employees granted options is 6,063. # Are external directors 55 During the year, 30 options issued under the 1999 plan were exercised and the remaining options unexercised and outstanding as at March 31, 2002 were 46,68,815. Details of number of options issued under the 1999 plan are given below.
Granted Exercised Balance ------------------------- --------------------- --------- No. of No. of No. of No. of No. of Year employees shares (net) employees shares shares ----- --------- ------------ --------- ------- --------- 2000 1,124 9,12,800 22 1,230 9,11,570 2001 8,206 17,55,700 -- -- 17,55,700 2002 5,862 20,01,545 -- -- 20,01,545 --------- ----- --------- Total 46,70,045 1,230 46,68,815 ========= ===== =========
The total number of existing employees offered stock options under 1994, 1998 and 1999 plans is 10,676. 12.4 Employee stock compensation under SFAS 123 Statement of Financial Accounting Standards 123, Accounting for Stock Based Compensation, requires the proforma disclosure of the impact of the fair value method of accounting for employee stock valuation in the financial statements. The fair value of a stock option is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividends on it, and the risk-free interest rate over the expected life of the option. Applying the fair value based method defined in SFAS 123, the impact on the reported net profit and basic earnings per share would be as follows:
in Rs. crore ---------------------- Year ended March 31 2002 2001 ------------------- ------ ------ Net profit: As reported 807.96 628.81 Adjusted proforma 524.87 481.17 Basic earnings per share: As reported 122.12 95.06 Adjusted proforma 79.33 72.74
12.5 Employee stock option plan under SEBI guidelines. The Securities and Exchange Board of India (SEBI) had earlier issued the (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 which is effective for all stock option schemes established after June 19, 1999. In accordance with these guidelines, the excess of the market price of the underlying equity shares as of the date of the grant of the option over the exercise price of the option, including up-front payments, if any, is to be recognized and amortized on a straight line basis over the vesting period. The company's 1994 stock option plan was established prior to SEBI guidelines on stock options. Had the stock compensation costs for this stock option plan been determined as per the guidelines issued by SEBI, the company's reported net profit would be as follows:
in Rs. crore -------------------- Year ended March 31 2002 2001 ------------------- ------ ------ Net profit: As reported 807.96 628.81 Adjusted proforma 784.04 605.55 Basic earnings per share: As reported 122.12 95.06 Adjusted proforma 118.52 91.54
13. Reconciliation of Indian and US GAAP financial statements There are differences between the US GAAP and the Indian GAAP financial statements. The material differences arise due to the provision for deferred taxes and provision for deferred compensation due to the issue of stock options to employees. The reconciliation of profits as per the Indian and the US GAAP financial statements is given below.
in Rs. crore ----------------------- Year ended March 31 2002 2001 ------------------- -------- -------- Net profit as per Indian GAAP 807.96 628.81 Less: Amortization of deferred stock compensation expense (23.92) (23.26) Provision for e-inventing the company -- (0.40) Transfer of intellectual property rights -- (5.63) Add: Deferred taxes 1.78 3.52 Provision for retirement benefits to employees -- 3.39 ------ ------ Net income as per the US GAAP financial statements 785.82 606.43 ====== ======
Amortization of deferred stock compensation The Accounting Principles Board Opinion No. 25 of US GAAP requires the accounting of deferred stock compensation on issue of stock options to employees, being the difference between the exercise price and the fair value as determined by the quoted market prices of the common stock on the grant date. In complying with this requirement, Infosys has charged to revenue under US GAAP an amount of Rs. 23.92 crore and Rs. 23.26 crore for the year ended March 31, 2002 and 2001 respectively, as deferred stock compensation. 56 Provision for e-inventing the company The company had made a provision towards e-inventing under Indian GAAP. The expenses incurred towards e-inventing the company were set off against the provision in the Indian GAAP financial statements. Under US GAAP, this amount was charged to the income statement. Provision for retirement benefits The provision for gratuity represents the valuation performed in accordance with US GAAP. Transfer of intellectual property rights The amount relates to the transfer of intellectual property rights to OnMobile Systems Inc. (formerly Onscan Inc.), USA. Deferred income tax provision US GAAP mandates that the tax element arising on timing differences in amortizing various assets and liabilities as per tax books and financial statements be accounted as deferred taxation and appropriate treatment be made in the income statement. There is no such requirement under Indian GAAP until March 31, 2001. However, effective April 1, 2001, the standard on accounting for taxes on income has become mandatory in India and, hence, deferred taxes have been accounted under Indian GAAP also. The difference in deferred tax provision under Indian GAAP and US GAAP during the current year basically arises due to the accounting for transfer of intellectual property rights to OnMobile Systems Inc. (formerly Onscan Inc, USA). C. Outlook: issues and risks These have been discussed in detail in the Risk management report in this Annual Report. 57 Auditors' report To The members, Infosys Technologies Limited We have audited the attached Balance Sheet of Infosys Technologies Limited (the Company) as at March 31, 2002 and the Profit and Loss Account of the Company for the year ended on that date, annexed thereto, and report that: 1 As required by the Manufacturing and Other Companies (Auditor's Report) Order, 1988, issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 2 Further to our comments in the Annexure referred to in paragraph 1 above: (a) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; (b) in our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of these books; (c) the Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account; (d) in our opinion, the Balance Sheet and Profit and Loss Accounts dealt with by this report are prepared in compliance with the accounting standards referred to in Section 211(3C) of the Companies Act, 1956, to the extent applicable; (e) on the basis of the written representations received from the directors of the Company, and taken on record by the board of directors, we report that none of the directors is disqualified as at March 31, 2002 from being appointed as a director in terms of Section 274(1)(g) of the Companies Act, 1956; and (f) in our opinion, and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2002; and (ii) in the case of the Profit and Loss Account, of the profit for the year ended on that date. for Bharat S Raut & Co. Chartered Accountants /s/ S. BALASUBRAHMANYAM Bangalore S. Balasubrahmanyam April 10, 2002 Partner 58 Annexure to the auditors' report The Annexure referred to in paragraph 1 of the auditors' report to the members of Infosys Technologies Limited (the Company) for the year ended March 31, 2002. We report that: The matters contained in sub paragraph 4(A)(xx), 4(B)(ii), 4(C) and 4(D) of the Manufacturing and Other Companies (Auditor's Report) Order, 1988, are not applicable to the Company. Internal controls 1. In our opinion and according to the information and explanations given to us, having regard to the explanations that certain items purchased are of a special nature in respect of which suitable alternative sources do not exist for obtaining comparative quotations, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for the purchase of computer hardware and software, consumables, plant and machinery, equipment and other assets. The activities of the Company do not involve the sale of goods. 2. In our opinion and according to the information and explanations given to us, in respect of the service activities, the Company, commensurate with the size and the nature of its business, has a reasonable system of: - allocating man-hours utilised to relative projects; and - authorisation at proper levels and control over the allocation of labor costs to relative projects. 3. In our opinion, the Company has an internal audit system, commensurate with its size and the nature of its business. Fixed assets 4. The Company has maintained proper records of fixed assets showing full particulars, including quantitative details and location. The Company has a regular programme of physical verification of its fixed assets which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. In accordance with this programme, certain fixed assets were physically verified by Management during the year and no material discrepancies were identified on such verification. 5. None of the fixed assets were revalued during the year. Inventories 6. The Company has not maintained any inventories during the year and consequently, paragraphs 4(A)(iii) to 4(A)(vi), 4(A)(xii), 4(A)(xiv) and 4(A)(xvi) of the Manufacturing and Other Companies (Auditor's Report) Order, 1988, are not applicable in relation to its activities. Loans and advances 7. The parties to whom loans or advances in the nature of loans were given by the Company are regular in repaying the principal amounts as stipulated and interest where applicable. 8. The Company has not taken any loans, secured or unsecured, from companies, firms, or other parties listed in the register maintained under Section 301 of the Companies Act, 1956, or from companies under the same management as defined under Section 370(1B) of the Companies Act, 1956, the rate of interest and other terms and conditions of which are, prima facie, prejudicial to the interests of the Company. 9. The Company has not granted any loans, secured or unsecured, to companies, firms, or other parties listed in the register maintained under Section 301 of the Companies Act, 1956, or to companies under the same management as defined under Section 370(1B) of the Companies Act, 1956, the rate of interest and other terms and conditions of which are, prima facie, prejudicial to the interests of the Company. Transactions with parties under Section 301 of the Companies Act, 1956 10. In our opinion, and according to the information and explanations given to us, the transactions for the purchase of goods and materials and sale of goods, materials and services made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956, and aggregating during the year to Rs. 50,000 or more in respect of each party, have been made at prices which are reasonable having regard to prevailing market prices as available with the Company for such goods, materials or services or the prices at which transactions for similar goods, materials or services have been made with the other parties. Fixed deposits 11. The Company has not accepted any deposits from the public and consequently the provisions of Section 58A of the Companies Act, 1956, and the rules framed thereunder are not applicable. Staff welfare 12. Provident Fund dues were regularly deposited during the year with the appropriate authorities. The provisions of the Employees' State Insurance Act, 1948 are not applicable to the Company. 13. On the basis of the examination of the books of account carried out by us in accordance with generally accepted auditing practices and according to the information and explanations given to us, no personal expenses of employees or directors were charged to the profit and loss account, other than those payable under contractual obligations or in accordance with generally accepted business practice. Taxation 14. According to the information and explanations given to us, there are no undisputed amounts payable in respect of income tax, wealth tax, sales tax, customs duty and excise duty that were outstanding as at March 31, 2002 for a period of more than six months from the dates that they became payable. for Bharat S Raut & Co. Chartered Accountants /s/ S. BALASUBRAHMANYAM Bangalore S. Balasubrahmanyam April 10, 2002 Partner 59 Balance sheet as at March 31
in Rs. crore ---------------------- Schedules 2002 2001 --------- -------- -------- SOURCES OF FUNDS SHAREHOLDERS' FUNDS Share capital 1 33.09 33.08 Reserves and surplus 2 2,047.22 1,356.56 -------- -------- -------- 2,080.31 1,389.64 ======== ======== ======== APPLICATION OF FUNDS FIXED ASSETS 3 Original cost 960.60 631.14 Less: Depreciation 393.03 244.13 -------- -------- -------- Net book value 567.57 387.01 Add: Capital work-in-progress 150.67 170.65 -------- -------- -------- 718.24 557.66 INVESTMENTS 4 44.44 34.12 DEFERRED TAX ASSETS 5 24.22 -- CURRENT ASSETS, LOANS AND ADVANCES Sundry debtors 6 336.73 302.37 Cash and bank balances 7 772.22 385.06 Loans and advances 8 643.87 430.28 -------- -------- -------- 1,752.82 1,117.71 Less: Current liabilities 9 126.11 134.92 Provisions 10 333.30 184.93 -------- -------- -------- NET CURRENT ASSETS 1,293.41 797.86 -------- -------- 2,080.31 1,389.64 ======== ======== ======== SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS 16
The schedules referred to above and the notes thereon form an integral part of the balance sheet. This is the balance sheet referred to in our report of even date. for Bharat S Raut & Co. Chartered Accountants S. Balasubrahmanyam N. R. Narayana Murthy Nandan M. Nilekani S. Gopalakrishnan Deepak M. Satwalekar Partner Chairman and Chief Mentor Chief Executive Officer, Chief Operating Officer Director President and Managing and Deputy Managing Director Director Marti G. Subrahmanyam Philip Yeo Jitendra Vir Singh Omkar Goswami Director Director Director Director Larry Pressler Rama Bijapurkar Claude Smadja K. Dinesh Director Director Director Director S. D. Shibulal T. V. Mohandas Pai Phaneesh Murthy Srinath Batni Director Director and Chief Director Director Financial Officer V. Balakrishnan Bangalore Company Secretary April 10, 2002 and Vice President - Finance
60 Profit and loss account for the year ended March 31
in Rs. crore ---------------------------- Schedules 2002 2001 --------- ----------- ----------- INCOME Software services and products Overseas 2,552.47 1,874.02 Domestic 51.12 26.54 ----- ----------- ----------- 2,603.59 1,900.56 SOFTWARE DEVELOPMENT EXPENSES 11 1,224.82 870.83 ----- ----------- ----------- GROSS PROFIT 1,378.77 1,029.73 SELLING AND MARKETING EXPENSES 12 129.79 92.07 GENERAL AND ADMINISTRATION EXPENSES 13 211.35 172.82 ----- ----------- ----------- 341.14 264.89 OPERATING PROFIT (PBIDT) 1,037.63 764.84 Interest -- -- Depreciation 160.65 112.89 ----- ----------- ----------- OPERATING PROFIT AFTER INTEREST AND DEPRECIATION 876.98 651.95 Other income 14 66.41 59.37 Provision for investment -- 15.29 ----- ----------- ----------- PROFIT BEFORE TAX AND EXTRA ORDINARY ITEM 943.39 696.03 Provision for taxation 15 135.43 72.71 ----- ----------- ----------- PROFIT AFTER TAX BEFORE EXTRAORDINARY ITEM 807.96 623.32 Extraordinary item - transfer of intellectual property rights (net of tax) -- 5.49 ----- ----------- ----------- NET PROFIT AFTER TAX AND EXTRAORDINARY ITEM 807.96 628.81 ----- ----------- ----------- AMOUNT AVAILABLE FOR APPROPRIATION 807.96 628.81 ----- ----------- ----------- DIVIDEND Interim 49.63 16.53 Final (Proposed, subject to deduction of tax, if any) 82.73 49.62 Dividend Tax 5.06 8.70 Amount transferred - general reserve 670.54 553.96 ----- ----------- ----------- 807.96 628.81 ===== =========== =========== EARNINGS PER SHARE (Equity shares, par value Rs. 5/- each) Basic 122.12 95.06 Diluted 121.37 94.76 Number of shares used in computing earnings per share Basic 6,61,62,274 6,61,52,131 Diluted 6,65,67,575 6,63,58,311 ===== =========== =========== SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS 16 ----- ----------- -----------
The schedules referred to above and the notes thereon form an integral part of the profit and loss account. This is the profit and loss account referred to in our report of even date. for Bharat S Raut & Co. Chartered Accountants S. Balasubrahmanyam N. R. Narayana Murthy Nandan M. Nilekani S. Gopalakrishnan Deepak M. Satwalekar Partner Chairman and Chief Mentor Chief Executive Officer, Chief Operating Officer Director President and Managing and Deputy Managing Director Director Marti G. Subrahmanyam Philip Yeo Jitendra Vir Singh Omkar Goswami Director Director Director Director Larry Pressler Rama Bijapurkar Claude Smadja K. Dinesh Director Director Director Director S. D. Shibulal T. V. Mohandas Pai Phaneesh Murthy Srinath Batni Director Director and Chief Director Director Financial Officer V. Balakrishnan Bangalore Company Secretary April 10, 2002 and Vice President - Finance
61 Schedules to the balance sheet as at March 31
in Rs. crore ---------------------- 2002 2001 -------- -------- 1. SHARE CAPITAL AUTHORIZED Equity shares, Rs. 5/- (Rs. 5/-) par value 10,00,00,000 (10,00,00,000) equity shares 50.00 50.00 -------- -------- ISSUED, SUBSCRIBED AND PAID UP Equity shares, Rs. 5/- (Rs. 5/-) par value* 6,61,86,130 (6,61,58,117) equity shares fully paid up 33.09 33.08 [Of the above, 5,78,88,200 (5,78,88,200) equity shares, fully paid up have been issued as bonus shares by capitalization of the general reserve] -------- -------- 33.09 33.08 ======== ======== Forfeited shares amounted to Rs. 1,500/- (Rs. 1,500/-) * for details of options in respect of the above shares, refer to note 16.2.16 2. RESERVES AND SURPLUS Capital reserve 5.94 5.94 -------- -------- Share premium account as at April 1, 320.75 318.38 Add: Received during the year on conversion of stock options issued to employees 4.59 2.37 -------- -------- 325.34 320.75 -------- -------- General reserve as at April 1, 1,029.87 475.91 Add: Cumulative effect on recognition of deferred tax assets* 15.53 -- Transfer from the Profit and Loss Account 670.54 553.96 -------- -------- 1,715.94 1,029.87 -------- -------- 2,047.22 1,356.56 ======== ========
* for details in respect of the above adjustment, refer to note 16.2.1 62 Schedules to the balance sheet
3. FIXED ASSETS in Rs. crore ------------------------------------------------------------------------------------------------------------- Original cost Depreciation Net book value ------------------------------------------- ------------------------------------------ --------------------- Cost as at Additions Deletions Cost as at As at Deductions As at As at As at April 1, during the during the March 31, April 1, For the during the March 31, March 31, March 31, Assets 2001 year year 2002 2001 year year 2002 2002 2001 ------ ---------- ---------- ---------- ---------- -------- ------ ---------- --------- --------- --------- Land - free-hold 9.04 6.82 -- 15.86 -- -- -- -- 15.86 9.04 Land - lease-hold 27.58 0.26 -- 27.84 -- -- -- -- 27.84 27.58 Buildings 157.71 127.62 -- 285.33 13.38 14.51 -- 27.89 257.44 144.33 Plant and machinery 112.05 76.29 4.47 183.87 50.74 30.58 3.48 77.84 106.03 61.31 Computer equipment 223.94 67.40 3.45 287.89 129.69 90.31 3.37 216.63 71.26 94.25 Furniture and fixtures 100.47 64.33 5.34 159.46 50.23 25.18 4.90 70.51 88.95 50.24 Vehicles 0.35 -- -- 0.35 0.09 0.07 -- 0.16 0.19 0.26 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 631.14 342.72 13.26 960.60 244.13 160.65 11.75 393.03 567.57 387.01 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Previous year 284.03 349.66 2.55 631.14 133.65 112.89 2.41 244.13 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Note: Buildings include Rs. 250/- being the value of 5 shares of Rs. 50/- each in Mittal Towers Premises Co-operative Society Limited. 63 Schedules to the balance sheet as at March 31
in Rs. crore --------------------- 2002 2001 -------- -------- 4. INVESTMENTS Trade (unquoted) - at cost Long-term investments Yantra Corporation, USA 20,00,000 (75,00,000) common stock at US$0.20 each, fully paid, par value US$0.01 each 1.42 5.33 Fully paid (nil) warrant to purchase 55,00,000 common stock, at US$0.19 each, exercise price of US$0.01 each 3.91 -- 6,36,363 (6,36,363) Series A convertible preferred stock, at US$0.75 each, fully paid, par value US$0.01 each 1.73 1.73 EC Cubed Inc., USA 13,00,108 (13,00,108) Series D convertible preferred stock at US$2.3075 each, fully paid, par value US$0.0001 each 13.08 13.08 Alpha Thinx Mobile Phone Services AG, Austria 27,790 (27,790) bearer shares at E20 each, fully paid, par value E1 each 2.21 2.21 -------- -------- 22.35 22.35 Less: Provision for investments 22.35 22.35 -------- -------- Asia Net Media (BVI) Ltd., the British Virgin Islands 3,00,00,000 (3,00,00,000) ordinary shares at US$0.05 each, fully paid, par value US$0.01 each 6.85 6.85 CiDRA Corporation, USA 33,333 (33,333) Series D convertible preferred stock at US$90 each, fully paid, par value US$0.01 each 13.40 13.40 JASDIC Park Company, Japan 480 (480) common stock at Y50,000 each, fully paid, par value Y50,000 each 0.75 0.75 M-Commerce Ventures Pte Ltd, Singapore Units in the company, each unit representing 1 ordinary share of Singapore $1 each, fully paid, par value Singapore $1 and 9 redeemable preferred shares of Singapore $1, fully paid, at a premium of Singapore $1,110 per redeemable preferred stock 70 (70) ordinary shares -- -- 630 (630) redeemable preference shares 1.84 1.84 OnMobile Systems Inc., (formerly Onscan Inc.) USA 1,00,000 (1,00,000) common stock at US$0.4348 each, fully paid, par value US$0.001 each 0.20 0.20 1,00,000 (1,00,000) Series A voting convertible preferred stock at US$0.4348 each, fully paid, par value US$0.001 each 0.20 0.20 44,00,000 (44,00,000) Series A non-voting convertible preferred stock at US$0.4348 each, fully paid, par value US$0.001 each 8.55 8.55 Stratify Inc., (formerly PurpleYogi Inc.), USA 2,76,243 (2,76,243) Series D convertible preferred stock at US$1.81 each fully paid, par value US$0.001 each 2.33 2.33 Workadia Inc., USA 22,00,000 (Nil) Series B convertible preferred stock at US$1.00 each, fully paid, par value US$0.0002 each (adjusted for stock splits) 10.32 -- The Saraswat Co-operative Bank Limited 1,035 (1,035) equity shares of Rs. 10 each, fully paid, par value Rs. 10 -- -- Software Services Support Education Center Limited 1 (1) equity share of Rs. 10 each, fully paid, par value Rs. 10 -- -- -------- -------- 44.44 34.12 ======== ======== Aggregate of unquoted investments - carrying value / cost 44.44 34.12 5. DEFERRED TAX ASSETS Fixed assets 14.59 -- Investments 5.85 -- Sundry debtors 3.78 -- -------- -------- 24.22 -- ======== ========
64 Schedules to the balance sheet as at March 31
in Rs. crore ------------------- 2002 2001 ------- ------- 6. SUNDRY DEBTORS Debts outstanding for a period exceeding six months Unsecured considered doubtful 7.35 9.62 Other debts Unsecured considered good 336.73 302.37 considered doubtful 11.88 8.55 ------- ------- 355.96 320.54 Less: Provision for doubtful debts 19.23 18.17 ------- ------- 336.73 302.37 ======= ======= 7. CASH AND BANK BALANCES Cash on hand 0.03 0.01 Balances with scheduled banks in current accounts* 22.75 12.80 in deposit accounts in Indian rupees 551.62 181.89 in deposit accounts in foreign currency 147.41 136.36 Balances with non-scheduled banks** in current accounts 50.41 54.00 ------- ------- 772.22 385.06 ======= ======= * includes balance in unclaimed dividend account 1.12 0.48 ** refer to note 16.2.19 for details of balances in the non-scheduled banks 8. LOANS AND ADVANCES Unsecured, considered good Advances prepaid expenses 11.20 13.75 advances paid for supply of goods and rendering of services 1.22 4.58 others 2.17 1.92 ------- ------- 14.59 20.25 Unbilled revenues 17.74 2.35 Advance income tax 236.25 123.74 Loans and advances to employees* housing and other loans 81.52 50.46 salary advances 19.91 24.47 Electricity and other deposits 6.26 4.76 Rental deposits 10.14 11.57 Deposits with financial institutions/body corporate 254.74 192.68 Other assets 2.72 -- ------- ------- 643.87 430.28 Unsecured, considered doubtful Loans and advances to employees 0.49 0.07 ------- ------- 644.36 430.35 Less: Provision for doubtful loans and advances to employees 0.49 0.07 ------- ------- 643.87 430.28 ======= ======= * includes dues by non-director officers of the company 2.31 1.06 Maximum amounts due by non-director officers at any time during the year 2.97 2.84
65 Schedules to the balance sheet as at March 31
in Rs. crore --------------------- 2002 2001 -------- -------- 9. CURRENT LIABILITIES Sundry creditors for goods -- 0.13 for accrued salaries and benefits salaries 2.77 3.80 bonus and incentives 30.71 34.64 leave provisions 22.99 18.98 for other liabilities provision for expenses 16.38 17.71 retention monies 9.36 11.42 withholding and other taxes payable 12.76 5.50 others 2.31 1.76 -------- -------- 97.28 93.94 Advances received from clients 10.81 5.67 Unearned revenue 16.90 34.83 Unclaimed dividend 1.12 0.48 -------- -------- 126.11 134.92 ======== ======== 10. PROVISIONS Dividends 82.73 49.62 Provision for tax on dividend -- 5.06 income taxes 239.57 122.90 post-sales client support 11.00 7.35 -------- -------- 333.30 184.93 ======== ========
66 Schedules to the profit and loss account for the year ended March 31
in Rs. crore --------------------- 2002 2001 -------- -------- 11. SOFTWARE DEVELOPMENT EXPENSES Salaries and bonus including overseas staff expenses 976.11 605.51 Staff welfare 6.14 7.63 Contribution to provident and other funds 25.63 31.00 Foreign travel expenses 113.12 133.66 Consumables 3.22 5.87 Cost of software packages for own use 34.44 31.84 service delivery to clients 9.17 5.70 Provision for post-sales client support 3.65 1.83 Computer maintenance 7.11 7.13 Communication expenses 36.11 31.47 Consultancy charges 10.12 9.19 -------- -------- 1,224.82 870.83 ======== ======== 12. SELLING AND MARKETING EXPENSES Salaries and bonus including overseas staff expenses 61.04 44.25 Staff welfare 0.27 0.83 Contribution to provident and other funds 0.22 0.24 Foreign travel expenses 18.66 10.72 Consumables 0.02 -- Cost of software packages for own use 0.58 0.02 Computer maintenance -- 0.06 Communication expenses 0.38 0.05 Traveling and conveyance 3.14 2.35 Rent 4.30 2.47 Telephone charges 3.26 2.34 Professional charges 5.90 4.78 Printing and stationery 1.55 0.96 Advertisements 0.31 0.73 Brand building 13.16 10.52 Office maintenance 0.31 0.77 Repairs to plant and machinery 0.01 0.17 Power and fuel 0.06 0.08 Insurance charges -- 2.33 Rates and taxes 0.33 0.85 Bank charges and commission 0.03 0.05 Commission charges 10.82 1.79 Marketing expenses 4.67 4.27 Sales promotion expenses 0.44 0.70 Other miscellaneous expenses 0.33 0.74 -------- -------- 129.79 92.07 ======== ========
67 Schedules to the profit and loss account for the year ended March 31
in Rs. crore ---------------------- 2002 2001 -------- -------- 13. GENERAL AND ADMINISTRATION EXPENSES Salaries and bonus including overseas staff expenses 45.48 26.11 Contribution to provident and other funds 2.98 2.22 Foreign travel expenses 4.81 2.84 Traveling and conveyance 15.48 16.06 Rent 20.11 14.48 Telephone charges 11.45 11.68 Professional charges 16.23 15.62 Printing and stationery 4.75 5.30 Advertisements 2.78 5.58 Office maintenance 13.81 12.07 Repairs to building 8.50 3.95 Repairs to plant and machinery 2.48 2.09 Power and fuel 18.90 11.71 Insurance charges 5.34 2.84 Rates and taxes 3.93 0.97 Donations 5.12 7.22 Auditor's remuneration audit fees 0.21 0.18 certification charges 0.02 0.02 out-of-pocket expenses 0.02 0.02 Bad loans and advances written-off -- -- Bad debts written-off -- 0.28 Provision for bad and doubtful debts 13.09 19.28 Provision for doubtful loans and advances 0.42 0.07 Bank charges and commission 0.68 0.54 Commission to non-whole time directors 0.98 0.59 Postage and courier 3.23 2.28 Books and periodicals 1.14 1.69 Research grants 0.75 1.00 Freight charges 0.52 0.56 Professional membership and seminar participation fees 2.20 2.17 Transaction processing fee and filing fees 4.78 1.53 Other miscellaneous expenses 1.16 1.87 -------- -------- 211.35 172.82 ======== ======== 14. OTHER INCOME Interest received on deposits with banks and others 51.23 38.47 (Tax deducted at source Rs. 8.28 and Rs. 4.30 respectively) Exchange differences* 13.26 20.17 Miscellaneous income 1.92 0.73 -------- -------- 66.41 59.37 ======== ======== * Includes a realized exchange gains of -- 5.06 15. PROVISION FOR TAXATION Current year Income taxes 143.19 71.31 Deferred taxes (7.76) -- -------- -------- 135.43 71.31 Prior years -- 1.40 -------- -------- 135.43 72.71 ======== ========
68 Schedules to the financial statements for the year ended March 31, 2002 16. SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS Company overview Infosys Technologies Limited ("Infosys" or the "company"), a world leader in consulting and information technology ("IT") services partners with Global 2000 companies to provide business consulting, systems integration, application development, maintenance, re-engineering and product engineering services. Through these services, Infosys enables its clients to fully exploit technology for business transformation. Clients leverage Infosys' Global Delivery Model to achieve higher quality, improved time-to-market and cost-effective solutions. 16.1 Significant accounting policies 16.1.1 Basis of preparation of financial statements The financial statements are prepared under the historical cost convention, in accordance with Indian Generally Accepted Accounting Principles ("GAAP") on the accrual basis. GAAP comprises mandatory accounting standards issued by the Institute of Chartered Accountants of India ("ICAI") and the provisions of the Companies Act, 1956. These accounting policies have been consistently applied, except for applicable recently issued accounting standards made mandatory by the ICAI effective the current fiscal year that were adopted by the company, as described below. All amounts are stated in Indian Rupees, except as otherwise specified. Of the applicable accounting standards mandated by the ICAI, the company adopted the standards on segment reporting, related party disclosures and earnings per share from the year ended March 31, 2001. Additionally, the company adopted the standards on leases, accounting for taxes on income and interim financial reporting effective the year ended March 31, 2002. The preparation of the financial statements in conformity with GAAP requires that the management of the company ("Management") makes estimates and assumptions that affect the reported amounts of income and expenses of the period, reported balances of assets and liabilities and disclosures relating to contingent assets and liabilities as of the date of the financial statements. Examples of such estimates include expected development costs to complete software contracts, provisions for doubtful debts, future obligations under employee retirement benefit plans and the useful lives of fixed assets. Actual results could differ from those estimates. 16.1.2 Revenue recognition Revenue from software development on fixed-price contracts is recognized according to the milestones achieved as specified in the contracts on the proportionate-completion method based on the work completed. On time-and-material contracts, revenue is recognized based on software developed and invoiced as per the terms of specific contracts. Annual Technical Services revenue is recognized proportionately over the period in which services are rendered. Revenue from the sale of user licenses for software applications is recognized on transfer of the title in the user license. Interest is recognized using the time-proportion method, based on rates implicit in the transaction. Dividend income is recognized when the company's right to receive dividend is established. 16.1.3 Expenditure The cost of software user licenses purchased for software development and the rendering of IT services is charged to revenue in the year the software is acquired at the time of acquisition. Charges relating to non-cancelable long-term operating leases are computed on the basis of the lease rentals payable as per the relevant lease agreements. Provisions are made for all known losses and liabilities, future unforeseeable factors that may affect the profit on fixed-price software development contracts and also towards likely expenses for providing post-sales client support. The leave encashment liability of the company is provided on the basis of an actuarial valuation. 16.1.4 Fixed assets and capital work-in-progress Fixed assets are stated at cost, after reducing accumulated depreciation until the date of the balance sheet. Direct costs are capitalized until the assets are ready for use and include financing costs relating to any borrowing attributable to acquisition. Capital work-in-progress includes the cost of fixed assets that are not yet ready for their intended use, advances paid to acquire fixed assets and the cost of assets not put to use before the balance sheet date. 16.1.5 Depreciation Depreciation on fixed assets is determined using the straight-line method based on useful lives of assets as estimated by the company. Depreciation for assets purchased/sold during the period is proportionately charged. Individual assets acquired for less than Rs. 5,000/- are entirely depreciated in the year of acquisition. Management estimates the useful lives for the various fixed assets as follows: Buildings 15 years Plant and machinery 5 years Computer equipment 2-5 years Furniture and fixtures 5 years Vehicles 5 years
16.1.6 Retirement benefits to employees 16.1.6a Gratuity In accordance with the Payment of Gratuity Act, 1972, Infosys provides for gratuity, a defined benefit retirement plan (the "Gratuity Plan") covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's salary and the tenure of employment. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation, based upon which, the company fully contributes all the 69 ascertained liabilities to the Infosys Technologies Limited Employees' Gratuity Fund Trust (the "Trust"). Trustees administer contributions made to the Trust and invest in specific designated securities as mandated by law, which generally comprise central and state government bonds and debt instruments of government-owned corporations. 16.1.6b Superannuation Certain employees of Infosys are also participants of a defined contribution plan. The company makes monthly contributions under the superannuation plan (the "Plan") to the Infosys Technologies Limited Employees Superannuation Fund Trust based on a specified percentage of each covered employee's salary. The company has no further obligations to the Plan beyond its monthly contributions. 16.1.6c Provident fund Eligible employees receive benefits from a provident fund, which is a defined contribution plan. Both the employee and the company make monthly contributions to this provident fund plan equal to a specified percentage of the covered employee's salary. Infosys contributes a part of the contributions to the Infosys Technologies Limited Employees Provident Fund Trust. The remainders of the contributions are made to a government administered provident fund. The company has no further obligations under the provident fund plan beyond its monthly contributions. 16.1.7 Research and development Revenue expenditure incurred on research and development is expensed as incurred. Capital expenditure incurred on research and development is depreciated over the estimated useful lives of the related assets. 16.1.8 Foreign currency transactions Revenues from overseas clients and collections deposited in foreign currency bank accounts are recorded at the exchange rate as of the date of the respective transactions. Expenditure in foreign currency is accounted at the exchange rate prevalent when such expenditure is incurred. Disbursements made out of foreign currency bank accounts are reported at a rate that approximates the actual monthly rate. Exchange differences are recorded when the amount actually received on sales or actually paid when expenditure is incurred is converted into Indian Rupees. The exchange differences arising on foreign currency transactions are recognized as income or expense in the period in which they arise. Fixed assets purchased at overseas offices are recorded at cost, based on the exchange rate as of the date of purchase. The charge for depreciation is determined as per the company's accounting policy. Current assets and current liabilities denominated in foreign currency are translated at the exchange rate prevalent at the date of the balance sheet. The resulting difference is also recorded in the profit and loss account. In the case of forward contracts, the difference between the forward rate and the exchange rate on the date of the transaction is recognized as income or expense over the life of the contract. 16.1.9 Income tax Income taxes are computed using the tax effect accounting method, where taxes are accrued in the same period the related revenue and expenses arise. A provision is made for income tax annually based on the tax liability computed after considering tax allowances and exemptions. Provisions are recorded as considered appropriate for matters under appeal due to disallowances or for other reasons. The differences that result between the profit offered for income taxes and the profit as per the financial statements are identified and thereafter a deferred tax asset or deferred tax liability is recorded for timing differences, namely the differences that originate in one accounting period and reverse in another, based on the tax effect of the aggregate amount being considered. The tax effect is calculated on the accumulated timing differences at the end of an accounting period based on prevailing enacted or substantially enacted regulations. Deferred tax assets are recognized only if there is reasonable certainty that they will be realized and are reviewed for the appropriateness of their respective carrying values at each balance sheet date. 16.1.10 Earnings per share In determining earnings per share, the company considers the net profit after tax and includes the post-tax effect of any extra-ordinary items. The number of shares used in computing basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average shares considered for deriving basic earnings per share, and also the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares). The number of shares and potentially dilutive equity shares are adjusted for stock splits and bonus shares, as appropriate. 16.1.11 Investments Trade investments refer to the investments made to enhance the company's business interests in information technology services. Investments are either classified as current or long-term. Current investments are carried at the lower of cost and fair value. Cost for overseas investments comprises the Indian Rupee value of the consideration paid for the investment. Long-term investments are carried at cost and provisions recorded to recognize any decline, other than temporary, in the carrying value of each investment. Any dividends are recorded as income in the profit and loss account. 16.2 Notes on accounts Pursuant to our application, the Department of Company Affairs in their letter of January 23, 2002 granted the company approval to present the financial statements in Rupees crore. Accordingly, all amounts in the financial statements are presented in Rupees crore, except for per share data and as otherwise stated. All exact amounts are stated with the suffix "/-". One crore equals 10 million. The previous year's figures have been regrouped/reclassified, wherever necessary, to conform to the current year's presentation. 70 16.2.1 Deferred income taxes Consequent to the standard on accounting for taxes on income becoming mandatory effective April 1, 2001, the company recorded the cumulative net deferred tax credit of Rs. 15.53 until April 1, 2001, as an addition to the general reserves. The deferred tax credit of Rs. 7.76 for the year ended March 31, 2002 is included in provision for taxation for the respective period. 16.2.2 Capital commitments and contingent liabilities a. The estimated amount of contracts remaining to be executed on capital account, and not provided for (net of advances) is Rs. 63.53 as at March 31, 2002. The amount of such contracts as at March 31, 2001 was Rs. 158.25. b. The company has outstanding guarantees and counter guarantees of Rs. 16.27 as at March 31, 2002, to various banks, in respect of the guarantees given by the banks in favor of various government authorities and others. The guarantees outstanding as at March 31, 2001 were Rs. 6.83. c. Claims against the company, not acknowledged as debts, amounted to Rs. 3.77 as at March 31, 2002. The claims as at March 31, 2001 were Rs. 0.09. d. Outstanding forward contracts amounted to US$2,000,000 (approximately Rs. 9.76 at year end exchange rates) at March 31, 2002. Such contracts as at March 31, 2001 were US$20,000,000 (approximately Rs. 93.12 at year end exchange rates). 16.2.3 Aggregate expenses Following are the aggregate amounts incurred on certain specific expenses that are required to be disclosed under schedule VI to the Companies Act, 1956:
Year ended ---------------------- March 31, March 31, 2002 2001 --------- --------- Salaries and bonus including overseas staff expenses 1,082.63 675.87 Staff Welfare 6.41 8.45 Contribution to provident and other funds 28.83 33.46 Foreign travel expenses 136.59 147.22 Consumables 3.24 5.87 Cost of software packages for own use 35.02 31.86 Cost of software packages for service delivery to clients 9.17 5.70 Computer maintenance 7.11 7.19 Communication expenses 36.49 31.52 Consultancy charges 10.12 9.19 Provision for post-sales client support 3.65 1.83 Traveling and conveyance 18.62 18.41 Rent 24.41 16.95 Telephone charges 14.71 14.03 Professional charges 22.13 20.40 Printing and stationery 6.30 6.25 Advertisements 3.09 6.31 Office maintenance 14.12 12.84 Repairs to building 8.50 3.95 Repairs to plant and machinery 2.49 2.27 Power and fuel 18.96 11.78 Brand building 13.16 10.52 Insurance charges 5.34 5.18 Rates and taxes 4.26 1.82 Commission charges 10.82 1.79 Donations 5.12 7.22 Auditor's remuneration - audit fees 0.21 0.18 - certification charges 0.02 0.02 - out-of-pocket expenses 0.02 0.02 Bad debts written-off -- 0.28 Provision for bad and doubtful debts 13.09 19.28 Provision for doubtful loans and advances 0.42 0.07 Bank charges and commission 0.71 0.59 Commission to non-whole time directors 0.98 0.59 Postage and courier 3.23 2.28 Books and periodicals 1.14 1.69 Research grants 0.75 1.00 Freight charges 0.52 0.56 Professional membership and seminar participation fees 2.20 2.17 Marketing expenses 4.67 4.27 Sales promotion expenses 0.44 0.70 Transaction processing fee and filing fees 4.78 1.53 Other miscellaneous expenses 1.49 2.61 -------- -------- 1,565.96 1,135.72 ======== ========
71 16.2.4 Quantitative details The company is engaged in the development and maintenance of computer software. The production and sale of such software cannot be expressed in any generic unit. Hence, it is not possible to give the quantitative details of sales and certain information as required under paragraphs 3, 4C and 4D of part II of Schedule VI to the Companies Act, 1956. 16.2.5 Imports (valued on the cost, insurance and freight basis)
Year ended ----------------------- March 31, March 31, 2002 2001 --------- --------- Capital goods 41.66 113.56 Software packages 7.08 1.68 ------- -------
16.2.6 Earnings in foreign exchange (on the receipts basis)
Year ended ---------------------- March 31, March 31, 2002 2001 --------- --------- Income from software development services and products 2,490.91 1,708.67 Interest received on deposits with banks 4.59 19.56
Expenditure in foreign currency (on the payments basis)
Year ended --------------------- March 31, March 31, 2002 2001 --------- --------- Travel expenses 101.21 107.70 Professional charges 14.31 14.64 Other expenditure incurred overseas for software development 907.89 489.95
Net earnings in foreign currency (on the receipts and payments basis)
Year ended ---------------------- March 31, March 31, 2002 2001 --------- --------- Net earnings in foreign exchange 1,472.09 1,115.94
16.2.7 Fixed assets Depreciation charged to the profit and loss account relating to assets costing less than Rs. 5,000/- each
Year ended ---------------------- March 31, March 31, 2002 2001 --------- --------- Charged during the year 21.17 34.99
Profit/loss on disposal of fixed assets
Year ended ---------------------- March 31, March 31, 2002 2001 --------- --------- Profit on sale of fixed assets 0.86 0.11 Loss on sale of fixed assets (0.77) (0.02) Profit on sale of fixed assets, net 0.09 0.09
16.2.8 Obligations on long-term non-cancelable operating leases The lease rentals charged during the period and maximum obligations on long-term non-cancelable operating leases payable as per the rentals stated in the respective agreements are as follows:
Year ended --------------------- March 31, March 31, 2002 2001 --------- --------- Lease rentals paid during the year 19.78 9.74
Year ended --------------------- March 31, March 31, Lease obligations 2002 2001 ----------------- --------- --------- Within one year of the balance sheet date 16.95 7.30 Due in a period between one year and five years 46.90 27.72 Due after five years 7.20 14.40
The operating lease arrangements extend for a maximum of ten years from their respective dates of inception and relate to rented overseas premises. 16.2.9 Managerial remuneration for the chairman, managing director and whole time directors
Year ended --------------------- March 31, March 31, 2002 2001 --------- --------- Salary 2.03 1.55 Contribution to provident fund and other funds 0.19 0.18 Perquisites and incentives 1.07 0.89
72 16.2.10 Managerial remuneration for non-whole time directors
Year ended ---------------------- March 31, March 31, 2002 2001 --------- --------- Commission 0.98 0.59 Sitting fees 0.04 0.03 Reimbursement of expenses 0.27 0.09
Computation of net profit in accordance with Section 349 of the Companies Act, 1956, and calculation of commission payable to non-whole time directors
Year ended ---------------------- March 31, March 31, 2002 2001 --------- --------- Net profit after tax from ordinary activities 807.96 623.32 Add: 1. Whole-time directors remuneration 3.29 2.62 2. Directors sitting fees 0.04 0.03 3. Commission to non-whole time directors 0.98 0.59 4. Provision for bad and doubtful debts 13.09 19.28 5. Provision for bad loans and advances 0.42 0.07 6. Provision on investments -- 15.29 7. Depreciation as per the books of account 160.65 112.89 8. Provision for taxation 135.43 72.71 -------- -------- 1,121.86 846.80 Less: Depreciation as envisaged under section 350 of the Companies Act * 160.65 112.89 -------- -------- Net profit on which commission is payable 961.21 733.91 ======== ======== Commission payable to non-whole-time directors: Maximum allowed as per Companies Act, 1956 at 1% 9.61 7.34 Maximum approved by the shareholders (0.5%) 4.80 3.67 Commission approved by the board 0.98 0.59
* The company depreciates fixed assets based on estimated useful lives that are lower than those implicit in Schedule XIV of the Companies Act, 1956. Accordingly, the rates of depreciation used by the company are higher than the minimum rates prescribed by Schedule XIV. 16.2.11 Exchange differences Other income includes exchange differences of Rs. 23.75 for the year ended March 31, 2002, the corresponding amount for the year ended March 31, 2001 was Rs. 39.63. Of this amount, the gains on translation of foreign currency deposits amounted to Rs. 6.65 in the year ended March 31, 2002 (Rs. 20.17 for the year ended March 31, 2001) 16.2.12 Research and development expenditure
Year ended ------------------------ March 31, March 31, 2002 2001 --------- --------- Capital 0.46 2.14 Revenue 14.40 14.97 -------- -------- 14.86 17.11 ======== ========
16.2.13 Unearned revenue Unearned revenue as at March 31, 2002 amounting to Rs. 16.90 (as at March 31, 2001 Rs. 34.83) primarily consists of client billings on fixed-price, fixed-time-frame contracts for which the related costs have not yet been incurred. 16.2.14 Dues to small-scale industrial undertakings As at March 31, 2002, the company had no outstanding dues to small-scale industrial undertakings (as at March 31, 2001 - Rs. Nil). 16.2.15 Balance of unutilized money raised by issue of American Depositary Shares ("ADSs") During the year ended March 31, 1999, Infosys made an Initial Public Offering of ADS, of US$ 7,03,80,000, equivalent to Rs. 296.86. The issue proceeds net of expenses of Rs. 19.68, were entirely utilized by December 31, 2000. 16.2.16 Stock option plans The company currently has three stock option plans. These are summarized below. 1994 Stock Option Plan ("the 1994 Plan") As of March 31, 2002 options to acquire 3,20,000 shares were outstanding with the Employee Welfare Trust and options to acquire 3,21,400 shares are outstanding with the employees under the 1994 Plan. These options were granted at an exercise price of Rs. 50/- (post split) per option. Additionally, 11,75,800 shares earlier issued are subject to lock-in. No options were issued under this plan during the period. 73 1998 Stock Option Plan ("the 1998 Plan") The 1998 Plan provides for the grant of stock options to employees. The 1998 Plan was approved by the board of directors in December 1997 and by the shareholders in January 1998. The Government of India approved 29,40,000 ADSs representing 14,70,000 equity shares for issue under the Plan. The options may be issued at an exercise price that is not less than 90% of the fair market value of the underlying equity share on the date of the grant. The 1998 Plan automatically expires in January 2008, unless terminated earlier. All options under the 1998 Plan are exercisable for ADSs representing equity shares. A compensation committee comprising independent members of the board of directors administers the 1998 Plan.
