<PAGE>
United States
Securities and Exchange Commission
Washington, DC 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
For the quarter ended June 30, 1999
Commission File Number 333-72195
INFOSYS TECHNOLOGIES LIMITED
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
Bangalore, Karnataka, India
(Jurisdiction of incorporation or organization)
Electronics City, Hosur Road,
Bangalore, Karnataka
India 561 229
+91-80-852-0261
(Address of principal executive offices)
Indicate by check mark registrant files or will file annual reports under cover
Form 20-F or Form 40-F.
Form 20-F .........x......... Form 40-F ...................
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of
1934.
Yes ......................... No ...........x..............
If "Yes" is marked, indicate below the file number assigned to registrant in
connection with Rule 12g 3-2(b).
Not applicable.
1
<PAGE>
Currency of Presentation and Certain Defined Terms
Unless the context otherwise requires, references herein to the "company" or to
"Infosys" are to Infosys Technologies Limited, a limited liability company
organized under the laws of the Republic of India. References to "U.S." or
"United States" are to the United States of America, its territories and its
possessions. References to "India" are to the Republic of India. Yantra
Corporation, a Delaware Corporation ("Yantra"), in which the company holds a
minority interest, is considered a subsidiary of the company for purposes of
Indian GAAP. "Infosys" is a registered Indian trademark of the company. All
other trademarks or tradenames used in this Quarterly Report on Form 6-K
("Quarterly Report") are the property of their respective owners.
In this Quarterly Report, references to "$" or "Dollars" or "U.S. Dollars" are
to the legal currency of the United States and references to "Rs" or "Rupees" or
"Indian Rupees" are to the legal currency of India. The company's financial
statements are presented in Indian Rupees and translated into U.S. Dollars and
are prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP"). References to "Indian GAAP" are to Indian generally
accepted accounting principles. Except as otherwise specified, financial
information is presented in Dollars. References to a particular "fiscal" year
are to the company's fiscal year ended March 31 of such year.
Unless otherwise specified herein, financial information has been converted into
Dollars at the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank (the
"Noon Buying Rate") on June 30, 1999, which was Rs. 43.36 per $1.00. For the
convenience of the reader, this Quarterly Report contains translations of
certain Indian rupee amounts into U.S. Dollars which should not be construed as
a representation that such Indian Rupee or U.S. Dollar amounts referred to
herein could have been, or could be, converted to U.S. Dollars or Indian Rupees,
as the case may be, at any particular rate, the rates stated below, or at all.
Any discrepancies in any table between totals and sums of the amounts listed are
due to rounding.
Forward-Looking Statements May Prove Inaccurate
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE HEREOF. IN ADDITION, READERS
SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS ANNUAL REPORT AND IN THE
COMPANY'S PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") FROM TIME TO TIME.
2
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Part I - Financial Information
------------------------------
<TABLE>
<CAPTION>
Item 1. Financial Statements
Balance Sheets as at
- ------------------------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
(Unaudited) (Unaudited) (Audited)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $102,612,617 $14,319,397 $ 98,874,963
Trade accounts receivable, net of allowances 24,632,558 12,392,455 20,056,678
Prepaid expenses and other current assets 6,638,499 3,867,000 5,735,323
Prepaid income taxes - 826,508 -
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 133,883,674 31,405,360 124,666,964
Property, plant and equipment - net 25,977,938 17,006,922 23,900,313
Deferred tax assets 1,379,249 1,149,896 1,715,375
Investments 177,938 362 177,938
Other assets 4,224,381 1,745,492 3,197,006
- ------------------------------------------------------------------------------------------------------------------------
Total assets $165,643,180 $51,308,032 $153,657,596
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 55,556 $ 148,061 $ 75,305
Client deposits 15,685 794,630 18,520
Other accrued liabilities 8,522,103 4,361,100 8,399,800
Income taxes payable 2,101,206 - 955,797
Unearned revenue 5,201,759 - 4,598,612
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 15,896,309 5,303,791 14,048,034
PREFERRED STOCK OF SUBSIDIARY - 2,351,250 -
STOCKHOLDERS' EQUITY
Common stock, $0.32 par value;
50,000,000 shares authorized
Issued and outstanding Equity Shares - 33,069,400,
32,034,400 and 33,069,400 as of June 30, 1999
and June 30, 1998 and March 31, 1999 8,592,137 4,545,811 8,592,137
Additional paid-in-capital 121,407,662 24,415,920 120,849,511
Accumulated other comprehensive income (13,052,834) (9,852,773) (9,100,662)
Deferred compensation - Employee Stock Offer Plan (21,466,348) (7,369,868) (21,686,799)
Retained earnings 54,266,254 32,770,034 40,955,375
Loan to trust - (856,132) -
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 149,746,871 43,652,991 139,609,562
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $165,643,180 $51,308,032 $153,657,596
========================================================================================================================
</TABLE>
See accompanying notes to financial statements
Assets - June 30, 1999 Liabilities and Stockholders' Equity - June 30, 1999
- ---------------------- ----------------------------------------------------
[PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE]
Cash & cash Current liabilities - 10%
equivalents - 62%
Property, plant
and equipment - 16%
Stockholders'
equity - 90%
Accounts
receivables - 15%v
Others - 7%
3
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<TABLE>
<CAPTION>
Statements of Income
- -------------------------------------------------------------------------------------------------------------------------
Three months ended Year ended
- -------------------------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
REVENUES
Revenues $39,728,900 $23,665,088 $120,955,226
Cost of revenues 20,620,264 13,539,548 65,331,006
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 19,108,636 10,125,540 55,624,220
- -------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative expenses 5,552,056 3,614,422 16,199,055
Amortization of deferred stock compensation expense 1,250,100 461,577 3,645,576
Compensation arising from stock split - - 12,906,962
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 6,802,156 4,075,999 32,751,593
- -------------------------------------------------------------------------------------------------------------------------
Operating income 12,306,480 6,049,541 22,872,627
Equity in loss of deconsolidated subsidiary - (830,244) (2,085,887)
Other income, net 3,210,701 218,690 1,536,998
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 15,517,181 5,437,987 22,323,738
Provisions for income taxes 2,206,302 662,221 4,877,650
- -------------------------------------------------------------------------------------------------------------------------
Net income $13,310,879 $ 4,775,766 $17,446,088
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS PER EQUITY SHARE
Basic $ 0.40 $ 0.16 $ 0.57
Diluted $ 0.40 $ 0