Year ended ------------------------------- Number of options granted, exercised and forfeited March 31, 2002 March 31, 2001 -------------------------------------------------- -------------- -------------- Options granted, beginning of year 15,65,506 6,89,500 Granted during the year 9,08,500 9,64,840 Exercised during the year (55,966) (12,434) Forfeited during the year (1,55,546) (76,400) ------------ ------------ Options granted, end of year 22,62,494 15,65,506 ============ ============ Weighted average exercise price US$ 83.96 US$ 90.98 Rs. 4,093/-) Rs. 4,236/-)
1999 Stock Option Plan ("the 1999 Plan") In fiscal 2000, the company instituted the 1999 Plan. The shareholders and the board of directors approved the plan in June 1999, which provides for the issue of 66,00,000 equity shares to the employees. The compensation committee administers the 1999 Plan. Options will be issued to employees at an exercise price that is not less than the fair market value. Fair market value is the closing price of the company's shares in the stock exchange, where there is the highest trading volume on a given date and if the shares are not traded on that day, the closing price on the next trading day. Under the 1999 Plan, options may be issued to employees at exercise prices that are less than the fair market value only if specifically approved by the members of the company in a general meeting. No approval has been sought to date in this regard.
Year ended ------------------------------- Number of options granted, exercised and forfeited March 31, 2002 March 31, 2001 -------------------------------------------------- -------------- -------------- Options granted, beginning of year 27,93,980 10,06,800 Granted during the year 20,50,500 19,57,830 Exercised during the year (30) (1,200) Forfeited during the year (1,75,635) (1,69,450) ------------ ------------ Options granted, end of year 46,68,815 27,93,980 ============ ============ Weighted average exercise price Rs. 4,982/-) Rs. 5,572/-)
The aggregate options outstanding and considered for dilution as at March 31, 2002 are 58,00,062 (as at March 31, 2001 - 35,76,733 options). 16.2.17 Proforma disclosures relating to the Employee Stock Option Plans ("ESOPs") The Securities and Exchange Board of India (SEBI) issued the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines in 1999, which is applicable to all stock option schemes established on or after June 19, 1999. In accordance with these guidelines, the excess of the market price of the underlying equity shares as of the date of the grant of the options over the exercise price of the options, including up-front payments, if any, is to be recognized and amortized on a straight-line basis over the vesting period. All options under the 1998 and 1999 stock option plans have been issued at fair market value; hence, there are no compensation costs. The company's 1994 stock option plan was established prior to the SEBI guidelines on stock options. Had the stock compensation costs for this stock option plan been determined as per the guidelines issued by SEBI, the company's reported net profit would have been reduced to the proforma amounts indicated below.
Year ended ------------------------ March 31, March 31, 2002 2001 --------- --------- Net profit: - As reported 807.96 628.81 - Adjusted proforma 784.18 605.55
16.2.18 Provision for taxation Most of Infosys' operations are conducted through 100% Export Oriented Units ("EOU"). Income from EOUs are tax exempt for the earlier of 10 years commencing from the fiscal year in which the unit commences software development, or March 31, 2009. The Finance Bill 2002, which is yet to be enacted, proposes that the exempt income from EOUs for the year commencing April 1, 2002, is restricted to 90% of its aggregate income. Additionally, non-EOU exports are partly exempt from tax, and such tax deductions are being phased out by fiscal 2004. The provision for taxation includes tax liabilities in India on the company's global income as reduced by exempt incomes and any tax liabilities arising overseas on income sourced from those countries. 74 16.2.19 Cash and bank balances Details of balances kept with non-scheduled banks as on balance sheet dates and the maximum balances kept with non-scheduled banks during the year are as follows:
As at ---------------------- March 31, March 31, Balances with non-scheduled banks 2002 2001 --------------------------------- --------- --------- In current accounts ABN Amro Bank, Brussels, Belgium 0.11 0.09 Bank of America, Concord, USA 3.45 0.27 Bank of America, Hong Kong 0.08 0.04 Bank of America, Milpitas, USA -- 0.24 Bank of America, Palo Alto, USA 27.88 35.71 Bank of America, Singapore 0.07 -- Bank of America, Dallas, USA 2.43 1.17 Bank of Melbourne, Melbourne, Australia 0.10 0.22 Barclays Bank, London, UK -- 0.38 Deutsche Bank, Frankfurt, Germany 0.12 0.20 Deutsche Bank, Paris, France 0.02 -- Deutsche Bank, Brussels, Belgium 0.17 -- Deutsche Bank, Zurich, Switzerland 0.10 -- Fleet Bank, Boston, USA 2.19 0.21 Fleet Bank, New Jersey, USA 2.03 0.15 Hong Kong Bank of Canada, Toronto, Canada -- 0.06 HSBC Bank PLC - Croydon, London 7.66 9.77 National Bank of Sharjah, UAE 0.06 -- Nordbanken, Stockholm, Sweden 0.41 0.16 Nova Scotia Bank, Toronto, Canada 3.12 5.21 Sanwa Bank, Tokyo, Japan 0.41 0.12 -------- -------- 50.41 54.00 ======== ========
Year ended ---------------------- Maximum balance held in March 31, March 31, non-scheduled banks during the year 2002 2001 ----------------------------------- --------- --------- In deposit account in foreign currency HSBC Bank Middle East, Bahrain -- 72.78 In current accounts ABN Amro Bank, Heerlen, Netherlands -- 0.16 ABN Amro Bank, Brussels, Belgium 0.44 0.25 Bank of America, Concord, USA 5.99 11.56 Bank of America, Hong Kong 0.29 0.12 Bank of America, Los Angeles, USA -- 3.09 Bank of America, Milpitas, USA 0.29 5.89 Bank of America, Palo Alto, USA 145.48 92.96 Bank of America, Singapore 0.11 -- Bank of America (Nations Bank), Dallas, USA 3.14 3.37 Bank of Melbourne, Melbourne, Australia 4.04 0.33 Barclays Bank, London, UK 0.40 3.63 Deutsche Bank, Frankfurt, Germany 0.57 0.37 Deutsche Bank, Paris, France 0.35 -- Deutsche Bank, Brussels, Belgium 0.17 -- Deutsche Bank, Zurich, Switzerland 0.09 -- First Chicago Bank, Chicago, USA -- 0.22 Fleet Bank (Bank of Boston), Boston, USA 2.89 0.72 Fleet Bank (Summit Bank), New Jersey, USA 2.03 -- Hong Kong Bank of Canada, Toronto, Canada 0.06 1.02 HSBC Bank PLC - Croydon, London 18.70 16.52 Michigan National Bank, Detroit, USA -- 0.17 Nations Bank, Georgia, USA -- 0.21 National Bank of Sharjah, UAE 0.14 -- Nordbanken, Stockholm, Sweden 0.42 0.23 Nova Scotia Bank, Toronto, Canada 6.02 7.57 Seafirst Bank, Seattle, USA -- 0.31 Sanwa Bank, Tokyo, Japan 1.75 1.40 Summit Bank, Bridgewater, USA -- 0.89
The cash and bank balances include interest accrued but not due on fixed deposits amounting to Rs. 5.27 for the year ended March 31, 2002 (previous year Rs. 1.94). 75 16.2.20 Loans and advances "Advances" mainly comprises prepaid travel and per-diem expenses and advances to vendors. Deposits with financial institutions and body corporate comprise:
As at --------------------- March 31, March 31, 2002 2001 --------- --------- Deposits with financial institutions: Housing Development Finance Corporation Limited 101.10 50.87 ICICI Limited 52.77 50.87 IDBI Limited -- 40.36 Deposits with body corporate: GE Capital Services India Limited 100.87 50.58 ------- ------- 254.74 192.68 ======= =======
Maximum balance held during the year
For the year ended --------------------- March 31, March 31, 2002 2001 --------- --------- Deposits with financial institutions: Housing Development Finance Corporation Limited 101.26 51.15 ICICI Limited 62.94 50.92 IDBI Limited 51.50 40.36 Deposits with body corporate: GE Capital Services India Limited 101.48 51.03
The above amounts include interest accrued but not due amounting to Rs. 2.74 (previous year - Rs. 2.68). The financial institutions and the body corporate have superior credit ratings from a premier credit rating agency in the country. Mr. Deepak M. Satwalekar, Director, is also Director of HDFC. Prof. Marti G. Subrahmanyam, Director, is also a director in ICICI Limited. Mr. N. R. Narayana Murthy, Chairman and Chief Mentor, was a director in ICICI Limited until March 27, 2002. Except as directors in these financial institutions, these persons have no direct interest in these transactions. 16.2.21 Current liabilities Sundry creditors for other liabilities represent mainly the retention amounts payable to the vendors, and amounts accrued for various other operational expenses and taxes. 16.2.22 Fixed assets The company has entered into lease-cum-sale agreements to acquire certain properties. In accordance with the terms of these agreements, the company has the option to purchase the properties on expiry of the lease period. The company has already paid 99% of the value of the properties at the time of entering into the lease-cum-sale agreements. These amounts are disclosed as "Land-leasehold" under "Fixed assets" in the financial statements. 16.2.23 Transfer of intellectual property rights During the year ended March 31, 2001, the company transferred its intellectual property rights in Onscan - a web-focused wireless-enabled notification product, to OnMobile Systems Inc. (formerly Onscan Inc.) USA, a company incubated by Infosys as part of its ongoing effort to encourage and promote budding entrepreneurs among its employees. The rights were transferred for Rs. 8.93 (US$2 million), received as equity, preferred voting and preferred non-voting securities in OnMobile Systems Inc. The income of Rs. 5.49 (net of tax) arising on the transfer is disclosed as an extraordinary item in the statement of profit and loss of that year. The transaction was completed in the quarter ended June 30, 2000. 16.2.24 Investment activity The following are the particulars of strategic investments made during the year ended March 31, 2002:
Year ended --------------------- March 31, March 31, Particulars of investee companies 2002 2001 --------------------------------- --------- --------- Workadia Inc., USA* 10.32 -- Alpha Thinx Mobile Phone Services AG, Austria -- 2.21 Asia Net Media BVI Limited -- 6.85 M-Commerce Ventures Pte. Limited, Singapore -- 1.84 CiDRA Corporation, USA -- 13.40 Stratify Inc. (formerly PurpleYogi Inc.), USA -- 2.33 ------- ------- 10.32 26.63 ======= =======
* Investments in Workadia Inc., USA ("Workadia") comprise of 22,00,000 fully paid Series "B" convertible preferred stock, par value of US$0.0002, at US$1.00 each (adjusted for stock splits). Workadia will provide companies with comprehensive, customizable business intranets through browser accessed hosted portals and also offer consulting services to help customers select and deploy their intranet applications, content and services. 76 During the year ended March 31, 2002 the company swapped 55,00,000 common stock in Yantra Corporation, USA ("Yantra") for a fully paid warrant to purchase 55,00,000 common stock. Accordingly, Yantra is no longer a subsidiary of the company as per the Companies Act, 1956 as at March 31, 2002. An amount of Rs. 15.29 was provided for the investments in Alpha Thinx and EC Cubed Inc., USA, in the latter half of the year ended March 31, 2001, when the investee companies filed for liquidation. 16.2.25 Unbilled revenue Unbilled revenue as at March 31, 2002 amounts to Rs. 17.74 (as at March 31, 2001, Rs. 2.35). It primarily comprises the revenue recognized in relation to efforts incurred on fixed-price, fixed-timeframe contracts until the balance sheet date. 16.2.26 Segment reporting The company's operations predominantly relate to providing IT services, delivered to customers globally operating in various industry segments. Accordingly, IT service revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is performed on the basis of the geographical location of customers. The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income and expenditure in individual segments. These are as set out in the note on significant accounting policies. Industry segments at the company are primarily financial services comprising customers providing banking, finance and insurance services; manufacturing companies; companies in the telecommunications and the retail industries; and others such as utilities, transportation and logistics companies. Income and direct expenses in relation to segments is categorized based on items that are individually identifiable to that segment, while the remainder of the costs are categorized in relation to the associated turnover of the segment. Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying services are used interchangeably. The company believes that it is not practical to provide segment disclosures relating to those costs and expenses, and accordingly these expenses are separately disclosed as "unallocated" and directly charged against total income. Fixed assets used in the company's business or liabilities contracted have not been identified to any of the reportable segments, as the fixed assets and services are used interchangeably between segments. The company believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous. Customer relationships are driven based on the location of the respective client. North America comprises the United States of America, Canada and Mexico; Europe includes continental Europe (both the east and the west), Ireland and the United Kingdom; and the rest of the world comprises all other places except those mentioned above and India. Geographical revenues are segregated based on the location of the customer who is invoiced or in relation to which the revenue is otherwise recognized. Industry segments
Financial Year ended March 31, 2002 and 2001 services Manufacturing Telecom Retail Others Total ---------------------------------- --------- ------------- ------- ------ ------ -------- Revenues 953.98 445.94 406.79 320.40 476.48 2,603.59 640.78 338.84 350.11 172.86 397.97 1,900.56 Identified operating expenses 355.38 181.92 114.13 89.43 166.37 907.23 225.88 130.66 88.39 54.74 120.92 620.59 Allocated expenses 247.73 111.26 101.50 79.61 118.63 658.73 177.69 90.69 93.90 46.31 106.54 515.13 ------- ------ ------ ------ ------ -------- Segmental operating income 350.87 152.76 191.16 151.36 191.48 1,037.63 237.21 117.49 167.82 71.81 170.51 764.84 ------- ------ ------ ------ ------ -------- Unallocable expenses 160.65 112.89 -------- Operating income 876.98 651.95 -------- Other income (expense), net 66.41 44.08 -------- Net profit before taxes 943.39 696.03 -------- Income taxes 135.43 72.71 -------- Net profit after taxes 807.96 623.32 --------
77 Geographic segments
Year ended March 31, 2002 and 2001 North America Europe India Rest of the world Total ---------------------------------- ------------- ------ ----- ----------------- ----- Revenues 1,854.10 506.84 51.12 191.53 2,603.59 1,396.90 358.06 26.54 119.06 1,900.56 Identifiable operating expenses 646.90 181.55 19.98 58.80 907.23 443.71 125.45 8.96 42.47 620.59 Allocated expenses 468.20 127.97 14.82 47.74 658.73 377.04 96.78 8.60 32.71 515.13 -------- -------- -------- -------- -------- Segmental operating income 739.00 197.32 16.32 84.99 1,037.63 576.15 135.83 8.98 43.88 764.84 -------- -------- -------- -------- -------- Unallocable expenses 160.65 112.89 -------- Operating income 876.98 651.95 -------- Other income (expense), net 66.41 44.08 -------- Net profit before taxes 943.39 696.03 -------- Income taxes 135.43 72.71 -------- Net profit after taxes 807.96 623.32 ========
16.2.27 Related party transactions The company entered into related party transactions during the year ended March 31, 2002 with Yantra Corporation, USA, the subsidiary of the company until February 27, 2002, and key management personnel. The transactions with Yantra Corporation comprise sales of Rs. 4.43 during the period from April 1, 2001 until February 27, 2002 (previous year as at March 31, 2001 Rs. 19.65). The outstanding dues from the subsidiary as at March 31, 2001 were Rs. 1.00. Key management personnel are non-director officers of the company, who have the authority and responsibility for planning, directing and controlling the activities of the company. The loans and advances receivable from non-director officers as at March 31, 2002 are Rs. 2.31 (previous year - Rs. 1.06). 16.2.28 Provisions for doubtful debts Periodically, the company evaluates all customer dues to the company for collectibles. The need for provisions is assessed based on various factors including collectibles of specific dues, risk perceptions of the industry in which the customer operates, general economic factors, which could effect the customer's ability to settle. The company normally provides for debtor dues outstanding for 180 days or longer as at the balance sheet date. As at March 31, 2002 the company has provided for doubtful debts of Rs. 11.88 (as at March 31, 2001 -- Rs. 8.55) on dues from certain customers although the outstanding amounts were less than 180 days old, since the amounts were considered doubtful of recovery. The company continues pursuing the parties for recovery of the dues, in part or full. 16.2.29 Dividends remitted in foreign currencies Infosys does not make any direct remittances of dividends in foreign currency. The company remits the equivalent of the dividends payable to the holders of ADS ("ADS holders") in Indian Rupees to the depositary bank, which is the registered shareholder on record for all owners of the company's ADSs. The depositary bank purchases the foreign currencies and remits dividends to the ADS holders. Particulars of dividends remitted are as follows:
Number of shares to which Year ended Particulars the dividends relate March 31, 2002 March 31, 2001 ----------- ------------------------- -------------- -------------- Final dividend for fiscal 2000 20,81,900 -- 0.62 Interim dividend for fiscal 2001 20,82,567 -- 0.52 Final dividend for fiscal 2001 20,88,517 1.56 -- Interim dividend for fiscal 2002 20,95,517 1.57 -- --------- ---- ---- 3.13 1.14 --------- ---- ----
16.2.30 Reconciliation of basic and diluted shares used in computing earnings per share
Year ended March 31, 2002 March 31, 2001 -------------- -------------- Number of shares considered as basic weighted average shares outstanding 6,61,62,274 6,61,52,131 Add: Effect of dilutive issues of shares/stock options 4,05,301 2,06,180 ----------- ----------- Number of shares considered as weighted average shares and potential shares outstanding 6,65,67,575 6,63,58,311 ----------- -----------
78 Cash flow statement for the year ended March 31
in Rs. crore ---------------------------------------- Schedule 2002 2001 -------- -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 943.39 696.03 Adjustments to reconcile profit before tax to cash provided By operating activities Profit on sale of fixed assets (0.09) (0.09) Depreciation and amortization 160.65 112.89 Interest income (51.23) (38.47) Effect of deferred taxes (8.69) -- Provisions on long-term investments -- 15.29 Income taxes paid during the year 1 (131.27) (85.18) Exchange differences on translation of foreign currency deposits (13.26) (20.17) Changes in current assets and liabilities Sundry debtors (34.36) (166.19) Loans and advances 2 (39.02) (34.72) Current liabilities and provisions 3 (5.16) 60.93 --- -------- ------- NET CASH GENERATED BY OPERATING ACTIVITIES 820.96 540.32 --- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds on exercise of stock options 4.60 2.38 Dividends paid during the year, including Dividend Tax (109.37) (42.20) --- -------- ------- NET CASH USED IN FINANCING ACTIVITIES (104.77) (39.82) --- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets and change in capital work-in-progress 4 (322.74) (463.35) Proceeds on disposal of fixed assets 1.60 0.23 Long-term investments in securities 5 (10.32) (26.65) Interest income 51.23 38.47 --- -------- ------- NET CASH USED IN INVESTING ACTIVITIES (280.23) (451.30) --- -------- ------- Effect of exchange differences on translation of foreign currency deposits 13.26 20.17 --- -------- ------- Net increase in cash and cash equivalents during the year 449.22 69.37 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 577.74 508.37 --- -------- ------- CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 6 1,026.96 577.74 === ======== =======
This is the cash flow statement referred to in our report of even date for Bharat S Raut & Co. Chartered Accountants S. Balasubrahmanyam N. R. Narayana Murthy Nandan M. Nilekani S. Gopalakrishnan Deepak M. Satwalekar Partner Chairman and Chief Mentor Chief Executive Officer, Chief Operating Officer Director President and Managing and Deputy Managing Director Director Marti G. Subrahmanyam Philip Yeo Jitendra Vir Singh Omkar Goswami Director Director Director Director Larry Pressler Rama Bijapurkar Claude Smadja K. Dinesh Director Director Director Director S. D. Shibulal T. V. Mohandas Pai Phaneesh Murthy Srinath Batni Director Director and Chief Director Director Financial Officer V. Balakrishnan Company Secretary Bangalore and Vice President - April 10, 2002 Finance
Auditors' certificate -------------------------------------------------------------------------------- To The Members, Infosys Technologies Limited We have examined the attached cash flow statement of the Company for the year ended March 31, 2002. The statement has been prepared by the Company in accordance with the requirements of Clause 32 of the listing agreements entered into with the Stock Exchanges. for Bharat S Raut & Co. Chartered Accountants /s/ S. BALASUBRAHMANYAM Bangalore S. Balasubrahmanyam April 10, 2002 Partner 79 Schedules to the statement of cash flows for the year ended March 31
In Rs. crore ---------------------- 2002 2001 -------- ------- 1 INCOME TAXES PAID DURING THE YEAR Charge as per the profit and loss account 135.43 72.71 Add: Tax provided on Intellectual property rights transferred -- 3.44 Increase in advance income taxes 112.51 69.33 Less: Increase/(Decrease) in income tax provision (116.67) (60.30) -------- ------- 131.27 85.18 ======== ======= 2 CHANGE IN LOANS AND ADVANCES DURING THE YEAR As per the balance sheet 643.87 430.28 Less: Deposits with financial institutions and body corporate, included in cash and cash equivalents (254.74) (192.68) Advance income taxes separately considered (236.25) (123.74) -------- ------- 152.88 113.86 Less: Opening balance considered (113.86) (79.14) -------- ------- 39.02 34.72 ======== ======= 3 CHANGE IN CURRENT LIABILITIES AND PROVISIONS DURING THE YEAR As per the balance sheet 459.41 319.85 Add/ (Less): Provisions separately considered in the cash flow Statement: Income taxes (239.57) (122.90) Dividends (82.73) (49.62) Dividend tax -- (5.06) -------- ------- 137.11 142.27 Less: Opening balance considered (142.27) (81.34) -------- ------- (5.16) 60.93 ======== ======= 4 PURCHASES OF FIXED ASSETS AND CHANGE IN CAPITAL WORK-IN-PROGRESS As per the balance sheet 342.72) 349.66 Less: Opening capital work-in-progress (170.65) (56.96) Add: Closing capital work-in-progress 150.67 170.65 -------- ------- 322.74 463.35 ======== ======= 5 LONG-TERM INVESTMENTS IN SECURITIES DURING THE YEAR As per the balance sheet 44.44 34.12 Add: Provisions on investments -- 15.29 Less: Non-cash investment (see note 7.3 below) -- (8.93) -------- ------- 44.44 40.48 Less: Opening balance considered (34.12) (13.83) -------- ------- 10.32 26.65 ======== ======= 6 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR As per the balance sheet 772.22 385.06 Add: Deposits with financial institutions and body corporate, included herein 254.74 192.68 -------- ------- 1,026.96 577.74 ======== =======
7 NOTES ON THE STATEMENT OF CASH FLOWS 7.1 Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular revenue generating, financing, and investing activities of the company are segregated. Cash flows in foreign currencies are accounted at average monthly exchange rates that approximate the actual rates of exchange prevailing at the dates of the transactions. 7.2 The balance of cash and cash equivalents includes Rs. 1.12 crore as at March 31, 2002 (as at March 31, 2001, Rs. 0.48 crore) set aside for payment of dividends, and accordingly is not otherwise available to the company. 7.3 During the year ended March 31, 2001, the company transferred intellectual property rights in Onscan - a web-based wireless enabled notification product, to OnMobile Systems Inc., USA (formerly Onscan Inc.) - a company incubated by Infosys. The product was transferred for a gross consideration of Rs. 8.93 crore that was received as equity preferred convertible voting and non-voting stock in OnMobile Systems Inc. Accordingly, the transaction being non-cash has not been considered in the statement of cash flows, except for the related income taxes. 7.4 The previous year's figures have been recast/restated, wherever necessary, to conform to the current year's presentation. 80 Balance sheet abstract and company's general business profile -------------------------------------------------------------------------------- Registration details Registration no. 13115 State code 08 Balance sheet date March 31, 2002 in Rs. `000 (except per share data) ------------------ ----------------------------------- Capital raised during the year Public issue -- Rights issue -- Bonus issue -- Private placement -- Preferential offer of shares under Employee Stock Option Plan scheme* 1,40 Position of mobilization and deployment of funds Total liabilities 20,80,31,22 Total assets 20,80,31,22 Sources of funds Paid-up capital 33,09,32 Reserves and surplus 20,47,21,90 Secured loans -- Unsecured loans -- Application of funds Net fixed assets 7,18,24,60 Investments 44,44,23 Net current assets 12,93,40,39 Deferred tax assets 24,22,00 Miscellaneous expenditure -- Accumulated losses -- Performance of company Income from software services and products 26,03,59,04 Other income 66,40,85 Total income 26,69,99,90 Total expenditure 17,26,61,47 Profit/loss before tax 9,43,38,42 Extraordinary income -- Profit/loss after tax 8,07,95,42 Earnings per share from ordinary activities (basic) (Rs.) 122.12 Earnings per share from ordinary activities (diluted) (Rs.) 121.37 Dividend rate (%) 400 Generic names of principal products/services of the company Item code no. (ITC code) 85249009.10 Product description Computer software *Issue of shares arising on the exercise of options granted to employees under the company's - 1998 ADS Plan 27,983 1999 Plan 30
-------------------------------------------------------------------------------- N. R. Narayana Murthy Nandan M. Nilekani S. Gopalakrishnan Deepak M. Satwalekar Chairman and Chief Mentor Chief Executive Officer, Chief Operating Officer Director President and Managing and Deputy Managing Director Director Marti G. Subrahmanyam Philip Yeo Jitendra Vir Singh Omkar Goswami Director Director Director Director Larry Pressler Rama Bijapurkar Claude Smadja K. Dinesh Director Director Director Director S. D. Shibulal T. V. Mohandas Pai Phaneesh Murthy Srinath Batni Director Director and Chief Financial Director Director Officer V. Balakrishnan Company Secretary Bangalore and Vice President - April 10, 2002 Finance
81 Risk management report The management cautions readers that the risks outlined below are not exhaustive and are for information purposes only. Investors are requested to exercise their own judgment in assessing various risks associated with the company and to refer to discussions of some of these risks in the company's earlier Annual Reports and Securities and Exchange Commission filings. In a dynamic industry such as IT services, risk is an inherent aspect of business. The impact of the turbulent socio-political and economic events in the past year on businesses bears testimony to this. It is indeed during such times that a company's ability to manage risk is put to an acid test. Your company has successfully out-performed its own revenue estimates, even during these tough times. This performance has been in large measure due to the resilient business model and prudent risk management practices followed by your company. Your company's business model rests on four pillars - Predictability, Sustainability, Profitability and De-risking (the PSPD model). This model helps the management evaluate risk-return trade-offs and thereby make effective strategic choices. Your company focuses on long-term relationships with its clients and seeks to become a strategic partner in their quest for competitiveness. This leads to a predictable and sustainable revenue stream for your company. The Infosys-pioneered Global Delivery Model has helped your company to consistently be among the most profitable IT services companies in the world. The last element of the PSPD model - de-risking - provides the company with the strength and stability to effectively react to changes in the business environment. A comprehensive and integrated risk management framework forms the basis of all the de-risking efforts of the company. Prudential norms aimed at limiting exposures are an integral part of this framework. Formal reporting and control mechanisms ensure timely information availability and facilitate proactive risk management. These mechanisms are designed to cascade down to the level of line managers so that risks at the transactional level are identified and steps are taken towards mitigation in a decentralized fashion. The board of directors is responsible for monitoring risk levels on various parameters and the management council ensures implementation of mitigation measures, if required. The audit committee provides the overall direction on the risk management policies. 1. Business portfolio risks - E-business exposure - Service concentration - Client concentration - Geographical concentration - Vertical domain concentration - Technology concentration 2. Financial risks - Foreign currency rate fluctuations - Liquidity - Leverage 3. Legal and statutory risks - Contractual liabilities - Statutory compliance 4. Organizational management risks - Leadership development - Human resources management - Process maturity - Internal control systems - Disaster prevention & recovery - Technological obsolescence 5. Political risks 1. Business portfolio risks Excessive dependence on any single business segment increases risk and therefore needs to be avoided. To this end, the company has adopted prudential norms, wherever required, to prevent undesirable concentration in any one vertical, technology, client or geographic area. 1.1 E-business exposure In recent years, the Internet has emerged as an efficient platform for enabling business transactions. While companies the world over continue to engage in transforming their businesses utilizing the power of this medium, dotcom companies have significantly reduced in number. Consequently, your company's exposure to such high-risk Internet start-up companies has been reduced to a miniscule proportion. In view of this, the management perceives risk from this aspect to be minimal in the future. 82 1.2 Service concentration Your company has an array of service offerings across various horizontal and vertical business segments. These services are designed to offer clients end-to-end solutions and also to add stability and predictability to Infosys' revenue stream. The following table provides historical data on contribution to revenues from the various service offerings.
Service offerings FY 2002 FY 2001 FY 2000 ----------------- ------- ------- ------- Development 32.0% 40.0% 43.7% Maintenance 29.0% 25.4% 28.6% Re-engineering 10.1% 9.3% 10.1% Package implementation 9.8% 7.2% 6.0% Consulting 4.2% 4.9% 1.6% Testing 2.9% 2.9% 0.7% Engineering services 2.6% 1.7% 2.0% Other services 5.4% 6.1% 4.7% Products 4.0% 2.5% 2.6% ----- ----- ----- Total 100.0% 100.0% 100.0% ----- ----- -----
1.3 Client concentration Excessive exposure to a few large clients has the potential to impact profitability and to increase credit risk. However, large clients and high repeat business lead to higher revenue growth and lower marketing costs. Therefore, the company needs to strike a balance. Your company has chosen to limit revenue from any one client to 10% of the total revenue. In addition to increasing revenues from existing clients, your company actively seeks new business opportunities and clients, in order to reduce client concentration levels. During the year, your company added 116 clients. The following table provides historical data on client concentration.
FY 2002 FY 2001 FY 2000 ------- ------- ------- Active clients 293 273 194 Clients added during the year 116 122 99 % of revenues from the largest client 6.1% 7.3% 7.2% % revenues from top five clients 24.1% 26.0% 30.2% % revenues from top ten clients 39.4% 39.2% 45.7% Clients accounting for >5% of total revenue 2 3 4 No. of million-dollar clients 83 80 42 No. of 5 million-dollar clients 25 19 10 No. of 10 million-dollar clients 16 11 4 No. of 20 million-dollar clients 6 3 -- Million-dollar clients as a % to active clients 28.3% 29.3% 21.6%
1.4 Geographical concentration A high geographical concentration of business could lead to volatility because of political and economic factors in target markets. However, individual markets have distinct characteristics - growth, IT spends, willingness to outsource, costs of penetration, and price points. Cultural issues such as language, work culture and ethics, and acceptance of global talent also come into play. Due to these business considerations, your company has decided not to impose any rigid limits on geographical concentration. Proactively looking for business opportunities in new geographies and thereby increasing their contribution to total revenues helps manage this risk. In line with this, your company has been making significant efforts to enhance business from Europe and Asia Pacific over the past couple of years. The following table provides historical data relating to geographical concentration.
Geographical area FY 2002 FY 2001 FY 2000 ----------------- ------- ------- ------- North America 71.2% 73.5% 78.0% Europe 19.5% 18.8% 14.8% India 2.0% 1.4% 1.4% Rest of the world 7.3% 6.3% 5.8% ----- ----- ----- Total 100.0% 100.0% 100.0% ----- ----- -----
1.5 Vertical domain concentration Vertical domains relate to the industries in which clients operate. Your company has chosen to focus on certain vertical segments with a view to leverage accumulated domain expertise to deliver enhanced value to its clients. To ensure that cyclicality in any one industry does not adversely impact revenues, the proportion of revenue from each vertical domain is closely monitored. Focused marketing efforts in chosen domains serve to mitigate this risk. 83 The following table provides historical information on the proportion of revenues from various domains.
Vertical domain FY 2002 FY 2001 FY 2000 --------------- ------- ------- ------- Manufacturing 17.1% 17.8% 23.0% Insurance, banking & financial services 36.7% 33.7% 30.1% - Insurance 16.3% 14.2% 15.0% - Banking & financial services 20.4% 19.5% 15.1% Telecom 15.6% 18.4% 15.4% Retail 12.3% 9.1% 10.6% Energy and utilities 2.0% 1.4% 3.0% Transportation & logistics 2.7% 2.2% 2.8% Others 13.6% 17.4% 15.1% ----- ----- ----- Total 100.0% 100.0% 100.0% ----- ----- -----
The credit ratings of some of the large telecom equipment manufacturers have been downgraded. This has enhanced the risk perception of this sector. Your company derived 15.6% of its revenues from the telecom sector during the year ended March 31, 2002 as compared to 18.4% during the previous year ended March 31, 2001. The revenues from telecom equipment manufacturers amounted to 10.2% during the year ended March 31, 2002 as against 12.6% during the previous year. Your company has taken adequate measures to derisk its exposure to this sector. The following table provides information on the customer classification within the telecom segment.
Category % of telecom revenue % of total revenue -------- -------------------- ------------------ Service providers 31.4 4.9 Product companies 2.9 0.4 Equipment manufacturers 65.1 10.2 Others 0.6 0.1 ----- ---- Total 100.0 15.6 ----- ----
1.6 Technology concentration Being a company exposed to rapid shifts in technology, an undue focus on any particular technology could adversely affect the risk profile of your company. Given the rapid pace of technological change, your company has chosen not to impose rigid concentration limits. Often, industry characteristics and market dynamics determine the choice of technology. The following table provides historical technology-related data.
Technology FY 2002 FY 2001 FY 2000 ---------- ------- ------- ------- Distributed systems 48.3% 44.6% 47.2% Mainframe / mid-range 14.4% 13.6% 25.0% Internet 23.0% 28.4% 13.6% Proprietary telecom systems 2.6% 5.1% 6.8% Others 11.7% 8.3% 7.4% ----- ----- ----- Total 100.0% 100.0% 100.0% ----- ----- -----
2. Financial risks 2.1 Foreign currency rate fluctuations While your company derives its revenues from 31 countries around the world, 87.7% of revenues in fiscal 2002 was dollar-denominated. Further, all contracts entered into are in internationally tradable currencies so that your company is not exposed to local currencies that have significant non-tradability and downside risks on exchange fluctuations. A large proportion of your company's expenses is in Indian rupees. Operating profits are therefore subject to foreign currency rate fluctuations. While a depreciation of the Indian rupee would have a favorable bottom-line impact, an appreciation would affect your company's profitability adversely. The table below gives the foreign currency receipts and payments.
in Rs. crore ------------ FY 2002 FY 2001 FY 2000 -------- -------- ------- Earnings in foreign currency 2,495.50 1,728.23 851.72 Revenue expenditure in foreign currency 1,023.41 612.29 296.56 Net revenue foreign currency earnings 1,472.09 1,115.94 555.16 Capital expenditure in foreign currency 48.74 115.24 40.02 -------- -------- ------ Net foreign currency earnings 1,423.35 1,000.70 515.14 -------- -------- ------
As a net foreign currency earner, your company has a natural hedge on all forex-related payments. All dollar expenses are met out of dollar- denominated accounts. Part of the surplus funds is maintained in foreign currency deposits. Your company does not take active trading positions in the foreign currency markets and operates only to hedge its receivables. 84 2.2 Liquidity An essential part of the financial strategy of your company is to have a liquid balance sheet. Your company desires to have liquid assets at 25% of revenue and around 40% of total assets. The company policy is to earn a minimum of twice the cost of capital as return on average capital employed and a minimum of thrice the cost of capital as return on average invested capital. The cost of capital for the current year is estimated at 17.17%. Operating as it does in a high technology area, a high level of liquidity enables quick responses to rapid changes in the environment. Your company also has a policy to settle its payables well within stipulated timeframes. Further, the nature of business is such that significant investments may have to be made in marketing, and research and development activities. All these factors call for considerable liquidity. The following table gives data on the liquidity position of your company based on Indian GAAP.
Ratio FY 2002 FY 2001 FY 2000 ----- ------- ------- ------- Operating cash flow as % of revenue 31.5% 28.4% 28.3% Days sales outstanding 47 58 56 Cash and equivalents as % of assets 49.4% 41.6% 61.0% Cash and equivalents as % of revenue 39.4% 30.4% 57.6% Return on average capital employed 54.4% 62.6% 46.3% Return on average invested capital 83.1% 105.4% 111.6%
2.3 Leverage Your company has been a debt-free company for the last four financial years. Currently, your company has adopted a policy to use debt financing only for short-term funding requirements, should the necessity arise. 3. Legal and statutory risks 3.1 Contractual liabilities Litigation regarding intellectual property rights, patents and copyrights is significantly high in the software industry. In addition, there are other general corporate legal risks. The management has clearly charted out a review and documentation process for contracts. This process focuses on evaluating the legal risks involved in a contract, on ascertaining the legal responsibilities of your company under the applicable law of the contract, on restricting its liabilities under the contract, and on covering the risks involved. The management has also taken sufficient insurance cover abroad to cover possible liabilities arising out of non-performance of contracts. The management reviews this on a continuous basis and takes corrective action. As a matter of policy your company does not enter into contracts that have open-ended legal obligations. To date, your company has no material litigation in relation to contractual obligations pending against it in any court in India or abroad. 3.2 Statutory compliance Your company has a compliance officer to advise your company on compliance issues and to ensure that your company is in compliance with the laws of the jurisdiction where the company has operations. The compliance officer reports to the board of directors from time to time. Various business heads give compliance certificates to the board of directors and the compliance officer reports deviations, if any. Generally, your company takes appropriate business decisions after ascertaining from the compliance officer and, if necessary, from independent legal counsel, that the business operations of your company are in compliance with any law in the jurisdiction in which it is undertaken. Legal compliance issues are an important factor in assessing all new business proposals. Your company has strengthened its legal team and put in place appropriate policies towards legal compliance. Your company follows an affirmative policy in protecting its trade name and trademark / service mark and is actively pursuing trademark infringement suits against various persons / companies in India and abroad. 4. Organizational management risks 4.1 Leadership development As your company experiences continuous growth, one of the key imperatives is to develop leadership from among the talent pool that it possesses. Your company has invested significant resources in creating a state-of-the-art leadership institute at Mysore, which was made operational in record time last year. Chosen high-potentials are offered courses in subtleties of leadership development. Members of the senior management have committed a significant amount of their time to this initiative by designing and conducting these courses personally. Many of these courses are now being rolled out to mould leaders across all levels in the organization. 4.2 Human resource management The key resource for your company is its people. Your company has been able to create a favorable work environment that encourages innovation and meritocracy. This is reflected in the fact that Infosys was rated as the Best Employer of India in the Business Today-Hewitt study for the second successive year, based on a survey of HR practices of leading Indian corporates. Your company today has employees belonging to 29 countries. This helps your company to have the cultural wherewithal to understand the need of international clients An employee-friendly work environment combined with a well-balanced compensation package ensures that your company has one of the lowest employee attrition rates in the industry today. The table below gives attrition rates for the past three years:
FY 2002 FY 2001 FY 2000 ------- ------- ------- Attrition rate 6.2% 11.2% 9.2%
Infosys enjoys excellent relationships with leading universities globally and, thus, has a huge talent pool to draw from. 85 4.3 Process maturity Risk management processes at the operational level are a key requirement for reducing uncertainty in delivering high-quality software solutions to clients within budgeted time and cost. Adoption of quality models such as the Software Engineering Institute's Capability Maturity Model (SEI-CMM) has ensured that risks are identified and measures are taken to mitigate them at the project plan stage itself. Your company has been certified as having software development processes at Level 5 of the CMM, a distinction that only a few companies in the world have achieved. A risk management guideline is in place to provide guidance to project leaders and module leaders on ways in which risks can be identified and mitigated. Further, important metrics are collected and analyzed for all projects, and a database of such information is maintained to focus attention on key improvement areas. Standard methodologies, perfected through accumulated experience, form the basis for execution of projects in most of your company's service offerings. Your company also has effective systems in place to ensure creation, documentation and dissemination of experiential knowledge. An intranet-based, user-friendly application known as Knowledge Shop (K-shop) comprising knowledge components contributed by employees is being used effectively for this purpose. Incentive schemes are in place to encourage a knowledge sharing culture in the organization. A dedicated central team of experts in the knowledge management sphere provides impetus to this initiative. This group creates technology aids and facilitates knowledge accumulation and dissemination through innovative methods. Since your company has significantly mature processes in the software development arena, it has been focusing its attention during the year on enhancing the process quality of other enterprise processes, and aligning them with the organizational objectives. World-class models of process excellence such as the Six Sigma technique and the Malcolm Baldrige quality framework guide this initiative. Through this initiative, many of the processes critical to the long-term competitiveness of your company have been taken up. 4.4 Internal control systems Being a process-oriented company, your company has in place well-defined roles and responsibilities for people at various levels. This, coupled with robust internal information systems, ensures appropriate information flow to facilitate effective monitoring. Adherence to these processes is ensured through frequent internal audits. Additionally, the following measures are in place to ensure proper control: - Any unbudgeted expense has to be approved by the CEO. - Any policy change has to be approved by a committee headed by the CEO. This is done after a 5-year profitability impact assessment. - Senior management personnel submit periodic reports on their activities and achievements for review by the CEO. Your company uses an operations planning model to forecast personnel requirements based on business projections. The personnel requirements are incorporated into the annual budgeting exercise. Any material change in the business outlook is factored into the personnel forecasts and budgets. Effective budgetary control on all expenses ensures that actual spending is in line with the budget. 4.5 Disaster prevention and recovery Your company has reviewed and modified its Disaster Recovery Plan after the tragic events of September 11, 2001. Physical security of the various campuses as well as buildings has been strengthened. Logical security of systems has been found adequate and will continue to be reviewed since new threats occur every day. Firewalls are in place on all external connections from our network. A mobile user connects to your company's network using secure connections only after authenticity is validated. Each campus has several buildings for software work. Each building is self-contained with its servers and developer workstations. Any part of the building can be secured physically and logically as per client requirements. Backups are taken daily and stored in secure locations. Your company can replicate any project within the campus within a short timeframe using these backups. Further, your company can move projects from one campus to another if needed since each campus is similar to every other in terms of technologies. There is redundancy built into the data communication links. Each development center is connected to every other using multiple links. Your company has several links to overseas destinations, using different routes, and provided by multiple service providers. Periodic reviews are done to ensure that all the above meet the organization's requirements. 4.6 Technological obsolescence Your company evaluates technological obsolescence and the associated risks on a continuing basis and makes investments accordingly. Information technology is possibly the only area where costs for a given technology reduce over time. The cost of acquiring technology also includes the cost of installation and retraining. The technology requirements of your company can be classified into three categories; different strategies are used to manage risk in each category. The first category is your company's desktop environment consisting of PCs along with associated software. In this category, volumes are large and retraining costs are high. Your company considers this a commodity product and goes for a technology that is mature - not leading-edge - so that costs are low. Your company has also standardized its user interface software so that retraining costs are minimal. Once the warranty period on these systems expires, they are donated to educational and charitable institutions, after obtaining suitable approval. The second category of systems is proprietary systems used for the development of software for clients as well as the servers used for running internal IS applications. The technological obsolescence in these areas is not rapid, especially in the mainframe segment. Purchase decisions in this category are determined by client requirements. Your company has standardized on the Windows NT platform for its internal IS needs. Network components also fall into this category and your company is standardizing its network components, based on a few suppliers. 86 The third category of systems is the tools required for software development including project management tools, integrated software development environments, testing and other CASE tools, and collaborative software development tools. In this category, your company continuously looks out for leading-edge products that help increase productivity and also give your company an advantage over its competitors. In its technology infrastructure, your company aims to be on par with or better than its competitors anywhere in the world, as well as its clients. Your company's clients would like it to advise them on emerging products and technologies. Hence, your company continuously invests in these technologies. Several research initiatives are undertaken in your company to review and adopt the technologies for use internally, as well as on client projects. Your company's amortization strategy reflects the requirements of the various categories of systems. Your company has an aggressive amortization program under which category 1 and 2 except for mainframe technology are amortized in 2 years. Further, purchase of software is treated as revenue expenditure in the same year. Other assets are also aggressively amortized to ensure that the investment is current, and that any change in technology would not lead to large write-offs. Such an amortization policy also ensures full cost recovery as part of current costs. The following table gives depreciation expense and software expense as a proportion of revenues for the last three years (based on Indian GAAP).
FY 2002 FY 2001 FY 2000 ------- ------- ------- Depreciation / average gross block 20.2% 24.7% 23.5% Depreciation / total revenue 6.2% 5.9% 6.0% Software for own use / total revenue 1.3% 1.7% 1.8%
5. Political risks Recognizing that India's education system, its world-class professionals, and its low cost structure give it an intrinsic comparative advantage in software exports, successive governments have accorded a special status to this industry. Given the consensus among all leading political parties on the importance of the software industry, it is likely to remain a focus area for governmental policy in the years to come. Business ties between the US corporations and the Indian software industry have been strong for several years now. These ties have been further strengthened through improving bilateral relationships between the two governments over the past few years. Similar improvements have been seen with countries such as Germany, UK, Italy and Japan. Given such positive trends, your company believes that its exposure to political risk is not very significant. 87 Corporate governance report -------------------------------------------------------------------------------- "The strength of a country depends on the values of it's citizens. Honesty, hard work and compassion are needed to build a society rich in both goods and goodness. Because our country values freedom so highly, we are especially dependent on the responsibility of our citizens." - President George W. Bush For Infosys, maintaining the highest standards of corporate governance is not a matter of mere form but of substance. It is an article of faith, a way of life, an integral part of the company's core values. We have a board that is fully aware of its fiduciary responsibilities in the widest sense of the term; our disclosures match, if not go beyond, the best practices recommended by all international corporate governance codes; we live by transparency and by respecting minority shareholder rights; we eschew anything that even remotely runs counter to our ethical values; we relentlessly attempt to maximize long-term shareholder value; and, most importantly, we consider ourselves as trustees of our stakeholders. Corporate governance guidelines and codes of best practices began in the early 1990s in the United Kingdom and the United States in response to problems in the performance of leading companies and the perceived lack of effective board oversight that contributed to those problems. The Cadbury Report of the UK, the General Motors Board of Directors Guidelines in the US and the Dey Report in Canada proved to be influential sources for other guidelines and codes. Over the past decade, several guidelines and codes have been issued by various countries. Compliance with these recommendations is generally not mandated by law, although codes that are linked to stock exchanges sometimes have a mandatory content. In India, the Confederation of the Indian Industry (CII) took the lead in framing a desirable code of corporate governance in April 1998. Infosys fully complies with, and indeed goes beyond CII's recommendations on corporate governance. This was followed by the recommendations of the Kumar Mangalam Birla Committee on Corporate Governance appointed by the Securities and Exchange Board of India (SEBI) - the recommendations were accepted by SEBI in December 1999, and are now enshrined in Clause 49 of the Listing Agreement of every Indian stock exchange. Infosys' compliance with these requirements is listed in the course of this chapter. As a part of Infosys' commitment to adhering to global best practices, this chapter also discloses the company's compliance with the Euroshareholders Corporate Governance Guidelines 2000 and the Blue Ribbon Committee recommendations, and Infosys' adherence to the UN Global Compact Programme. Further, a note on Infosys' compliance with the corporate governance guidelines of six countries - in their national languages - is presented in the chapter entitled Financial statements prepared in substantial compliance with GAAP requirements of Australia, Canada, France, Germany, Japan and the United Kingdom and reports of compliance with the respective corporate governance standards. A. Board composition 1. Size and composition of the board The current policy is to have an appropriate mix of executive and independent directors to maintain the independence of the board, and to separate the board functions of governance and management. The board consists of sixteen members, eight of whom are executive or whole-time directors, and eight independent directors. Five of the executive directors are founders of the company. To ensure independence of the board, the members of the audit committee, the nominations committee and the compensation committee are composed entirely of independent directors. Table 1 gives the composition of Infosys' board, and the number of outside directorships held by each of the directors. Table 1: Composition of the board, and external directorships held during FY 2002
Directorships held as on March 31, 2002 ------------------------ Chairmanship All Committee in committees Relationship companies membership in which with other India listed around in all they are Name of directors Position directors companies(#) the world companies members ----------------- -------- ------------ ------------ --------- ---------- ------------- N. R. Narayana Murthy Chairman and Chief Mentor; None 2 3 0 0 Executive and founder director Nandan M. Nilekani CEO, President and Managing None 0 1 1 0 Director; Executive and founder director S. Gopalakrishnan COO and Deputy Managing None 0 1 0 0 Director; Executive and founder director Deepak M. Satwalekar Independent director None 11 13 8 2 Prof. Marti G. Subrahmanyam Independent director None 1 7 4 3 Ramesh Vangal* Independent director None NA NA NA NA Philip Yeo Independent director None 0 18 5 1 Prof. Jitendra Vir Singh Independent director None 0 1 2 0 Dr. Omkar Goswami Independent director None 2 3 4 0 Sen. Larry Pressler Independent director None 0 3 2 0 Rama Bijapurkar Independent director None 3 6 4 1 Claude Smadja** Independent director None 0 3 3 2 K. Dinesh Head - Human Resources None 0 1 1 0 Development, Information Systems, Quality & Productivity and Communication Design Group; Executive and founder director S. D. Shibulal Head - Customer Delivery; None 0 2 1 0 Executive and founder director T. V. Mohandas Pai CFO and Head - Finance & None 0 1 0 0 Administration; Executive director Phaneesh Murthy Head - Sales & Marketing, None 0 1 0 0 and Communication & Product Services; Executive director Srinath Batni Head - Delivery (West North None 0 1 0 0 America); Executive director
* Ramesh Vangal resigned from the board with effect from October 24, 2001. ** Claude Smadja was co-opted as an Additional Director with effect from October 25, 2001. NA: Not applicable. * excluding Infosys 88 2. Responsibilities of the Chairman, CEO and the COO The current policy of the company is to have a Chairman and Chief Mentor - Mr. N. R. Narayana Murthy; a Chief Executive Officer (CEO), President and Managing Director - Mr. Nandan M. Nilekani; and a Chief Operating Officer (COO) and Deputy Managing Director - Mr. S. Gopalakrishnan. There are clear demarcations of responsibility and authority between the three. - The Chairman and Chief Mentor is responsible for mentoring Infosys' core management team in transforming the company into a world- class, next-generation organization that provides state-of-the-art technology-leveraged business solutions to corporations across the world. He also interacts with global thought-leaders to enhance the leadership position of Infosys. In addition, he continues to interact with various institutions to highlight and help bring about the benefits of IT to every section of society. As chairman of the board, he is also responsible for all board matters. - The CEO, President and Managing Director is responsible for corporate strategy, brand equity, planning, external contacts, new initiatives, and other management matters. He is also responsible for achieving the annual business plan. - The COO and Deputy Managing Director is responsible for all customer service operations. He is also responsible for technology, acquisitions and investments. The Chairman, CEO, COO, the other executive directors and the senior management make periodic presentations to the board on their responsibilities, performance and targets. 3. Board definition of independent directors According to Clause 49 of the Listing Agreement with Indian stock exchanges, an independent director means a person other than an officer or employee of the company or its subsidiaries or any other individual having a material pecuniary relationship or transactions with the company which, in the opinion of the company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Infosys adopted a stricter definition of independence as required by NASDAQ listing rules. The same is provided in the Audit charter section of this Annual Report. 4. Board membership criteria Board members are expected to possess the expertise, skills and experience required to manage and guide a high-growth, hi-tech, software company deriving revenue primarily from G-7 countries. Expertise in strategy, technology, finance, quality and human resources is essential. Generally, they will be between 40 and 60 years of age. They will not be relatives of an executive director or of an independent director. They are generally not expected to serve in any executive or independent position in any company in direct competition with Infosys. Board members are expected to rigorously prepare for, attend, and participate in all board and applicable committee meetings. Each board member is expected to ensure that their other current and planned future commitments do not materially interfere with the member's responsibility as a director of Infosys. 5. Selection of new directors The board is responsible for the selection of any new director. The board delegates the screening and selection process involved in selecting the new directors to the nominations committee, which consists exclusively of independent directors. The nominations committee makes recommendations to the board on the induction of any new member. 6. Membership term The board constantly evaluates the contribution of its members, and recommends to shareholders their re-appointment periodically as per statute. The current law in India mandates the retirement of one-third of the board members (who are liable to retire by rotation) every year, and qualifies the retiring members for re-appointment. Executive directors are appointed by the shareholders for a maximum period of five years at a time, but are eligible for re-appointment upon completion of their term. Non-executive directors do not have a specified term, but retire by rotation as per law. The nominations committee of the board recommends such appointments and/or re-appointments. However, the membership term is limited by the retirement age for the members. 7. Retirement policy Under this policy, the maximum age of retirement of all executive directors is 60 years, which is the age of superannuation for the employees of the company. Their continuation as members of the board upon superannuation / retirement is determined by the nominations committee. The age limit for serving on the board is 65 years. 8. Board compensation review The compensation committee determines and recommends to the board the compensation payable to the directors. All board-level compensations are approved by shareholders, and separately disclosed in the financial statements. Remuneration of the executive directors consists of a fixed component and a performance incentive. The compensation committee makes a quarterly appraisal of the performance of the executive directors based on a detailed performance-related matrix. The annual compensation of the executive directors is approved by the compensation committee, within the parameters set by the shareholders at the shareholders meetings. Compensation payable to each of the independent directors is limited to a fixed amount per year as determined and approved by the board - the sum of which is within the limit of 0.5% of the net profits of the company for the year, calculated as per the provisions of the Companies Act, 1956. The compensation payable to independent directors and the method of calculation are disclosed separately in the financial statements. Those executive directors who are founders of the company have voluntarily excluded themselves from the 1994 Stock Offer Plan, the 1998 Stock Option Plan and the 1999 Stock Option Plan. Independent directors are also not eligible for stock options under these plans, except for the latest 1999 Stock Option Plan. Table 2a gives the compensation of each director; and Table 2b gives the grant of stock options to directors. 89 Table 2a: Cash compensation to the directors for FY2002
in Rs. crore ----------------------------------------------------------------------------------------- Performance Commission Sitting fees Name of directors Salary incentive/bonus payable (in months) Total Notice period ----------------- ------ --------------- ---------- ------------ ----- ------------- N. R. Narayana Murthy 0.19 0.02 NA NA 0.21 6 Nandan M. Nilekani 0.18 0.02 NA NA 0.20 6 S. Gopalakrishnan 0.18 0.02 NA NA 0.20 6 Deepak M. Satwalekar NA NA 0.12 0.01 0.13 NA Prof. Marti G. Subrahmanyam NA NA 0.12 0.01 0.13 NA Ramesh Vangal* NA NA 0.07 -- 0.07 NA Philip Yeo NA NA 0.12 -- 0.12 NA Prof. Jitendra Vir Singh NA NA 0.12 0.01 0.13 NA Dr. Omkar Goswami NA NA 0.12 0.01 0.13 NA Sen. Larry Pressler NA NA 0.12 0.01 0.13 NA Rama Bijapurkar NA NA 0.12 0.01 0.13 NA Claude Smadja** NA NA 0.05 -- 0.05 NA K. Dinesh 0.19 0.02 NA NA 0.21 6 S. D. Shibulal 0.17 0.02 NA NA 0.19 6 T. V. Mohandas Pai 0.19 0.01 NA NA 0.20 6 Phaneesh Murthy 1.20 0.72 NA NA 1.92 6 Srinath Batni 0.16 0.01 NA NA 0.17 6
* Ramesh Vangal resigned from the board with effect from October 24, 2001. ** Claude Smadja was co-opted as an Additional Director with effect from October 25, 2001. None of the above is eligible for any severance pay. Table 2b: Grant of stock options to directors during FY2002
Number of options Grant price Name of directors (1999 ESOP) (in Indian Rs) Expiry date ----------------- ----------------- -------------- ----------- Deepak M. Satwalekar 7,000 3,215.60 Apr 11, 2010 Prof. Marti G. Subrahmanyam 6,000 3,215.60 Apr 11, 2010 Ramesh Vangal* 7,000 3,215.60 Apr 11, 2010 Philip Yeo 3,000 3,215.60 Apr 11, 2010 Prof. Jitendra Vir Singh 2,000 3,215.60 Apr 11, 2010 Dr. Omkar Goswami 2,000 3,215.60 Apr 11, 2010 Sen. Larry Pressler 2,000 3,215.60 Apr 11, 2010 Rama Bijapurkar 2,000 3,215.60 Apr 11, 2010 Claude Smadja** None NA NA ----- -------- ------------
* Ramesh Vangal resigned from the board with effect from October 24, 2001 and hence the grant was forfeited. ** Claude Smadja was co-opted as an Additional Director with effect from October 25, 2001. None of the above options was issued at a discount. 9. Memberships of other boards Executive directors are excluded from serving on the board of any other entity, unless these are corporate or government bodies whose interests are germane to the future of the software business, or are key economic institutions of the nation, or whose prime objective is that of benefiting society. Independent directors are not expected to serve on the boards of competing companies. Other than this, there are no limitations on them save those imposed by law and good corporate governance practices. The number of outside directorships held by each director of Infosys is given in Table 1 above. B. Board meetings 1. Scheduling and selection of agenda items for board meetings Dates for the board meetings in the ensuing year are decided in advance and published as part of the Annual Report. Most board meetings are held at the company's registered office at Electronics City, Bangalore, India. The chairman of the board and the company secretary draft the agenda for each meeting, along with explanatory notes, and distribute these in advance to the directors. Every board member is free to suggest the inclusion of items on the agenda. The board meets at least once a quarter to review the quarterly results and other items on the agenda, and also on the occasion of the annual shareholders' meeting. When necessary, additional meetings are held. Independent directors are expected to attend at least four board meetings in a year. Committees of the board usually meet the day before the formal board meeting, or when required for transacting business. There were five board meetings held during the year ended March 31, 2002. These were on April 11, 2001, June 2, 2001 (coinciding with last year's Annual General Meeting of the shareholders), July 10, 2001, October 10, 2001 and January 10, 2002. Table 3 gives the attendance record of the directors. 90 Table 3: Number of board meetings and the attendance of directors during FY2002
Number of board Number of board Whether attended Name of directors meetings held meetings attended last AGM ----------------- --------------- ----------------- ---------------- N. R. Narayana Murthy 5 5 Yes Nandan M. Nilekani 5 5 Yes S. Gopalakrishnan 5 5 Yes Deepak M. Satwalekar 5 5 Yes Prof. Marti G. Subrahmanyam 5 4 Yes Ramesh Vangal* 4 1 Yes Philip Yeo 5 0 No Prof. Jitendra Vir Singh 5 5 Yes Dr. Omkar Goswami 5 5 Yes Sen. Larry Pressler 5 5 Yes Rama Bijapurkar 5 5 Yes Claude Smadja** 1 1 NA K. Dinesh 5 5 Yes S. D. Shibulal 5 5 Yes T. V. Mohandas Pai 5 5 Yes Phaneesh Murthy 5 5 Yes Srinath Batni 5 5 Yes
* Ramesh Vangal resigned from the board with effect from October 24, 2001. ** Claude Smadja was co-opted as an Additional Director with effect from October 25, 2001. Hence, his attendance at last AGM is not applicable (NA). 2. Availability of information to the members of the board The board has unfettered and complete access to any information within the company, and to any employee of the company. At meetings of the board, it welcomes the presence of managers who can provide additional insights into the items being discussed. The information regularly supplied to the board includes: - annual operating plans and budgets, capital budgets, updates; - quarterly results of the company and its operating divisions or business segments; - minutes of meetings of audit, compensation, nomination, investors grievance and investment committees, as well as abstracts of circular resolutions passed; - general notices of interest; - declaration of dividend; - information on recruitment and remuneration of senior officers just below the board level including appointment or removal of CFO and company secretary; - materially important litigations, show cause, demand, prosecution and penalty notices; - fatal or serious accidents or dangerous occurrences, any material effluent or pollution problems; - any materially relevant default in financial obligations to and by the company or substantial non-payment for goods sold by the company; - any issue which involves possible public or product liability claims of a substantial nature; - details of any joint venture or collaboration agreement; - transactions that involve substantial payment towards goodwill, brand equity or intellectual property; - significant development on the human resources front; - sale of material nature, of investments, subsidiaries, assets, which is not in the normal course of business; - details of foreign exchange exposure and the steps taken by management to limit the risks of adverse exchange rate movement; and - non-compliance of any regulatory, statutory nature or listing requirements as well as shareholder services such as non-payment of dividend and delays in share transfer. 3. Independent directors' discussion The board's policy is to regularly have separate meetings with independent directors to update them on all business-related issues and new initiatives. In such meetings, the executive directors and other senior management personnel make presentations on relevant issues. 4. Materially significant related party transactions There have been no materially relevant related party transactions, pecuniary transactions or relationships between Infosys and its directors for the year ended March 31, 2002. C. Board committees Currently, the board has five committees - the audit committee, the compensation committee, the nominations committee, the investors grievance committee and the investment committee. The first three consist entirely of independent directors. The investors grievance committee is composed of an independent, non-executive chairman and some executive and non-executive directors. The investment committee consists of all executive directors. The board is responsible for the constituting, assigning, co-opting and fixing of terms of service for committee members to various committees, and it delegates these powers to the nominations committee. 91 The chairman of the board, in consultation with the company secretary of the company and the committee chairman, determines the frequency and duration of the committee meetings. Normally, all the committees meet four times a year except the investment committee which meets as and when the need arises. Typically, the meetings of the audit, compensation and nominations committees last for the better part of a working day. Recommendations of the committee are submitted to the full board for approval. The quorum for meetings is either two members or one-third of the members of the committees, whichever is higher. 1. Audit committee In India, Infosys is listed on the Stock Exchange, Mumbai (or the BSE), the National Stock Exchange (NSE) and the Bangalore Stock Exchange (BgSE). In the US, it is listed on the NASDAQ. In India, Clause 49 of the Listing Agreement makes it mandatory for listed companies to adopt an appropriate audit committee charter. The Blue Ribbon Committee set up by the US Securities and Exchange Commission (SEC) recommended that every listed company adopt an audit committee charter, which has been adopted by NASDAQ. In its meeting on May 27, 2000, Infosys' audit committee adopted a charter which meets the requirements of Clause 49 of the Listing Agreement with Indian stock exchanges and the SEC. It is given below. Audit committee charter of Infosys 1. Primary objectives of the audit committee The primary objective of the audit committee (the "committee") is to monitor and provide effective supervision of the management's financial reporting process with a view to ensure accurate, timely and proper disclosures and the transparency, integrity and quality of financial reporting. The committee oversees the work carried out in the financial reporting process - by the management, including the internal auditors and the independent auditor - and notes the processes and safeguards employed by each. 2. Scope of the audit committee 2.1 Provide an open avenue of communication between the independent auditor, internal auditor, and the board of directors ("BoD"). 2.2 Meet four times every year or more frequently as circumstances require. The audit committee may ask members of management or others to attend meetings and provide pertinent information as necessary. 2.3 Confirm and assure the independence of the external auditor and objectivity of the internal auditor. 2.4 Review with the independent auditor the co-ordination of audit efforts to assure completeness of coverage, reduction of redundant efforts, and the effective use of all audit resources. 2.5 Consider and review with the independent auditor (a) The adequacy of internal controls including computerised information system controls and security; and (b) Related findings and recommendations of the independent auditor and internal auditor together with management's responses. 2.6 Consider and review with management, internal auditor and the independent auditor. (a) Significant findings during the year, including the status of previous audit recommendations; (b) Any difficulties encountered in the course of audit work including any restrictions on the scope of activities or access to required information; and (c) Any changes required in the planned scope of the internal audit plan. 2.7 Report periodically to the BoD on significant results of the foregoing activities. 3. Composition of the audit committee 3.1 The committee shall consist solely of `independent' directors of the company and shall be comprised of a minimum of three directors, each of whom is `financially literate' or shall become `financially literate' within a reasonable period of time after his or her appointment. They should be diligent, knowledgeable, dedicated, interested in the job and willing to devote a substantial amount of time and energy to the responsibilities of the committee, in addition to BoD responsibilities. At least one of the members shall have accounting or related `financial management expertise'. The members of the committee shall be elected by the BoD and shall continue until their successors are duly elected. The duties and responsibilities of a member are in addition to those applicable to a member of the BoD. In recognition of the time burden associated with the service and, with a view to bring in fresh insight, the committee may consider limiting the term of audit committee service, by automatic rotation or by other means. One of the members shall be elected as the chairman either by the full BoD or by the members themselves, by majority vote. 3.2 The BoD may, under exceptional and limited circumstances, waive this requirement if it is of the view that the concerned member is required in the committee, in the best interests of the company and its shareholders. However, the BoD shall disclose, in the next Annual Report (Proxy Statement) subsequent to such determination, the nature of the relationship and the reasons for that determination. 4. Relationship with independent and internal auditors 4.1 The BoD and the committee have the ultimate authority and responsibility to select, evaluate, and, where appropriate, replace the independent auditors in accordance with law. All possible measures must be taken by the committee to ensure the objectivity and independence of the independent auditors. These include: - obtaining from the independent auditors formal written statements delineating all relationships between the auditors and the company, consistent with applicable regulatory requirements; - actively engaging in dialogues with the auditors with respect to any disclosed relationships or services that may impact their objectivity and independence and take, or recommend that the full BoD takes appropriate action to ensure their independence; 92 - require and encourage the independent auditors to have open and frank discussions on their judgements about the quality, not just the acceptability of the company's accounting principles as applied in its financial reporting, including such issues as the clarity of the company's financial disclosures and degree of aggressiveness or conservatism of the company's accounting principles and underlying estimates and other significant decisions made by the management in preparing the financial disclosure and audited by them; and - require the independent auditor, carrying out the attest function in conformity with US GAAS, to perform an interim financial review as required under Statement of Auditing Standards 71 of the American Institute of Certified Public Accountants and also discuss with the committee or its chairman, and an appropriate representative of Financial Management and Accounting, in person or by telephone conference call, the matters described in SAS 61, Communications with the Committee, prior to the company's filing of its Form 6-K (and preferably prior to any public announcement of financial results), including significant adjustments, management judgement and accounting estimates, significant new accounting policies, and disagreements with management. 4.2 The internal auditors of the company are in the best position to evaluate and report on the adequacy and effectiveness of the internal controls. Keeping in view the need for the internal auditors' independence from management in order to remain objective, a formal mechanism should be created to facilitate confidential exchanges between the internal auditors and the committee, regardless of irregularities or problems. The work carried out by each of these auditors needs to be assessed and reviewed with the independent auditors and appropriate recommendations made to the BoD. The audit committee's charter should be published in the Annual Report once every three years and also whenever any significant amendment is made to the charter. 5. Disclosure requirements 5.1 The committee charter should be published in the Annual Report once every three years and also whenever any significant amendment is made to the charter. 5.2 The committee shall disclose in the company's Annual Report whether or not, with respect to the concerned fiscal year: - Management has reviewed the audited financial statements with the committee, including a discussion of the quality of the accounting principles as applied and significant judgements affecting the company's financial statements; - The independent auditors have discussed with the committee their judgements of the quality of those principles as applied and judgements referred to above under the circumstances; - The members of the committee have discussed among themselves, without management or the independent auditors present, the information disclosed to the committee as described above; - The committee, in reliance on the review and discussions conducted with management and the independent auditors pursuant to the requirements above, believes that the company's financial statements are fairly presented in conformity with Generally Accepted Accounting Principles ("GAAP") in all material respects; and - The committee has satisfied its responsibilities in compliance with its charter. 5.3 The committee shall secure compliance that the BoD has affirmed to the NASD/Amex Stock Exchange on the following matters, as required in terms of the relevant NASD/Amex rules: - Composition of the committee and independence of committee members; - Disclosures relating to non-independent members; - Financial literacy and financial expertise of members; and - Review of the committee charter. 5.4 The committee shall report to shareholders as required by the relevant rules of the Securities and Exchange Commission ("SEC") of the United States. 6. Definitions 6.1 Independent member In order to be 'independent', members should have no relationship with the company that may interfere with the exercise of their independence from the management and the company. The following persons are not considered independent: - A director who is employed by the company or any of its affiliates for the current year or any of the past three years; - A director who accepts any compensation from the company or any of its affiliates in excess of $60,000 during the previous fiscal year, other than compensation for board service, benefits under a tax-qualified retirement plan, or non-discretionary compensation; - A director who is a member of the immediate family of an individual who is, or has been in any of the past three years, employed by the corporation or any of its affiliates as an executive officer. "Immediate family" includes a person's spouse, parents, children, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who resides in such a person's home; - A director who is a partner in, or a controlling shareholder or an executive officer of, any for-profit business organization to which the company made, or from which the company received, payments (other than those arising solely from investments in the company's securities) that exceed 5% of the company's or business organization's consolidated gross revenues for that year, or $200,000, whichever is more, in any of the past three years; and - A director who is employed as an executive of another entity where any of the company's executives serve on that entity's compensation committee. 6.2 Financial literacy 'Financial literacy' means the ability to read and understand fundamental financial statements. 'Financial management expertise' means past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the member's financial sophistication, including being or having been a chief executive officer or other senior officer with responsibilities to oversee financial issues. 93 Audit committee report for the year ended March 31, 2002 The audit committee of Infosys comprises six independent directors. They are: Mr. Deepak M. Satwalekar, Chairman; Ms. Rama Bijapurkar; Dr. Omkar Goswami; Sen. Larry Pressler; Mr. Claude Smadja (co-opted from January 9, 2002, following the resignation of Mr. Ramesh Vangal from the board); Prof. Marti G. Subrahmanyam. Four audit committee meetings were held during the year. These were held on April 10, 2001, July 9, 2001, October 9, 2001 and January 9, 2002. Table 4 gives the attendance record of the audit committee members Table 4: Audit committee attendance during FY2002
Name of audit committee members No. of meetings held No. of meetings attended ------------------------------- -------------------- ------------------------ Deepak M. Satwalekar 4 3 Prof. Marti G. Subrahmanyam 4 3 Ramesh Vangal* 3 0 Dr. Omkar Goswami 4 4 Sen. Larry Pressler 4 4 Rama Bijapurkar 4 4 Claude Smadja** 1 1
* Ramesh Vangal resigned from the board with effect from October 24, 2001. ** Claude Smadja was co-opted as an Additional Director with effect from October 25, 2001, and as a member of the audit committee from January 9, 2002. Each member of the committee is an independent director, according to the definition laid down in the Audit committee charter given above, and Clause 49 of the Listing Agreement with the relevant Indian stock exchanges. Management is responsible for the company's internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of the company's financial statements in accordance with the generally accepted auditing standards, and for issuing a report thereon. The committee's responsibility is to monitor these processes. The committee is also responsible to oversee the processes related to the financial reporting and information dissemination, in order to ensure that the financial statements are true, correct, sufficient and credible. In addition, the committee recommends to the board the appointment of the company's internal and statutory auditors. In this context, the committee has discussed with the company's auditors the overall scope and plans for the independent audit. Management represented to the committee that the company's financial statements were prepared in accordance with Generally Accepted Accounting Principles. The committee discussed with the auditors, in the absence of the management (whenever necessary), the company's audited financial statements including the auditor's judgements about the quality, not just the applicability, of the accounting principles, the reasonableness of significant judgements and the clarity of disclosures in the financial statements. The committee also discussed with the auditors other matters required by the Statement on Auditing Standards No.61 (SAS 61) - Communication with audit committees, as amended by SAS 90 - Audit committee communication. Relying on the review and discussions conducted with the management and the independent auditors, the audit committee believes that the company's financial statements are fairly presented in conformity with Generally Accepted Accounting Principles in all material aspects. The committee has also reviewed the internal controls put in place to ensure that the accounts of the company are properly maintained and that accounting transactions are in accordance with prevailing laws and regulations. In conducting such reviews, the committee found no material discrepancy or weakness in the internal control systems of the company. The committee also reviewed the financial and risk management policies of the company and expressed its satisfaction with the same. The company's auditors provided to the committee the written disclosures required by Independence Standards Board Standard No. 1 - 'Independence discussions with audit committees', based on which the committee discussed the auditors' independence with both the management and the auditors. After review, the committee expressed its satisfaction on the independence of both the internal and the statutory auditors. Moreover, the committee considered whether any non-audit consulting services provided by the auditor's firm could impair the auditor's independence, and concluded that there was no such materially significant service provided. The committee secured compliance that the board of directors has affirmed to the NASDAQ stock exchange, under the relevant rules of the exchange on composition of the committee and independence of the committee members, disclosures relating to non-independent members, financial literacy and financial expertise of members, and a review of the audit charter. Based on the committee's discussion with management and the auditors and the committee's review of the representations of management and the report of the auditors to the committee, the committee has recommended to the board of directors that: 1. The audited financial statements prepared as per Indian GAAP for the year ended March 31, 2002 be accepted by the board as a true and fair statement of the financial health of the company; and 2. The audited financial statements prepared as per US GAAP, and included in the company's Annual Report on Form-20F for the fiscal year ended March 31, 2002 be filed with the Securities and Exchange Commission. The committee has recommended to the board the appointment of Bharat S Raut & Co., Chartered Accountants, as the statutory and independent auditors of the company for the fiscal year ending March 31, 2003, and that that the necessary resolutions for appointing them as auditors be placed before the shareholders. The committee has also recommended to the board the appointment of KPMG as independent auditors of the company for the US GAAP financial statements, for the financial year ending March 31, 2003. 94 The committee recommended the appointment of internal auditors to review various operations of the company, and determined and approved the fees payable to them. The committee has also issued a letter in line with recommendation No. 9 of the Blue Ribbon Committee on audit committee effectiveness, which has been provided in the Financial statements prepared in accordance with US GAAP section of this Annual Report. In conclusion, the committee is sufficiently satisfied that it has complied with its responsibilities as outlined in the Audit committee charter. Sd Bangalore Deepak M. Satwalekar April 9, 2002 Chairman, Audit committee 2. Compensation committee The compensation committee of Infosys consists entirely of non-executive, independent directors, and consists of: Prof. Marti G. Subrahmanyam, Chairman; Dr. Omkar Goswami; Mr. Deepak M. Satwalekar; Prof. Jitendra Vir Singh; Mr. Philip Yeo. Compensation committee report for the year ended March 31, 2002 Four compensation committee meetings were held during the year ended March 31, 2002: on April 10, 2001, July 9, 2001, October 9, 2001 and January 9, 2002. Table 5 gives the attendance record of the compensation committee members. Table 5: Compensation committee attendance during FY2002
Name of compensation committee members Number of meetings held Number of meetings attended -------------------------------------- ----------------------- --------------------------- Prof. Marti G. Subrahmanyam 4 3 Deepak M. Satwalekar 4 3 Philip Yeo 4 1 Prof. Jitendra Vir Singh 4 4 Dr. Omkar Goswami 4 4
The committee has the mandate to review and recommend compensation payable to the executive directors and senior management of the company. It also administers the company's stock option plans, including the review and grant of stock options to eligible employees under the plans. The committee reviews the performance of all the executive directors on a quarterly basis. This is done on the basis of detailed performance parameters set for each of the executive directors at the beginning of the year, in consultation with the CEO of the company. From time to time, the committee also evaluates the usefulness of such performance parameters, and makes necessary amendments. The committee reviewed the performance of all the executive directors and approved the compensation payable to them for fiscal 2003, within the overall limits approved by the shareholders. The committee also reviewed and approved the compensation proposed for all the management council members for fiscal 2003. The committee also reviewed the grant of stock options on a sign-on and regular basis to various employees of the company during the year. The committee believes that the proposed compensation and benefits, along with stock options, are adequate to motivate and retain the senior officers of the company. Save as disclosed, none of the directors had a material beneficial interest in any contract of significance to which the company or any of its subsidiary undertakings was a party, during the financial year. Sd Bangalore Prof. Marti G. Subrahmanyam April 9, 2002 Chairman, compensation committee 3. Nominations committee The nominations committee of the board consists exclusively of the following non-executive, independent directors: Mr. Claude Smadja, Chairman (co-opted in the committee from January 9, 2002); Sen. Larry Pressler; Prof. Jitendra Vir Singh; Mr. Philip Yeo; During the year, Mr. Ramesh Vangal resigned from the directorship of the company and also from the committee. Nominations committee report for the year ended March 31, 2002 The committee has the mandate to recommend the size and composition of the board, establish procedures for the nomination process, recommend candidates for election to the board and nominate officers for election by the board. Four nominations committee meetings were held during the year on April 10, 2001, July 9, 2001, October 9, 2001 and January 9, 2002. During the year, Mr. Ramesh Vangal resigned from the directorship of the company and the same was taken on record. The committee approved the induction of Mr. Claude Smadja in his place and recommended the same to the board for approval, which was subsequently approved. 95 The attendance record of members is given in Table 6. Table 6: Nominations committee attendance during FY2002
Name of compensation committee members Number of meetings held Number of meetings attended -------------------------------------- ----------------------- --------------------------- Claude Smadja* 1 1 Ramesh Vangal** 3 0 Philip Yeo 4 1 Prof. Jitendra Vir Singh 4 4 Sen. Larry Pressler 4 4
* Claude Smadja was co-opted in the committee on January 9, 2002. ** Ramesh Vangal resigned from the board with effect from October 24, 2001. The committee discussed the issue of the retirement of members of the board as per statutory requirements. As a third of the members have to retire every year based on their date of appointment, Messrs. Nandan M. Nilekani, Philip Yeo, K. Dinesh, T. V. Mohandas Pai and Phaneesh Murthy will retire in the ensuing Annual General Meeting. The committee considered their performance and recommended that the necessary resolutions for their re-appointment be considered by the shareholders. Sd Bangalore Claude Smadja April 9, 2002 Chairman, nominations committee 4. Investors grievance committee The investors grievance committee is headed by an independent director, and consists of the following directors: Mr. Philip Yeo, Chairman; Ms. Rama Bijapurkar; Mr. K. Dinesh; Mr. Nandan M. Nilekani; Mr. S. D. Shibulal. Investors grievance committee report for the year ended March 31, 2002 The committee has the mandate to review and redress shareholder grievances and to attend to share transfers. Four investors grievance committee meetings were held during the year on April 10, 2001, July 9, 2001, October 9, 2001 and January 9, 2002. The attendance record of members is given in Table 7. Table 7: Investors grievance committee attendance during FY2002
Name of compensation committee members Number of meetings held Number of meetings attended -------------------------------------- ----------------------- --------------------------- Philip Yeo 4 1 Rama Bijapurkar 4 4 Nandan M. Nilekani 4 4 K. Dinesh 4 4 S. D. Shibulal 4 4
The committee expresses satisfaction with the company's performance in dealing with investors grievance and its share transfer system. It has also noted the shareholding in dematerialised mode as on March 31, 2002 as being 99.05%. Sd Bangalore Rama Bijapurkar April 9, 2002 Member, investors grievance committee 5. Investment committee The investment committee consists exclusively of executive directors: Mr. N. R. Narayana Murthy, Chairman; Mr. Nandan M. Nilekani; Mr. S. Gopalakrishnan; Mr. K. Dinesh; Mr. S. D. Shibulal; Mr. T. V. Mohandas Pai (co-opted from April 9, 2002); Mr. Phaneesh Murthy (co-opted from April 9, 2002); Mr. Srinath Batni (co-opted from April 9, 2002). Investment committee report for the year ended March 31, 2002 The committee has the mandate to approve investments in various corporate bodies within statutory limits and the powers delegated by the board. During the year, the committee approved investment of US$2.2 million (Rs. 11.1 crore) in Workadia Inc., a Delaware corporation. Sd Bangalore N. R. Narayana Murthy April 9, 2002 Chairman, investment committee 96 D. Management review and responsibility 1. Formal evaluation of officers The compensation committee of the board approves the compensation and benefits for all executive board members, as well as members of the management council. Another committee headed by the CEO reviews, evaluates and decides the annual compensation for officers of the company from the level of associate vice president, but excluding members of the management council. Grants of stock options, under the 1994 Stock Offer Plan, were decided by the advisory board, constituted under the 1994 Plan. The compensation committee of the board administers the 1998 and the 1999 Stock Option Plans. 2. Succession planning and management development The chairman reviews succession planning and management development with the full board from time to time. 3. Board interaction with clients, employees, institutional investors, the government and the press The chairman and the CEO, in consultation with the CFO, handle all interactions with investors, media, and various governments. The CEO manages all interaction with clients and employees. 4. Risk management The company has an integrated approach to managing the risks inherent in various aspects of its business. As part of this approach, the board of directors is responsible for monitoring risk levels according to various parameters, and the management council is responsible for ensuring implementation of mitigation measures, if required. The audit committee provides the overall direction on the risk management policies. 5. Management's discussion and analysis This is given as separate chapters in this Annual Report, according to Indian GAAP and US GAAP financials, respectively. E. Shareholders 1. Disclosures regarding appointment or re-appointment of directors According to the Articles of Association of Infosys, one-third of the directors retire by rotation and, if eligible, offer themselves for re-election at the Annual General Meeting of shareholders. As per Article 122 of the Articles of Association, Mr. Nandan M. Nilekani, Mr. K. Dinesh, Mr. Philip Yeo, Mr. T. V. Mohandas Pai and Mr. Phaneesh Murthy, retire by rotation in the forth coming Annual General Meeting. The board has recommended the re-election of all these directors to the shareholders. The five-year employment contracts of Mr. N. R. Narayana Murthy, Mr. Nandan M. Nilekani and Mr. K. Dinesh are coming up for renewal during this year. Mr. S. D. Shibulal is being relocated to USA in view of the company's business requirements. His remuneration has undergone a change due to this relocation. In addition, Mr. Claude Smadja, who was appointed as an additional director with effect from October 25, 2001, is eligible and is offering himself for appointment as independent director of the company. The detailed resumes of all these directors are provided in the notice to the Annual General Meeting. 2. Communication to shareholders Since June 1997, Infosys has been sending to each shareholder, quarterly reports which contain audited financial statements under Indian GAAP and unaudited financial statements under US GAAP, along with additional information. Moreover, the quarterly and annual results are generally published in The Economic Times, and the Udayavani (a regional daily of Bangalore). Quarterly and annual financial statements, along with segmental information, are posted on the company's website (http://www.infy.com). Earnings calls with analysts and investors are broadcast live on the website, and their transcripts are posted on the website soon thereafter. Any specific presentations made to analysts and others are also posted on the company's website. The proceedings of the Annual General Meeting is web cast live on the Internet to enable shareholders across the world to view the proceedings. The archives of the video are also available on the company's home page for future reference to all the shareholders. 3. Investors' grievances and share transfer As mentioned earlier, the company has a board-level investors grievance committee to examine and redress shareholders and investors' complaints. The status on complaints and share transfers is reported to the full board. The details of shares transferred and nature of complaints are provided in the following chapter on Additional information to shareholders. For matters regarding shares transferred in physical form, share certificates, dividends, change of address, etc. shareholders should communicate with Karvy Consultants Limited, the company's registrar and share transfer agent. Their address is given in the section on Shareholder information. 4. Details of non-compliance There has been no non-compliance of any legal requirements by the company; nor has there been any strictures imposed by any stock exchange, SEBI or SEC, on any matters relating to the capital market over the last three years. 5. General body meetings Details of the last three Annual General Meetings are given in Table 8. 97 Table 8: Date, time and venue of the last three AGMs
Financial year (ended) Date Time Venue ---------------------- ------------- -------- -------------------------------------------------------- March 31, 1999 June 12, 1999 1500 hrs Taj Residency Hotel, 4/13 M.G. Road, Bangalore, India March 31, 2000 May 27, 2000 1500 hrs Taj Residency Hotel, 4/13 M.G. Road, Bangalore, India March 31, 2001 June 2, 2001 1500 hrs J. N. Tata Auditorium, National Science Seminar Complex, Indian Institute of Science, Bangalore, India
6. Postal ballots For the year ended March 31, 2002, there have been no ordinary or special resolutions passed by the company's shareholders through postal ballot. 7. Auditor's certificate on corporate governance As required by Clause 49 of the Listing Agreement, the auditor's certificate is given as an annexure to the Directors' report. F. Compliance with international corporate governance guidelines 1. Euroshareholders Corporate Governance Guidelines 2000 "Euroshareholders" is the confederation of European shareholders associations, with the overall task to represent the interests of individual shareholders in the European Union. In April 1999, the Organization for Economic Cooperation and Development (OECD) published its general principles on corporate governance. The Euroshareholders guidelines are based upon the same principles, but are more specific and detailed. Recommendation 1: A company should aim primarily at maximising shareholder value in the long-term. Companies should clearly state (in writing) their financial objectives as well as their strategy, and should include these in the Annual Report. This recommendation is complied with. Recommendation 2: Major decisions which have a fundamental effect upon the nature, size, structure and risk profile of the company, and decisions which have significant consequences for the position of the shareholder within the corporation, should be subject to shareholder's approval or should be decided by the AGM. As per Indian law, majority of these decisions require approval of the shareholders in the General Meeting of the company. Recommendation 3: Anti-takeover defences or other measures which restrict the influence of shareholders should be avoided. The company does not have any anti-takeover provisions in its Memorandum and Articles of Association. Recommendation 4a: The process of mergers and takeovers should be regulated and compliance with these regulations should be supervised. Not applicable. Recommendation 4b: If a shareholder's stake in the company passes a certain threshold, that shareholder should be obliged to make an offer for the remaining shares under reasonable conditions, that is, at least the price that was paid for the control of the company. The Securities and Exchange Board of India (SEBI) has published takeover guidelines that require an open offer by holders who acquire more than a specified percentage of the company. Recommendation 5: Companies should immediately disclose information which can influence the share price as well as information about those shareholders who pass (upwards or downwards) 5% thresholds. There should be serious penalties in case of non-compliance. As per the listing agreement, Indian companies are required to immediately inform stock exchanges about all price-sensitive information. According to SEBI's takeover guidelines, shareholders who hold more than 5% of the equity of the company need to inform the company immediately on reaching the limit. On receiving such information, the company needs to immediately notify the stock exchanges on which it is listed. Recommendation 6: Auditors have to be independent and should be elected by the general meeting. This recommendation is complied with. Recommendation 7: Shareholders should be able to place items on the agenda of the AGM. As per the Indian law, shareholders holding not less than one-tenth of the paid-up capital of the company are entitled to requisition a general meeting, and place items on the agenda. Recommendation 8: In addition to the regular channels, electronic means should be used by the company to provide shareholders with price-sensitive information. The company posts all its financial results, as well as press releases, on its website, www.infy.com. The proceedings of the Annual General Meeting is web cast live on the Internet to enable shareholders across the world to view the proceedings. The archives of the video are also available on the company's home page for future reference to all the shareholders. Recommendation 9: Shareholders shall have the right to elect members of at least one board and shall also be able to file a resolution for dismissal. Prior to the election, shareholders should be able to suggest candidate members of the board. In Indian law, directors are elected by members in the general meeting, either by show of hands or a poll. 98 Recommendation 10a: Membership of non-executives on the board should be limited to a maximum period of twelve years. The current law in India mandates the retirement of one-third of the board members every year, and qualifies the retiring members for re-appointment. Executive directors of Infosys are appointed by the shareholders for a maximum period of five years at one time but are eligible for re-appointment upon completion of their term. Recommendation 10b: No more than one non-executive board member should have served as an executive member of the company. All the non-executive directors of the company, as of date, are independent directors. 2. Blue Ribbon Committee report on improving effectiveness of audit committees The Blue Ribbon Committee was formed under the auspices of the United States Securities and Exchange Commission (SEC) to develop a series of recommendations to enable "audit committees to function as the ultimate guardian of investor interests and corporate accountability". It has recommended that exchange listing requirements be amended to require audit committees to adopt a formal written charter, which should be annually reviewed and assessed. A compliance report on the recommendations of the committee is presented below. Recommendation 1: Adopt the following definition of independence for purposes of service on the audit committee: Members of the audit committee shall be considered independent if they have no relationship to the corporation that may interfere with the exercise of their independence from management and the corporation. This recommendation is complied with. None of the directors is an interested party as defined in this recommendation. Recommendation 2: In addition to adopting and complying with the definition of independence set forth above for purposes of service on the audit committee, have an audit committee comprised solely of independent directors. The committee recommends that the NYSE and the NASD maintain their respective current audit committee independence requirements as well as their respective definitions of independence. The audit committee consists only of independent, non-executive directors. Recommendation 3: To have an audit committee comprised of a minimum of three directors, each of whom is financially literate (as described in the section of this Report entitled "Financial literacy") or becomes financially literate within a reasonable period of time after his or her appointment to the audit committee, and further that at least one member of the audit committee has accounting or related financial management expertise. Infosys complies with this requirement. The members of the committees are highly respected and accomplished professionals in the corporate and academic worlds. They are all financially literate. Recommendation 4: Require the audit committee of each listed company to (i) adopt a formal written charter that is approved by the full board of directors, and that specifies the scope of the committee's responsibilities, and how it carries out those responsibilities, including structure, processes, and membership requirements, and (ii) review and reassess the adequacy of the audit committee charter on an annual basis. This is fully adhered to. See Infosys' Audit committee charter above. Recommendation 5: Require the audit committee for each reporting company to disclose in the company's proxy statement for its annual meeting of shareholders whether the audit committee had adopted a formal written charter, and, if so, whether the audit committee satisfied its responsibilities during the prior year in compliance with its charter, which charter shall be disclosed at least triennially in the Annual Report to shareholders or proxy statement, and in the next Annual Report to shareholders or proxy statement after any significant amendment to that charter. The committee further recommends that the SEC adopt a "safe harbor" applicable to all disclosure referenced in this Recommendation 5. This recommendation is complied with. Recommendation 6: Require that the audit committee charter for every listed company specify that the outside auditor is ultimately accountable to the board of directors and the audit committee as representatives of shareholders, and that these shareholder representatives have the ultimate authority and responsibility to select, evaluate, and, where appropriate, replace the outside auditor (or to nominate the outside auditor to be proposed for shareholder approval in any proxy statement). This recommendation is complied with. Recommendation 7: Require that the audit committee charter for every listed company specify that the audit committee is responsible for ensuring its receipt from the outside auditors of a formal written statement delineating all relationships between the auditor and the company, consistent with Independence Standards Board Standard No.1, and that the audit committee is also responsible for actively engaging in a dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor and to take, or recommend that the full board take, appropriate action to ensure the independence of the outside auditor. This recommendation is complied with. Recommendation 8: That Generally Accepted Auditing Standards (GAAS) require that a company's outside auditor discuss with the audit committee the auditor's judgements about the quality, not just the acceptability, of the company's accounting principles as applied in its financial reporting; the discussion should include such issues as the clarity of the company's financial disclosures and degree of aggressiveness or conservatism of the company's accounting principles and underlying estimates and other significant decisions made by management in preparing the financial disclosure and reviewed by the outside auditors. This requirement should be written in a way to encourage open, frank discussion and to avoid boilerplate. This recommendation is complied with. Both the internal and external auditors have full and free access to the audit committee, its members and the board of directors. All issues arising out of the internal and external auditors' reports are discussed in detail in the audit committee meetings. Recommendation 9: Require all reporting companies to include a letter from the audit committee in the company's Annual Report to shareholders and Form 10-K Annual Report disclosing whether or not, with respect to the prior fiscal year: (i) management has reviewed the audited financial statements with the audit committee, including a discussion of the quality of the accounting principles as applied and significant judgments affecting the company's financial statements; (ii) the outside auditors have discussed with the audit committee the outside auditors' judgements of the quality of those principles as applied and judgments referenced in (i) above under the circumstances; (iii) the members of the audit committee have discussed among themselves, without management or the outside auditors present, the information disclosed to the audit committee described in (i) and (ii) above; and (iv) the audit committee, in reliance on the review and discussions conducted with management and the outside auditors pursuant to (i) and 99 (ii) above, believes that the company's financial statements are fairly presented in conformity with Generally Accepted Accounting Principles (GAAP) in all material respects. The committee further recommends that the SEC adopt a "safe harbor" applicable to any disclosure referenced in this Recommendation 9. This recommendation is complied with. The required report is provided above in this chapter. Recommendation 10: Require that a reporting company's outside auditor conduct a SAS 71 Interim Financial Review prior to the company's filing of its Form 10-Q. The committee further recommends that SAS 71 be amended to require that a reporting company's outside auditor discuss with the audit committee, or at least its chairman, and a representative of financial management, in person, or by telephone conference call, the matters described in AU Section 380, Communications With the audit committee, prior to the filing of the Form 10-Q (and preferably prior to any public announcement of financial results), including significant adjustments, management judgement and accounting estimates, significant new accounting policies, and disagreements with management. Being a foreign private issuer of securities, the company files quarterly reports on Form 6-K, and yearly reports in Form 20-F, with the SEC. The financial statements included in Form 6-K and 20-F are reviewed by the company's auditors, as per the requirements of SAS 71. 3. United Nations Global Compact Programme Announced by the United Nations Secretary General, Kofi Annan, at the World Economic Forum in Davos, Switzerland in January 1999, and formally launched at the UN Headquarters in July 2000, the Global Compact calls on companies to embrace nine principles in the areas of human rights, labor standards and environment. The Global Compact is a value-based platform designed to promote institutional learning. It utilizes the power of transparency and dialogue to identify and disseminate good practices based on universal principles. The nine principles are drawn from the Universal Declaration of Human Rights, the International Labor Organization's Fundamental Principles on Rights at Work and the Rio Principles on Environment and Development. According to these principles, businesses should: - support and respect the protection of internationally proclaimed human rights; Corporate leadership in human rights is good for the community and for business. The benefits of responsible engagement for business include a greater chance of a stable and harmonious atmosphere in which to do business and a better understanding of the opportunities and problems of the social context. The benefits of corporate social responsibility for society include less adverse impacts from ill-thought-through business initiatives. - ensure that they are not complicit in human rights abuses; An effective human rights policy will help companies avoid being implicated in human rights violations. - uphold the freedom of association and the effective recognition of the right to collective bargaining; Freedom of association and the exercise of collective bargaining provide opportunities for constructive rather than confrontational dialogue, which harness energy to focus on solutions that result in benefits to the enterprise, its stakeholders, and society at large - support the elimination of all forms of forced and compulsory labor; Forced labor robs societies of the opportunities to apply and develop human resources for the labor market of today, and develop the skills in education of children for the labor markets of tomorrow. - support the effective abolition of child labor; Child labor results in scores of under-skilled, unqualified workers and jeopardizes future skills improvements in the workforce. Children who do not complete their primary education are likely to remain illiterate and will not acquire the skills needed to get a job and contribute to the development of a modern economy. - eliminate discrimination in respect of employment and occupation; Discrimination in employment and occupation restricts the available pool of workers and skills, and isolates an employer from the wider community. Non-discriminatory practices help ensure that the best-qualified person fills the job. - support a precautionary approach to environmental challenges; It is more cost-effective to take early actions to ensure that irreversible environmental damage does not occur. This requires developing a life-cycle approach to business activities to manage the uncertainty and ensure transparency. Investing in production methods that are not sustainable, that deplete resources and that degrade the environment has a lower long-term return than investing in sustainable operations. - undertake initiatives to promote greater environmental responsibility; Given the increasingly central role of the private sector in global governance issues, the public is demanding that business manage its operations in a manner which will enhance economic prosperity, ensure environmental protection and promote social justice. - encourage the development and diffusion of environmentally-friendly technologies. Production processes and technology that do not use resources efficiently, generate residues and discharge wastes. Implementing environmentally-sound technologies helps a company reduce the use of raw materials leading to increased efficiency and overall competitiveness of the company. On August 27, 2001, Infosys adopted the UN Global Compact programme and became a partner with the UN in this initiative. 100 Shareholder information [PHOTO] Additional information to shareholders - Frequently-asked questions - Share performance chart - Intangible assets scoresheet - Human resources accounting and value-added statement - Brand valuation - Balance sheet (including intangible assets) - Current-cost-adjusted financial statements - Economic Value-Added (EVA) statement - Ratio analysis - Statutory obligations - ValueReporting(TM) - Management structure 101 Shareholder information -------------------------------------------------------------------------------- 1. Date, time and venue of June 8, 2002, 3.00 pm at the J. N. Tata Annual General Meeting of Auditorium, National Science Seminar shareholders Complex, Indian Institute of Science, Bangalore 560 012, India. 2. Dates of book closure May 24 to June 8, 2002 (both days inclusive). 3. Dividend payment On or after June 8, 2002, but within the statutory time limit of 30 days. 4. Financial calendar Annual General Meeting: June 8, 2002 (tentative and subject Financial reporting for quarter ending to change) June 30, 2002: July 10, 2002 Financial reporting for quarter ending September 30, 2002: October 10, 2002 Interim dividend payment (if any): November 2002 Financial reporting for quarter ending December 31, 2002: January 10, 2003 Financial results for year ending March 31, 2003: April 10, 2003 Annual General Meeting for year ending March 31, 2003: June, 2003 5. Listing on stock exchanges In India: Bangalore Stock Exchange Ltd. (BgSE), the Stock Exchange, Mumbai (BSE), and the National Stock Exchange of India Ltd. (NSE). Outside India: NASDAQ National Market in the US. 6. Listing fees Paid for all the above stock exchanges for 2001-2002 7. Registered office Electronics City, Hosur Road, Bangalore 561 229, India Tel.: +91-80-852-0261, Fax: +91-80-852-0362 Homepage: www.infy.com 8. Registrar and share Share transfers in physical form and other transfer agents communication regarding share certificates, dividends, change of address, etc. may be addressed to: Karvy Consultants Limited, Registrars and Share Transfer Agents; T.K.N. Complex, No. 51/2, Vanivilas Road; Opposite National College, Basavanagudi; Bangalore 560 004, India. Tel.: +91-80-662-1184, Fax: +91-80-662-1169 E-Mail: kumars@karvy.com 9. Share transfer system Shares sent for physical transfer are effected after giving a notice of 15 days to the seller for sale confirmation. The share transfer committee of the company meets as often as required. The total number of shares transferred in physical form during the year 2001-02 was 24,700, versus 11,356 for the previous year 2000-01. 10. Investor services - complaints during the year Table 1: Investor complaints on matters relating to shares during FY 2002
Year ended March 31 ------------------------------------------------------- 2002 2001 -------------------------- ------------------------ Nature of complaints Received Attended to Received Attended to -------------------- -------- ----------- -------- ----------- Non-receipt of share certificates 4 4 1 1 Non-receipt of bonus share/split shares 1 1 8 8 Letters from stock exchanges, SEBI, etc 2 2 2 2 Non-receipt of dividend warrants 163 163 88 88 --- --- --- --- Total 170 170 99 99 === === === ===
During the years 2001-02 and 2000-2001, the company attended to most of the investors' grievances/correspondences within a period of 10 days from the date of receipt of such grievances. The exceptions have been for cases constrained by disputes or legal impediments. 11. Stock market data relating to shares listed in India The company's market capitalization is included in the computation of the BSE-30 Sensitive Index (Sensex), the BSE Dollex and S&P CNX NIFTY Index. Table 2 gives the monthly high and low quotations as well as the volume of shares traded at BSE, NSE and the Bangalore Stock Exchange for 2001-02. The chart plots the daily closing price of Infosys versus the BSE-Sensex for the year ended March 31, 2002. 102 Table 2: Monthly highs, lows and trading volume for FY 2002
BSE NSE BgSE -------------------------------- -------------------------------- --------------------------- High Low Volume High Low Volume High Low Volume Rs. Rs. Nos Rs. Rs. Nos Rs Rs Nos ----- ----- ----------- ----- ----- ------------ ----- ----- ------ April, 2001 4,226 2,721 73,13,583 4,228 2,701 1,05,60,270 4,250 2,730 10,912 May 4,334 3,601 68,63,941 4,328 3,607 1,06,32,274 4,300 3,680 5,221 June 3,969 3,135 74,11,429 3,995 3,138 1,26,84,001 3,950 3,160 4,697 July 4,028 3,169 84,20,064 3,989 3,200 1,36,16,371 3,600 3,300 610 August 4,000 3,525 48,93,983 3,954 3,523 85,95,527 NA NA NT September 3,575 2,210 97,14,399 3,572 2,115 1,51,39,714 NA NA NT October 3,100 2,156 95,35,320 3,098 2,158 1,51,74,621 NA NA NT November 4,109 2,802 71,27,238 4,190 2,802 1,31,19,365 NA NA NT December 4,685 3,762 72,01,508 4,675 3,732 1,26,97,481 NA NA NT January, 2002 4,861 3,632 1,06,26,911 4,874 3,633 1,77,07,244 NA NA NT February 3,980 3,490 58,82,277 3,979 3,489 1,03,56,237 NA NA NT March 4,304 3,492 70,13,404 4,295 3,495 1,27,83,772 NA NA NT ----- ----- ----------- ----- ----- ------------ ----- ----- ------ Total 9,20,04,057 15,30,66,877 21,440 % of volume traded to 2001-02 143.60% 238.91% 0.03% average shares outstanding 2000-01 205.55% 229.70% 0.95%
NA: Not applicable. NT: Not traded. The number of shares outstanding is 6,40,70,030. American Depositary Shares (ADSs) have been excluded for the purpose of this calculation. Chart A: Infosys share price versus the BSE-Sensex [CHART] 12. Legal proceedings There are certain pending cases relating to disputes over title to shares, in which the company has been made a party. However, these cases are not material in nature. 13. Distribution of shareholding as on March 31, 2002 Table 3a: Distribution of shares according to size, classes and categories of shareholders as on March 31, 2002.
No. equity shares held No. of shareholders % of shareholders No. of shares % age of shareholding ----------------------- ------------------- ----------------- ------------- --------------------- 1 - 100 78,224 88.24 9,77,083 1.53 101 - 200 2,464 2.78 3,90,530 0.60 201 - 500 2,792 3.15 9,60,609 1.50 501 - 1,000 2,122 2.39 15,38,565 2.40 1,001 - 5,000 2,408 2.72 49,01,413 7.65 5,001 - 10,000 233 0.26 16,83,593 2.63 10,001 and above 406 0.46 5,36,18,237 83.69 ------ ------ ----------- ------ Total, excluding ADS 88,649 100.00 6,40,70,030 100.00 Equity shares underlining ADS* 1 -- 21,16,100 -- ------ ------ ----------- ------ Total including ADS 88,650 6,61,86,130 ------ ------ ----------- ------
103 Table 3b: Distribution of shares by categories of shareholders as on March 31, 2002
Category No. of shareholders Voting strength(%) No. of shares held -------- ------------------- ------------------ ------------------ Individuals 84,097 19.00 1,25,74,370 Companies 3,180 2.42 16,06,971 FIIs 363 36.59 2,42,15,093 OCBs and NRIs 785 0.65 4,32,343 Founders and their families 23 28.72 1,90,07,335 Mutual funds, banks, FIs 201 9.42 62,33,918 NSDL transit -- -- -- Equity shares underlying 1 3.20 21,16,100 American Depositary Shares* ------ ------ ----------- Total 88,650 100.00 6,61,86,130 ====== ====== ===========
* Held by beneficial owners outside India. 14. Dematerialization of shares and liquidity Infosys was the first in India to pay a one-time custodial fee of Rs. 44.43 lakh to National Securities Depositary Limited (NSDL). Consequently, the company's shareholders do not have to pay depositary participants the custodial fee charged by the NSDL on their holding. 99.05% of the company's shares are now held in electronic form. 15. Investors' correspondence in India For investor matters: For queries relating to V. Balakrishnan, financial statements: Company Secretary and Vice President-Finance; T. V. Mohandas Pai, Investors' Service Cell; Director (F&A) and CFO; Infosys Technologies Limited; Infosys Technologies Limited; Electronics City, Hosur Road; Electronics City, Hosur Road; Bangalore 561 229, India. Bangalore 561 229, India. Tel.: +91-80-852-0440, Fax: +91-80-852-0754 Tel.: +91-80-852-0396, E-mail: balakv@infy.com Fax: +91-80-852-0362 E-mail: mdpai@infy.com 16. Stock exchange codes Reuters code INFY.BO (BSE) Bridge code IN;INF (BSE) Bloomberg code INFO IN (BSE) INFY.NS (NSE) IN;INFN (NSE) NINFO IN (NSE) INFY.O (NASDAQ US;INFY (NASDAQ)
17. Stock market data relating to American Depositary Shares (ADSs) a. ADS listed at: NASDAQ National Market in the US b. Ratio of ADS to equity shares: 2 ADS for one equity share c. ADS symbol: INFY d. The American Depositary Shares issued under the ADS program of the company were listed on the NASDAQ National Market in the US on March 11, 1999. The monthly high and low quotations as well as the volume of ADSs traded at the NASDAQ National Market for the year ended March 31, 2002 are given in Table 4. Table 4: Monthly highs, lows and trading volume for ADS for FY2002
High Low Volume --------------- --------------- ---------- $ Rs. $ Rs. Nos ----- ----- ----- ----- ---------- April, 2001 73.95 3,464 50.65 2,372 5,097,100 May 81.50 3,826 64.35 3,021 2,249,900 June 74.60 3,505 55.69 2,617 14,19,300 July 68.00 3,205 54.51 2,569 16,94,200 August 69.90 3,293 52.50 2,473 20,87,800 September 52.44 2,509 30.60 1,464 24,41,800 October 55.00 2,637 31.69 1,519 37,18,500 November 66.50 3,190 47.00 2,254 26,97,200 December 70.11 3,375 55.66 1,679 20,69,200 January, 2002 76.20 3,718 54.40 2,654 38,82,000 February 63.46 3,093 51.15 2,493 16,85,400 March 73.14 3,548 55.02 2,668 17,78,000 ----- ----- ----- ----- ---------- Total 30,820,400 ===== ===== ===== ===== ==========
Note: 2 ADS = 1 equity share. US$ has been converted into Indian rupees at the monthly closing rates The number of ADSs outstanding as on March 31, 2002 was 42,32,200. The percentage of volume traded to the total float was 728.20% as against 885.80% in the previous year. 104 Chart B plots the premium of American Depositary Shares over the shares traded on the Indian stock exchanges. Chart B: ADS premium compared to price quoted on the BSE [GRAPH]
30-Apr 31-May 29-Jun 31-Jul 31-Aug 28-Sep 31-Oct 30-Nov 31-Dec 31-Jan 28-Feb 28-Mar ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ADS 6,867 6,374 6,099 6,215 4,939 3,231 4,528 5,478 5,969 6,097 5,361 6,391 Share 3,728 3,774 3,761 3,761 3,532 2,378 2,914 3,896 4,074 3,889 3,530 3,735 % age of premium 46% 41% 38% 39% 28% 26% 36% 29% 32% 36% 34% 42%
e. Investor correspondence In US: In India P. R. Ganapathy, V. Balakrishnan, Investor Relations Officer; Company Secretary and Infosys Technologies Limited; Vice President - Finance; 34760 Campus Drive, Fremont CA 94555, USA. Infosys Technologies Limited; Tel.: +1-510-742-3030, Fax: +1-510-742-2930 Electronics City, Hosur Road; Mobile: +1-510-872-4412 Bangalore 561 229, India. E-mail: guns@infy.com Tel.: +91-80-852-0440, Fax: +91-80-852-0754 E-mail: balakv@infy.com f. Name and address of the depositary bank Deutsche Bank Trust Company Americas, Deutsche Bank A. G., Corporate Trust & Agency Services; Corporate Trust & Agency 60 Wall Street, 25(th) Floor; Services; MS NYC60/2515; Hazarimal Somani Marg; New York, NY 11005, USA. Fort, Mumbai 400 001, India. Tel.: +1-212-602-3761, Fax: +1-212-797-0327 Tel.: +91-22-207-9566, 207-9568, 207-9645 Fax: +91-22-207-9614 g. Name and address of the custodian in India ICICI Limited, ICICI Towers, Bandra Kurla Complex; Mumbai - 400 051, India. Tel.: +91-22-653-1414, 653-8211 Fax: +91-22-653-1164/65 18. Outstanding ADR warrants and their impact on equity The company's American Depositary Shares as evidenced by American Depositary Receipts ("ADRs") are traded in the US on the NASDAQ National Market under the ticker symbol "INFY". Each equity share of the company is represented by two American Depositary Shares ("ADSs"). The ADRs evidencing ADSs began trading on the NASDAQ from March 11, 1999 when they were issued by the depositary Bankers Trust Company (the "Depositary"), pursuant to the Deposit Agreement. As of March 31, 2002, there were approximately 10,325 record holders of ADRs evidencing 42,32,200 ADSs (equivalent to 21,16,100 equity shares). 19. ECS mandate The company has received complaints regarding non-receipt of dividend warrants. All shareholders are requested to update their bank account details with their respective depositories urgently. This would enable the company to service its investors better. A copy of the ECS mandate form is provided elsewhere in the report. 105 Additional information to shareholders -------------------------------------------------------------------------------- Frequently-asked questions 1. What is an American Depositary Share ("ADS")? Ans: An ADS is a negotiable certificate evidencing ownership of an outstanding class of stock in a non-US company. ADSs are created when ordinary shares are delivered to a custodian bank in the domestic market, which then instructs a depositary bank in the US to issue ADSs based on a predetermined ratio. ADSs are SEC registered securities and may trade freely, just like any other security, either on an exchange or in the over-the-counter market. 2. What is the difference between an ADS and a GDR? Ans: ADSs and GDRs (Global Depositary Receipts) are the same in their functionality - they both evidence ownership of foreign securities deposited with a custodian bank. ADSs represent securities that are listed in the US, while GDRs represent securities listed outside of the US, typically in London. 3. Do the ADSs have voting rights? Ans: Yes. In the event of a matter submitted to the holders of ordinary shares for a vote, the ADS holders on record as at a particular date will be allowed to instruct the depositary bank to exercise the vote in respect of the equity shares representing the ADS held by them. 4. Are the ADSs entitled to cash dividends? Ans: Yes, whenever dividends are paid to ordinary shareholders, cash dividends to ADS holders are declared in local currency and paid in dollars (based on the prevailing exchange rate) by the depositary bank, net of the depositary's fees and expenses. 5. Does Infosys have a dividend reinvestment program or dividend stock purchase plan? Ans: Infosys does not offer a dividend reinvestment program or dividend stock program, at present. 6. Where and in which year was Infosys incorporated? Ans: Infosys was incorporated in Mumbai, in the state of Maharashtra, in India, on July 2, 1981. 7. When did Infosys have its initial public offer (IPO) and what was the initial listing price? Was there any follow-on offering? Ans: Infosys made an initial public offer in February 1993 and was listed on stock exchanges in India in June 1993. Trading opened at Rs. 145 per share compared to the IPO price of Rs. 95 per share. In October 1994, Infosys made a private placement of 5,50,000 shares at Rs. 450 each to Foreign Institutional Investors (FIIs), Financial Institutions (FIs) and Corporates. During March 1999, Infosys issued 20,70,000 ADSs (equivalent to 10,35,000 equity shares of par value of Rs. 10 each) at $34 per ADS under the American Depositary Shares Program and the same were listed on the NASDAQ National Market. All the above data are un-adjusted for issue of stock split and bonus shares. 8. Which are the stock exchanges where Infosys shares are listed and traded? Ans: Shares of Infosys are listed and traded in India on the Bangalore Stock Exchange, the Stock Exchange, Mumbai, and the National Stock Exchange, Mumbai. The ADSs of Infosys are traded on the NASDAQ National Market in the US. 9. What are the Reuters, Bridge and Bloomberg codes for Infosys stock?
Ans: Exchange Reuters code Bridge code Bloomberg code -------- ------------ ----------- -------------- The Stock Exchange, Mumbai, India INFY.BO IN;INF INFO IN National Stock Exchange, India INFY.NS IN;INFN NINFO IN NASDAQ, USA INFY.O US;INFY --
10. What is the Infosys ADS ratio? Ans: Each Infosys ADS represents one-half of one ordinary equity share of Infosys. 11. What is the symbol for Infosys ADS and where is it traded? Ans: The symbol is "INFY" and the same is traded on the NASDAQ National Market in the US. 12. When is the next earnings release? What is the fiscal year of Infosys? Ans: The tentative dates of earnings releases are given below. The earnings release date will also be posted on the website www.infy.com, after announcement to the stock exchanges.
Earnings release date (tentative and subject to change) ------------------------------------------------------- Quarter ending June 30, 2002 July 10, 2002 Quarter ending September 30, 2002 October 10, 2002 Quarter ending December 31, 2002 January 10, 2003 Year ending March 31, 2003 April 10, 2003 ----------------
The fiscal year of the company is the period of 12 months starting April 1, every year. 106 13. What is the employee strength of Infosys? Ans: As of March 31, 2002, Infosys had 10,738 employees, as compared to 9,831 on March 31, 2001, on a full-time basis. The distribution of the employees is:
2002 2001 ------------------------ ----------------------- Software services including trainees 9,405 87.59% 8,656 88.05% Support services 1,333 12.41% 1,175 11.95% ------ ------- ----- ------- Total 10,738 100.00% 9,831 100.00% ====== ======= ===== ======= The gender classification of the employees is: 2002 2001 ------------------------ ----------------------- Male 8,928 83.14% 8,140 82.80% Female 1,810 16.86% 1,691 17.20% ------ ------- ----- ------- Total 10,738 100.00% 9,831 100.00% ====== ======= ===== ======= The age profile of employees is:
2002 2001 ------------------------ ----------------------- 20 - 25 years 5,351 49.83% 6,030 61.34% 26 - 30 years 3,981 37.08% 2,794 28.42% 31 - 40 years 1,210 11.26% 870 8.85% 41 - 50 years 171 1.59% 120 1.22% 51 - 60 years 25 0.24% 17 0.17% ------ ------- ----- ------- Total 10,738 100.00% 9,831 100.00% ====== ======= ===== =======
14. Does Infosys issue quarterly reports? Ans: Yes. Infosys issues audited quarterly reports conforming to the Indian GAAP and unaudited quarterly reports conforming to the US GAAP, and the same are mailed to all the shareholders. 15. How do I transfer my shares in India or change my address with the transfer agent? Ans: To transfer shares in physical form, you have to write to the company's registrars: Karvy Consultants Limited, or write to: Registrars and Share Transfer Agents; V. Balakrishnan, T.K.N. Complex, No. 51/2, Vanivilas Road; Company Secretary and Opp. National College, Basavanagudi; Vice President - Finance; Bangalore - 560 004, India. Infosys Technologies Tel.: +91-80-662 1184, Limited; Fax: +91-80-662 1169 Electronics City, Hosur E-mail: kumars@karvy.com Road; Bangalore - 561 229, India. Tel.: +91-80-852 0440, Fax: +91-80-852 0754 E-mail: balakv@infy.com Transfer of shares in electronic form is effected through your depositary participant. General correspondence regarding shares may be addressed to the company's registrars, Karvy Consultants Limited, or to the Company Secretary, Infosys Technologies Limited. 16. Who are the depositary and custodian for the ADS program? Ans: Depositary Custodian: Deutsche Bank Trust Company Americas, ICICI Limited, Corporate Trust & Agency Services; ICICI Towers, Bandra Kurla 60 Wall Street, 25(th) Floor; Complex; MS NYC60/2515; Mumbai - 400 051, India. New York, NY 11005, USA. Tel.: +91-22-653-1414, Tel.: +1-212-602-3761 653-8211 Fax: +1-212-797-0327 Fax: +91-22-653-1164/65 Deutsche Bank A. G., Corporate Trust & Agency Services; Hazarimal Somani Marg; Fort, Mumbai 400 001, India. Tel.: +91-22-207-9566, 207-9568, 207-9645 Fax: +91-22-207-9614 17. What is the history of bonus issues (equivalent to stock split in the form of stock dividend) and stock split at Infosys?
Ans: Year 1986 1989 1991 1992 1994 1997 1999 2000 ------- ------- ------- ------- ------- ------- ------- ------- Bonus issue ratio 1:1 1:1 1:1 1:1 1:1 1:1 1:1 -- Stock split ratio 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1 2 for 1
The company completed a 2-for-1 stock split (i.e., a subdivision of every equity share of par value of Rs. 10 each into two equity shares of par value of Rs. 5 each) during fiscal 2000. 107 18. How many software development centers does Infosys have? Ans: Infosys has 16 development centers in India - five in Bangalore, two each in Bhubaneswar, Chennai, Mangalore and Pune, and one each in Hyderabad, Mohali and Mysore. Infosys has one global development center in Toronto, Canada. In addition, there are six proximity development centers in Fremont, Boston, Chicago, New Jersey, Phoenix, Arizona in the US and in London, UK. 19. How many marketing offices does Infosys have? Ans: There are 24 marketing offices overseas, of which 9 are located in the US, two in Australia, one each in Argentina, Belgium, Canada, France, Germany, Hong Kong, Japan, the Netherlands, Sharjah, Singapore, Sweden, Switzerland and the UK. Besides these, there are four marketing offices in India. 20. What is the employee strength and revenue growth since 1996? Ans: The employee strength and revenue growth since 1996 are as follows: As per US GAAP
Fiscal year ended Total no. of Growth Net revenues Growth Net income Growth March 31 employees % in $ million % in $ million % ----------------- ------------ ------ ------------ ------ ------------ ------ 1996 1,172 30 26.61 47 6.82* 72 1997 1,705 45 39.59 49 8.64* 27 1998 2,605 53 68.33 73 13.86* 60 1999 3,766 45 120.96 77 30.35* 119 2000 5,389 43 203.44 68 61.34* 102 2001 9,831 82 413.85 103 131.95* 115 2002 10,738 9 545.05 32 164.47* 25
* This excludes a one-time deferred stock compensation expense arising from stock split amounting to $12,906,962 and $1,519,739 in fiscal 1999 and 1998, respectively. As per Indian GAAP
Fiscal year ended Total no. of Growth Revenues Growth PAT* Growth March 31 employees % in Rs. crore % in Rs. crore % ----------------- ------------ ------ ------------ ------ ------------ ------ 1996 1,172 30 88.56 60 21.01 58 1997 1,705 45 139.21 57 33.68 60 1998 2,605 53 257.66 85 60.36 79 1999 3,766 45 508.89 98 132.92 120 2000 5,389 43 882.32 73 285.95 115 2001 9,831 82 1,900.56 115 623.32 118 2002 10,738 9 2,603.59 37 807.96 30
* From ordinary activities 21. Does Infosys pay dividends? What is the dividend policy of Infosys? Ans: Currently, Infosys pays dividends to its shareholders. The current dividend policy is to distribute up to 20% of the PAT as dividend. The board of directors reviews the dividend policy periodically. 22. How do I contact Infosys by telephone, mail or in person? Ans: Members of the press can contact the following members of Infosys' management for any information. N. R. Narayana Murthy, Chairman and Chief Mentor Tel: +91-80-852 0363 / 852 0399 Nandan M. Nilekani, Chief Executive Officer, Tel: +91-80-852 0351 President and Managing Director T. V. Mohandas Pai, Director - Finance & Administration Tel: +91-80-852 0396 and Chief Financial Officer The Infosys corporate mailing address is: Infosys Technologies Limited, 44, Electronics City, Hosur Road; Bangalore - 561 229, India. Tel.: +91-80-852 0261, Fax: +91-80-852 0362 For direct correspondence, the general electronic address is infosys@infy.com. 108 23. Is there any investor relations contact in the US and India? Ans: Investor relations In US: In India: P. R. Ganapathy, V. Balakrishnan, Investor Relations Officer; Company Secretary and Vice Infosys Technologies Limited; President - Finance; 34760 Campus Drive, Infosys Technologies Limited; Fremont CA 94555, USA. Electronics City, Hosur Road; Tel.: +1-510-742-3030, Bangalore 561 229, India. Fax: +1-510-742-2930 Tel.: +91-80-852-0440, Mobile: +1-510-872-4412 Fax: +91-80-852-0754 E-mail: guns@infy.com E-mail: balakv@infy.com 24. Does the company have a disclosure policy? Ans: Yes. The company has a written disclosure policy, which covers interacting with all external constituents such as analysts, fund managers and the media. 25. Does the company have any quiet periods? Ans: Yes. The company follows quiet periods prior to its earnings release every quarter. During the quiet period, the company or any of its officials will not discuss earnings expectations with any external people. It starts from fifteenth of the month prior to the one in which the earnings are going to be released and ends on the date of announcement of the earnings numbers. Based on the tentative dates on which the earnings are going to be released in fiscal 2002, the tentative quiet period would be as follows:
Earnings release date Quiet period --------------------- ------------------------------- Quarter ending June 30, 2002 July 10, 2002 June 16 - July 10, 2002 Quarter ending September 30, 2002 October 10, 2002 September 16 - October 10, 2002 Quarter ending December 31, 2002 January 10, 2003 December 16 - January 10, 2003 Year ending March 31, 2003 April 10, 2003 March 16 - April 10, 2003
26. What has been the CAGR in revenues and net income in the last five years? Ans: The 5-year CAGR under Indian GAAP and US GAAP are:
Indian GAAP US GAAP ----------- ------- Revenues 80% Revenues 69% PAT from ordinary activities 89% Net income 80%
109 Additional information to shareholders (contd.) Share performance chart -------------------------------------------------------------------------------- The Infosys management consistently cautions that the stock price performance shown in the graph below should not be considered indicative of potential future stock price performance. [CHART] The share price has been adjusted for two bonus issues made in fiscal 1998 and fiscal 1999, and a 2-for-1 stock split in fiscal 2000 110 Additional information to shareholders (contd.) -------------------------------------------------------------------------------- Intangible assets score sheet A knowledge-intensive company leverages know-how, innovation and reputation to achieve success in the marketplace. Hence, these attributes should be measured and improved upon year after year to ensure continual success. Managing a knowledge organization necessitates a focus on the critical issues of organizational adoption, survival, and competence in the face of ever-increasing discontinuous environmental change. The profitability of a knowledge firm depends on its ability to leverage the learnability of its professionals, and to enhance the re-usability of their knowledge and expertise. The stock price of a company is the result of the market's valuation of its earnings potential and growth prospects. Thus, the market provides a value to the off-balance-sheet assets of the company -- that is, those assets which are invisible or which are not accounted for in the traditional financial statements. The intangible assets of a company include its brand, its ability to attract, develop and nurture a cadre of competent professionals, and its ability to attract and retain marque clients. Today's discerning investors take a critical look at both financial and non-financial parameters that determine the long-term success of a company. The non-financial parameters challenge the approach that evaluates companies solely on the traditional measures, as they appear in their financial reports. Thus, intangible assets of a company have been receiving considerable attention from corporate leaders in recent years. The intangible assets of a company can be classified into four major categories -- human resources, intellectual property assets, internal assets and external assets. Human resources Human resources represent the collective expertise, innovation, leadership, entrepreneurship and managerial skills endowed in the employees of an organization. Intellectual property assets Intellectual property assets include know-how, copyrights, patents, products and tools that are owned by a corporation. These assets are valued based on their commercial potential. A corporation derives its revenues from licensing these assets to outside users. Internal assets Internal assets are systems, technologies, methodologies, processes and tools that are specific to an organization. These assets give the organization a unique advantage over its competitors in the marketplace. These assets are not licensed to outsiders. Examples of internal assets include methodologies for assessing risk, methodologies for managing projects, risk policies, and communication systems. External assets External assets are the market-related intangibles that enhance the fitness of an organization for succeeding in the marketplace. Examples are customer loyalty (reflected by the repeat business of the company) and brand value. The score sheet Infosys published models for valuing the two most valuable, intangible assets of the company -- human resources and the "Infosys" brand. The score sheet published is broadly adopted from the intangible asset score sheet provided in the book titled The New Organizational Wealth written by Dr Karl-Erik Sveiby and published by Berrett-Koehler Publishers Inc., San Francisco. We believe such representation of intangible assets provides a tool to our investors for evaluating the market-worthiness of the company. The Infosys management cautions investors that these data are provided only as additional information to investors. Using such reports for predicting the future of Infosys, or any other company, is risky. The Infosys management is not responsible for any direct, indirect or consequential losses suffered by any person using these data. 111 The Infosys intangible assets score sheet
Knowledge capital ------------------------------------------------------------------------------ Our clients Our organization Our people (External structure) (Internal structure) (Competence) --------------------------------------------------- ----------------------------------------- ------------------------------------ 2001-2002 2000-2001 2001-2002 2000-2001 2001-2002 2000-2001 --------- --------- --------- --------- --------- --------- Growth/renewal Revenue growth over IT investment/ Education index previous year (%) 37 115 value added (%) 4.57 9.32 of all staff 31,385 28,725 Percentage of revenue from R&D/value added (%) 0.66 1.09 image-enhancing clients 56 52 Percentage of revenue Total investment from exports 98.04 98.60 in organization/ No. of new clients 116 122 value added (%) 14.41 29.64 added during the year Efficiency Sales/client (in Rs. lakhs) 889 696 Average proportion Value added (in Rs. lakhs) of support staff (%) 9.79 10.26 per software engineer (in Rs. lakhs) 23.95 22.14 Sales per support Value added staff per employee (in Rs. lakhs) 257 235 (in Rs. lakhs) 21.61 19.87 Stability Repeat-business revenue/ Average age of Average age of total revenue (%) 88 85 support staff all employees Sales from the top (Years) 30.94 30.61 (Years) 26.60 25.67 Clients/total revenue (%) 6.1 7.3 Sales from the five largest Clients/total revenue (%) 24.1 26.0 Sales from the ten largest clients/total revenue (%) 39.4 39.2 Million dollar clients (Nos) 83 80 Five-million dollar clients (Nos) 25 19 Ten-million dollar clients (Nos) 16 11 Twenty-million dollar clients (Nos) 6 3 The above figures are based on Indian GAAP financial statements.
112 Notes: - Marque or image-enhancing clients are those who enhance the company's market-worthiness, typically Global 1000 clients. Often they are reference clients for Infosys. - Sales per client is calculated by dividing total revenue by the total number of clients. - Repeat business revenue is the revenue during current year from those clients who contributed to the revenue of the company during the previous year also. - Value-added is the revenue of the company less payment to all outside resources. The value-added statement is provided in the Additional information to shareholders section in this report. - IT investment includes all investments in hardware and software by the company. - Total investment in the organization is the investment in the fixed assets of the company. - Average proportion of support staff is the average number of support staff to average total staff strength of the company during the year. - Sales per support staff is Infosys revenue divided by the average number of support staff during the year (support staff exclude technical support staff). - Education index is shown as at the year-end, with primary education calculated as 1, secondary education as 2, and tertiary education as 3. Clients The growth in revenue is 37% this year, compared to 115%, in the previous year. The most valuable intangible asset of Infosys is its client base. Marque clients or image-enhancing clients contributed around 56% of revenue this year, as compared to 52% in the previous year. They give stability to our revenues and also reduce our marketing costs. The high percentage -- 88% -- of revenues from repeat orders during the current year is an indication of the satisfaction and loyalty of the clients. The largest client contributed 6.1% to the company's revenue during the year as compared to 7.3% during the previous year. The top 5 and 10 clients contributed around 24% and 39%, respectively, of the company's revenue during the current year, as compared to 26% and 39%, respectively, during the previous year. The company's strategy is to increase its client base, and thereby reduce the risk of depending on a few large clients. During 2001-2002, the company added 116 new clients. Organization During the current year, Infosys invested around 5% of the value-added on its IT infrastructure, and around 1% of the value-added on R & D activities. A young, fast-growing organization requires efficiency in the area of support services. The average age of the support employees is 30.94 years, as against the previous year average age of 30.61 years. The sales per support staff, as well as, the proportion of support staff to the total organizational staff, has shown improvements over the previous year. People Infosys is in a people-oriented business. The education index of employees has gone up substantially to 31,385 from 28,725. This reflects the quality of employees at Infosys. The value-added per software engineer and the value-added per employee show an increasing trend. The average age of employees as of March 31, 2002 was 26.60 as compared to 25.67 as of March 31, 2001. 113 Additional information to shareholders (contd.) ------------------------------------------------------------------------------- Human resources accounting The dichotomy in accounting between human and non-human capital is fundamental. The latter is recognized as an asset and is therefore recorded in the books and reported in the financial statements, whereas the former is totally ignored by accountants. The definition of wealth as a source of income inevitably leads to the recognition of human capital as one of several forms of wealth such as money, securities and physical capital. The Lev & Schwartz model has been used by Infosys to compute the value of the human resources as on March 31, 2002. The evaluation is based on the present value of the future earnings of the employees and on the following assumptions: 1. Employee compensation includes all direct and indirect benefits earned both in India and abroad. 2. The incremental earnings based on group/age have been considered. 3. The future earnings have been discounted at 17.17% (previous year -- 21.08%), this rate being the cost of capital for Infosys. Beta has been assumed at 1.41 based on the average beta for software stocks in US.
As of March 31 2002 2001 ------------------------------------- ------------------------------------ Value of Value of human resources human resources No. of employees (in Rs. crore) No. of employees (in Rs. crore) ---------------- --------------- ---------------- --------------- Production 9,405 8,662.99 7,641 4,406.53 Support: technical* 319 155.67 1,230 302.83 others 1,014 720.49 960 414.06 ------ -------- ------ -------- 10,738 9,539.15 9,831 5,123.42 ====== ======== ====== ========
*Note: Support -- technical includes trainees, employees in R&D activities and support personnel allocated to production.
(Rs. crore, unless stated otherwise) Number of employees 10,738.00 9,831.00 Value of human resources 9,539.15 5,123.42 Software revenue 2,603.59 1,900.56 Employee cost 1,117.87 717.79 Value-added excluding extraordinary income 2,239.07 1,563.18 Net profits excluding extraordinary income 807.96 623.32 Total software revenue/human resources value (ratio) 0.27 0.37 Value-added/human resources value (ratio) 0.23 0.31 Value of human resources per employee 0.89 0.52 Employee cost/human resources value (%) 11.72% 14.01% Return on human resources value (%) 8.47% 12.17%
Value-added statement in Rs. crore Year ending March 31 2002 2001 -------- ------------ Total revenue including other income 2,670.00 1,959.93 Less: Software development expenses (other than employee costs and provision for post-sales client support) 213.29 224.86 Selling and marketing expenses (other than provisions) 68.26 46.75 Administration expenses (other than provisions) 149.38 125.14 Sub-total 430.93 396.75 -------- -------- Total value-added 2,239.07 1,563.18 ======== ======== Applied to meet Employee costs 1,117.87 717.79 Provision for post-sales client support 3.65 1.83 Provision for bad and doubtful debts and doubtful loans and advances 13.51 19.35 Provision for investments -- 15.29 Income tax 135.43 72.71 Dividend (including dividend tax) 137.42 74.85 Retained in business 831.19 661.36 -------- -------- 2,239.07 1,563.18 ======== ========
The figures above are based on Indian GAAP financial statements. 114 Additional information to shareholders (contd.) ------------------------------------------------------------------------------- Brand valuation The strength of the invisible A balance sheet discloses the financial position of a company. The financial position of an enterprise is influenced by the economic resources it controls, its financial structure, liquidity and solvency, and its capacity to adapt to changes in the environment. However, it is becoming increasingly clear that intangible assets have a significant role in defining the growth of a hi-tech company. So, quite often, the search for the added value invariably leads us back to understanding, evaluating and enhancing the intangible assets of the business. From time to time, Infosys has used various models for evaluating assets off the balance sheet to bring certain advances in financial reporting from the realm of research to the notice of the shareholders. Such an exercise also helps the Infosys management in understanding the components that make up goodwill. The aim of such modeling is to lead the debate on the balance sheet of the next millennium. The Infosys management cautions the investors that these models are still the subject of debate among researchers, and using such models and data in predicting the future of Infosys, or any other company, is risky, and that the Infosys management is not responsible for any direct, indirect or consequential losses suffered by any person using these models or data. Valuing the brand A brand is much more than a trademark or a logo. It is a "trustmark" - a promise of quality and authenticity that clients can rely on. Brand equity is the value addition provided to a product or a company by its brand name. It is the financial premium that a buyer is willing to pay for the brand over a generic or less worthy brand. Brand equity is not created overnight. It is the result of relentless pursuit of quality in manufacturing, selling, service, advertising and marketing. It is integral to client experiences in dealing with the company and its services over a sustained period. Corporate brands and service brands are often perceived to be interchangeable. Both types of brands aim at the enhancement of confidence and the reduction of uncertainty in the quality of what the company offers. Therefore, companies rely heavily on the image and personality they create for their brands, to communicate these qualities to the marketplace. For many businesses, brands have become critical for shareholder wealth creation. Global brands are still the most powerful and sustainable wealth creators in the business world and will continue to be so in the near future. The task of measuring brand value is a complex one. Several models are available for accomplishing this. The most widely used is the brand-earnings-multiple model. There are several variants of this model. For example, by using one of the brand valuation models, Interbrand, a brand consultancy firm, had valued Coca-Cola as the most valued brand in the world for the year 2001 at $68.9 billion, when its market cap was $117.2 billion, on the date of brand valuation. Thus, the brand valuation of Coca-Cola was around 59% of its market cap on the date of valuation. Interestingly, the study says that fewer than half of the 74 brands for which Interbrand had a 2000 valuation showed a gain in value in 2001. Technology companies such as Microsoft, IBM, Intel and Nokia are part of the world's ten most valuable brands in 2001. (Source: http://www.businessweek.com/magazine/content/01_32/b3744001.htm) Goodwill is a nebulous accounting concept that is defined as the premium paid to tangible assets of a company. It is an umbrella concept that transcends components like brand equity and human resources, and is the result of many corporate attributes including core competency, market leadership, copyrights, trademarks, brands, superior earning power, excellence in management, outstanding workforce, competition, longevity and so on. The management has adapted the generic brand-earnings-multiple model (given in the article on Valuation of Trademarks and Brand Names by Michael Birkin in the book Brand Valuation, edited by John Murphy and published by Business Books Limited, London) to value its corporate brand "Infosys". The methodology followed for valuing the brand is given below: 1. Determine brand earnings To do this: - Determine brand profits by eliminating the non-brand profits from the total profits of the company - Restate the historical profits at present-day values - Provide for the remuneration of capital to be used for purposes other than promotion of the brand - Adjust for taxes 2. Determine the brand-strength or brand-earnings multiple Brand-strength multiple is a function of a multitude of factors such as leadership, stability, market, internationality, trend, support and protection. These factors have been evaluated on a scale of 1 to 100 internally by the Infosys management, based on the information available within the company. 115 3. Compute the brand value by multiplying the brand earnings with the multiple derived in step 2 above. The computation is as follows:
in Rs. crore Year ended March 31 2002 2001 2000 ------------------- -------- --------- ------------ PBIT 943.39 696.03 325.65 Less: non-brand income 59.77 53.43 35.23 Adjusted profit 883.62 642.60 290.42 Inflation compound factor at 6% 1.000 1.064 1.132 Present value of profits for the brand 883.62 683.72 328.76 Weightage factor 3 2 1 Weighted profits 2,650.86 1,367.44 328.76 Three-year average weighted profits 724.51 Remuneration of capital 86.75 (5% of average capital employed) Brand-related profits 637.76 Tax at 36.75% 234.38 Brand earnings 403.38 Multiple-applied 17.99 Brand value 7,256.80
Assumptions 1. Total revenue excluding other income after adjusting for cost of earning such income is brand revenue, since this is an exercise to determine the brand value of Infosys as a company and not for any of its products or services. 2. Inflation is assumed at 6% per annum. 3. 5% of the average capital employed is used for purposes other than promotion of the brand. 4. Tax rate is at 36.75%. 5. The earnings multiple is based on the ranking of Infosys against the industry average based on certain parameters (exercise undertaken internally and based on available information). 6. The figures above are based on Indian GAAP financial statements. Thus, it is interesting to note that while Infosys has a market capitalization of Rs. 24,654 crore as on March 31, 2002, the value of the "Infosys" brand alone is estimated at Rs. 7,256.80 crore. The corresponding figures for market capitalization and brand value of Infosys as on March 31, 2001 and March 31, 2000 were Rs. 26,926 crore and Rs. 5,376 crore, and Rs. 59,338 crore and Rs. 5,246 crore respectively. 116 Additional information to shareholders (contd.) ------------------------------------------------------------------------------- Balance sheet (including intangible assets) as at March 31, 2002
in Rs. crore ------------ SOURCES OF FUNDS Shareholders' funds Share capital 33.09 Reserves and surplus Capital reserves 16,795.95 Other reserves 2,047.22 --------- 18,876.26 ========= APPLICATION OF FUNDS Fixed assets Tangible assets -- at cost 960.60 Less: Depreciation 393.03 --------- Net block 567.57 Add: Capital work-in-progress 150.67 --------- 718.24 Intangible assets Brand equity 7,256.80 Human resources 9,539.15 INVESTMENTS 44.44 DEFERRED TAX ASSETS 24.22 Current assets, loans and advances Sundry debtors 336.73 Cash and bank balances 772.22 Loans and advances 643.87 --------- 1,752.82 Less: Current liabilities 126.11 Provisions 333.30 --------- Net current assets 1,293.41 --------- 18,876.26 =========
Notes: 1. This balance sheet is provided for the purpose of information only. The management accepts no responsibility for any direct, indirect or consequential losses or damages suffered by any person relying on the same. 2. Capital reserves include the value of the "Infosys" brand and human resources. 3. The figures above are based on Indian GAAP financial statements. 117 Additional information to shareholders (contd.) ------------------------------------------------------------------------------- Current-cost-adjusted financial statements Current Cost Accounting ("CCA") seeks to state the value of assets and liabilities in a balance sheet at their value, and measure the profit or loss of an enterprise by matching current costs against current revenues. CCA is based on the concept of "operating capability", which may be viewed as the amount of goods and services that an enterprise is capable of providing with its existing resources during a given period. In order to maintain its operating capability, an enterprise should remain in command of resources that form the basis of its activities. Consequently, it becomes necessary to take into account the rising cost of assets consumed in generating these revenues. CCA takes into account the changes in specific prices of assets as they affect the enterprise. The balance sheet and profit and loss account of Infosys for fiscal 2002, on a current cost basis are presented below. The methodology prescribed by the Guidance Note on Accounting for Changing Prices issued by the Institute of Chartered Accountants of India is adopted in preparing these statements. Balance sheet as of March 31
in Rs. crore 2002 2001 --------- ----------- Assets employed Fixed Assets Original cost 858.44 527.47 Accumulated depreciation (284.46) (129.69) --------- --------- 573.98 397.78 Capital work in progress 150.67 170.65 --------- --------- Net fixed assets 724.65 568.43 INVESTMENTS 44.44 34.12 DEFERRED TAX ASSETS 24.22 -- Current Assets, Loans and Advances: Cash and bank balances 772.22 385.06 Loans and advances 643.87 430.28 Monetary working capital 210.62 167.45 --------- --------- 1,626.71 982.79 Less: Other liabilities and provisions (333.30) (184.93) --------- --------- Net current assets 1,293.41 797.86 --------- --------- TOTAL 2,086.72 1,400.41 ========= ========= Financed by: Share Capital and Reserves Share capital 33.09 33.08 Reserves: Capital reserve 5.94 5.94 Share premium 325.34 320.75 Current cost reserve 32.70 19.76 General reserve 1,689.65 1,020.88 --------- --------- TOTAL 2,086.72 1,400.41 ========= =========
118 Additional information to shareholders (contd.) ------------------------------------------------------------------------------- Current-cost-adjusted financial statements (continued) Profit and loss account for the year ended March 31
in Rs. crore. 2002 2001 -------- ------------- Total income 2,670.00 1,959.93 ======== ======== Historic cost profit before tax and extraordinary item 943.39 696.03 Less: Current cost operating adjustments (1.76) 8.99 -------- -------- 941.63 687.04 Less: Gearing adjustment -- -- -------- -------- Current cost profit before tax and extraordinary item 941.63 687.04 Provision for taxation Earlier years -- 1.40 Current year 135.43 71.31 -------- -------- Current cost profit after tax before extraordinary item 806.20 614.33 Extraordinary item - Transfer of intellectual property (net of tax) -- 5.49 -------- -------- Current cost profit after tax and extraordinary item 806.20 619.82 ======== ======== Appropriations Dividend Interim 49.63 16.54 Final (proposed) 82.73 49.62 Dividend tax 5.06 8.70 Amount transferred - general reserve 668.78 544.96 -------- -------- 806.20 619.82 ======== ======== Statement of retained profits / reserves Opening balance of reserves 1,040.64 475.50 Retained current cost profit for the year 668.78 544.96 Movements on current cost reserve during the year 12.93 20.18 -------- -------- 1,722.35 1,040.64 ======== ========
Note: 1. The cost of technology assets comprising computer equipment decreases over time. This is offset by an accelerated depreciation charge to the financial statements. Consequently, such assets are not adjusted for changes in prices. 2. This financial statement is provided for the purpose of information only. The management accepts no responsibility for any direct, indirect or consequential losses or damages suffered by any person relying on the same. 119 Additional information to shareholders (contd.) ------------------------------------------------------------------------------- Economic Value-Added (EVA) statement Economic value-added measures the profitability of a company after taking into account the cost of all capital including equity. It is the post-tax return on capital employed (adjusted for the tax shield on debt) minus the cost of capital employed. It is those companies which earn higher returns than cost of capital that create value. Those companies which earn lower returns than cost of capital are deemed destroyers of shareholder value. Economic value-added analysis
Year ended March 31 2002 2001 2000 1999 1998 ------------------- --------- ---------- --------- -------- ------------ 1. Average capital employed (Rs. in crore) 1,734.97 1,111.47 703.87 245.42 142.90 2. Average debt/total capital (%) -- -- -- -- -- 3. Beta variant 1.41 1.54 1.48 1.48 1.48 4. Risk-free debt cost (%) 7.30 10.30 10.45 12.00 12.15 5. Market premium 7.00 7.00 8.00 9.00 10.00 6. Cost of equity (%) 17.17 21.08 22.29 25.32 26.95 7. Cost of debt (post tax) (%) NA NA NA NA NA 8. Weighted average cost of capital (WACC) (%) 17.17 21.08 22.29 25.32 26.95 9. PAT as a percentage of average capital employed (%) 46.57 56.08 40.63 54.16 42.24 10. Economic Value-Added (EVA) (in Rs. crore) Operating profit (PBT excluding extraordinary income) 943.39 696.03 325.65 155.86 65.86 Less: tax 135.43 72.71 39.70 22.94 5.50 Less: cost of capital 297.90 234.30 156.89 62.14 38.51 Economic value-added 510.06 389.02 129.06 70.78 21.85 11. Enterprise value (in Rs. crore) Market value of equity 24,654.33 26,926.35 59,338.17 9,672.80 2,963.42 Less: cash and cash equivalents 1,026.96 577.74 508.37 416.66 51.14 Add: debt -- -- -- -- -- Enterprise value 23,627.37 26,348.61 58,829.80 9,256.14 2,912.28 12. Ratios EVA as a percentage of average capital employed (%) 29.40 35.00 18.34 28.84 15.29 Enterprise value / average capital employed 13.62 23.71 83.58 37.72 20.38
Notes: 1. The cost of equity is calculated by using the following formula: return on risk-free investment + expected risk premium on equity investment adjusted for the average beta variant for software stocks in US 2. The figures above are based on Indian GAAP financial statements. [GRAPH] 120 Additional information to shareholders (contd.) ------------------------------------------------------------------------------- Ratio analysis for the year ended March 31
2002 2001 2000 ------ ------- ------ Ratios - financial performance Export revenue / total revenue (%) 98.04 98.60 98.57 Domestic revenue / total revenue (%) 1.96 1.40 1.43 Software development expenses / total revenue (%) 47.04 45.82 47.57 Gross Profit / total revenue (%) 52.96 54.18 52.43 Selling and marketing expenses / total revenue (%) 4.99 4.84 4.74 General and administration expenses / total revenue (%) 8.12 9.09 8.41 Selling, general and administration expenses / total revenue (%) 13.11 13.93 13.15 Employee costs / total revenue (%) 42.94 37.77 37.92 Operating profit / total revenue (%) 39.85 40.24 39.28 Operating profit after depreciation and interest / total revenue (%) 33.68 34.30 33.25 Depreciation / total revenue (%) 6.17 5.94 6.03 Other income / total revenue (%) 2.55 3.12 4.44 Profit before tax / total revenue (%) 36.23 36.62 36.91 Tax / total revenue (%) 5.20 3.83 4.50 Tax / PBT (%) 14.36 10.45 12.19 PAT from ordinary activities / total revenue (%) 31.03 32.80 32.41 Capital expenditure / total revenue (%) 12.40 24.38 18.12 PAT from ordinary activities / average net worth (%) 46.57 56.08 40.63 ROCE (PBIT/average capital employed) (%) 54.37 62.62 46.27 Return on invested capital (%) 83.10 105.43 111.57 Capital output ratio 1.50 1.71 1.25 Invested capital output ratio 2.79 3.34 3.66 Value-added / total revenue (%) 83.86 79.76 78.50 Enterprise-value / total revenue (%) 9.07 13.86 66.68 Ratios - balance sheet Debt-equity ratio -- -- -- Debtors turnover (Days) 47 58 56 Current ratio 3.82 3.49 4.69 Cash and equivalents / total assets (%) 49.37 41.57 61.01 Cash and equivalents / total revenue (%) 39.44 30.40 57.62 Depreciation/ average gross block (%) 20.18 24.67 23.50 Technology investment / total revenue (%) 3.93 7.67 6.12 Ratios - growth Export revenue (%) 36.20 115.48 73.85 Total revenue (%) 36.99 115.40 73.38 Operating profit (%) 35.66 120.69 71.89 Net profit (from ordinary activities) (%) 29.62 117.98 115.14 EPS (from ordinary activities) growth (%) 29.60 117.97 108.74 Per-share data Basic earnings per share from ordinary activities (Rs.) 122.12 94.23 43.23 Basic earnings per share (including extraordinary items) (Rs.) 122.12 95.06 44.38 Cash earnings per share from ordinary activities (Rs.) 146.40 111.29 51.28 Cash earnings per share (including extraordinary items) (Rs.) 146.40 112.12 52.43 Book value (Rs.) 314.31 210.05 125.97 Price / earning, end of year 30.50 43.19 207.48 Price / cash earnings, end of year 25.44 36.57 174.92 Price / book value, end of year 11.85 19.38 71.21 PE / EPS Growth 1.03 0.37 1.91 Dividend per share 20.00 10.00 4.50 Price / total revenue, end of year 9.47 14.17 67.25 Dividend (%) 400 200 90 Dividend payout (%) 17.01 12.01 11.55 Dividend / adjusted public offer price (%) 337 168 76 Market price / adjusted public offer price (%) 62,737 68,547 151,076
Note: The ratio calculations are based on Indian GAAP and have been adjusted for stock split. 121 Ratio analysis Ratio analysis is among the best tools available to analyze the financial performance of a company. It allows inter-company and intra-company comparison and analysis. Ratios also provide a bird's eye view of the financial condition of the company. The ratios analyzed in this section are based on Indian GAAP financial statements. Financial performance Exports have grown by 36% during the year, as against 115% in the previous year. Export revenue is from various parts of the globe and is well segmented. Segmental analysis of the revenue is provided under the Notes to financial statements section in this report. During the year ended March 31, 2002, exports constituted 98% of total revenue, as compared to 98.6% during the previous year. USA continued to be a major market. Domestic revenue constituted 2.0% of total revenue, as compared to 1.4% during the previous year. Employee costs were approximately 43% of total revenue as compared to 38% during the previous year. Selling, general and administration expenses were approximately 8% and 9% during the years ended March 31, 2002 and 2001, respectively. Depreciation was approximately 6% of total revenue, which is same as during the previous year. Depreciation to average gross block was at 20%, as compared to 25% during the previous year. Income tax expense was approximately 5% of total revenue during the current year as compared to 4% during the previous year. Profit after tax from ordinary activities was 31% of total revenue, as against 33% during the previous year. Balance sheet analysis The key ratios affecting the company's financial condition are discussed below: 1. Return on average net worth Return on average net worth is 46.6% as against 56.1% during the previous year. As the company is maintaining around 49.4% of its assets in liquid funds, where the returns are less, the above figures need further analysis. If the average liquid assets are adjusted against the average net worth, and revenue earned after tax from liquid assets is adjusted against net profit, return on invested capital stands at 83%, as compared to 105% during the previous year. 2. Debt-equity ratio The company funds its short-term and long-term cash requirements primarily from internal accruals. As on March 31, 2002, the company was debt-free. 3. Current ratio Current ratio is 3.82, as compared to 3.49 as on March 31, 2001. 4. Capital output ratio Capital output ratio is 1.50, as compared to 1.71 for the previous year. Invested capital output ratio is 2.79, as compared to 3.34 for the previous year 5. Value-added to total revenue Value-added to total revenue is 84%, as compared to 80% for the previous year. 6. Enterprise value to total revenue Enterprise value to total revenue is 9 times, as compared to 14 times in the previous year. 7. Per share data Earnings per share (EPS) (basic) is Rs. 122.12, as compared to Rs. 94.23 for the previous year. Cash earnings per share (basic) is Rs. 146.40, as compared to Rs. 111.29 during the previous year. This is due to higher cash generation and due to higher value addition. Book value per share has increased to Rs. 314, as against Rs. 210 on March 31, 2001. Dividend payout ratio for the years ended March 31, 2002 and 2001, was 17% and 12% respectively. The P/E to EPS growth was approximately 1.03, as compared to 0.37 for the previous year. This represents the valuation of the company in comparison to its growth in earnings. Appreciation in the Infosys share price (adjusted for bonus issues in 1994, 1997 & 1999 and a stock split of 2-for-1 in 2000) over the public issue price is more than 62737%. Since the public issue, the market capitalization of the company has grown to Rs. 24,654.33 crore, as on March 31, 2002, from the public issue valuation of Rs. 31.84 crore during February 1993. 122 Revenue and exports
Fiscal year ------------------------------- 2000 2001 2002 ------ -------- -------- Revenue 882.32 1900.56 2603.59 Export 869.70 1,874.02 2,552.47
Net profit as % to total revenue (from ordinary activities)
Fiscal year ------------------------------ 2000 2001 2002 ------ -------- ------- 32.41 32.80 31.03
Return on average capital employed
Fiscal year ------------------------------ 2000 2001 2002 ------ -------- ------- 40.63 56.08 46.57
Capital output ratio
Fiscal year ------------------------------ 2000 2001 2002 ------ -------- ------- 1.25 1.71 1.50
Value added to total revenue
Fiscal year ------------------------------ 2000 2001 2002 ------ -------- ------- 78.50 79.76 83.86
Earnings per share (from ordinary activities)
Fiscal year ------------------------------ 2000 2001 2002 ------ -------- ------- 43.23 94.23 122.12
Dividend pay-out
Fiscal year ------------------------------ 2000 2001 2002 ------ -------- ------- 11.55 12.01 17.01
Price earning multiple
Fiscal year ------------------------------ 2000 2001 2002 ------ -------- ------- 207.48 43.19 30.50
Book value
Fiscal year ------------------------------ 2000 2001 2002 ------ -------- ------- 125.97 210.05 314.31
123 Additional information to shareholders (contd.) -------------------------------------------------------------------------------- Statutory obligations The company has established Software Technology Parks - 100% export-oriented units - for the development of software at Electronics City, Koramangala and J. P. Nagar at Bangalore as well as at Mangalore, Pune, Chennai, Bhubaneswar, Hyderabad, Mohali and Mysore (all in India). Certain capital items purchased for these centers are eligible for 100% customs and excise duty exemption, subject to fulfillment of stipulated export obligations, namely, five times the value of duty-free imports of capital goods, or duty-free purchase of goods subject to excise, over a period of 5 years on a yearly basis. Beginning April 2001, the export obligation on duty-free import of capital goods, or duty-free purchase of goods subject to excise is 3 times the value of such goods over a period of 5 years. All STP units started after April 2001 and all the existing units which come up for renewal after that date are subject to the new guidelines on calculation of export obligation. The export obligation on the wage bill was removed a year ago. The non-fulfillment of export obligations may result in penalties as stipulated by the government which may have an impact on future profitability. The table showing the export obligation, and the export obligation fulfilled by the company, on a global basis, for all its STP units together, is given below:
in Rs. crore -------------------------------------------------------------------------- Export Cumulative Export obligation Excess/ excess/ Year ended March 31 obligation fulfilled (shortfall) (shortfall) ------------------- ---------- ---------- ----------- ------------ 1993 0.11 0.28 0.17 0.17 1994 2.69 8.05 5.35 5.52 1995 7.70 15.64 7.94 13.46 1996 28.43 47.64 19.21 32.67 1997 39.67 68.94 29.27 61.94 1998 73.56 142.41 68.85 130.79 1999 124.98 305.51 180.53 311.32 2000 106.88 493.46 386.58 697.90 2001 359.88 1,010.27 650.39 1,348.29 2002 461.99 1,360.21 898.22 2246.51
The total customs and excise duty exempted on both computer software and hardware imported and indigenously procured by the company since 1993 amounts to Rs. 158.64 crore. The company has fulfilled its export obligations on a global basis for all its operations under the Software Technology Park Scheme (STP). However, in case of STPs operationalized during the year, the export obligation will be met in the future years. On a forward basis, the company's management is confident of fulfilling all its export obligations. Taxation The economic reforms program of the government has enhanced the velocity of business for companies in India. Being one of the signatories to the World Trade Organization, India is committed to reducing import tariff levels, thereby exposing the Indian entrepreneurs to global competition. The present Indian corporate tax rate is 35.7% (comprising a base rate of 35% and a surcharge of 2% on the base rate). The company benefits from certain significant tax incentives provided to software firms under Indian tax laws. These incentives presently include: (i) an exemption from payment of Indian corporate income taxes for a period of ten consecutive years of operation of software development facilities designated as "Software Technology Parks" (the "STP tax holiday"); and (ii) a tax deduction for profits derived from exporting computer software under Section 80 HHE of the Income Tax Act (the "Export deduction"). All but one of the company's software development facilities are located in a designated Software Technology Park ("STP"). The period of the STP tax holiday available to such companies is restricted to 10 consecutive years beginning from the financial year when the unit started producing computer software or March 31, 2000, whichever is earlier. The recent Finance Bill presented to the parliament proposes to tax 10% of the profits generated by units operating under the STP scheme for fiscal 2003 only. Additionally, the export deduction will be phased out equally over a period of five years starting from fiscal 2000. The details of the operationalization of various software development centers and the year to which the exemption under the Software Technology Park Scheme is valid, are presented elsewhere in this Annual Report. The benefits of these tax incentive programs have historically resulted in an effective tax rate for the company well below statutory rates. There is no assurance that the Government of India will continue to provide these incentives. The government may reduce or eliminate the tax exemptions provided to Indian exporters anytime in the future. This may result in the export profits of the company being fully taxed, and may adversely affect the post-tax profits of the company in the future. On a full-tax-paid basis, without any duty concessions on equipment, hardware and software, the company's post-tax profits for the relevant years are estimated as given below.
in Rs. crore --------------------------------------------------- Year ended March 31 2002 2001 2000 ------- ------- ------------ Profit before tax (excluding extraordinary items) 943.39 696.03 325.65 Less: Additional depreciation to be 44.37 26.33 12.75 provided on duty waiver for computer equipment Reduction in other income 10.21 7.74 3.25 Adjusted profit before tax 888.81 661.96 309.65 Less: Income tax on full tax basis 328.50 264.76 128.01 Adjusted profit after tax 560.31 397.20 181.64 Adjusted earnings per share(1) 84.69 60.04 27.46
1. The earnings per share for earlier years has been restated on par value of Rs. 5 per share and adjusted for bonus issues during the previous years. 2. The figures above are based on Indian GAAP financial statements. However, it may be noted that this is only an academic exercise. The company has provided for income tax in full in the respective years and there is no carried-forward liability on this account. 124 Additional information to shareholders (contd.) ------------------------------------------------------------------------------- ValueReporting(TM) In their book, The ValueReporting(TM) Revolution: Moving Beyond the Earnings Game (published by John Wiley & Sons, Inc., USA, (C)2001), the authors - Robert Eccles, Robert Herz, Mary Keegan and David Phillips, associated with the accounting firm, PricewaterhouseCoopers, indicate the increasing importance of non-financial data and reporting beyond the constraints posed by Generally Accepted Accounting Principles (GAAP). They highlight the increasing necessity of providing stakeholders qualitative information enabling them to make informed investment decisions. ValueReporting(TM) is a comprehensive set of financial and non-financial performance measures and processes, tailored to a company, that provide both historical and predictive indicators of shareholder value. ValueReporting(TM) also provides a methodology for improving transparency and providing the capital markets with information needed to accurately assess future value. In keeping with our desire for increased transparency and high standards of corporate governance, Infosys has always endeavored to provide information to stakeholders, more often than not going beyond minimum prescribed regulatory requirements, than not. While financial statements are provided along with other mandated information, we have always attempted to provide stakeholders the financial and non-financial parameters we use on an on-going basis to manage our business. The recommended ValueReporting(TM) methodology in the context of Infosys is described below. The ValueReporting(TM) Cycle [FLOW CHART] While financial statements indicate historic performance along uniform financial parameters, they do not fully reflect the performance of the company along all parameters that are critical for creating shareholder value in the long-term. In order to enhance the ability of the stakeholder to measure our performance, Infosys identified the need to provide non-financial parameters even before it went public in India in 1993. A description of recommended ValueReporting(TM) disclosures is set out below. The ValueReporting(TM) Disclosure Model
External Internal market overview value strategy Managing for value Value platform ---------------------------- -------------- ----------------------- -------------- - Competitive environment - Goals - Financial performance - Innovation - Regulatory environment - Objectives - Financial position - Brands - Macro-economic environment - Governance - Risk management - Customers - Organization - Segment performance - Supply chain - People - Social reputation
Infosys believes in being a leader or early-adopter of transparency and openness for competitive advantage. In its approach towards external reporting, Infosys has consciously attempted to bridge the gap between the information available to the management and the information available to the stakeholders by providing the non-financial and intangible performance measures to its stakeholders. These include: - Intangible asset scorecard. - Human resource accounting and value-added statement - Brand valuation - Balance sheet including intangible assets - Economic Value-Added (EVA(R)) statement In order to enhance the quality of reporting Infosys also casts "Current-cost-adjusted" financial statements. We at Infosys have also adopted similar measures for internal measurement of business performance. Employee performance measurement for evaluating performance also considers performance indicators that go beyond the financials and seek to balance the financial and non-financial measures at the individual and enterprise level. This ensures that the measures we perform internally are truly reflective of the measures by which our corporate performance is judged by the stakeholders. 125 Additional information to shareholders (cont'd) -------------------------------------------------------------------------------- Management structure [GRAPH] 126 Financial statements for the year ended March 31, 2002 prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP) ------------------- [PHOTOGRAPH] "The ultimate measure of a man is not where he stands in moments of comfort, but where he stands at times of challenges and controversy" - Martin Luther King Jr. 127 Summary of selected consolidated financial data
in thousands, except per share data ----------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- --------- --------- Statements of income data: Revenues $545,051 $413,850 $203,444 $ 120,955 $ 68,330 Cost of revenues 290,032 213,614 111,081 65,331 40,157 Gross profit 255,019 200,237 92,363 55,624 28,173 Operating expenses: Selling and marketing expenses 27,113 20,683 9,644 4,944 3,370 General and administrative expenses 44,348 36,958 17,102 11,255 9,855 Amortization of deferred stock compensation expense 5,010 5,081 5,118 3,646 1,520 Compensation arising from stock split -- -- -- 12,906 1,047 Total operating expenses 76,471 62,722 31,864 32,751 15,792 Operating income 178,548 137,515 60,499 22,873 12,381 Equity in loss of deconsolidated subsidiary -- -- -- (2,086) -- Other income, net 13,865 9,505 9,039 1,537 801 Income before income taxes 192,413 147,020 69,538 22,324 13,182 Provision for income taxes 27,947 15,072 8,193 4,878 770 Subsidiary preferred stock dividends -- -- -- -- 68 Net income $164,466 $131,948 $ 61,345 $ 17,446 $ 12,344 Earnings per equity share: Basic $ 2.51 $ 2.01 $ 0.93 $ 0.28 $ 0.21 Diluted $ 2.49 $ 1.98 $ 0.93 $ 0.28 $ 0.20 Weighted equity shares used in computing earnings per equity share: Basic 65,557 65,771 65,660 61,379 59,574 Diluted 66,085 66,715 65,864 61,507 60,808 Cash dividend per equity share $ 0.35 $ 0.14 $ 0.11 $ 0.09 $ 0.04 Balance sheet data: Cash and cash equivalents $210,486 $124,084 $116,599 $ 98,875 $ 15,419 Total assets 471,161 342,348 219,283 153,658 48,782 Total long-term debt -- -- -- -- -- Total shareholders equity $442,379 $311,792 $198,137 $ 139,610 $ 41,146
------------- 1. The information presented above reflects our 2-for-1 stock split by means of a stock dividend announced on December 20, 1998 and a 2-for-1 stock split announced on November 29, 1999. 2. The financial statements of Yantra Corporation, were consolidated with our financial statements through October 20, 1998, and has been accounted for using the equity method upto fiscal 1999. 3. The earnings per share calculations for fiscal years 2002, 2001, 2000 and 1999, includes 2,070,000 equity shares (representing 4,140,000 ADSs) issued in March 1999, pursuant to our initial U.S. public offering. 4. Dividends are declared in Indian rupees. Amounts presented are translated into U.S. dollars. 128 Management's discussion and analysis of financial condition and results of operations Investors are cautioned that this discussion contains forward-looking statements that involve risks and uncertainties. When used in this discussion, the words "anticipate", "believe", "estimate", "intend", "will", "expect" and other similar expressions as they relate to us or our business are intended to identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Actual results, performances or achievements could differ materially from those expressed or implied in such forward-looking statements. Factors that could cause or contribute to such differences include those described under the heading "Risk Factors" in the prospectus filed with the Securities and Exchange Commission, as well as the risk factors discussed in the Form 20-F, included in this annual report. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of their dates. The following discussion and analysis should be read in conjunction with our financial statements included herein and the notes thereto. 1. Overview We are an India based IT consulting and services company, that utilizes an extensive infrastructure in India, which we call Offshore Software Development Centers or "OSDCs", to provide managed software solutions to clients worldwide. Our service offerings include business consulting, systems integration, application development, maintenance, re-engineering and product engineering. From fiscal 1998 through fiscal 2002, our total revenue increased from $68.3 million to $545.1 million. During the same period, the total number of our IT professionals increased from 2,200 to 9,400, and our OSDCs increased from nine to 16. We also commenced operations in four proximity development centers in the UK and the U.S. in fiscal 2001, one global development center in Canada, and two proximity development centers in the U.S. in fiscal 2000. Our revenues are generated principally from software services provided on either a time-and-material or a fixed-price, fixed-timeframe basis. Revenues from services provided on a time-and-material basis are recognized as the related costs are incurred. Revenues from services provided on a fixed-price, fixed-timeframe basis are recognized pursuant to the percentage of completion method. Since we bear the risk of cost overruns and inflation with respect to fixed-price, fixed-timeframe projects, our operating results could be adversely affected by inaccurate estimates of contract completion costs and dates, including wage inflation rates and currency exchange rates that may affect cost projections. Although we revise our project completion estimates from time to time, such revisions have not, to date, had a material adverse effect on our operating results or financial condition. We also develop and market certain software application products, including banking software that is licensed primarily to clients in Asia and Africa. Such software products represented 4.0% of total revenues in fiscal 2002. We earned 71.2% of our total revenues from North America, 19.5% from Europe, 2.0% from India and 7.3% from the rest of the world in fiscal 2002. In fiscal 2002, 2001 and 2000, we earned 23.0%, 28.4% and 13.6% of our total revenues from Internet and e-commerce projects. Our cost of revenues primarily consists of salary and other compensation expenses, depreciation, data communications expenses, computer maintenance, cost of software purchased for internal use and foreign travel expenses. We depreciate our personal computers and servers over two years and mainframe computers over three years. Third party software is expensed at the time of acquisition. We assume full project management responsibility for each project that we undertake. In fiscal 2002, approximately 69% of the work on a project was performed at our facilities in India, and the balance of the work was performed at the client site. The proportion of work performed at our facilities and at client sites varies from quarter to quarter. We charge higher rates and incur higher compensation expenses for work performed at the client site. Services performed at a client site typically generate higher revenues per-capita at a lower gross margin than the same services performed at our facilities in India. As a result, total revenues, cost of revenues and gross profit in absolute terms and as a percentage of revenues fluctuate from quarter to quarter based on the proportion of work performed offshore at our facilities and at client sites. Additionally, any increase in work at client sites can decrease our gross margins. Revenues and gross profits are affected by employee utilization rates. Utilization rates depend, among other factors, on the number of employees enrolled in training programs, particularly our 14.5 week training course for new employees. Since a large percentage of new hires begin their initial training in the second quarter, our utilization rates have historically been lower in the second and third quarters of our fiscal year. Our selling and marketing expenses primarily consist of expenses relating to advertisements, brand building, rentals of sales and marketing offices, salaries of marketing personnel, and traveling and conveyance. Our general and administrative expenses comprise expenses relating to communications, finance and administration, legal and professional charges, management, rent, salary and other compensation, travel, and miscellaneous administrative costs. Other income includes interest income and foreign currency exchange gains. 2. Results of operations Fiscal year ended March 31, 2002 compared to fiscal year ended March 31, 2001 Revenues. Our total revenues were $545.1 million in fiscal 2002, representing an increase of $131.2 million or 31.7% over total revenues of $413.8 million in fiscal 2001. This increase was attributable to an increase of $141.6 million or 34.2%, in the number of projects executed offset by a $10.4 million or 2.5% decrease in prices at which contracts were executed. Revenues continued to increase in most segments of our services. Custom software development, re-engineering, maintenance and software development through OSDCs formed the majority of our revenues. The increase in revenues was attributable, in part, to a steady increase in business from existing clients and from new clients, particularly in the financial services and retail industry segments. Our financial services clients comprised 36.6% and 33.7% of revenues in fiscal 2002 and fiscal 2001, while our retail clients comprised 12.3% and 9.1% of revenues in fiscal 2002 and fiscal 2001. Net sales of FINACLE(TM) and other products represented 4.0% of our total revenues in fiscal 2002, as compared to 2.5% for fiscal 2001. Revenues from services represented 96.0% of total revenues in fiscal 2002 as compared to 97.5% for fiscal 2001. Revenues from fixed-price, fixed-timeframe contracts and from time-and-material contracts represented 31.6% and 68.4% of total revenues for fiscal 2002, as compared to 28.2% and 71.8% for fiscal 2001. Revenues from North America and Europe represented 71.2% and 19.5% of total revenues for fiscal 2002, as compared to 73.5% and 18.8% for fiscal 2001. 129 Cost of revenues. Our cost of revenues was $290.0 million for fiscal 2002, representing an increase of 35.8% over cost of revenues of $213.6 million in fiscal 2001. Cost of revenues represented 53.2% and 51.6% of total revenues in fiscal 2002 and 2001. This increase in our cost of revenues as a percentage of revenues was attributable to: (i) an increase in our personnel costs from annual salary increments effective April 1, 2001; (ii) an increase in compensation paid to our U.S. based Indian employees to comply with new immigration regulations introduced in the U.S. effective July 2001; (iii) increased personnel costs for new hires; and (iv) an increase in depreciation. This increase was offset by a decrease in our foreign travel expenses and cost of software purchased for internal use, which represented 2.7% and 1.3% of revenues in fiscal 2002 as compared to 4.2% and 1.7% of revenues in fiscal 2001. Gross profit. As a result of the foregoing, our gross profit was $255.0 million for fiscal 2002, representing an increase of 27.4% over gross profit of $200.2 million for fiscal 2001. As a percentage of total revenues, gross profit decreased to 46.8% for fiscal 2002 from 48.4% for fiscal 2001. This decrease was attributable to: (i) an increase in our personnel costs from annual salary increments effective April 1, 2001; (ii) an increase in compensation paid to our U.S. based Indian employees to comply with new immigration regulations introduced in the U.S. effective July 2001; (iii) increased personnel costs for new hires; and (iv) an increase in depreciation. This increase was offset by a decrease in our foreign travel expenses and cost of software purchased for internal use. Sales and marketing expenses. We incurred sales and marketing expenses of $27.1 million in fiscal 2002, representing an increase of 31.1% over sales and marketing expenses of $20.7 million for fiscal 2001. As a percentage of total revenues, sales and marketing expenses was 5.0% in both fiscal 2002 and 2001. The number of our sales offices increased to 28 as of March 31, 2002 from 25 as of March 31, 2001, and the number of our sales and marketing personnel increased to 143 as of March 31, 2002, up from 105 as of March 31, 2001. General and administrative expenses. Our general and administrative expenses were $44.3 million for fiscal 2002, representing an increase of 20.0% over general and administrative expenses of $37.0 million for fiscal 2001. General and administrative expenses were 8.1% and 8.9% of total revenues for fiscal 2002 and 2001. This decrease in general and administrative expense as a percentage of revenues was primarily attributable to a decrease in the provision for doubtful accounts receivable, which comprised 0.5% and 1.0% of revenues in fiscal 2002 and 2001. Amortization of deferred stock compensation expense. Amortization of deferred stock compensation expense was $5.0 million and $5.1 million in fiscal 2002 and 2001. Operating income. Our operating income was $178.5 million for fiscal 2002, representing an increase of 29.8% over the operating income of $137.5 million for fiscal 2001. As a percentage of revenues, operating income decreased to 32.8% for fiscal 2002, from 33.2% for fiscal 2001. Excluding the amortization of deferred stock compensation expense, the operating margin was 33.7% for fiscal 2002 as compared to 34.5% for fiscal 2001. Other income. Other income was $13.9 million for fiscal 2002 as compared to $9.5 million for fiscal 2001. Other income in fiscal 2002 primarily comprised of interest income of $10.4 million arising from the investment of cash balances, and exchange income of $2.7 million and miscellaneous income of $0.7 million. Other income in fiscal 2001 primarily comprised of $8.5 million in interest income from the investment of cash balances, and currency exchange income of $4.4 million, which were partially offset by a $3.5 million provision for investments in EC Cubed Inc. and Alpha Thinx Mobile Services AG, two companies we made strategic investments in. Provision for income taxes. Our provision for income taxes was $27.9 million for fiscal 2002 compared to $15.1 million for fiscal 2001. Our effective tax rate increased to 14.5% for fiscal 2002 as compared to 10.3% for fiscal 2001. The increase in the effective tax rate was primarily attributable to an increase in foreign taxes paid on our overseas operations in fiscal 2002 as compared to fiscal 2001. Net income. Our net income was $164.5 million for fiscal 2002, representing an increase of 24.6% over net income of $131.9 million for fiscal 2001. As a percentage of total revenues, net income decreased to 30.2% for fiscal 2002 from 31.9% for fiscal 2001. Fiscal year ended March 31, 2001 compared to fiscal year ended March 31, 2000 Revenues. Our total revenues were $413.8 million for fiscal 2001, representing an increase of $210.4 million or 103.4% over total revenues of $203.4 million for fiscal 2000. This increase is attributable to an increase of $126.1 million or 62.0%, in the number of projects executed, and an increase of $84.3 million or 41.4% in prices at which contracts were executed. Revenues continued to increase in all segments of our services. Custom software development, re-engineering, maintenance and software development through OSDCs comprised the majority of our revenues. The increase in revenues was attributable, in part, to a substantial increase in business from our existing clients and from certain new clients, particularly in the telecom and financial services industry segments. Our telecom clients comprised 18.4% of revenues in fiscal 2001 as compared to 15.4% of revenues in fiscal 2000. Our financial services clients comprised 33.7% and 30.1% of revenues in fiscal 2001 and 2000. Our revenue growth was also attributable to an increase in e-commerce related revenues, which represented 28.4% of total revenues for fiscal 2001, as compared to 13.6% of total revenues in fiscal 2000. Net sales of FINACLE(TM) and other products represented 2.5% of total revenues for fiscal 2001 as compared to 2.6% for fiscal 2000. Revenues from services represented 97.5% of total revenues for fiscal 2001 as compared to 97.4% for fiscal 2000. Revenues from fixed-price, fixed-timeframe contracts and from time-and-material contracts represented 28.2% and 71.8% of total revenues for fiscal 2001, as compared to 31.5% and 68.5% for fiscal 2000. Revenues from North America and Europe represented 73.5% and 18.8% of total revenues for fiscal 2001, as compared to 78.0% and 14.8% for fiscal 2000. Cost of revenues. Our cost of revenues was $213.6 million for fiscal 2001, representing an increase of 92.2% over cost of revenues of $111.1 million for fiscal 2000. Cost of revenues represented 51.6% and 54.6% of total revenues for fiscal 2001 and 2000. This decrease in our cost of revenues as a percentage of total revenues was attributable to a favorable business mix and a decrease in our depreciation and software expenses, which represented 7.6% and 7.9% of total revenues in fiscal 2001 and 2000, as well as a decrease in overseas short-term allowances which represented 26.0% and 26.4% of revenues in fiscal 2001 and 2000. Gross profit. As a result of the foregoing, our gross profit was $200.2 million for fiscal 2001, representing an increase of 116.7% over gross profit of $92.4 million for fiscal 2000. As a percentage of total revenues, our gross profit increased to 48.4% for fiscal 2001 from 45.4% for fiscal 2000. This increase was attributable to a favorable business mix and a decrease in our depreciation and software expenses as a percentage of total revenue due to improved infrastructure utilization and a decrease in overseas short-term allowances. Sales and marketing expenses. We incurred sales and marketing expenses amounting to $20.7 million in fiscal 2001, representing an increase of 115.6% over sales and marketing expenses of $9.6 million in fiscal 2000. As a percentage of total revenues, our sales and marketing expenses increased to 5.0% for fiscal 2001 from 4.7% for fiscal 2000. The number of our sales offices increased to 25 as of March 31, 2001 from 20 as of March 31, 2000. The increase in sales and marketing expenses as a percentage of revenues was due to additional sales offices 130 opened during the year and also due to an increase in the number of our marketing personnel, which increased to 105 in fiscal 2001 from 62 in fiscal 2000. General and administrative expenses. Our general and administrative expenses were $36.9 million in fiscal 2001, representing an increase of 115.8% over general and administrative expenses of $17.1 million in fiscal 2000. General and administrative expenses were 8.9% and 8.4% of total revenues for fiscal 2001 and 2000. This marginal increase in general and administrative expense as a percentage of revenues was a result of increases in our management, finance, administrative, and occupancy costs in fiscal 2001, due to an increase in the scale of operations. Amortization of deferred stock compensation expense. Amortization of deferred stock compensation expense was $5.1 million in both fiscal 2001 and 2000. Operating income. Our operating income was $137.5 million for fiscal 2001, representing an increase of 127.3% over operating income of $60.5 million for fiscal 2000. As a percentage of revenues, operating income increased to 33.2% for fiscal 2001 from 29.7% for fiscal 2000. Excluding the amortization of deferred stock compensation expense, the operating margin was 34.5% for fiscal 2001 as compared to 32.3% for fiscal 2000. Other income. Other income was $9.5 million for fiscal 2001 as compared to $9.0 million for fiscal 2000. This increase in other income was due to an increase in interest income of $2.8 million resulting from the investment of a larger cash balance and $1.5 million due to increase in exchange differences on translation of foreign currency deposits. This increase was offset by a $3.5 million decrease in other income attributable to a provision for investments in EC Cubed Inc. and Alpha Thinx Mobile Services AG, two companies we made strategic investments in, and a $0.4 million decrease in income from the sale of special import licences. Provision for income taxes. Our provision for income taxes was $15.1 million for fiscal 2001 as compared to $8.2 million for fiscal 2000. Our effective tax rate decreased to 10.3% for fiscal 2001 as compared to 11.8% for fiscal 2000. The reduction in our effective tax rate in fiscal 2001 was due to a decrease in the Indian tax liability resulting from a higher proportion of our operations qualifying for Indian tax exemptions applicable to designated Software Technology Parks. Net income. Our net income was $131.9 million for fiscal 2001, representing an increase of 115.2% over the net income of $61.3 million for fiscal 2000. As a percentage of total revenues, our net income increased to 31.9% for fiscal 2001 from 30.1% for fiscal 2000. Liquidity and capital resources Our growth has been financed largely by cash generated from operations and, to a lesser extent, from the proceeds of equity issues and borrowings. In 1993, we raised approximately $4.4 million in gross aggregate proceeds from our initial public offering of equity shares on Indian stock exchanges. In 1994, we raised an additional $7.7 million through private placements of our equity shares with foreign institutional investors, mutual funds, Indian domestic financial institutions and corporations. On March 11, 1999 we raised $70.4 million in gross aggregate proceeds from our initial U.S. public offering of ADSs on the NASDAQ. As of March 31, 2002, we had $210.5 million in cash and cash equivalents, $270.4 million in working capital and no outstanding bank borrowings. We believe that a sustained cut in IT spending, the longer decision time that may be taken by our customers, and the continued downturn in any of the various industry segments that we operate in, will result in the decline of our revenue growth and affect our liquidity and cash resources. Net cash provided by operating activities was $191.5 million, $136.7 million and $70.2 million in fiscal 2002, 2001 and 2000. Net cash provided by operations consisted primarily of net income offset, in part, by an increase in accounts receivable. Accounts receivable as a percentage of total revenue represented 12.7%, 15.7% and 15.4% for fiscal 2002, 2001 and 2000. Prepaid expenses and other current assets increased by $2.0 million, $2.6 million and $2.5 million during fiscal 2002, 2001 and 2000. The increase in fiscal 2002 was primarily due to an increase in unbilled revenues of $3.1 million and other current assets of $0.6 million, offset by a decrease in prepaid expenses of $1.3 million and rent deposits of $0.4 million. The increases in fiscal 2001 and 2000 were primarily due to increases in rental deposits for new software development centers and prepaid expenses. Income tax payable increased by $0.9 million in fiscal 2002 primarily due to higher tax provisions made during the year. Unearned revenue as of March 31, 2002 and 2001 consists primarily of advance client billings on fixed-price, fixed-timeframe contracts for which related costs were not yet incurred. The proportion of fixed-price, fixed-timeframe contracts under which we were entitled to bill clients in advance decreased as of March 31, 2002 over the previous year. Net cash used in investing activities was $75.8 million, $112.0 million and $46.9 million in fiscal 2002, 2001 and 2000. Net cash used in investing activities in fiscal 2002 consisted primarily of $68.3 million for property, plant and equipment, $5.5 million for loans to employees $2.2 million for the purchase of investments. Net cash used in investing activities in fiscal 2001 consisted primarily of $101.2 million for property, plant and equipment, $4.9 million for loans to employees and $5.9 million for the purchase of investments. Net cash used in investing activities in fiscal 2000 primarily consisted of $36.9 million for property, plant and equipment, $7.0 million for loans to employees and $3.0 million for the purchase of investments. As of March 31, 2002, we had $20.8 million in loans outstanding to employees, of which $0.5 million was loans receivable from our executive officers in amounts less than $60,000 per person. Publicly-traded Indian companies customarily pay dividends. For fiscal 2002, we declared and paid a dividend of $11.5 million. Our board of directors also declared a dividend of $17.0 million at their meeting held on April 10, 2002, which is subject to the approval of the stockholders in the Annual General Meeting scheduled on June 08, 2002. For fiscal 2001, we declared a dividend of $15.6 million, which was paid partly in fiscal 2001 and partly in fiscal 2002. For fiscal 2000, we declared a dividend of $7.1 million, which was paid partly in fiscal 2000 and partly in fiscal 2001. We expect that our primary financing requirements in the future will be capital expenditure and working capital requirements in connection with our growing business. We continue to invest substantial amounts of our cash assets in the construction of new facilities in India and worldwide. As of March 31, 2002, we had contractual commitments of $13.0 million for capital expenditure, and have budgeted for significant infrastructure expansion in the near future. We believe that cash generated from operations will be sufficient to satisfy our currently foreseeable working capital and capital expenditure requirements. However, our liquidity and capital requirements are affected by many factors, some of which are based on the normal ongoing operations of our business and some of which arise from uncertainties related to global economies and the sectors that we target for our services. In the future, we may require or choose to obtain additional debt or equity financing. We cannot be certain that additional financing, if needed, will be available on favorable terms. We routinely review potential acquisitions; however, currently we have no agreements to enter into any material acquisition. 131 Reconciliation between Indian and U.S. GAAP There are material differences between the financial statements prepared according to Indian and U.S. GAAP. The material differences are primarily attributable to U.S. GAAP requirements for the: - accounting for deferred taxes; - accounting for stock based compensation; and - non-recognition of unrealized gains on transfers of intellectual property rights. Indian GAAP does not require the amortization of deferred stock compensation and permits the recognition of unrealized gains on transfers of intellectual property rights. Generally, Indian GAAP did not require the provision for deferred taxes prior to fiscal 2002. However, certain transactions in fiscal 2002 did require us to provide for deferred taxes under U.S. GAAP with no corresponding requirement under Indian GAAP. The table provided below provides a reconciliation of our net income. Reconciliation of net income
2002 2001 2000 ------------- ------------- ------------ Net income (Indian GAAP) $ 169,102,534 $ 136,837,806 $ 67,775,087 Adjustments: Deferred tax 373,547 769,304 850,891 Provision for retirement benefits to employees -- 741,000 (741,000) Employee stock-based compensation plan charge under APB Opinion no. 25 (5,009,772) (5,081,795) (5,117,635) Provision for contingency / e-inventing the company (net) -- (87,387) (1,422,815) Transfer of intellectual property rights (net of tax) -- (1,230,824) -- ------------- ------------- ------------ Net income (U.S. GAAP) $ 164,466,309 $ 131,948,104 $ 61,344,528 ============= ============= ============
Income taxes Our net income earned from providing services in client premises outside India is subject to tax in the country where we perform the work. Most of our tax paid in countries other than India can be applied as a credit against our Indian tax liability to the extent that the same income is subject to tax in India. Currently, we benefit from the tax holidays the Government of India gives to the export of information technology services from specially designated "Software Technology Parks" in India. As a result of these incentives, our operations have been subject to relatively insignificant tax liabilities. These tax incentives include a 10-year tax holiday from payment of Indian corporate income taxes for the operation of our Indian facilities, all but one of which are "Export Oriented Undertakings" or located in "Software Technology Parks" or "Export Processing Zones"; and an income tax deduction of 100% for profits derived from exporting information technology services. We can use either of these two tax incentives. As a result of these two tax exemptions, a substantial portion of our pre-tax income has not been subject to significant tax in recent years. For the years ended March 31, 2002, 2001 and 2000, without accounting for double taxation treaty set-offs, our tax benefits were $67.3 million, $57.3 million and $24.0 million, from such tax incentives. The Finance Act, 2000 phases out the 10-year tax holiday over a ten-year period from fiscal 2000 through fiscal 2009. Accordingly, facilities set up in India on or before March 31, 2000 have a 10-year tax holiday, new facilities set up on or before March 31, 2001 have a 9-year tax holiday and so forth until March 31, 2009, after which the tax holiday will no longer be available to new facilities. Our current tax holidays expire in stages by 2009. Additionally, the Finance Bill, 2002 had proposed that ten percent of all income derived from services located in "Software Technology Parks" be subject to income tax for a one-year period ending March 31, 2003. The Finance Act, 2000 also restricts the scope of the tax exemption to export income earned by software development centers that are "Export Oriented Undertakings" or located in "Software Technology Parks" or "Export Processing Zones" as compared to the earlier exemption which was available to business profits earned by them. For companies opting for the 100% tax deduction for profits derived from exporting information technology services, the Finance Act, 2000 phases out the income tax deduction over the next five years beginning on April 1, 2000. Quantitative and qualitative disclosures about market risk General Market risk is the loss of future earnings, to fair values or to future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables. Our exposure to market risk is a function of our borrowing activities and revenue generating activities in foreign currency. The objective of market risk management is to avoid excessive exposure of our earnings and equity to loss. Most of our exposure to market arises out of our foreign currency account receivables. Risk management procedures Management is responsible for our internal controls and financial reporting process. The independent auditors are responsible for performing an independent audit of our financial statements in accordance with the generally accepted auditing standards, and for issuing a report thereon. Our audit committee's responsibility is to monitor these processes. The audit committee is also responsible for overseeing the processes related to financial reporting and information dissemination, in order to ensure that the financial statements are fair, sufficient and credible. In addition, the audit committee recommends to the board of directors, the appointment of our internal and statutory auditors. 132 Components of market risk Our exposure to market risk arises principally from exchange rate risk. Exchange rate risk: Even though our functional currency is the Indian rupee, we transact a major portion of our business in foreign currencies, particularly the U.S. dollar. Our exchange rate risk primarily arises from our foreign currency revenues, receivables and payables. Although we constantly evaluate our net exchange rate exposure arising from these transactions, we do not actively hedge against such exposure. We may, in the future, adopt more active hedging policies, and have done so in the past. As a result, changes in exchange rates may adversely affect our operating results. As of March 31, 2002 and 2001, we had outstanding foreign exchange forward contracts in the aggregate amounts of $2.0 million and $20.0 million. These contracts typically mature within three months, must be settled on the day of maturity, and may be canceled subject to the payment of any gains or losses in the difference between the contract exchange rate and the market rate on the date of cancellation. Principles of currency translation The exchange rate between the rupee and the dollar has changed substantially in recent years and may fluctuate substantially in the future. During the four year period from March 31, 1998 through March 31, 2002, the value of the rupee against the dollar declined by approximately 23.5%. For fiscal 2002, 2001, and 2000, our U.S. dollar denominated revenues represented 87.7%, 89.6% and 88.3% of our total revenues. We expect that a majority of our total revenues will continue to be generated in dollars and that a significant portion of our expenses, including personnel costs as well as capital expenditures, will continue to be incurred in rupees. Consequently, our operating results may be adversely affected to the extent the rupee appreciates against the dollar. Our revenues generated in foreign currencies are translated into rupees at the exchange rate prevailing on the dates we recognized these revenues. The expenses of our overseas operations incurred in foreign currencies are translated in rupees at either the monthly average exchange rate or the exchange rate on the date the expense is incurred, depending on the source of the payment for such expense. Assets and liabilities of our foreign branches held in foreign currency are translated into rupees at the end of the applicable reporting period. For U.S. GAAP reporting, our financial statements are translated into dollars using the average monthly exchange rate for revenues and expenses and the period end rate for assets and liabilities. The gains or losses from such translation are reported as "Other comprehensive income", a separate component of stockholders' equity. We expect that a majority of our total revenues will continue to be generated in dollars and that significant portion of our expenses, including personnel costs as well as capital expenditures, will continue to be incurred in rupees. Consequently, our operating results may be adversely affected to the extent the rupee appreciates against the dollar. Accounting pronouncements In June 2001, the Financial Accounting Standards Board, or FASB, issued SFAS 141, Business Combinations and SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 requires that all business combinations be accounted for under a single method known as the purchase method. The pooling-of-interests method has been abolished and may not be used for business combinations initiated after June 30, 2001. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment; and is effective for fiscal years beginning after December 15, 2001, with earlier application of the rule permitted for entities with fiscal years beginning after March 31, 2001. In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations. SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. In August 2001, the FASB also issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that those long-lived assets be measured at the lower of the carrying amount or fair value less the cost to sell, whether reported in continuing operations or in discontinued operations. Under this standard, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. Early application is encouraged. Currently, both SFAS 141 and 142 do not apply to our operations. SFAS 143 and 144 may not have a material impact on our operations. Critical accounting policies High-quality financial statements require rigorous application of high-quality accounting policies. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. We prepare financial statements in conformity with U.S. GAAP which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We primarily make estimates of contracts costs expected to be incurred to complete development of software, allowances for doubtful accounts receivable, our future obligations under employee retirement and benefit plans, useful lives of property, plant and equipment, and contingencies and litigation. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Certain of our accounting policies require higher degrees of judgment than others in their application. These include revenue recognition as well as accounting for income taxes. Our accounting policy and related procedures for revenue recognition on such contracts and on income taxes are set out below. 133 Revenue recognition We derive our revenues primarily from software services and licensing of software products. We make and use significant management judgments and estimates in connection with the revenue that we recognize in any accounting period. Material differences may result in the amount and timing of our revenue for any period, if we made different judgments or utilized different estimates. We enter into contracts for software services with clients either on a time-and-material basis or on a fixed-price, fixed-timeframe basis. Such contracts require us to deliver software that involves significant production, modification or customization. We therefore apply the provisions of Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended, read together with certain provisions of SOP 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts," and Accounting Research Bulletin 45, "Long-Term Construction-Type Contracts and Certain Production-Type Contracts," in recognizing revenue arising from such contracts for software services. For contracts that are entered into on a time-and-material basis, we recognize revenue as the related costs of providing the underlying software services are incurred. For contracts that are entered into on a fixed-price, fixed-timeframe basis, we recognize revenue under the percentage-of-completion method. This is because we believe that estimates of costs to complete and extent of progress toward completion of such contracts are reasonably dependable. We estimate the percentage-of-completion based on the ratio of efforts performed to date to estimated total efforts at completion. Clients with whom we have entered into contracts for software services on a fixed-price, fixed-timeframe basis are provided with a fixed-period warranty for corrections of errors and telephone support. We accrue for costs associated with such support services at the time related revenues are recorded based on our historical experience. We also earn fees from clients for the license of software products. We apply the provisions of SOP 97-2, "Software Revenue Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions" to all transactions involving the sale of software products. In accordance with SOP 97-2, we recognize license fee revenues when persuasive evidence of an arrangement exists, delivery has occurred, the license fee is fixed and determinable, and the collection of the fee is probable. At the time of the transaction, we assess whether the fee associated with our revenue transactions is fixed and determinable and whether or not collection is reasonably assured. We assess whether the fee is fixed and determinable based on the payment terms associated with the transaction. We assess collection based on a number of factors, including the credit-worthiness of the client. We also provide other services in conjunction with such licensing arrangements. In such cases, we allocate the total revenue from such contracts to each component of the contract using the residual method. Under this method, we defer revenue for the undelivered services and recognize only the residual amounts as revenue for delivered elements. We recognize revenue for maintenance services ratably over the term of the underlying maintenance agreement, generally 12 months. We earn revenues from client training, support, and other services related to the license of software products, which is generally recognized as these services are performed. In certain instances, we receive advances for software development services and products. We report such amounts as client deposits until all conditions for revenue recognition are met. Income taxes As part of our financial reporting process, we are required to estimate our liability to income taxes in each of the tax jurisdictions in which we operate. This process requires us to estimate our actual current tax exposure together with an assessment of temporary differences resulting from differing treatment of items, such as depreciation on property, plant and equipment, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our balance sheet. We face challenges from domestic and foreign tax authorities regarding the amount of current taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. Based on our evaluation of our tax position, we believe we have adequately accrued for probable exposures. To the extent we are able to prevail in matters for which accruals have been established or are required to pay amounts in excess of our reserves, our effective tax rate in a given financial statement period may be materially impacted. Our deferred tax assets comprise assets arising from basis differences in depreciation on property, plant and equipment, investments for which the ultimate realization of the tax asset may be dependent on the availability of future capital gains, and provisions for doubtful accounts receivable. We assess the likelihood that our deferred tax assets will be recovered from future taxable income. This assessment takes into consideration tax planning strategies, including levels of historical taxable income and assumptions regarding the availability and character of future taxable income over the periods in which the deferred tax assets are deductible. We believe it is more likely than not that we will realize the benefits of those deductible differences, net of the existing valuation differences at March 31, 2002. The ultimate amount of deferred tax assets realized may be materially different from those recorded, as influenced by potential changes in income-tax laws in the tax jurisdictions where we operate. To the extent we believe that realization of a deferred tax asset is not likely, we establish a valuation allowance or increase this allowance in an accounting period and include an expense within the tax provision in our statements of income. As of March 31, 2002, 2001 and 2002, we recorded valuation allowances of $0.7 million, $1.6 million and $0.1 million due to uncertainties related to our ability to utilize some of our deferred tax assets comprising provisions for doubtful accounts receivable. In the event that actual results differ from these estimates of valuation allowance or if we adjust these estimates in future periods, we may need to establish an additional valuation allowance, which could materially impact our financial position and results of operations. Risk factors Risks related to our company Any inability to manage our rapid growth could disrupt our business and reduce our profitability. We have experienced significant growth in recent periods. Our revenues increased 31.7% in fiscal 2002 as compared to fiscal 2001, and increased 103.4% in fiscal 2001 as compared to fiscal 2000. As of March 31, 2002, we employed approximately 9,400 IT professionals worldwide as compared to 8,660 and 4,625 IT professionals as of March 31, 2001 and 2000. In the last four fiscal years we have approved and undertaken major expansions of our existing facilities as well as the construction of new facilities. 134 We expect our growth to place significant demands on our management and other resources. It will require us to continue to develop and improve our operational, financial and other internal controls, both in India and elsewhere. In particular, continued growth increases the challenges involved in: - recruiting and retaining sufficient skilled technical, marketing and management personnel; - providing adequate training and supervision to maintain our high quality standards; and - preserving our culture and values and our entrepreneurial environment. Inability to manage our growth effectively could adversely affect our business and reduce our profitability. Our revenues are difficult to predict and can vary significantly from quarter to quarter which could cause our share price to decline significantly. Our revenues have historically fluctuated and may fluctuate significantly in the future depending on a number of factors, including: - the size, timing and profitability of significant projects; - the proportion of services that we perform at client sites rather than at our offshore facilities; - the accuracy of our estimates of the resources required to complete ongoing projects, particularly projects performed under fixed-price, fixed-timeframe contracts; - a change in the mix of services provided to our clients, or in the relative proportion of services and product revenues; - the effect of seasonal hiring patterns and the time required to train and productively utilize new employees; - the size and timing of facilities expansion; and - unanticipated variations in the duration, size and scope of our projects. The majority of our total operating expenses, particularly of personnel and facilities, are fixed in advance of any particular quarter. As a result, unanticipated variations in the number and timing of our projects or employee utilization rates may cause significant variations in our operating results in any particular quarter. There are also a number of factors other than our performance and not within our control that could cause fluctuations in our operating results from quarter to quarter. These include: - the timing of tax holidays and other Government of India incentives; - currency exchange rate fluctuations; and - other general economic factors. We believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indication of our future performance. Thus, it is possible that in the future some of our quarterly results of operations may be below the expectations of market analysts and our investors, and the share price of our equity shares and our ADSs could decline significantly. Our customers may defer or terminate projects before completion or choose not to renew contracts, most of which are terminable at will, which could adversely affect our profitability. Our contracts with customers do not commit our customers to provide us with a specific volume of business and can typically be terminated by our clients with or without cause, with little or no advance notice and without penalty, which could reduce our revenues significantly. Additionally, our contracts with clients typically are limited to a specific project without any commitment of future work. There are also a number of factors other than our performance and not within our control that could cause the loss of a client, including: - financial difficulties for a client; - a demand for price reductions; - a change in outsourcing strategy by moving more work in-house; and - the replacement of existing software with packaged software supported by licensors. Any of these factors could reduce our profitability. A significant portion of our revenues is earned from the United States and derived from clients in only a few industry segments. This increases the likelihood that the slowdown in IT spending in the United States will affect our profitability. We have historically earned a significant portion of our revenues from the United States. In fiscal 2002 and 2001, approximately 71.2% and 73.5% of our revenues were from the United States. In addition, we derive a significant proportion of our revenues from certain industry segments. In fiscal 2002 and 2001, we earned 36.6% and 33.7% of our revenues from the financial services segment, and 12.3% and 9.1% from the retail segment. During an economic slowdown, our clients in the United States may reduce or postpone their IT spending significantly, which may in turn, lower the demand for our services and affect our profitability. Additionally, any significant decrease in the growth of the financial services or retail industry segments may reduce the demand for our services and affect our profitability significantly. Currency exchange rate fluctuations may affect the value of the ADSs Market risks relating to our operations result primarily from changes in interest rates and changes in foreign exchange rates. Our functional currency is the Indian rupee although we transact a major portion of our business in foreign currencies and accordingly face foreign 135 currency exposure through our sales in the United States and purchases from overseas suppliers in dollars. In our U.S. operations, we do not actively hedge against exchange rate fluctuations, although we may elect to do so in the future. Accordingly, changes in exchange rates may have a material adverse effect on our net sales, cost of services sold, gross margin and net income, any of which alone or in the aggregate may in turn have a material adverse effect on our business, operating results and financial condition. The exchange rate between the rupee and the dollar has changed substantially in recent years and may fluctuate substantially in the future. During the four-year period from March 31, 1998 through March 31, 2002, the value of the rupee against the dollar declined by approximately 29.5%. For fiscal 2002, 2001 and 2000, our dollar-denominated revenues represented 87.7%, 89.5% and 88.3%, respectively, of our total revenues. We expect that a majority of our revenues will continue to be generated in dollars for the foreseeable future and that a significant portion of our expenses, including personnel costs as well as capital and operating expenditures, will continue to be denominated in Indian rupees. Consequently, the results of our operations will be adversely affected to the extent the rupee appreciates against the dollar. We have sought to reduce the effect of exchange rate fluctuations on our operating results by purchasing foreign exchange forward contracts to cover a portion of outstanding accounts receivable on a need basis. As of March 31, 2002, we had outstanding forward contracts in the amount of $2.0 million. These contracts typically mature within three months, must be settled on the day of maturity and may be cancelled subject to the payment of any gains or losses in the difference between the contract exchange rate and the market exchange rate on the date of cancellation. We use these instruments only as a hedging mechanism and not for speculative purposes. We cannot assure you that we will purchase contracts adequate to insulate ourselves from foreign exchange currency risks or that any such contracts will perform adequately as a hedging mechanism. Devaluation of the Indian rupee will result in foreign currency translation losses. For example, for fiscal 2002 and 2001, our foreign currency translation losses were approximately $16.7 million and $14.5 million. Fluctuations in the exchange rate between the rupee and the dollar will also affect the dollar conversion by the Depositary of any cash dividends paid in rupees on the equity shares represented by the ADSs. In addition, fluctuations in the exchange rate between the rupee and the dollar will affect the dollar equivalent of the rupee price of equity shares on the Indian Stock Exchanges and, as a result, are likely to affect the prices of our ADSs in the United States. Such fluctuations will also affect the dollar value of the proceeds a holder would receive upon the sale in India of any equity shares withdrawn from the Depositary under the Depositary Agreement. We cannot assure you that holders will be able to convert rupee proceeds into dollars or any other currency or with respect to the rate at which any such conversion could occur. We are investing substantial cash assets in new facilities. As of March 31, 2002, we had contractual commitments of $13.0 million for capital expenditure and have budgeted for significant infrastructure expansion in the near future. Although we have successfully developed new facilities in the past, we may still encounter cost overruns or project delays in connection with the new facilities. Additionally, future financing for additional facilities, whether within India or elsewhere, may not be available on attractive terms or at all. Such an expansion will significantly increase our fixed costs. Therefore, if we are unable to grow our business proportionately, our profitability will be reduced. Restrictions on immigration may affect our ability to compete for and provide services to clients in the United States, which could hamper our growth and cause our revenues to decline. If U.S. immigration laws change and make it more difficult for us to obtain H-1B and L-1 visas for our employees, our ability to compete for and provide services to clients in the United States could be impaired. This in turn could hamper our growth and cause our revenues to decline. Our employees who work onsite at client facilities or at our facilities in the United States on temporary and extended assignments typically must obtain visas. As of March 31, 2002, the majority of our personnel in the United States held H-1B visas (1,582 persons) or L-1 visas (445 persons). An H-1B visa is a temporary work visa, which allows the employee to remain in the U.S. while he or she remains an employee of the sponsoring firm, and the L-1 visa is an intra-company transfer visa, which only allows the employee to remain in the United States temporarily. Although there is no limit to new L-1 petitions, there is a limit to the aggregate number of new H-1B petitions that the U.S. Immigration and Naturalization Service ("USINS") may approve in any government fiscal year. We may not be able to obtain the H-1B visas necessary to bring critical Indian professionals to the United States on an extended basis during the years in which this limit is reached. This limit was reached in March 2000 for the U.S. Government's fiscal year ended September 30, 2000. While we anticipated that this limit would be reached before the end of the U.S. Government's fiscal year, and made efforts to plan accordingly, we cannot assure you that we will continue to be able to obtain a sufficient number of H-1B visas. In response to the recent terrorist attacks in the United States, the USINS has increased the level of scrutiny in granting visas. As a result, we may not be able to obtain a sufficient number of H-1B visas for our employees. Our international operations subject us to risks inherent in doing business on an international level. This could harm our operating results. While to date most of our software development facilities are located in India and in the United States, we intend to establish new development facilities, potentially in Southeast Asia and Europe. We have not yet made substantial contractual commitments to establish any new facilities and we cannot assure you that we will not significantly alter or reduce our proposed expansion plans. Because of our limited experience with facilities outside of India, we are subject to additional risks including, among other things, difficulties in regulating our business globally, export requirements and restrictions, and multiple and possibly overlapping tax structures. Any of these events could harm our future performance. Our success depends in large part upon our management team and other highly skilled professionals. If we fail to retain and attract these personnel, our business may be unable to grow and our revenues could decline, which may decrease the value of our shareholders' investment. We are highly dependent on the senior members of our management team, including the continued efforts of our Chairman, our CEO, our COO, other executive members of the board and the management council members. Our ability to execute project engagements and to obtain new clients depends in large part on our ability to attract, train, motivate and retain highly skilled professionals, especially project 136 managers, software engineers and other senior technical personnel. If we cannot hire and retain additional qualified personnel, our ability to bid on and obtain new projects, and to continue to expand our business will be impaired and our revenues could decline. We believe that there is significant competition for professionals with the skills necessary to perform the services we offer. We may not be able to hire and retain enough skilled and experienced employees to replace those who leave. Additionally, we may not be able to redeploy and retrain our employees to keep pace with continuing changes in technology, evolving standards and changing client preferences. Our revenues are highly dependent upon a small number of clients. We have historically earned, and believe that in the future too will continue to derive, a significant portion of our revenues from a limited number of corporate clients. In fiscal 2002 and fiscal 2001, our largest client accounted for 6.1% and 7.3%, of our total revenues, and our five largest clients accounted for 24.1% and 26.0% of our total revenues. The volume of work we perform for specific clients is likely to vary from year to year, particularly since we are usually not the exclusive outside software service provider for our clients. Thus, a major client in one year may not provide the same level of revenues in a subsequent year. There are a number of factors other than our performance that could cause the loss of a client and that may not be predictable. For example, in 1995, we chose to reduce significantly the services provided to our then-largest client rather than accept the price reductions and increased resources sought by the client. In other circumstances, we reduced significantly the services provided to a client when the client either changed its outsourcing strategy by moving more work in-house and reducing the number of its vendors, or replaced its existing software with packaged software supported by the licensor. As a result, if we were to lose one of our major clients or have it significantly reduce its volume of business with us, our profitability could be reduced. Our costs could increase if the Government of India reduces or withholds tax benefits and other incentives it provides to us. Currently, we benefit from certain tax incentives under Indian tax laws. As a result of these incentives, our operations have been subject to relatively insignificant Indian tax liabilities. These tax incentives include a 10-year tax holiday from payment of Indian corporate income taxes for the operation of our Indian facilities, all but one of which are "Export Oriented Undertakings" or located in "Software Technology Parks" or "Export Processing Zones"; and an income tax deduction of 100% for profits derived from exporting information technology services. As a result, a substantial portion of our pre-tax income has not been subject to significant tax in recent years. For the years ended March 31, 2002, 2001 and 2000, without accounting for double taxation treaty set-offs, our tax benefits were $67.3 million, $57.3 million and $24.0 million from such tax incentives. We are currently also eligible for exemptions from other taxes, including customs duties. The Finance Act, 2000 phases out the 10-year tax holiday over a ten-year period from fiscal 1999-2000 through fiscal 2008-2009. Our current tax holidays expire in stages by 2009. Additionally, the Finance Bill, 2002 has proposed that ten percent of all income derived from services located in "Software Technology Parks" be subject to income tax for the one-year period ending March 31, 2003. For companies opting for the 100% tax deduction for profits derived from exporting information technology services, the Finance Act, 2000 phases out the income tax deduction over the next five years beginning on April 1, 2000. When our tax holiday and income tax deduction exemptions expire or terminate, our costs will increase. Additionally, the Government of India could enact similar laws in the future, which could further impair our other tax incentives. Our failure to complete fixed-price, fixed-timeframe contracts on budget and on time may negatively affect our profitability, which could decrease the value of our shareholders' investment. As a core element of our business strategy, we offer a portion of our services on a fixed-price, fixed-timeframe basis, rather than on a time- and-material basis. Although we use specified software engineering processes and our past project experience to reduce the risks associated with estimating, planning and performing fixed-price, fixed-timeframe projects, we bear the risk of cost overruns, completion delays and wage inflation in connection with these projects. If we fail to accurately estimate the resources and time required for a project, future wage inflation rate and currency exchange rates, or if we fail to complete our contractual obligations within the contracted timeframe, our profitability may suffer. Disruptions in telecommunications could harm our service model, which could result in a reduction of our revenues. A significant element of our business strategy is to continue to leverage and expand our software development centers in Bangalore, Bhubaneshwar, Chennai, Hyderabad, Mangalore, Mohali, Mysore and Pune, all in India, as well as overseas. We believe that the use of a strategically located network of software development centers will provide us with cost advantages, the ability to attract highly skilled personnel in various regions of the country and the world, the ability to service clients on a regional and global basis, and the ability to provide services to our clients 24 hours a day, seven days a week. Part of our service model is to maintain active voice and data communications between our main offices in Bangalore, our clients' offices, and our other software development and support facilities. Although we maintain redundant facilities and satellite communications links, any significant loss in our ability to transmit voice and data through satellite and telephone communications would result in a reduction of our revenues. Intense competition in the market for IT services could affect our cost advantages, which could decrease our revenues. The market for IT services is highly competitive. Our competitors include software companies, IT companies, large international accounting firms and their consulting affiliates, systems consulting and integration firms, other technology companies and client in-house information services departments, both international and domestic. Many of our competitors have significantly greater financial, technical and marketing resources and generate greater revenue than we do. We cannot be reasonably certain that we will be able to compete successfully against such competitors, or that we will not lose clients to such competitors. Additionally, we believe that our ability to compete also depends in part on factors outside our control, such as our ability to attract, motivate and retain skilled employees, the price at which our competitors offer comparable services, and the extent of our competitors' responsiveness to their clients' needs. 137 Wages in India have historically been lower than wages in the United States and Europe, which has been one of our competitive advantages. Wage increases in India may prevent us from sustaining this competitive advantage and may reduce our profit margins. Wage costs in India have historically been significantly lower than wage costs in the United States and Europe for comparably skilled professionals, which has been one of our competitive advantages. However, wage increases in India may prevent us from sustaining this competitive advantage and may negatively affect our profit margins. We may need to increase the levels of our employee compensation more rapidly than in the past to remain competitive. Additionally, recent and future changes in the immigration laws of the countries where our employees are working on-site at client facilities on short-term assignments may require us to compensate such employees at a minimum wage level that is higher than our current India-based wage rates. Unless we are able to continue to increase the efficiency and productivity of our employees, wage increases in the long term may reduce our profit margins. We may be liable to our clients for damages caused by system failures, which could damage our reputation and cause us to lose customers. Many of our contracts involve projects that are critical to the operations of our clients' businesses, and provide benefits which may be difficult to quantify. Any failure in a client's system could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to limit our contractual liability for damages resulting from negligent acts, errors, mistakes or omissions, in rendering our services, we cannot be assured that the limitations on liability we provide for in our service contracts will be enforceable in all cases, or that it will otherwise protect us from liability for damages. Although we maintain general liability insurance coverage, including coverage for errors or omissions, we cannot be assured that such coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. A successful assertion of one or more large claims against us that exceeds our available insurance coverage or changes in our insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirement, could reduce our operating results. We may engage in future acquisitions, investments, strategic partnerships or other ventures that may harm our performance, dilute the holdings of our shareholders and cause us to incur debt or assume contingent liabilities. We may acquire or make investments in complementary businesses, technologies, services or products, or enter into strategic partnerships with parties who can provide access to those assets. We may not identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on terms commercially acceptable to us or at all. If we acquire another company, we could have difficulty in assimilating that company's personnel, operations, technology and software. In addition, the key personnel of the acquired company may decide not to work for us. If we make other types of acquisitions, we could have difficulty in integrating the acquired products, services or technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. As of the date of this report, we have no agreement to enter into any material investment or acquisition transaction. If our strategic investments fail, the write-offs on such investments could affect our profitability. We make strategic investments in new technology start-ups in order to gain experience in niche technologies. We had invested an aggregate amount of $2.2 million in strategic investments in fiscal 2002. However, we cannot assure you that our investments will be successful and we will benefit from such investments. The loss of any such investments could have a material adverse effect on our operating results. In fiscal 2001, we wrote off our investments in EC Cubed Inc. and Alpha Thinx Mobile Services AG. We may be unable to recoup our investment costs to develop our software products. In fiscal 2002 and 2001, we earned 4.0% and 2.5% of our total revenue from the sale of software products. The development of our software products requires significant investments. The markets for our primary software product are competitive and currently located in developing countries, and we cannot assure you that such a product will continue to be commercially successful. Also, we cannot assure you that any new products we develop will be commercially successful or that the costs of developing such new products will be recouped. Since software product revenues typically occur in periods subsequent to the periods in which the costs are incurred for development of such products, delayed revenues may cause periodic fluctuations of our operating results. Our officers and directors can continue to control our board and may have interests which conflict with those of our other shareholders or holders of our ADSs. Our officers and directors, together with members of their immediate families, in the aggregate, beneficially own approximately 24.9% of our issued equity shares. As a result, acting together, this group has the ability to exercise significant control over most matters requiring our shareholders' approval, including the election and removal of directors and significant corporate transactions. Additionally, our Articles provide that Mr. N. R. Narayana Murthy, our Chairman and one of our principal founders, shall serve as the Chairman of our board and shall not be subject to re-election as long as he and his relatives own at least 5% of our outstanding equity shares. This control could delay, defer or prevent a change in control of our company, impede a merger, consolidation, takeover or other business combination involving us, or discourage a potential acquiror from attempting to obtain control over us. You may be restricted in your ability to exercise preemptive rights under Indian law and thereby suffer dilution of your ownership position. Under the Indian Companies Act, 1956 or the "Indian Companies Act", a company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless such preemptive rights have been waived by three-fourths of the shares voted on the resolution. U.S. holders of ADSs may be unable to exercise preemptive rights for equity shares underlying ADSs unless a registration statement under the Securities Act of 1933, as amended, or "Securities Act", is effective with respect to such rights or an exemption from the 138 registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with any such registration statement as well as the perceived benefits of enabling the holders of ADSs to exercise their preemptive rights and any other factors we consider appropriate at the time. We may elect not to file a registration statement related to preemptive rights otherwise available by law to you. In the case of future issuances, the new securities may be issued to our depositary, which may sell the securities for your benefit. The value, if any, our depositary would receive upon the sale of such securities cannot be predicted. To the extent that you are unable to exercise preemptive rights granted in respect of the equity shares represented by your ADSs, your proportional interests in our company would be reduced. Holders of ADSs may be restricted in their ability to exercise voting rights. At our request, the depositary bank will mail to you any notice of shareholders' meeting received from us together with information explaining how to instruct the depositary bank to exercise the voting rights of the securities represented by ADSs. If the depositary bank receives voting instructions from you in time, it will endeavor to vote the securities represented by your ADSs in accordance with such voting instructions. However, the ability of the depositary bank to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure that you will receive voting materials in time to enable you to return voting instructions to the depositary bank in a timely manner. Securities for which no voting instructions have been received will not be voted. Risks related to investments in Indian companies. We are incorporated in India, and a substantial amount of our assets and our employees are located in India. Consequently, our financial performance and the market price of our ADSs will be affected by political, social and economic developments affecting India, Government of India policies, including taxation and foreign investment policies, government currency exchange control, as well as changes in exchange rates and interest rates. Regional conflicts in South Asia could adversely affect the Indian economy, disrupt our operations and cause our business to suffer. South Asia has from time to time experienced instances of civil unrest and hostilities among neighboring countries, including between India and Pakistan. In recent years there have been military confrontations between India and Pakistan that have occurred in the region of Kashmir. Events of this nature in the future could influence the Indian economy and could have a material adverse effect on the market for securities of Indian companies, including our ADSs, and on the market for our services. Political instability or changes in the government in India could delay the liberalization of the Indian economy and adversely affect economic conditions in India generally, which could impact our financial results and prospects. Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant. The Government of India has changed five times since 1996. The current Government of India, formed in October 1999, has announced policies and taken initiatives that support the continued economic liberalization policies that have been pursued by previous governments. We cannot assure you that these liberalization policies will continue in the future. The rate of economic liberalization could change, and specific laws and policies affecting technology companies, foreign investment, currency exchange and other matters affecting investment in our securities could change as well. A significant change in India's economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally, and our business in particular. Indian law limits our ability to raise capital outside India and may limit the ability of others to acquire us, which could prevent us from operating our business or entering into a transaction that is in the best interests of our shareholders. Indian law relating to foreign exchange management constrains our ability to raise capital outside India through the issuance of equity or convertible debt securities. Generally, any foreign investment in, or an acquisition of, an Indian company requires approval from relevant government authorities in India including the Reserve Bank of India. However, the Government of India currently does not require prior approvals for IT companies, subject to certain exceptions. Under any such exception, if the Government of India does not approve the investment or implements a limit on the foreign equity ownership of IT companies, our ability to seek and obtain additional equity investment by foreign investors will be constrained. In addition, these restrictions, if applied to us, may prevent us from entering into a transaction, such as an acquisition by a non-Indian company, which would otherwise be beneficial for our company and the holders of our equity shares and ADSs. Indian law imposes foreign investment restrictions that limit a holder's ability to convert equity shares into ADSs, which may cause our equity shares to trade at a discount or premium to the market price of our ADSs. Recently, the Government of India has permitted two-way fungibility of ADSs, subject however to sectoral caps and certain conditions. Additionally, investors who exchange ADSs for the underlying equity shares and are not holders of record will be required to declare to us details of the holder of record, and the holder of record will be required to disclose the details of the beneficial owner. Any investor who fails to comply with this requirement may be liable for a fine of up to Indian Rs.1,000 for each day such failure continues. Such restrictions on foreign ownership of the underlying equity shares may cause our equity shares to trade at a discount or premium to the ADSs. Except for limited circumstances, the Reserve Bank of India must approve the sale of equity shares underlying ADSs by a non-resident of India to a resident of India. Since currency exchange controls are in effect in India, the Reserve Bank of India will approve the price at which 139 equity shares are transferred based on a specified formula, and a higher price per share may not be permitted. Additionally, except in certain limited circumstances, if an investor seeks to convert the rupee proceeds from a sale of equity shares in India into foreign currency and then repatriate that foreign currency from India, he or she will have to obtain an additional Reserve Bank of India approval for each transaction. We cannot assure our ADS holders that any required approval from the Reserve Bank of India or any other government agency can be obtained on any terms or at all. Our ability to acquire companies organized outside India depends on the approval of the Government of India and/or the Reserve Bank of India. Our failure to obtain approval from the Government of India and/or the Reserve Bank of India for acquisitions of companies organized outside India may restrict our international growth, which could negatively affect our revenues. The Ministry of Finance of the Government of India and the Reserve Bank of India must approve our acquisition of any company organized outside of India. The Government of India has recently issued a policy statement permitting acquisitions of companies organized outside India with a transaction value: - if in cash, effective April 28, 2001 up to 100% of the proceeds from an ADSs offering; and - if in stock, the greater of $100 million or ten times the acquiring company's previous fiscal year's export earnings. We cannot assure you that any required approval from the Reserve Bank of India and the Ministry of Finance or any other government agency can be obtained. Our failure to obtain approval from the Government of India for acquisitions of companies organized outside India may restrict our international growth, which could negatively affect our revenues. The laws of India do not protect intellectual property rights to the same extent as those of the United States, and we may be unsuccessful in protecting our intellectual property rights. Unauthorized use of our intellectual property may result in development of technology, products or services which compete with our products. Our intellectual property rights are important to our business. We rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property. However, the laws of India do not protect proprietary rights to the same extent as laws in the United States. Therefore, our efforts to protect our intellectual property may not be adequate. Our competitors may independently develop similar technology or duplicate our products or services. Unauthorized parties may infringe upon or misappropriate our products, services or proprietary information. The misappropriation or duplication of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase our expenses. We may need to litigate to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be time-consuming and costly. As the number of patents, copyrights and other intellectual property rights in our industry increases, and as the coverage of these rights increase, we believe that companies in our industry will face more frequent patent infringement claims. Defense against these claims, even if not meritorious, could be expensive and divert our attention and resources from operating our company. Although there are no pending or threatened intellectual property lawsuits against us, if we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and forced to develop non-infringing technology, obtain a license or cease selling the applications or products that contain the infringing technology. We may be unable to develop non-infringing technology or to obtain a license on commercially reasonable terms, or at all. It may be difficult for you to enforce any judgment obtained in the United States against us or our affiliates. We are incorporated under the laws of India and many of our directors and executive officers, and some of the experts named in this document, reside outside the United States. In addition, virtually all of our assets and the assets of many of these persons are located outside the United States. As a result, you may be unable to: - effect service of process upon us outside India, or these persons outside the jurisdiction of their residence; or - enforce against us in courts outside of India, or these persons outside the jurisdiction of their residence, judgments obtained in U.S. courts, including judgments predicated solely upon the federal securities laws of the United States. We have been advised by our Indian counsel that the United States and India do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States on civil liability, whether or not predicated solely upon the federal securities laws of the United States, would not be enforceable in India. However, the party in whose favor such final judgment is rendered may bring a new suit in a competent court in India based on a final judgment which has been obtained in the United States. If and to the extent Indian courts are of the opinion that fairness and good faith so required, it would, under current practice, give binding effect to the final judgment which had been rendered in the United States unless such a judgment contravened principles of public policy of India. 140 Report of the audit committee To the members of Infosys Technologies Limited In connection with the March 31, 2002 financial statements prepared under U.S. GAAP, the audit committee: (1) reviewed and discussed the audited financial statements with management; (2) discussed with the auditors the matters required by Statement on Auditing Standards No. 61; and (3) reviewed and discussed with the auditors the matters required by Independence Standards Board Statement No. 1. Based upon these reviews and discussions, the audit committee recommended to the board of directors that the audited financial statements be included in the Annual Report on Form 20-F filed with the Securities and Exchange Commission of the United States of America. Deepak M. Satwalekar Dr. Marti G. Subrahmanyam Dr. Omkar Goswami Chairman, audit committee Member, audit committee Member, audit committee Bangalore, India Senator Larry L. Pressler Rama Bijapurkar Claude Smadja April 10, 2002 Member, audit committee Member, audit committee Member, audit committee
Report of management The management is responsible for preparing the company's financial statements and related information that appears in this annual report. The management believes that the financial statements fairly reflect the form and substance of transactions, and reasonably present the company's financial condition and results of operations in conformity with United States Generally Accepted Accounting Principles. The management has included, in the company's financial statements, amounts that are based on estimates and judgments, which it believes are reasonable under the circumstances. The company maintains a system of internal procedures and controls intended to provide reasonable assurance, at appropriate cost, that transactions are executed in accordance with company authorization and are properly recorded and reported in the financial statements, and that assets are adequately safeguarded. KPMG audits the company's financial statements in accordance with the generally accepted auditing standards in the United States of America. The board of directors has appointed an audit committee composed of outside directors. The committee meets with the management, internal auditors, and the independent auditors to review internal accounting controls and accounting, auditing, and financial reporting matters. /s/ T. V. MOHANDAS PAI /s/ S. GOPALAKRISHNAN /s/ NANDAN M. NILEKANI T. V. Mohandas Pai S. Gopalakrishnan Nandan M. Nilekani Bangalore, India Director - Finance and Administration Chief Operating Officer Chief Executive Officer, President April 10, 2002 and Chief Financial Officer and Deputy Managing Director and Managing Director
Independent auditor's report The Board of Directors and Stockholders Infosys Technologies Limited We have audited the accompanying balance sheets of Infosys Technologies Limited as of March 31, 2002 and 2001, and the related statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended March 31, 2002. In connection with our audits of the financial statements, we also have audited the financial statement schedule. These financial statements and the financial statement schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Infosys Technologies Limited as of March 31, 2002 and 2001, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Bangalore, India /s/ KPMG April 10, 2002 KPMG 141 Balance sheets as of March 31
2002 2001 ------------- ------------- ASSETS Current Assets Cash and cash equivalents $ 210,485,940 $ 124,084,245 Trade accounts receivable, net of allowances 69,017,110 64,942,062 Deferred tax assets 774,107 1,265,142 Prepaid expenses and other current assets 18,875,904 16,452,863 ------------- ------------- Total current assets 299,153,061 206,744,312 Property, plant and equipment, net 147,211,731 119,773,030 Deferred tax assets 4,560,934 2,070,428 Investments 7,777,393 5,577,393 Advance income taxes -- 180,113 Other assets 12,458,615 8,002,543 ------------- ------------- TOTAL ASSETS $ 471,161,734 $ 342,347,819 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable -- $ 28,082 Client deposits $ 2,215,001 1,217,737 Other accrued liabilities 22,424,646 21,830,484 Income taxes payable 678,703 -- Unearned revenue 3,464,018 7,479,815 ------------- ------------- Total current liabilities 28,782,368 30,556,118 Stockholders' Equity Common stock, $0.16 par value; 100,000,000 equity shares authorized, issued and outstanding -- 66,186,130 and 66,158,117 as of March 31, 2002 and 2001, respectively 8,597,001 8,594,106 Additional paid-in capital 123,079,948 122,017,518 Accumulated other comprehensive income (45,441,148) (28,664,972) Deferred stock compensation (7,620,600) (12,517,018) Retained earnings 363,764,165 222,362,067 ------------- ------------- Total stockholders' equity 442,379,366 311,791,701 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 471,161,734 $ 342,347,819 ============= =============
See accompanying notes to the financial statements Liabilities and stockholders' equity -- 2002 [GRAPHIC] Current Liabilities 6% Stockholders' equity 94%
Assets -- 2002 [GRAPHIC] Cash and cash equivalents 45% Property, plant and equipment, net 31% Trade accounts receivable 15% Others 9%
142 Statements of income for the years ended March 31
2002 2001 2000 ------------ ------------ ------------ Revenues $545,051,214 $413,850,510 $203,443,754 Cost of revenues 290,032,232 213,613,744 111,080,546 ------------ ------------ ------------ Gross profit 255,018,982 200,236,766 92,363,208 ============ ============ ============ Operating Expenses: Selling and marketing expenses 27,113,122 20,682,776 9,643,970 General and administrative expenses 44,348,181 36,957,609 17,102,550 Amortization of stock compensation expense 5,009,772 5,081,795 5,117,635 ------------ ------------ ------------ Total operating expenses 76,471,075 62,722,180 31,864,155 ------------ ------------ ------------ Operating income 178,547,907 137,514,586 60,499,053 Other income, net 13,865,294 9,505,343 9,038,792 ------------ ------------ ------------ Income before income taxes 192,413,201 147,019,929 69,537,845 Provision for income taxes 27,946,892 15,071,825 8,193,317 ------------ ------------ ------------ Net income $164,466,309 $131,948,104 $ 61,344,528 ============ ============ ============ Earnings per equity share Basic $ 2.51 $ 2.01 $ 0.93 Diluted $ 2.49 $ 1.98 $ 0.93 Weighted equity shares used in computing earnings per equity share Basic 65,556,648 65,771,256 65,659,625 Diluted 66,084,874 66,714,739 65,863,990
See accompanying notes to the financial statements [GRAPH] Revenues in $ million 2000 203.44 2001 413.85 2002 545.05
[GRAPH] Net Income in $ million 2000 61.34 2001 131.95 2002 164.47
[GRAPH] Earnings per share in $ 2000 0.93 2001 2.01 2002 2.51
[GRAPH] Stockholders' Equity in $ million 2000 198.14 2001 311.79 2002 442.38
143 Statements of stockholders' equity and comprehensive income
Common stock Additional ------------------------ paid-in Comprehensive Shares Par value capital income ---------- ---------- ------------- ------------- Balance as of March 31, 1999 66,138,800 $8,592,137 $ 120,849,511 Cash dividends declared -- -- -- Common stock issued 11,900 1,373 405,489 ADR issue expenses -- -- (777,923) Compensation related to stock option grants -- -- 1,029,649 Amortization of compensation related to stock option grants -- -- -- Comprehensive income Net income -- -- -- $ 61,344,528 Other comprehensive income Translation adjustment -- -- -- (5,037,271) ------------ Comprehensive income $ 56,307,257 ---------- ---------- ------------- ============ Balance as of March 31, 2000 66,150,700 8,593,510 121,506,726 ---------- ---------- ------------- Cash dividends declared -- -- -- Common stock issued 7,417 596 510,792 Amortization of compensation related to stock option grants -- -- -- Comprehensive income Net income -- -- -- $131,948,104 Other comprehensive income Translation adjustment -- -- -- (14,527,039) ------------ Comprehensive income $117,421,065 ---------- ---------- ------------- ============ Balance as of March 31, 2001 66,158,117 8,594,106 122,017,518 ---------- ---------- ------------- Common stock issued 28,013 2,895 949,076 Cash dividends declared -- -- -- Deferred stock compensation related to stock option grants -- -- 113,354 Amortization of compensation related to stock option grants -- -- -- Comprehensive income Net income -- -- -- $164,466,309 Other comprehensive income Translation adjustment -- -- -- (16,736,176) ------------ Comprehensive income $147,690,133 ---------- ---------- ------------- ============ Balance as of March 31, 2002 66,186,130 $8,597,001 $ 123,079,948 ========== ========== =============
Accumulated other Deferred Total comprehensive stock Retained stockholders' income compensation earnings equity -------------- ------------ ------------- ------------- Balance as of March 31, 1999 $ (9,100,662) $(21,686,799) $ 40,955,375 $ 139,609,562 Cash dividends declared -- -- (2,526,872) (2,526,872) Common stock issued -- -- -- 406,862 ADR issue expenses -- -- -- (777,923) Compensation related to stock option grants -- (1,029,649) -- -- Amortization of compensation related to stock option grants -- 5,117,635 -- 5,117,635 Comprehensive income Net income -- -- 61,344,528 61,344,528 Other comprehensive income Translation adjustment (5,037,271) -- -- (5,037,271) Comprehensive income ------------ ------------ ------------- ------------- Balance as of March 31, 2000 (14,137,933) (17,598,813) 99,773,031 198,136,521 ------------ ------------ ------------- ------------- Cash dividends declared -- -- (9,359,068) (9,359,068) Common stock issued -- -- -- 511,388 Amortization of compensation related to stock option grants -- 5,081,795 -- 5,081,795 Comprehensive income Net income -- -- 131,948,104 131,948,104 Other comprehensive income Translation adjustment (14,527,039) -- -- (14,527,039) Comprehensive income ------------ ------------ ------------- ------------- Balance as of March 31, 2001 (28,664,972) (12,517,018) 222,362,067 311,791,701 ------------ ------------ ------------- ------------- Common stock issued -- -- -- 951,971 Cash dividends declared -- -- (23,064,211) (23,064,211) Deferred stock compensation related to stock option grants -- (113,354) -- -- Amortization of compensation related to stock option grants -- 5,009,772 -- 5,009,772 Comprehensive income Net income -- -- 164,466,309 164,466,309 Other comprehensive income Translation adjustment (16,736,176) -- -- (16,736,176) Comprehensive income ------------ ------------ ------------- ------------- Balance as of March 31, 2002 $(45,441,148) $ (7,620,600) $ 363,764,165 $ 442,379,366 ============ ============ ============= =============
See accompanying notes to the financial statements 144 Statements of cash flows for the years ended March 31
2002 2001 2000 ------------- ------------- ------------- OPERATING ACTIVITIES: Net income $ 164,466,309 $ 131,948,104 $ 61,344,528 Adjustments to reconcile net income to net cash provided by operating activities Gain on sale of property, plant and equipment (16,754) (20,053) (20,153) Depreciation and amortization 33,608,391 24,527,867 12,268,169 Deferred tax benefit (1,999,471) (769,304) (850,891) Amortization of deferred stock compensation expense 5,009,772 5,081,795 5,117,635 Provision for investments -- 3,480,300 -- Changes in assets and liabilities Trade accounts receivable (7,196,700) (36,310,272) (11,927,796) Prepaid expenses and other current assets (2,052,721) (2,654,466) (2,532,524) Income taxes 869,109 (1,973,114) 961,582 Accounts payable (27,382) (901,961) 910,011 Client deposits 1,075,855 833,215 410,555 Unearned revenue (3,753,943) 3,770,772 (418,230) Other accrued liabilities 1,492,616 9,651,967 4,984,495 ------------- ------------- ------------- Net cash provided by operating activities 191,475,081 136,664,850 70,247,381 ============= ============= ============= INVESTING ACTIVITIES: Expenditure on property, plant and equipment (68,347,644) (101,235,420) (36,913,037) Proceeds from sale of property, plant and equipment 335,079 49,676 23,555 Loans to employees (5,547,203) (4,932,703) (7,048,879) Purchase of investments (2,200,000) (5,879,755) (3,000,000) ------------- ------------- ------------- Net cash used in investing activities (75,759,768) (111,998,202) (46,938,361) ============= ============= ============= FINANCING ACTIVITIES: Proceeds from issuance of common stock 963,351 511,388 406,862 ADR issue expenses -- -- (777,923) Payment of dividends (22,902,618) (9,220,142) (2,526,872) ------------- ------------- ------------- Net cash used in financing activities (21,939,267) (8,708,754) (2,897,933) ============= ============= ============= Effect of exchange rate changes on cash (7,374,351) (8,473,135) (2,686,564) Net increase in cash and cash equivalents during the period 86,401,695 7,484,759 17,724,523 Cash and cash equivalents at the beginning of the period 124,084,245 116,599,486 98,874,963 ------------- ------------- ------------- Cash and cash equivalents at the end of the period $ 210,485,940 $ 124,084,245 $ 116,599,486 ============= ============= ============= Supplementary information: Cash paid towards taxes $ 27,493,194 $ 16,950,802 $ 7,270,137
See accompanying notes to the financial statements 145 Notes to financial statements 1 Company overview and significant accounting policies 1.1 Company overview Infosys, a world leader in consulting and information technology services, partners with Global 2000 companies to provide business consulting, systems integration, application development, maintenance, re-engineering and product engineering services. Through these services, Infosys enables its clients to fully exploit technology for business transformation. 1.2 Basis of preparation of financial statements The accompanying financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). All amounts are stated in U.S. dollars, except as otherwise specified. 1.3 Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the year. Examples of estimates include accounting for contract costs expected to be incurred to complete software development, allowance for uncollectible accounts receivable, future obligations under employee benefit plans and the useful lives of property, plant and equipment. Actual results could differ from those estimates. 1.4 Revenue recognition The company derives its revenues primarily from software services and also from the licensing of software products. Revenue on time-and-material contracts is recognized as the related costs are incurred. Revenue from fixed-price, fixed-timeframe contracts is recognized as per the percentage-of-completion method. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates. The company provides its clients with a fixed-period warranty for corrections of errors and telephone support on all its fixed-price, fixed-timeframe contracts. Costs associated with such support services are accrued at the time related revenues are recorded. In accordance with SOP 97-2, license fee revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the license fee is fixed and determinable, and the collection of the fee is probable. When other services are provided in conjunction with the licensing arrangement, the revenue from such contracts are allocated to each component of the contract using the residual method, whereby revenue is deferred for the undelivered services and the residual amounts are recognized as revenue for delivered elements. When the company receives advances for software development services and products, such amounts are reported as client deposits until all conditions for revenue recognition are met. Maintenance revenue is deferred and recognized ratably over the term of the underlying maintenance agreement, generally 12 months. Revenue from client training, support and other services arising due to the sale of software products is recognized as the services are performed. 1.5 Cash and cash equivalents The company considers all highly liquid investments with a remaining maturity at the date of purchase/investment of three months or less to be cash equivalents. Cash and cash equivalents comprise cash, cash on deposit with banks, marketable securities and deposits with corporations. 1.6 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. The company depreciates property, plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives of assets are as follows: Buildings 15 years Furniture and fixtures 5 years Computer equipment 2-5 years Plant and equipment 5 years Vehicles 5 years
The cost of software purchased for use in software development and services is charged to the cost of revenues at the time of acquisition. Deposits paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date and the cost of property, plant and equipment not put to use before such date are disclosed under "Capital work-in-progress". 1.7 Impairment of long-lived assets The company evaluates the recoverability of its long-lived assets and certain identifiable intangibles, if any, whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. Assets to be disposed are reported at the lower of the carrying value or the fair value less the cost to sell. 1.8 Research and development Research and development costs are expensed as incurred. Software product development costs are expensed as incurred until technological feasibility is achieved. 1.9 Foreign currency translation The accompanying financial statements are reported in U.S. dollars. The functional currency of the company is the Indian rupee ("Rs."). The translation of Rs. to U.S. dollars is performed for balance sheet accounts using the exchange rate in effect at the balance sheet date, and for revenue and expense accounts using a monthly average exchange rate for the respective periods. The gains or losses resulting from such translation are reported as "Other comprehensive income", a separate component of stockholders' equity. The method for translating expenses of overseas operations depends upon the funds used. If the payment is made from a rupee denominated bank account, the 146 exchange rate prevailing on the date of the payment would apply. If the payment is made from a foreign currency, i.e., non-rupee denominated account, the translation into rupees is performed at the average monthly exchange rate. 1.10 Earnings per share In accordance with Statement of Financial Accounting Standards ("SFAS") 128, Earnings Per Share, basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period, using the treasury stock method for options and warrants, except where the result would be anti-dilutive. 1.11 Income taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized as income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits of which future realization is uncertain. 1.12 Fair value of financial instruments The carrying amounts reflected in the balance sheets for cash, cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short maturities of these instruments. 1.13 Concentration of risk Financial instruments that potentially subject the company to concentrations of credit risk consist principally of cash equivalents, trade accounts receivable, investment securities and hedging instruments. By their nature, all such financial instruments involve risk including the credit risk of non-performance by counterparties. In management's opinion, as of March 31, 2002 and 2001, there was no significant risk of loss in the event of non-performance of the counterparties to these financial instruments, other than the amounts already provided for in the financial statements, if any. Exposure to credit risk is managed through credit approvals, establishing credit limits and monitoring procedures. The company's cash resources are invested with corporations, financial institutions and banks with high investment grade credit ratings. Limitations are established by the company as to the maximum amount of cash that may be invested with any such single entity. 1.14 Retirement benefits to employees 1.14.1 Gratuity In accordance with the Payment of Gratuity Act, 1972, Infosys provides for gratuity, a defined benefit retirement plan (the "Gratuity Plan") covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee's salary and the tenure of employment. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation, based upon which, the company contributes to the Infosys Technologies Limited Employees' Gratuity Fund Trust (the "Trust"). Trustees administer contributions made to the Trust and invest in specific designated securities as mandated by law, which generally comprise central and state government bonds and debt instruments of government-owned corporations. 1.14.2 Superannuation Apart from being covered under the Gratuity Plan described above, certain employees of Infosys are also participants of a defined contribution plan. The company makes monthly contributions under the superannuation plan (the "Plan") to the Infosys Technologies Limited Employees Superannuation Fund Trust based on a specified percentage of each covered employee's salary. The company has no further obligations to the Plan beyond its monthly contributions. 1.14.3 Provident fund Eligible employees also receive benefits from a provident fund, which is a defined contribution plan. Both the employee and the company make monthly contributions to this provident fund plan equal to a specified percentage of the covered employee's salary. Infosys contributes a part of the contributions to the Infosys Technologies Limited Employees Provident Fund Trust. The remainders of the contributions are made to the Government administered provident fund. The company has no further obligations under the provident fund plan beyond its monthly contributions. 1.15 Investments The company accounts by the equity method for investments between 20% and 50% or where it is otherwise able to exercise significant influence over the operating and financial policies of the investee. Investment securities in which the company controls less than 20% voting interest are currently classified as "Available-for-sale securities". Non-readily marketable equity securities for which there are no readily determinable fair values are recorded at cost. Investment securities designated as "available-for-sale" are carried at their fair value. Fair value is based on quoted market prices. Unquoted securities are carried at cost, adjusted for declines in value judged to be other than temporary. Temporary unrealized gains and losses, net of the related tax effect are reported as a separate component of stockholders' equity until realized. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in the statements of income. The cost of securities sold is based on the specific identification method. Interest and dividend income is recognized when earned. 1.16 Stock-based compensation The company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS 123, the company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS 123. All stock options issued to date have been accounted as a fixed stock option plan. 1.17 Dividends Dividend on common stock and the related dividend tax are recorded as a liability on declaration. 147 1.18 Derivative financial instruments On April 1, 2001, the company adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities as amended, when the rules became effective for companies with fiscal years ending March 31. The company enters into forward foreign exchange contracts where the counter party is generally a bank. The company purchases forward foreign exchange contracts to mitigate the risk of changes in foreign exchange rates on accounts receivable and forecasted cash flows denominated in certain foreign currencies. Although these contracts are effective as hedges from an economic perspective, they do not qualify for hedge accounting under SFAS 133, as amended. Any derivative that is either not designated hedge, or is so designated but is ineffective per SFAS 133, is marked to market and recognized in earnings immediately. 1.19 Reclassifications Certain reclassifications have been made to conform prior period data to the current presentations. These reclassifications had no effect on reported earnings. 1.20 Recently issued accounting standards In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141, Business Combinations and SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 requires that all business combinations be accounted for under a single method -- the purchase method. Use of the pooling-of-interests method is no longer permitted and is effective for business combinations initiated after June 30, 2001. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment and is effective for fiscal years beginning after December 15, 2001, with earlier application permitted for entities with fiscal years beginning after March 31, 2001. In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations. SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. In August 2001, the FASB also issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Under this standard, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. Early application is encouraged. Both SFAS 141 and 142 are not currently applicable to the operations of the company. The company is evaluating the impact of SFAS 143 and 144 on its operations. 2 Notes to the financial statements 2.1 Cash and cash equivalents The cost and fair values for cash and cash equivalents as of March 31, 2002 and 2001, respectively are as follows:
2002 2001 ------------ ------------ Cost and fair values Cash and bank deposits $158,274,886 $ 82,702,111 Deposits with corporations 52,211,054 41,382,134 ------------ ------------ $210,485,940 $124,084,245 ============ ============
Cash and cash equivalents include restricted cash balances amounting to $284,839 and $103,418 as of March 31, 2002 and 2001 respectively. 2.2 Trade accounts receivable Trade accounts receivable, as of March 31, 2002 and March 31, 2001, net of allowance for doubtful accounts of $3,941,245 and $3,902,996, respectively amounted to $69,017,110 and $64,942,062, respectively. The age profile of trade accounts receivable, net of allowances is given below.
in % ----------------- 2002 2001 ----- ----- Period (in days) 0 - 30 69.0 69.2 31 - 60 30.0 26.6 61 - 90 0.5 1.7 More than 90 0.5 2.5 ----- ----- 100.0 100.0 ===== =====
2.3 Prepaid expenses and other current assets Prepaid expenses and other current assets consist of the following:
2002 2001 ----------- ----------- Rent deposits $ 2,079,155 $ 2,484,794 Deposits with government organizations 1,220,401 945,189 Loans to employees 8,331,779 8,091,866 Prepaid expenses 2,990,523 4,349,913 Unbilled revenues 3,635,989 503,694 Other current assets 618,057 77,407 ----------- ----------- $18,875,904 $16,452,863 =========== ===========
Other current assets represent advance payments to vendors for the supply of goods and rendering of services and certain costs incurred towards software. Deposits with government organizations relate principally to leased telephone lines and electricity supplies. 148 2.4 Property, plant and equipment, net Property, plant and equipment consist of the following:
2002 2001 ------------- ------------- Land $ 8,955,962 $ 7,865,351 Buildings 58,481,413 33,871,448 Furniture and fixtures 32,683,315 21,579,707 Computer equipment 59,006,470 48,098,099 Plant and equipment 37,685,337 24,064,927 Vehicles 72,085 75,537 Capital work-in-progress 30,881,704 36,651,724 ------------- ------------- 227,766,286 172,206,793 Accumulated depreciation (80,554,555) (52,433,763) ------------- ------------- $ 147,211,731 $ 119,773,030 ============= =============
Depreciation expense amounted to $33,608,391, $24,527,867 and $12,268,169 for fiscal 2002, 2001 and 2000 respectively. The amount of third party software expensed during fiscal 2002, 2001 and 2000 was $7,147,614, $6,979,492 and $3,816,840 respectively. 2.5 Investments The carrying cost and fair values of available-for-sale securities are as follows:
Carrying cost Fair value ------------- ---------- As of March 31, 2002 M-Commerce Ventures Pte Ltd -- 70 units, each unit representing 1 Ordinary Share of S$1 each at par and 9 Redeemable Preference Shares of S$1 each at par, with a premium of S$1,110 per Redeemable Preference Share $ 399,485 $ 399,485 Asia Net Media BVI Limited -- 30,000,000 Ordinary Shares at $0.05 each, fully paid, par value $0.01 each 1,500,000 1,500,000 EC Cubed Inc. -- 1,300,108 Series D Convertible Preferred Stock, at $2.3075 each, fully paid, par value $0.0001 each -- -- Alpha Thinx Mobile Services AG -- 27,790 Bearer Shares, at (euro)20 each, fully paid, par value (euro)1 each -- -- CiDRA Corporation -- 33,333 Series D Convertible Preferred Stock, at $90 each, fully paid, par value $0.01 each 2,999,970 2,999,970 Workadia Inc., U.S.A -- 880,000 Series B Preferred Stock at $2.5 each, fully paid, par value $0.0005 each 2,200,000 2,200,000 JASDIC Park Company -- 480 Common Stock, at Y50,000 each, fully paid, par value Y50,000 each 177,576 177,576 Stratify Inc. (formerly Purple Yogi Inc.) -- 276,243 Series D Convertible Preferred Stock, at $1.81 each fully paid, par value $0.001 each 500,000 500,000 Others 362 362 ---------- ---------- $7,777,393 $7,777,393 ========== ========== As of March 31, 2001 M-Commerce Ventures Pte Ltd -- 70 units, each unit representing 1 Ordinary Share of S$1 each at par and 9 Redeemable Preference Shares of S$1 each at par, with a premium of S$1,110 per Redeemable Preference Share $ 399,485 $ 399,485 Asia Net Media BVI Limited -- 30,000,000 Ordinary Shares at $0.05 each, fully paid, par value $0.01 each 1,500,000 1,500,000 EC Cubed Inc. -- 1,300,108 Series D Convertible Preferred Stock, at $2.3075 each, fully paid, par value $0.0001 each -- -- Alpha Thinx Mobile Services AG -- 27,790 Bearer Shares, at (euro)20 each, fully paid, par value (euro)1 each -- -- CiDRA Corporation -- 33,333 Series D Convertible Preferred Stock, at $90 each, fully paid, par value $0.01 each 2,999,970 2,999,970 JASDIC Park Company -- 480 Common Stock, at Y50,000 each, fully paid, par value Y50,000 each 177,576 177,576 Stratify Inc. (formerly Purple Yogi Inc.) -- 276,243 Series D Convertible Preferred Stock, at $1.81 each fully paid, par value $0.001 each 500,000 500,000 Others 362 362 ---------- ---------- $5,577,393 $5,577,393 ========== ==========
2.6 Other assets Other assets represent the non-current portion of loans to employees. 2.7 Related parties The company grants loans to employees for acquiring assets such as property and cars. Such loans are repayable over fixed periods ranging from 1 to 100 months. The annual rates of interest at which the loans have been made to employees vary between 0% through 4%. No loans have been made to employees in connection with equity issues. The loans are generally secured by the assets acquired by the employees. As of March 31, 2002 and 2001, amounts receivable from officers amounting to $473,464 and $227,121 respectively are included in prepaid expenses and other current assets, and other assets in the accompanying balance sheets. 149 The required repayments of loans by employees are as detailed below.
2002 2001 ----------- ----------- 2002 -- $ 8,091,866 2003 $ 8,331,779 2,517,809 2004 3,755,840 1,718,884 2005 2,670,075 1,033,107 2006 1,826,748 800,198 2007 1,454,086 -- Thereafter 2,751,866 1,932,545 ----------- ----------- Total $20,790,394 $16,094,409 =========== ===========
The estimated fair values of related party receivables amounted to $17,905,507 and $12,465,374 as of March 31, 2002 and 2001, respectively. These amounts have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to develop these estimates of fair value. Consequently, these estimates are not necessarily indicative of the amounts that the company could realize in the market. 2.8 Other accrued liabilities Other accrued liabilities comprise the following:
2002 2001 ----------- ----------- Accrued compensation to staff $11,575,996 $12,332,869 Accrued dividends 229,839 103,418 Provision for post sales client support 2,255,573 1,578,859 Employee withholding taxes payable 2,614,479 25,000 Provision for expenses 3,356,760 3,768,256 Retention money 1,918,203 2,425,439 Others 473,796 1,596,643 ----------- ----------- $22,424,646 $21,830,484 =========== ===========
2.9 Employee post-retirement benefits 2.9.1 Gratuity The following tables set out the funded status of the Gratuity Plan and the amounts recognized in the company's financial statements in fiscal 2002, 2001 and 2000.
2002 2001 2000 ------------ ------------ ------------ Change in benefit obligations Benefit obligations at the beginning of the year $ 13,581,972 $ 11,043,208 $ 10,551,069 Effect of changes in assumptions used -- -- (2,142,149) Amortization of unrecognized actuarial loss -- (329,928) (368,548) Service cost 1,341,313 2,627,599 3,418,688 Interest cost 1,376,398 1,183,461 939,603 Benefits paid (175,364) (184,247) (128,803 Effect of exchange rate changes (272,421) (758,121) (1,226,652) ------------ ------------ ------------ Benefit obligations at the end of the year $ 15,851,898 $ 13,581,972 $ 11,043,208 ============ ============ ============ Change in plan assets Fair value of plan assets at the beginning of the year $ 10,147,905 $ 4,375,821 $ 2,497,335 Effect of exchange rate changes (524,191) (468,275) (134,018) Actual return on plan assets 1,324,702 1,061,611 404,526 Employer contributions 1,675,480 5,362,995 1,736,781 Benefits paid (175,364) (184,247) (128,803) ------------ ------------ ------------ Plan assets at the end of the year $ 12,448,532 $ 10,147,905 $ 4,375,821 ============ ============ ============ Funded status $ (3,403,366) $ (3,434,067) $ (6,667,387) Excess of actual return over estimated return on plan assets 141,394 301,791 93,716 Unrecognized transitional obligation 594,784 639,319 694,446 Unrecognized actuarial cost 3,131,389 4,216,291 4,546,219 ------------ ------------ ------------ (Accrued)/prepaid benefit $ 464,201 $ 1,723,334 $ (1,333,006) ============ ============ ============
Net gratuity cost for fiscal 2002, 2001 and 2000 comprises the following components:
2002 2001 2000 ----------- ----------- ----------- Service cost $ 1,341,313 $ 2,627,599 $ 3,418,688 Interest cost 1,376,398 1,183,461 939,603 Expected return on assets (1,183,308) (759,820) (310,810) Amortization of unrecognized transitional obligation 44,535 55,127 58,245 Amortization of unrecognized actuarial loss 105,330 329,928 368,548 ----------- ----------- ----------- Net gratuity cost $ 1,684,268 $ 3,436,295 $ 4,474,274 =========== =========== ===========
The assumptions used in accounting for the Gratuity Plan in fiscal 2002, 2001 and 2000 are set out below.
2002 2001 2000 ---- ---- ---- Discount rate 10% 10% 10% Rate of increase in compensation levels 9% 9% 9% Rate of return on plan assets 10% 10% 10%
The company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards. 150 2.9.2 Superannuation The company contributed $1,220,716, $796,739 and $244,248 to the superannuation plan in fiscal 2002, 2001 and 2000, respectively. 2.9.3 Provident fund The company contributed $3,146,742, $2,339,794 and $1,198,772 to the provident fund in fiscal 2002, 2001 and 2000, respectively. 2.10 Stockholders' equity The company has only one class of capital stock referred to as equity shares. All references in these financial statements to number of shares, per share amounts and market prices of the company's equity shares have been retroactively restated to reflect stock splits made by the company. 2.11 Equity shares 2.11.1 Voting Each holder of equity shares is entitled to one vote per share. The equity shares represented by American Depositary Shares ("ADS") carry similar rights to voting and dividends as the other equity shares. Two ADS represent one underlying equity share. 2.11.2 Dividends Should the company declare and pay dividends, such dividends will be paid in Indian Rupees. Indian law mandates that any dividend be declared out of distributable profits only after the transfer of a specified percentage of net income computed in accordance with current regulations to a general reserve. Moreover, the remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable taxes. 2.11.3 Liquidation In the event of a liquidation of the company, the holders of common stock shall be entitled to receive any of the remaining assets of the company, after distribution of all preferential amounts. The amounts will be in proportion to the number of equity shares held by the stockholders. 2.11.4 Stock options There are no voting, dividend or liquidation rights to the holders of warrants issued under the company's stock option plan. 2.12 Other income, net Other income, net, consists of the following:
2002 2001 2000 ----------- ----------- ---------- Interest income and others $10,423,654 $ 8,526,635 $5,729,653 Income from sale of special import licenses -- 14,800 426,407 Exchange gains 2,749,162 4,444,208 2,882,732 Provision for investments -- (3,480,300) -- Others 692,478 -- -- ----------- ----------- ---------- $13,865,294 $ 9,505,343 $9,038,792 =========== =========== ==========
2.13 Operating leases The company has various operating leases for office buildings that are renewable on a periodic basis. Rental expense for operating leases in fiscal 2002, 2001 and 2000 were $5,109,690, $3,689,822 and $2,387,334, respectively. The operating leases can be renewed or canceled at the company's option. The company leases some of its office space under non-cancelable operating leases for periods ranging between three through ten years. The schedule of future minimum rental payments in respect of these leases is set out below.
Year ending March 31 -------------------- 2003 $ 3,473,587 2004 3,517,933 2005 3,112,407 2006 2,218,192 2007 765,395 Thereafter 1,475,671 ----------- $14,563,185 ===========
2.14 Research and development General and administrative expenses in the accompanying statements of income include research and development expenses of $3,083,994, $3,610,550 and $1,904,123 for fiscal 2002, 2001 and 2000, respectively. 2.15 Employees' Stock Offer Plans ("ESOP") In September 1994, the company established the 1994 plan, which provided for the issue of 6,000,000 warrants, as adjusted, to eligible employees. The warrants were issued to an employee welfare trust (the "Trust"). In 1997, in anticipation of a share dividend to be declared by the company, the Trust exercised all warrants held by it and converted them into equity shares. As and when the Trust issued options/ stock to eligible employees, the difference between the market price and the exercise price was accounted as deferred stock compensation expense and amortized over the vesting period. Such amortized deferred compensation expense was $5,009,772, $5,081,795 and $5,117,635 in the fiscal 2002, 2001 and 2000, respectively. The 1994 plan lapsed in fiscal 2000, and consequently no further shares will be issued to employees under this plan. 1998 Employees Stock Offer Plan (the "1998 Plan"). The company's 1998 Plan provides for the grant of non-statutory stock options and incentive stock options to employees of the company. The establishment of the 1998 Plan was approved by the board of directors in 151 December 1997 and by the stockholders in January 1998. The Government of India has approved the 1998 Plan, subject to a limit of 1,470,000 equity shares representing 2,940,000 American Depositary Shares ("ADS") to be issued under the 1998 Plan. Unless terminated sooner, the 1998 Plan will terminate automatically in January 2008. All options under the 1998 Plan will be exercisable for equity shares represented by American Depositary Shares ("ADSs"). The 1998 Plan is administered by a compensation committee comprising five members, all of who are independent directors on the board of directors. All options under the 1998 Plan are exercisable for equity shares represented by ADSs. 1999 Stock Offer Plan (the "1999 Plan"). In fiscal 2000, the company instituted the 1999 Plan. The stockholders and the board of directors approved the 1999 Plan in June 1999. The 1999 Plan provides for the issue of 6,600,000 equity shares to employees. The 1999 Plan is administered by a compensation committee comprising five members, all of whom are independent directors on the board of directors. Under the 1999 Plan, options will be issued to employees at an exercise price, which shall not be less than the Fair Market Value ("FMV"). Under the 1999 Plan, options may also be issued to employees at exercise prices that are less than FMV only if specifically approved by the members of the company in a General Meeting. All options under the 1999 plan are exercised for equity shares. The options under all our plans vest over a period of 1-5 years. The company adopted the pro forma disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Had compensation cost for the company's stock-based compensation plan been determined in a manner consistent with the fair value approach described in SFAS No. 123, the company's net income as reported would have reduced to the pro forma amounts of $105,181,094, $99,690,666 and $54,649,727 in fiscal 2002, 2001 and 2000, respectively. Basic earnings per share as reported would have reduced to the pro forma amounts of $1.60, $1.52 and $0.83, in fiscal 2002, 2001 and 2000, respectively. Diluted earnings per share as reported would have reduced to the pro forma amounts of $1.59, $1.49 and $0.83, in fiscal 2002, 2001 and 2000, respectively. The fair value of each warrant is estimated on the date of grant using the Black-Scholes model with the following assumptions:
2002 2001 2000 -------- -------- -------- Dividend yield % 0.2% 0.1% 0.1% Expected life 5 years 5 years 5 years Risk free interest rate 9.5% 10.8% 10.8% Volatility 69.0% 44.0% 44.0%
The activity in the warrants/equity shares of the 1994, 1998 and 1999 Employees Stock Offer Plans in fiscal 2002, 2001 and 2000 are set out below.
2002 2001 2000 ------------------------------- ------------------------------ ------------------------------ Weighted Shares arising Weighted Shares arising Weighted Shares arising average out of options average out of options average out of options exercise price exercise price exercise price exercise price exercise price -------------- -------------- -------------- -------------- -------------- -------------- 1994 Option plan: Outstanding at the beginning of the period 330,000 -- 341,400 -- 328,000 -- Granted -- -- -- -- 30,000 $ 1.15 Forfeited (8,600) $ 1.15 (10,600) $ 1.15 (16,600) $ 1.15 Exercised -- -- (800) $ 1.15 -- -- --------- ---------- --------- ---------- --------- ---------- Outstanding at the end of the period 321,400 -- 330,000 -- 341,400 -- --------- ---------- --------- ---------- --------- ---------- Exercisable at the end of the period -- -- -- Weighted-average fair value of grants during the period at less than market -- -- $ 35.48 1998 Option plan: Outstanding at the beginning of the period 782,753 -- 344,750 -- 213,000 -- Granted 454,250 $ 98.06 482,420 $ 230.88 147,150 $ 228.60 Forfeited (77,773) $ 240.90 (38,200) $ 172.58 (3,500) $ 34.00 Exercised (27,983) $ 44.32 (6,217) $ 53.82 (11,900) $ 34.00 --------- ---------- --------- ---------- --------- ---------- Outstanding at the end of the period 1,131,247 -- 782,753 -- 344,750 -- --------- ---------- --------- ---------- --------- ---------- Exercisable at the end of the period 164,527 55,558 18,100 Weighted-average fair value of grants during the period $ 98.06 $ 230.88 $ 228.60 1999 Option plan: Outstanding at the beginning of the period 2,793,980 -- 1,006,800 -- -- -- Granted 2,050,500 $ 64.74 1,957,830 $ 136.68 1,014,500 $ 99.12 Forfeited (175,635) $ 119.23 (169,450) $ 110.06 (7,700) $ 127.98 Exercised (30) $ 84.95 (1,200) $ 89.98 -- -- --------- ---------- --------- ---------- --------- ---------- Outstanding at the end of the period 4,668,815 -- 2,793,980 -- 1,006,800 -- --------- ---------- --------- ---------- --------- ---------- Exercisable at the end of the period 448,530 93,400 -- Weighted-average fair value of grants during the period $ 64.74 $ 136.68 $ 99.12 --------- ---------- --------- ---------- --------- ----------
152 The following table summarizes information about stock option outstanding as of March 31,2002.
Outstanding Exercisable ---------------------------------------------------------------------- ----------------------------------------- Range of No.of shares arising Weighted average Weighted average No. of shares arising Weighted average exercise price out of options remaining contractual life exercise price out of options exercise price -------------- -------------------- -------------------------- ---------------- --------------------- ---------------- $1.15 - $304.04 6,106,712 2.84 years $56.36 613,057 $205.54 --------------- --------- ---------- ------ ------- -------
2.16 Income taxes The provision for income taxes comprises:
2002 2001 2000 ------------ ------------ ------------ Current taxes Domestic taxes $ 6,483,255 $ 5,315,961 $ 2,505,952 Foreign taxes 23,463,108 10,525,168 6,538,256 ------------ ------------ ------------ 29,946,363 15,841,129 9,044,208 ------------ ------------ ------------ Deferred taxes Domestic taxes 27,126 (769,304) (850,891) Foreign taxes (2,026,597) -- -- ------------ ------------ ------------ (1,999,471) (769,304) (850,891) ------------ ------------ ------------ Aggregate taxes $ 27,946,892 $ 15,071,825 $ 8,193,317 ============ ============ ============
The tax effects of significant temporary differences that resulted in deferred tax assets and liabilities and a description of the financial statement items that created these differences are as follows:
2002 2001 2000 ----------- ----------- ----------- Deferred tax assets: Property, plant and equipment $ 2,989,348 $ 1,519,016 $ 2,480,883 Provision for doubtful debts 1,448,407 1,587,629 110,000 Investments 1,571,586 1,598,712 -- Others -- 217,842 85,383 ----------- ----------- ----------- 6,009,341 4,923,199 2,676,266 Less: Valuation allowance (674,300) (1,587,629) (110,000) ----------- ----------- ----------- Net deferred tax assets $ 5,335,041 $ 3,335,570 $ 2,566,266 =========== =========== ===========
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversal of the projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes that it is more likely than not the company will realize the benefits of those deductible differences, net of the existing valuation differences at March 31, 2002. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. All deferred tax expenses/(benefits) are allocated to the continuing operations of the company. A reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before provision for income taxes is summarized below.
2002 2001 2000 ------------- ------------- ------------- Net income before taxes $ 192,413,201 $ 147,019,929 $ 69,537,845 Enacted tax rates in India 35.70% 39.55% 38.50% ------------- ------------- ------------- Computed expected tax expense 68,691,513 58,146,382 26,772,070 Less: Tax effect due to non-taxable income for Indian tax purposes (67,338,527) (57,334,527) (24,019,942) Others 5,014,830 3,437,865 (1,121,972) Effect of tax rate change 142,565 (8,077) (29,771) Effect of prior period tax adjustments -- 305,014 54,676 ------------- ------------- ------------- Provision for Indian income tax 6,510,381 4,546,657 1,655,061 Effect of tax on foreign income 21,436,511 10,525,168 6,538,256 ------------- ------------- ------------- Aggregate taxes $ 27,946,892 $ 15,071,825 $ 8,193,317 ============= ============= =============
The provision for foreign taxes is due to income taxes payable overseas, principally in the United States of America. The company benefits from certain significant tax incentives provided to software firms under Indian tax laws. These incentives presently include: (i) an exemption from payment of Indian corporate income taxes for a period of ten consecutive years of operation of software development facilities designated as "Software Technology Parks" (the "STP Tax Holiday"); and (ii) a tax deduction for profits derived from exporting computer software (the "Export Deduction"). All but one of the company's software development facilities are located in a designated Software Technology Park ("STP"). The Government of India has recently amended the tax incentives available to companies set up in designated STPs. The period of the STP Tax Holiday available to such companies is restricted to 10 consecutive years beginning from the financial year when the unit started producing computer software or March 31, 2000, whichever is earlier. Additionally, the Export Deduction will be phased out equally over a period of five years starting from fiscal 2000. 153 2.17 Earnings per share The following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share:
2002 2001 2000 ---------- ---------- ---------- Basic earnings per equity share - weighted average number of common shares outstanding excluding unallocated shares of ESOP 65,556,648 65,771,256 65,659,625 Effect of dilutive common equivalent shares - stock options outstanding 528,226 943,483 204,365 ---------- ---------- ---------- Diluted earnings per equity share - weighted average number of common shares and common equivalent shares outstanding 66,084,874 66,714,739 65,863,990 ---------- ---------- ----------
Shares held by the Trust were excluded for the purposes of computing basic earnings per share. 2.18 Derivative financial instruments The company enters into forward foreign exchange contracts where the counter party is generally a bank. The company considers the risks of non-performance by the counter party as non-material. Infosys held foreign exchange forward contracts of $2,000,000 and $20,000,000 as of March 31, 2002 and 2001, respectively. The foreign forward exchange contracts mature between one to six months. 2.19 Segment reporting SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. The company's operations predominantly relate to providing IT solutions, delivered to customers located globally, across various industry segments. In the year ended March 31, 2000, the company provided segmental disclosures based on geographical segmentation. However, from the fiscal year ended March 31, 2001, the Chief Operating Decision Maker evaluates the company's performance and allocates resources based on an analysis of various performance indicators by industry classes and geographic segmentation of customers. Accordingly, revenues represented along industry classes comprise the principal basis of segmental information set out in these financial statements. Secondary segmental reporting is performed on the basis of the geographical location of customers. The accounting principles consistently used in the preparation of the financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the summary of significant accounting policies. Industry segments for the company are primarily financial services comprising enterprises providing banking finance and insurance services, manufacturing enterprises, enterprises in the telecommunications ("telecom") and retail industries, and others such as utilities, transportation and logistics companies. Revenue in relation to segments is categorized based on items that are individually identifiable to that segment, while expenditure is categorized in relation to the associated turnover of the segment. Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying services are used interchangeably. Management believes that it is not practical to provide segment disclosures relating to those costs and expenses, and accordingly these expenses are separately disclosed as "unallocated" and adjusted only against the total income of the company. Geographic segmentation is driven based on the location of the respective client. North America comprises the United States of America, Canada and Mexico; Europe includes continental Europe (both the east and the west), Ireland and the United Kingdom; and the Rest of the world comprising all other places except those mentioned above and India. Fixed assets used in the company's business are not identified to any of the reportable segments, as these are used interchangeably between segments. Management believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous. Geographical information on revenue and industry revenue information is collated based on individual customers invoiced or in relation to which the revenue is otherwise recognized. 2.19.1 Industry segments
Financial Year ended March 31, 2002 services Manufacturing Telecom Retail Others Total ------------------------- ------------ ------------- ------------ ------------ ------------ ------------ Revenues $199,725,558 $ 93,404,474 $ 85,190,054 $ 67,027,323 $ 99,703,805 $545,051,214 Identifiable operating expenses 74,364,097 38,112,096 23,873,023 18,696,233 34,831,145 189,876,594 Allocated expenses 51,905,935 23,321,898 21,273,366 16,667,939 24,840,829 138,009,967 ------------ ------------ ------------ ------------ ------------ ------------ Segmental operating income $ 73,455,526 $ 31,970,480 $ 40,043,665 $ 31,663,151 $ 40,031,831 217,164,653 Unallocable expenses 38,616,746 ------------ Operating income 178,547,907 Other income (expense), net 13,865,294 ------------ Net income before taxes 192,413,201 Taxes 27,946,892 ------------ Net income after taxes $164,466,309 ============
154
Financial Year ended March 31, 2001 services Manufacturing Telecom Retail Others Total ------------------------- ------------ ------------- ------------ ------------ ------------ ------------ Revenues $139,616,739 $ 74,004,867 $ 76,412,722 $ 37,684,446 $ 86,131,736 $413,850,510 Identifiable operating expenses 49,021,150 28,363,069 19,219,376 11,893,574 26,233,048 134,730,217 Allocated expenses 38,589,808 19,736,596 20,423,026 10,057,009 23,189,607 111,996,046 ------------ ------------ ------------ ------------ ------------ ------------ Segmental operating income $ 52,005,781 $ 25,905,202 $ 36,770,320 $ 15,733,863 $ 36,709,081 167,124,247 Unallocable expenses 29,609,661 ------------ Operating income 137,514,586 Other income (expense), net 9,505,343 ------------ Net income before taxes 147,019,929 Taxes 15,071,825 ------------ Net income after taxes $131,948,104 ============
Financial Year ended March 31, 2000 services Manufacturing Telecom Retail Others Total ------------------------- ------------ ------------- ------------ ------------ ------------ ------------ Revenues $ 61,153,566 $ 46,770,389 $ 31,248,637 $ 21,637,626 $ 42,633,536 $203,443,754 Identifiable operating expenses 23,665,914 16,612,901 10,222,455 6,349,884 15,971,172 72,822,326 Allocated expenses 16,326,836 11,955,090 8,010,255 5,544,554 10,899,835 52,736,570 ------------ ------------ ------------ ------------ ------------ ---------- Segmental operating income $ 21,160,816 $ 18,202,398 $ 13,015,927 $ 9,743,188 $ 15,762,529 77,884,858 Unallocable expenses 17,385,805 ------------ Operating income 60,499,053 Other income (expense), net 9,038,792 ------------ Net income before taxes 69,537,845 Taxes 8,193,317 ------------ Net income after taxes $ 61,344,528 ============
2.19.2 Geographic segments
Year ended March 31, 2002 North America Europe India Rest of the world Total ------------------------- ------------- ------------ ------------ ----------------- ------------ Revenues $388,168,447 $106,103,448 $ 10,735,626 $ 40,043,693 $545,051,214 Identifiable operating expenses 135,362,671 38,013,083 4,183,775 12,317,065 189,876,594 Allocated expenses 98,093,268 26,809,588 3,119,373 9,987,738 138,009,967 ------------ ------------ ------------ ------------ ------------ Segmental operating income $154,712,508 $ 41,280,777 $ 3,432,478 $ 17,738,890 217,164,653 Unallocable expenses 38,616,746 ------------ Operating income 178,547,907 Other income (expense), net 13,865,294 ------------ Net income before taxes 192,413,201 Taxes 27,946,892 ------------ Net income after taxes $164,466,309 ============
Year ended March 31, 2001 North America Europe India Rest of the world Total ------------------------- ------------- ------------ ------------ ----------------- ------------ Revenues $304,242,537 $ 77,892,656 $ 5,778,286 $ 25,937,031 $413,850,510 Identifiable operating expenses 96,358,758 27,210,316 1,943,571 9,217,572 134,730,217 Allocated expenses 82,053,059 20,951,885 1,866,259 7,124,843 111,996,046 ------------ ------------ ------------ ------------ ----------- Segmental operating income $125,830,720 $ 29,730,455 $ 1,968,456 $ 9,594,616 167,124,247 Unallocable expenses 29,609,661 ------------ Operating income 137,514,586 Other income (expense), net 9,505,343 ------------ Net income before taxes 147,019,929 Taxes 15,071,825 ------------ Net income after taxes $131,948,104 ============
Year ended March 31, 2000 North America Europe India Rest of the world Total ------------------------- ------------- ------------ ------------ ----------------- ------------ Revenues $158,723,649 $ 30,064,939 $ 2,912,091 $ 11,743,075 $203,443,754 Identifiable operating expenses 54,672,143 12,722,875 913,895 4,513,413 72,822,326 Allocated expenses 40,875,291 7,759,319 1,061,766 3,040,194 52,736,570 ------------ ------------ ------------ ------------ ------------ Segmental operating income $ 63,176,215 $ 9,582,745 $ 936,430 $ 4,189,468 77,884,858 Unallocable expenses 17,385,805 ------------ Operating income 60,499,053 Other income (expense), net 9,038,792 ------------ Net income before taxes 69,537,845 Taxes 8,193,317 ------------ Net income after taxes $ 61,344,528 ============
155 2.19.3 Significant clients No clients individually accounted for more than 10% of the revenues in fiscal 2002, 2001 and 2000, respectively. 2.20 Commitments and contingencies The company has outstanding performance guarantees for various statutory purposes totaling $3,334,700, $1,126,611 and $1,207,110 as of March 31, 2002, 2001 and 2000, respectively. These guarantees are generally provided to governmental agencies. 2.21 Litigation The company is subject to legal proceedings and claims, which have arisen, in the ordinary course of its business. These actions, when ultimately concluded and determined, will not, in the opinion of management, have a material effect on the results of operations or the financial position of the company. 2.22 Non-monetary transaction During the year ended March 31, 2001, the company transferred certain Intellectual Property Rights ("IPR") that it had developed and owned in a product called Onscan to OnMobile Systems Inc. (formerly Onscan Inc). Onscan is a comprehensive web-enabled wireless notification product. In exchange for the transfer, the company received consideration in the form of securities including 100,000 Common Stock, par value $0.001 each, 100,000 Series A Voting Convertible Preferred Stock, par value $0.001 each and 4,400,000 Series A Nonvoting Convertible Preferred Stock, par value $0.001 each. Convertible Preferred Stock is convertible into Common Stock automatically upon the closing of an Initial Public Offering by OnMobile Systems Inc. As of March 31, 2002, the company's voting interest in OnMobile Systems Inc. was 9.7%. The transfer was recorded at historic cost and, accordingly, no gain was recognized on this transaction as of the date of transfer of the IPR. Financial Schedule (Schedule II of Reg. Section 210.5-04(c) of Regulation S-X-17 of the Securities Act of 1933 and Securities Exchange Act of 1934) Valuation and qualifying accounts Allowance for doubtful accounts on trade accounts receivable (denominated in United States dollars)
Balance at Charged to cost Balance at Description beginning of period and expenses Write offs end of period ----------- ------------------- --------------- ---------- ------------- Fiscal 2002 3,902,996 2,856,689 (2,818,440) 3,941,245 Fiscal 2001 507,487 4,225,902 (830,393) 3,902,996 --------- --------- ---------- ---------
156 FORM 20-F Page 157-187 Infosys Foundation -------------------------------------------------------------------------------- A strong sense of social responsibility is foremost among the core values of Infosys. This translates into a commitment to help people and communities, to enhance living conditions, and to improve education. In fiscal 2002, the Infosys Foundation continued its commitment to the rural poor, to the underprivileged, and to the cause of education. It also helped promote Indian arts and culture. Grants from Infosys during the year aggregated Rs. 3.75 crore as compared to Rs. 5.26 crore in the previous year. The following are some of the projects undertaken by the Foundation during the year: 1. Initiatives for the rural poor and the underprivileged a. Built cyclone/flood relief shelters which could be used as schools-cum-community halls-cum-relief shelters in different districts of Orissa at a cost of Rs. 12.64 lakh. b. Commenced construction of a hostel for visually impaired tribal girls in Banapur, Behrampur District, Orissa at a cost of about Rs. 10 lakh. c. Completed orphan girls' hostel at Maharshi Karve Sthree Shikshan Samstha, Pune at a total cost of Rs. 60 lakh of which Rs. 30 lakh was incurred during the year. d. Provided financial assistance for war widows in different parts of India, amounting to Rs. 38 lakh. 2. Health care for the poor a. Started the construction of a super-specialty hospital in Pune at an estimated cost of Rs. 3.50 crore. Amount incurred till date is Rs. 37.98 lakh. b. Completed the construction of additional wards at the Swami Sivananda Memorial Hospital, Pattamadai at a total cost of Rs. 25 lakh, out of which Rs. 5 lakh was incurred during the year. c. Other contributions have been made towards medical assistance and hospitalization at a cost of Rs. 37.82 lakh. d. Computerized the medical departments of KEM Hospital, Mumbai at a total cost of Rs. 55 lakh out of which Rs. 10 lakh was incurred during the year. 3. Education a. Re-constructed schools in Andhra Pradesh & Karnataka at a total cost of Rs. 11 lakh, out of which Rs. 2 lakh was incurred during the year. b. Set up 6,500 libraries in rural areas of Karnataka at a cost of Rs. 17.20 lakh. c. More than 200 sets of books have been donated to youth clubs at various villages in Karnataka at a cost of Rs. 6 lakh. d. Completed the construction of the first floor for the Ramakrishna Mission Students' Home in Chennai at a total cost of Rs. 30 lakh, out of which Rs. 15 lakh was incurred during the year. e. Scholarships, one time awards and other forms of assistance were given to economically poor but deserving students, amounting to Rs. 27.46 lakh. f. Sponsored `Wizkid Pavilion', in which more than 500 students and young scientists participated, at a science exhibition organized by the National Science Congress, at a cost of Rs. 3 lakh. g. A three-days Teacher's Training Workshop on environmental sciences was conducted, which attracted participation of over 250 teachers from rural areas of Karnataka. 4. Arts & Culture a. Honored senior artists from different walks of life. for Infosys Foundation Bangalore Srinath Batni Sudha Gopalakrishnan Sudha Murty April 10, 2002 Trustee Trustee Chairperson 188 Financial statements (unaudited) prepared in substantial compliance with GAAP requirements of various countries and reports of compliance with the respective corporate governance standards [PHOTOGRAPH] Over the past decade, the technology and information revolutions have fundamentally transformed economic and political relationships between nations. Thanks to the opening up of financial markets across the globe, investors today have a wide choice of capital markets to invest in. Consequently, the global investor must have access to information about the performance of any company, in any market that he or she chooses to invest in. However, differences in language, accounting practices, and reporting requirements in various countries render performance reports by many companies rather investor-unfriendly. Today, the strength of a global company lies in its ability to access high-quality capital at the lowest cost from a global pool of investors. Such companies study the needs of global investors and publish financial information in a language and form understood by their existing as well as prospective investors. In the process, financial statistics may have to be restated and financial terminology may need to be translated. Indeed, a key issue in international financial analysis is the restatement and translation of financial reports that describe operations conducted in one environment, but which are the subject of review and analysis in another. As an investor-friendly company, committed to the highest standards of disclosure, we voluntarily provide unaudited financial statements prepared in substantial compliance with the GAAP requirements of Australia, Canada, France, Germany, Japan and the United Kingdom, besides those of the US and India (which information appears separately elsewhere). The financial statements are in the respective national languages of these countries. Further, keeping in mind their local regulations and practices, these countries have formulated their own corporate governance standards. We have provided statements on compliance with these standards in the respective national languages of these countries. The unaudited consolidated profit & loss accounts and balance sheets have been prepared by converting the various financial parameters, reported in the audited income statement of Infosys (according to the Indian GAAP), into the respective currencies of the above countries. In addition, adjustments have been made for differences in accounting principles, and in formats, between India and these countries, if any. The summary financial information provided in this section does not contain sufficient information to allow full understanding of the results or the state of affairs of the company. In the event of a conflict in interpretation, the "Audited Indian GAAP financial statements" section and the "Corporate governance report" of the Annual Report should be considered. The Infosys management cautions investors that these reports are provided only as additional information to our global investors. Using such reports for predicting the future of Infosys, or any other company, is risky. The Infosys management is not responsible for any direct, indirect or consequential losses suffered by any person using these financial statements or data. 189 This page is intentionally left blank. Corporate governance report -- Australia, Canada and France -------------------------------------------------------------------------------- Australia The Australian Institute of Company Directors, Australian Society of Certified Practicing Accountants, Business Council of Australia, Law Council of Australia, the Institute of Chartered Accountants of Australia and the Securities Institute of Australia had formed a working group to look into corporate governance issues. The working group submitted its report - The Bosch Report in 1995. The working group made several recommendations. Your company complies substantially with all recommendations made by the committee, except the following: 1. Composition of the board - The current strength of the board is 16 with 8 executive directors and 8 non-executive, independent directors. 2. Board membership term - The current law in India mandates the retirement of one-third of the board members every year and qualifies the retiring members for re-appointment. The executive directors are appointed by the shareholders for a maximum period of five years at one time but are eligible for re-appointment upon completion of their term. Canada "We believe that good corporate governance benefits all companies - small and large - and that the principles of effective governance do not change as companies get bigger" - Final report, Joint committee on corporate governance, November 2001. The joint committee on corporate governance was established by the Canadian Institute of Chartered Accountants (CICA), the Canadian Venture Exchange (CDNX) and the Toronto Stock Exchange (TSE) to study various aspects of corporate governance. The committee submitted its final report - Beyond compliance: building a governance culture in November 2001. The committee made several recommendations. Your company complies substantially with all recommendations made by the committee, except the following: Independent board leader - The chairman of the board is an executive director. The board of the company consists of 8 executive directors and 8 independent directors. The audit committee, nominations committee and the compensation committee consist of independent directors only. The company has not identified any independent lead director to perform the functions specified in the report. 1. Recommendation 4 - Regular assessments of the effectiveness of the board and its committees, as well as the contribution of individual directors - The compensation committee of the board consists of independent directors. The compensation committee reviews the performance of all the executive directors on a quarterly basis based on detailed performance parameters set for each of the executive directors at the beginning of the year, in consultation with the CEO of the company. The performance of the independent directors is reviewed by the full board, on a regular basis. The nominations committee recommends size and composition of the board and its committees, establishes procedures for the nomination process, and recommends candidates for election to the board and its committees. 2. Recommendation 5 - Outside board members to meet regularly - The outside directors of the board do not formally meet, without the management, at regular intervals. However, they informally discuss with the Chairman and the CEO, if there are any substantive issues that needs the attention of the management. 3. Recommendation 6 - Selecting the CEO and succession planning - At present, the succession planning of the CEO is not delegated to the "independent board leader". The chairman reviews succession planning and management development with the full board from time to time. Rapport sur le gouvernement d'entreprises - France L'AFG-ASFFI est une association representant l'activite de gestion d'actifs en France. Cette association a institue une << Commission portant sur le gouvernement d'entreprises >> afin d'examiner les divers aspects du gouvernement d'entreprises applicables aux societes cotees francaises. Les recommandations de la Commission ont ete adoptees le 9 juin 1998 et amendees par la suite en 2001. La Commission portant sur le gouvernement d'entreprises a fait plusieurs recommandations. Votre societe respecte en grande partie toutes les recommandations faites, a l'exception des suivantes : 1. Recommandation I-B-2 - Publication de deux rapports, une version resumee, une version complete - La societe publie un rapport annuel detaille contenant des informations financieres et autres en detail, et ce meme document est adresse a tous les actionnaires quelle que soit leur participation. 2. Recommandation I-B-3 - Explication de la resolution proposee - Le nombre de parts detenues par les administrateurs qui sont designes pour une re-election ainsi que l'information relative aux options de souscription d'actions accordees au personnel cle de la societe sont divulguees dans le rapport annuel mais pas incluses dans l'etat explicatif relatif aux resolutions devant etre approuvees lors de l'assemblee generale ordinaire. 3. Recommandation I-B-5 - Suivi apres le vote des resolutions - La societe ne publie pas un extrait des minutes de l'assemblee generale ordinaire a tous les actionnaires a la fin de la reunion. Cependant, l'ensemble du processus relatif a l'assemblee generale ordinaire est diffuse sur Internet et accessible a tous dans le monde entier. 4. Recommandation I-C-6 - Vote electronique - La societe a recours au systeme de vote au cas ou un scrutin serait demande. Elle n'a pas recours au vote electronique. 5. Recommandation II-C - Indemnites des administrateurs - Le comite des remunerations determine et recommande au conseil d'administration les indemnisations allouees aux membres du conseil. L'indemnisation des administrateurs independants est approuvee lors d'une reunion du conseil au complet. Les indemnites allouees a l'ensemble de tous les administrateurs independants sont limitees a une somme fixee annuellement par le conseil. La somme se situe aux environs de 0,5 % du benefice net de la societe calculee conformement aux dispositions du Companies Act 191 Corporate governance report -- Germany and Japan -------------------------------------------------------------------------------- (loi sur les societes) de 1956, approuvee par les actionnaires, et est presentee separement dans les etats financiers. L'indemnisation allouee aux administrateurs independants et la methode de calcul sont egalement presentees separement dans les etats financiers. Les directeurs executifs qui sont egalement les fondateurs de la societe se sont volontairement exclus du Stock Offer Plan de 1994, de celui de 1998 et de 1999. Les administrateurs independants ne sont pas non plus beneficiaires des options d'achat d'actions dans le cadre de ces plans, sauf pour celui de 1999. cependant, aucune option n'a ete emise au cours de l'annee aux administrateurs independants dans le cadre du plan. 6. Recommandation II-D-2 - Non-cumul des fonctions d'administrateur - Selon la loi indienne, personne ne peut etre administrateur dans plus de 20 societes. 7. Recommandation II-D-4 - A l'heure actuelle, aucun des administrateurs n'est age de plus de 65 ans. Corporate governance report - Germany ,,Corporate Governance Richtlinien fordern und bekraftigen das Vertrauen der gegenwartigen und zukunftigen Aktionare, der kreditgebenden Stellen, der Mitarbeiter, der Teilhaber und der Offentlichkeit im nationalen und internationalen Marktumfeld". Corporate Governance Vorschriften fur borsennotierte Unternehmen, Juli 2000 Die deutsche Kommission fur Corporate Governance hat die ,,Corporate Governance Vorschriften fur borsennotierte Unternehmen" im Juli 2000 verabschiedet. Die Kommission hat verschiedene Empfehlungen gegeben. Ihre Firma erfullt im wesentlichen alle Empfehlungen des Ausschusses mit Ausnahme der folgenden: 1. Empfehlung III, IV und V - Vorstand und Aufsichtsrat - Das Unternehmen hat eine einstufige Fuhrungsstruktur, welche in die Macht des gesamten Vorstands und Aufsichtsrats eingehullt ist. Die gegenwartige Starke des Boards ist 16 mit 8 Executivdirektoren und 8 non-executive, unabhangige Direktoren. Das Board hat funf Ausschusse - Der Bilanzausschu(beta), der Entschadigungsausschu(beta), der Nennungausschu(beta), der Investorbeschwerdeausschu(beta) und ein Investitionausschu(beta). Alle diese Ausschusse ausschlie(beta)lich des Investorbeschwerdeausschusses und des Investitionausschusses bestehen vollig aus unabhangigen Direktoren. Der Investorbeschwerdeausschu(beta) besteht aus einem non-executive Vorsitzenden und einige der Executivdirektoren. Der Investitionausschu(beta) besteht nur aus Executivdirektoren. 2. Empfehlung II-3.2 - Informationen und Freigabe Anforderungen - Wie nach indischem Recht, mu(beta) die Firma dafur sorgen, dass die jahrliche Hauptversammlung allen Aktionaren am Berichtstag bekannt gemacht wird. 3. Empfehlung VI-2 - Transparenz - Die Firma stellt uber alle Aktionare, welche mehr als 5% der Anteile des Unternehmen halten, Imformationen im Geschaftsbericht zur Verfugung. 4. Empfehlung VI-6 - Transparenz - Das Unternehmen hat Insiderhandel-Richtlinien welche von einem Compliance Officer uberwacht werden. Alle Officers des Unternehmens mussen im voraus die Genehmigung des Compliances Officers einholen, wenn Sie Aktien des Unternehmens handeln wollen. Alle Transaktionen uber bestimmten Grenzen, durch bestimmte Officer, mussen an die Borsen in Indien berichtet werden. 5. Empfehlung VII-2 - Prufung von Jahresabschlussen - Der Bilanzausschu(beta) des Boards, besteht nur aus unabhangigen Direktoren des Unternehmens. Der Bilanzausschu(beta) erhalt von den unabhangigen Wirtschaftsprufern eine schriftliche Darstellung welche in Einklang mit den einschlagigen rechtlichen Anforderungen das Verhaltnis zwischen den Wirtschaftsprufern und dem Unternehmen darstellt. Japan 192 Corporate governance report - United Kingdom -------------------------------------------------------------------------------- "Companies should be ready to explain their governance policies, including any circumstances justifying departure from best practice." - The Combined Code - Principles of good governance and code of best practice, May 2000. Directors' report on corporate governance In May 2000, the committee on corporate governance published the Combined Code - Principles of good governance and code of best practice, which was derived from the committee's final report and from the Cadbury and Greenbury reports. The company has complied throughout the period under review with all the provisions of the Combined Code except the following: 1. Code A.2.1 - The roles of Chairman and Chief Executive Officer are clearly demarcated. The current policy of the company is to have an Executive Chairman and Chief Mentor, a Chief Executive Officer (CEO), President and Managing Director, and a Chief Operating Officer (COO) and Deputy Managing Director. There is a clear demarcation of responsibilities and authority between all three of them. The Chairman and Chief Mentor is responsible for mentoring Infosys' core management team to transform the company into a world-class, next-generation organization that provides state-of-the-art technology-leveraged business solutions to corporations across the world. He is also expected to interact with global thought leaders to enhance the leadership position of Infosys. In addition, he will continue to interact with various institutions to highlight and help bring about the benefits of IT to every section of society. As chairman of the board, he is also responsible for all board matters. The CEO, President and Managing Director is responsible for corporate strategy, brand equity, planning, external contacts, new initiatives, and other management matters. He is also responsible for achieving the annual business plan. The COO and Deputy Managing Director is responsible for all customer service operations. He is also responsible for technology, acquisitions and investments. The company had not identified any senior member other than the chairman to whom concerns can be conveyed. 2. Code A.6.2, B.1.7 and B.1.8 - The current law in India mandates the retirement of one-third of the board members every year and qualifies the retiring members for re-appointment. The executive directors are appointed by the shareholders for a maximum period of five years at one time but are eligible for re-appointment upon completion of their term. 3. Code C.2.1 - Under Indian law, voting on a resolution in the Annual General Meeting is by show of hands unless a poll is demanded by a member or members present in person or by proxy holding at least one-tenth of the total shares entitled to vote on the resolution or by those holding an aggregate paid up capital of at least Rs. 50,000. A proxy may not vote except on a poll. This statement along with the Corporate governance report of this Annual Report explains how the company has applied the governance principles set out in section 1 of the Combined Code. Internal control The Combined Code has introduced a new requirement that the directors review the effectiveness of the group's system of internal controls. This requirement extends the directors' review to cover all controls including: - financial; - operational; - compliance; and - risk management. The company maintains a well established control framework comprising clear structures and accountabilities, well understood policies and procedures and budgeting and review processes. The company has installed a system of internal controls which is reviewed, evaluated and updated on an ongoing basis. Our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the company have been followed. However, there are inherent limitations that should be recognized in weighing the assurances provided by any system of internal controls. In addition, the company has developed a "risk management" process which defines the significant business risks and controls in place to manage them. The detailed report is provided in the Risk management report of this Annual Report. New areas are introduced for assessment as the business risk profile changes. The controls are monitored through the "risk management" process, internal audit coverage and routine management review. The results are reviewed by the audit committee and also the board. The directors confirm that they are satisfied that the company has sufficient resources to continue operations for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. /s/ S. GOPALAKRISHNAN /s/ NANDAN M. NILEKANI S. Gopalakrishnan Nandan M. Nilekani Bangalore Chief Operating Officer and Chief Executive Officer, April 10, 2002 Deputy Managing Director President and Managing Director
193 Financial statements prepared in substantial compliance with GAAP requirements of Australia -------------------------------------------------------------------------------- Statement of financial performance (unaudited)
in Australian dollars ---------------------------- Infosys Technologies Limited as at March 31 2002 2001 ------------------------------------------- ----------- ----------- CURRENT ASSETS Cash 398,046,512 253,949,997 Receivables 130,515,504 132,909,996 Investments -- -- Other 34,599,119 33,328,193 ----------- ----------- TOTAL CURRENT ASSETS 563,161,135 420,188,186 ----------- ----------- NON-CURRENT ASSETS Receivables -- -- Investments 13,755,814 11,068,783 Property, plant and equipment 278,387,597 245,126,694 Intangibles -- -- Other 34,788,478 23,204,507 ----------- ----------- TOTAL NON-CURRENT ASSETS 326,931,889 279,399,984 ----------- ----------- TOTAL ASSETS 890,093,024 699,588,170 =========== =========== CURRENT LIABILITIES Trade creditors -- 57,472 Unearned revenues 6,550,388 15,308,141 Provisions 78,658,915 68,980,707 ----------- ----------- TOTAL CURRENT LIABILITIES 85,209,303 84,346,320 ----------- ----------- NON-CURRENT LIABILITIES Borrowings -- -- Provisions -- -- TOTAL NON-CURRENT LIABILITIES -- -- TOTAL LIABILITIES 85,209,303 84,346,320 ----------- ----------- NET ASSETS 804,883,721 615,241,850 =========== =========== SHAREHOLDERS' EQUITY Share capital 12,997,309 12,991,471 Reserves 791,886,412 602,250,379 Retained profits -- -- ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 804,883,721 615,241,850 =========== ===========
194 Financial statements prepared in substantial compliance with GAAP requirements of Australia -------------------------------------------------------------------------------- Statement of financial performance (unaudited)
in Australian dollars -------------------------------- Infosys Technologies Limited for the year ended March 31 2002 2001 -------------------------------------------------------- ------------- ----------- Operating revenue 1,112,500,000 771,073,557 Operating profit before abnormal items and income tax 393,079,167 277,109,396 ------------- ----------- Operating profit before income tax 393,079,167 277,109,396 ------------- ----------- Income tax expense / (benefit) attributable to Operating profit 55,687,500 27,108,845 ------------- ----------- Income tax expense / (benefit) for the year 55,687,500 27,108,845 ------------- ----------- Operating profit after income tax 337,391,667 250,000,551 Outside equity interests in operating profit after income tax -- -- Operating profit after income tax attributable to members of Infosys Technologies Limited 337,391,667 250,000,551 Dividend on preferred stock -- -- Retained profits at the beginning of the financial year -- -- Aggregate of amounts transferred from reserves -- -- ------------- ----------- Total available for appropriation 337,391,667 250,000,551 Dividends provided for or paid 57,258,333 29,681,146 Aggregate of amounts transferred to reserves 280,133,334 220,319,405 ------------- ----------- Retained profits at the end of the financial year -- -- ------------- ----------- Basic earnings per share 5.15 3.80 Diluted earnings per share 5.11 3.75 ------------- -----------
Notes: 1. The company's financial statements are prepared in Indian rupees, the reporting currency. These financial statements have been prepared by translating revenue and expenditure at an average rate during the year; current assets, current liabilities, property, plant and equipment, long-term borrowings at the year-end rate; and accretions to stockholders' equity at an average rate for the year. The difference arising on translation is shown under reserves. 2. Exchange rates used:
2002 2001 ----------------- ----------------- Average exchange rate used 1 AUD = Rs. 24.00 1 AUD = Rs. 25.22 Closing exchange rate used 1 AUD = Rs. 25.80 1 AUD = Rs. 22.75 ----------------- -----------------
3. Reconciliation between Indian GAAP and Australian GAAP statements: Australian dollars ------------------------------------------- 2002 2001 ------------- ------------- Net income as per Indian GAAP in Rs. 8,079,600,000 6,288,136,341 Net income as per Indian GAAP in Aus $ 336,650,000 249,331,338 Less: Extraordinary income -- (2,178,588) Expenses against provisions for contingencies and e-inventing the company -- (154,678) Add: Provision for deferred taxes 741,667 1,721,449 Provision for gratuity -- 1,281,030 Net income as per Australian GAAP 337,391,667 250,000,551 ------------- -------------
195 Financial statements prepared in substantial compliance with GAAP requirements of Canada -------------------------------------------------------------------------------- Balance sheet (unaudited)
in Canadian dollars ------------------------------ As at March 31 2002 2001 -------------- ----------- ----------- ASSETS Current assets Cash and cash equivalents 336,267,191 195,181,164 Accounts receivable 110,258,677 102,152,109 Inventories -- -- Prepaid expenses and other assets 29,229,118 25,615,418 ----------- ----------- 475,754,986 322,948,691 Property, plant and equipment 235,180,092 188,399,740 Investments 11,620,825 8,507,257 Future income taxes 8,513,425 5,246,761 Other assets 20,875,662 12,587,783 ----------- ----------- 751,944,990 537,690,232 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable -- 44,172 Accrued liabilities 62,910,936 51,101,799 Current portion of long-term obligations -- -- Advances received from clients 3,539,620 1,915,467 Unearned revenue 5,533,727 11,765,547 ----------- ----------- 71,984,283 64,826,985 Long-term obligations -- -- ----------- ----------- 71,984,283 64,826,985 Minority interest -- -- Share capital Common shares - 66,186,130 outstanding 12,369,291 12,364,630 (2001 - 66,158,117 outstanding) Additional paid-in capital 119,110,434 117,583,215 Accumulated foreign currency translation adjustment (35,097,312) (16,929,115) Retained earnings 583,578,294 359,844,517 ----------- ----------- 751,944,990 537,690,232 =========== ===========
196 Financial statements prepared in substantial compliance with GAAP requirements of Canada -------------------------------------------------------------------------------- Statement of earnings and retained earnings (unaudited)
in Canadian dollars ---------------------------- Year ended March 31 2002 2001 ------------------- ----------- ----------- Sales 866,419,301 625,391,866 Cost of sales 461,054,908 322,784,546 ----------- ----------- Gross margin 405,364,393 302,607,320 EXPENSES Selling, general and administration expenses 113,524,127 87,145,568 ----------- ----------- Income from operations 291,840,266 215,461,752 Interest and other income 22,099,834 14,505,308 Interest expense -- -- ----------- ----------- Earnings before income taxes 313,940,100 229,967,060 Provision for income taxes 44,475,874 22,497,040 Net earnings 269,464,226 207,470,020 Cash dividend declared 45,730,449 24,631,738 ----------- ----------- 223,733,777 182,838,282 Retained earnings, beginning of the year 359,844,517 177,006,235 Adjustment on deconsolidation of subsidiary -- -- Capitalization of profits -- -- Retained earnings, end of the year 583,578,294 359,844,517 EARNINGS PER SHARE Net earnings Basic 4.11 3.15 Fully diluted 4.08 3.11 Weighted average number of shares Basic 65,556,648 65,771,256 Fully diluted 66,084,874 66,714,739 ----------- -----------
Notes: 1. The company's financial statements are prepared in Indian rupees, the reporting currency. These financial statements have been prepared by translating revenue and expenditure at an average rate for the year; current assets, current liabilities, property, plant and equipment, long-term borrowings at the year-end rate; and accretions to stockholders' equity at an average rate for the year. The difference arising on translation is shown under accumulated foreign currency translation adjustment. 2. Exchange rate used:
2002 2001 ----------------- ----------------- Average exchange rate used 1 CAD = Rs. 30.05 1 CAD = Rs. 30.39 Closing exchange rate used 1 CAD = Rs. 30.54 1 CAD = Rs. 29.60 ----------------- -----------------
3. Reconciliation between Indian GAAP and Canadian GAAP statements:
2002 2001 ------------- ------------- Net income as per Indian GAAP in Rs. 8,079,600,000 6,288,136,341 Net income as per Indian GAAP in Canadian dollars 268,871,880 206,914,654 Less: Extraordinary income -- (1,807,963) Expenses against provisions for contingencies and e-inventing the company -- (128,364) Add: Provision for future income taxes 592,346 1,428,593 Provision for gratuity -- 1,063,100 Net earnings as per Canadian GAAP 269,464,226 207,470,020 ------------- -------------
197 Financial statements prepared in substantial compliance with GAAP requirements of France --------------------------------------------------------------------------------
FRF -------------------------------- Etats financiers prepares selon les principes comptables francais (non audites) Compte de resultat 2002 2001 ------------- ------------- Produits d'exploitation Vente de marchandises -- -- Production vendues (services) 4,100,141,732 3,021,567,378 ------------- ------------- Montant net du chiffres d'affaires 4,100,141,732 3,021,567,378 ------------- ------------- Production stockee -- -- Production immobilisee -- -- Subventions d'exploitation -- -- Reprises sur amortissements, provisions et transfert de charges -- -- Autres produits -- -- ------------- ------------- Total des produits d'exploitation (I) 4,100,141,732 3,021,567,378 ------------- ------------- Charges d'exploitation Achat de marchandises 14,440,945 9,064,190 Variation de stocks des biens achetes -- -- Achat de matieres premieres et autres approvisionnements -- -- Variations de stocks de matieres premieres et approvisionnements -- -- Autres achats et charges externes -- -- Salaires et traitements 1,760,425,197 1,141,149,110 Dotations aux amortissements et aux provisions -- -- Sur immobilisations: Dotation aux amortissements 252,992,126 179,482,536 Sur immobilisations: Dotations aux provisions -- -- Sur actif circulant: Dotations aux provisions -- -- Pour risques et charges: dotation sur provisions -- -- Autres charges 691,212,598 650,872,709 ------------- ------------- Total des charges d'exploitation (II) 2,719,070,866 1,980,568,545 ------------- ------------- Resultat d'exploitation (I-II) 1,381,070,866 1,040,998,833 ------------- ------------- Quotes-parts de resultat sur operations faites en commun: Benefice attribue ou perte transferee (III) -- -- Perte attribuee ou benefices transferes (IV) -- -- Produits financieres De participations -- -- D'autres valeurs mobilieres -- -- Interets et produits similaires 104,582,677 70,082,084 Reprises sur provisions et transfert de charges -- -- Differences positives de change -- -- Produits nets sur cessions de valeurs immobilieres de placements -- -- ------------- ------------- Total des produits financiers (V) 104,582,677 70,082,084 ------------- ------------- Charges financieres Dotations aux amortissements et aux provisions -- -- Interet et charges similaires -- -- Differences negatives de change -- -- Charges nettes sur cessions de valeurs mobilieres de placements -- -- ------------- ------------- Total des charges financieres (VI) -- -- ------------- ------------- Resultat financier (V-VI) 104,582,677 70,082,084 Resultat courant avant impots (I-II + III-IV + V-VI) 1,485,653,543 1,111,080,917
198 Financial statements prepared in substantial compliance with GAAP requirements of France --------------------------------------------------------------------------------
FRF -------------------------------- 2002 2001 ------------- ------------- Produits exceptionnels Sur operations de gestion -- -- Sue operations en capital -- -- Reprises sur provisions et transfert de charges -- -- ------------- ------------- Total des produits exceptionnels (VII) -- -- ------------- ------------- Charges exceptionnelles Sur operations de gestion -- -- Sur operations en capital -- -- Dotations aux amortissements et aux provisions -- -- ------------- ------------- Total des charges exceptionnelles (VIII) -- -- ------------- ------------- Resultat exceptionnel (VII-VIII) -- -- Participation des salaries aux fruits de l'expansion (IX) -- -- Impot sur les benefices (X) 210,472,441 108,693,968 Total des produits (I + III + V + VII) 4,204,724,409 3,091,649,462 Total des charges (II + IV + VI + VII + IX + X) 2,929,543,307 2,089,262,513 Dividendes preciputaires -- -- Participation a la perte de filiale deconsolidees -- -- Benefice ou perte 1,275,181,102 1,002,386,949 ------------- -------------
Notes: 1. Conversion en monnaie etrangere Les etats financiers de la societe sont prepares en roupies indiennes. Ces etats financiers ont ete prepares par la conversion des produits et des charges au taux moyen mensuel pendant l'annee; les actifs et passifs circulants, les immobilisations, les emprunts a long terme et accroissements des fonds propres sont calcules au taux a la fin de l'annee et les placements a long terme sont calcules selon le taux au moment du placement. La difference provenant des conversions est enregistree sous la rubrique Reserves. 2. Taux de change utilise
2002 2001 ---------------- --------------- Taux moyen de change utilise 1 FRF = Rs. 6.35 1 FRF= Rs. 6.29 Taux de change de cloture utilise 1 FRF = Rs. 6.48 1 FRF= Rs. 6.23 ---------------- ---------------
3. Rapprochement entre les etats financiers etablis selon les principes comptables indiens et francais:
FRF ------------------------------------------- 2002 2001 ------------- ------------- Resultat net selon les principes comptables indiens en Rs. 8,079,600,000 6,288,136,341 Resultat net selon les principes comptables indiens en FRF 1,272,377,952 999,703,711 Soustraction du revenu net de la filiale inclus en consolidation en FRF Moins: Produit extraordinaire -- (8,735,135) Moins: Depenses liees aux provisions pour risques et charges -- (620,187) Addition des provisions pour impots differes en FRF 2,803,150 6,902,216 Addition relatives aux provision pour retraite -- 5,136,344 Resultat net selon les principes comptables francais en FRF 1,275,181,102 1,002,386,949
199 Financial statements prepared in substantial compliance with GAAP requirements of France -------------------------------------------------------------------------------- Etats financiers prepares selon les principes comptables francais (non audites)
Bilan le 31 mars, FRF ---------------------------------------------------------------------- 2002 2001 ------------- ------------- Amortissements Actif Brut ou Provisions Net Net ----- ------------- -------------- ------------- ------------- Actif immobilise Immobilisations incorporelles Frais d'etablissements -- -- -- -- Frais de recherche et de developpement -- -- -- -- Fonds comercial -- -- -- -- Autres -- -- -- -- Avance et acomptes -- -- -- -- ------------- ----------- ------------- ------------- -- -- -- -- Immobilisations corporelles Terrains 67,438,272 -- 67,438,272 58,781,825 Constructions 440,324,074 43,040,123 397,283,951 231,664,598 Installations techniques, materiel 728,024,691 454,429,012 273,595,679 249,698,887 Autres immobilisations corporelles 246,620,370 109,058,642 137,561,728 81,063,045 Immobilisations corporelles en cours 232,515,432 -- 232,515,432 273,917,215 Avances et acomptes verses ------------- ----------- ------------- ------------- 1,714,922,839 606,527,777 1,108,395,062 895,125,570 Immobilisations financieres Placements evalues selon la participation -- -- -- -- Autres participations -- -- -- -- Creances rattachees a des participations -- -- -- -- Autres titres immobilises 54,768,519 -- 54,768,519 40,419,714 Prets -- -- -- -- Autres -- -- -- -- 54,768,519 -- 54,768,519 40,419,714 ------------- ----------- ------------- ------------- Total de l'actif immobilise (I) 1,769,691,358 606,527,777 1,163,163,581 935,545,284 ============= =========== ============= ============= Actif circulant Stocks et en-cours Matieres premieres et autres Approvisionnements -- -- -- -- En cours de production (biens) -- -- -- -- En cours de production (services) -- -- -- -- Produits intermediaires et finis -- -- -- -- Marchandises -- -- -- -- ------------- ----------- ------------- ------------- -- -- -- -- Prets aux employes 156,527,778 -- 156,527,778 120,281,808 Creances Creances clients et comptes rattaches -- -- -- -- Autres creances 549,320,988 29,675,926 519,645,062 485,345,492 Capital souscrit-appele, non verse -- -- -- -- Valeurs immobilieres de placement -- -- -- -- Disponibilites 1,584,814,815 -- 1,584,814,815 927,345,496 Charges constatees d'avance 79,614,198 -- 79,614,198 61,229,390 ------------- ----------- ------------- ------------- Total d'actif circulant (II) 2,370,277,779 29,675,926 2,340,601,853 1,594,202,186 Impots differes (III) 40,123,457 -- 40,123,457 24,928,433 Primes de remboursement des obligations (IV) -- -- -- -- Ecart de conversion actif (V) -- -- -- -- ------------- ----------- ------------- ------------- Total General (I + II + III + IV + V) 4,180,092,594 636,203,703 3,543,888,891 2,554,675,903 ============= =========== ============= =============
200 Financial statements prepared in substantial compliance with GAAP requirements of France --------------------------------------------------------------------------------
FRF ---------------------------------- Passif 2002 2001 ------ ------------- ------------- Capitaux propres Capital social 49,279,572 49,257,515 Primes d'emission (de fusion, d'apport) 463,309,463 456,082,232 Ecart de reevaluation -- -- Reserves (benefices non distribues) Reserve legale -- -- Reserve statutaires -- -- Reserves reglementees -- -- Autres reserves 2,749,350,767 1,690,576,768 Ecart de conversion (57,310,170) 50,753,168 Report a nouveau -- -- Resultat de l'exercice (Benefice ou perte) -- -- Subventions d'investissement -- -- Provisions reglementees -- -- ------------- ------------- Total des capitaux propres (I) 3,204,629,632 2,246,669,683 Autres capitaux propres Benefice provenant de participation subordonnee -- -- Avances et acomptes conditionnels -- -- ------------- ------------- Total des autres capitaux propres -- -- Interets minoritaires -- -- Provisions Provision pour risques -- -- Provisions pour charges -- -- ------------- ------------- Total des provisions (II) -- -- Dettes Dettes financieres Emprunts obligatoires convertibles -- -- Autres emprunts obligatoires -- -- Emprunts et dettes aupres d'etablissements de credit -- -- Emprunts et dettes financiers divers -- -- Avances et acomptes recus sur commande en cours 42,762,345 65,001,286 Dettes d'exploitation Dettes fournisseurs et comptes rattaches -- 209,868 Dettes fiscales et sociales -- -- Autres dettes Dettes sur immobilisations et comptes rattaches -- -- Autres dettes 296,496,914 242,795,066 Produits constates d'avance -- -- ------------- ------------- Total des dettes (III) 339,259,259 308,006,220 Interet minoritaire -- -- Ecart de conversion passif (IV) -- -- ------------- ------------- Total General (I + II + III + IV) 3,543,888,891 2,554,675,903 ============= =============
201 Jahresabschluss erarbeitet in wesentlicher Ubereinstimmung mit den Grundsatzen einer ordnungsgema(beta)en Buchfuhrung (GAAP) verschiedener Lander - Deutschland (untestiert) -------------------------------------------------------------------------------- Bilanz zum 31. Marz 2002 (ungepruft)
(DM) -------------------------------- 2002 2001 ------------- ----------- AKTIVA Sachanlagen 330.529.222 266.696.905 Finanzanlagen 16.332.260 12.042.794 ------------- ----------- Anlagevermogen 346.861.482 278.739.699 ------------- ----------- Forderungen aus Lieferungen und Leistungen 154.960.884 144.605.568 Sonstige Forderungen und sonstige Vermogensgegenstande 41.079.488 36.260.946 Kassenbestand, Bundesbankguthaben, Guthaben bei Kreditinstituten und Schecks 472.600.092 276.296.626 ------------- ----------- Umlaufvermogen 668.640.464 457.163.140 ------------- ----------- Aktiver Rechnungsabgrenzungsposten 41.304.313 25.246.415 ------------- ----------- Aktiva gesamt 1.056.806.259 761.149.254 ------------- ----------- PASSIVA Gezeichnetes Kapital 14.563.096 14.556.575 Kapitalrucklage 137.191.889 135.055.347 Gewinnrucklagen 803.882.383 519.768.859 ------------- ----------- Eigenkapital 955.637.368 669.380.781 ------------- ----------- Sonstige Ruckstellungen 88.416.935 72.339.228 ------------- ----------- Ruckstellungen 88.416.935 72.339.228 ------------- ----------- Verbindlichkeiten aus Lieferungen und Leistungen -- 62.529 Sonstige Verbindlichkeiten 4.974.689 2.711.517 ------------- ----------- Verbindlichkeiten 4.974.689 2.774.046 ------------- ----------- Passiver Rechnungsabgrenzungsposten 7.777.267 16.655.199 ------------- ----------- Passiva gesamt 1.056.806.259 761.149.254 ------------- -----------
202 Gewinn- und Verlustrechnung fur das Geschaftsjahr vom 01. Februar 2001 bis 31. Marz 2002 (ungepruft) --------------------------------------------------------------------------------
(DM) -------------------------------- 2002 2001 ------------- ----------- Umsatzerlose 1.212.099.628 900.315.434 Herstellungskosten der zur Erzielung der Umsatzerlose erbrachten Leistungen 645.004.655 464.681.305 ------------- ----------- Bruttoergebnis vom Umsatz 567.094.973 435.634.129 Vertriebskosten und allgemeine Verwaltungskosten 158.817.505 125.454.941 ------------- ----------- Betriebsergebnis 408.277.468 310.179.188 Zinsen und ahnliche Ertrage 30.917.132 20.881.871 ------------- ----------- Ergebnis der gewohnlichen Geschaftstatigkeit 439.194.600 331.061.059 Steuern vom Einkommen und vom Ertrag 62.220.670 32.386.786 ------------- ----------- Jahresuberschuss 376.973.930 298.674.273 ------------- ----------- Einstellung in Gewinnrucklagen 312,998,138 263.214.372 Ausschuttungen an Aktionare 63,975,792 35.459.901 Bilanzgewinn -- -- ------------- -----------
Anmerkungen: 1. Umrechnung von Auslandswahrungen Die Unternehmensbilanz wird in der Berichtswahrung der indischen Rupie ausgedruckt. Diese Bilanz wurde erstellt durch die Umrechnung der Einnahmen und Ausgaben zum Jahresdurchschnittskurs; Umlaufvermogen, kurzfristigen Verbindlichkeiten, Grundstucke, Maschinen und Anlagen und langfristigen Verbindlichkeiten sowie Erhohungen des Eigenkapitals zum Wechselkurs am Stichtag, dauerhafte Investitionen zum Umrechnungskurs zum Zeitpunkt der Investition. Die Wahrungsumrechnungsdifferenz wird unter den Gewinnrucklagen ausgewiesen. 2. Verwendete Wechselkurse
2002 2001 ---------------- ---------------- Verwendeter Wechselkurs im Jahresdurchschnitt 1 DM = Rs. 21,48 1 DM = Rs. 21,11 Verwendeter Wechselkurs zum Stichtag 1 DM = Rs. 21,73 1 DM = Rs. 20,91 ---------------- ----------------
3. Uberleitung von den Abschlussen nach indischen GAAP nach deutschen GAAP (DM):
2002 2001 ------------- ------------- Jahresuberschuss nach indischen GAAP in Rs. 8.079.600.000 6.288.136.341 Jahresuberschuss nach indischen GAAP in DM 376.145.251 297.874.767 Abzuglich: Au(beta)erordentliche Ertrage -- (2.602.748) Aufwendungen fur Ruckstellungen fur Eventualverbindlichkeiten and e-Erfindungen des Unternehmens -- (184.793) Plus: Ruckstellungen fur Steuern 828.679 2.056.605 Bestimmung fur Gratifikationen -- 1.530.442 Gewinn fur das Geschaftsjahr nach deutschen GAAP 376,973,930 298.674.273
203 Financial statements prepared in substantial compliance with GAAP requirements of various countries - Japan -------------------------------------------------------------------------------- 204 Financial statements prepared in substantial compliance with GAAP requirements of Japan -------------------------------------------------------------------------------- 205 Summary financial statements prepared in substantial compliance with GAAP requirements of the United Kingdom -------------------------------------------------------------------------------- Balance sheet (unaudited) as at March 31
L ---------------------------- 2002 2001 ----------- ----------- Fixed assets Tangible fixed assets 103,537,552 83,934,863 Investments 5,116,044 3,790,109 ----------- ----------- 108,653,597 87,724,972 ----------- ----------- Current assets Debtors 48,541,156 45,510,271 Cash at bank and in hand 148,040,940 86,956,087 Prepayments and advances 22,058,527 17,020,090 Deferred tax asset 3,748,018 2,337,510 ----------- ----------- 222,388,641 151,823,958 Creditors - amounts falling due within a year Trade Creditors -- 19,679 Dividend 12,087,358 7,540,654 ----------- ----------- 12,087,358 7,560,333 ----------- ----------- Net current assets 186,949,690 144,263,625 Other creditors Provisions for liabilities and charges 15,609,053 15,225,952 Accruals and deferred income 3,994,522 6,095,093 ----------- ----------- Net assets 299,351,305 210,667,552 ----------- ----------- Capital and reserves Called-up share capital 5,252,291 5,250,225 Share premium account 48,924,239 48,247,352 Retained profits 245,174,775 157,169,975 ----------- ----------- 299,351,304 210,667,552 =========== ===========
206 Financial statements prepared in substantial compliance with GAAP requirements of the United Kingdom --------------------------------------------------------------------------------
Profit and loss account (unaudited) for the years ended March 31 L ---------------------------- 2002 2001 ----------- ----------- Turnover 384,010,324 281,648,767 Operating expenses 254,662,241 184,614,347 ----------- ----------- Operating profit 129,348,083 97,034,420 Interest receivable 9,794,985 6,532,548 ----------- ----------- Profit on ordinary activities before taxation 139,143,068 103,566,968 Taxation on profit on ordinary activities 19,712,389 10,131,670 ----------- ----------- Profit on ordinary activities after taxation 119,430,679 93,435,298 Dividends 20,268,437 11,093,042 ----------- ----------- Retained profits for the financial year 99,162,242 82,342,256 Earnings per ordinary share: Undiluted 1.82 1.42 Diluted 1.81 1.40 ----------- -----------
Notes: 1. The company's financial statements are prepared in Indian rupees, the reporting currency. These financial statements have been prepared by translating revenue and expenditure at an average rate for the year; current assets, current liabilities, fixed assets and long-term borrowings at the year-end rate; and accretions to stockholders' equity at an average rate for the year. The difference arising on translation is shown under retained profits. 2. Exchange rates used:
2001 2001 -------------- -------------- Average exchange rate used 1L = Rs. 67.80 1L = Rs. 67.48 Closing exchange rate used 1L = Rs. 69.37 1L = Rs. 66.44 -------------- --------------
3. Reconciliation between Indian GAAP and UK GAAP statements: L ------------------------------------------- 2002 2001 ------------- ------------- Net income as per Indian GAAP in Rs. 8,079,600,000 6,288,136,341 Net income as per Indian GAAP in pound sterling 119,168,142 93,185,185 Less: Expenses against provisions for contingency and e-inventing the company -- (57,809) Extraordinary income -- (814,226) Add: Provision for deferred taxes 262,537 643,375 Provision for gratuity -- 478,773 Profit for the financial year as per the UK GAAP 119,430,679 93,435,298 ------------- -------------
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Bankers Visit Infosys at ICICI Bank Ltd. www.infy.com Bank of America Company Secretary Send e-mail to V. Balakrishnan infosys@infy.com Auditors Call us at Bharat S Raut and Co. within the U.S. Chartered Accountants 1-800-ITL INFO Independent Auditors outside the U.S. (US GAAP) 91-80-8520261 KPMG (C) 2002 Infosys Technologies Limited, Bangalore, India. Infosys acknowledges the proprietary rights in the trademarks and product names of other companies mentioned in the document. 208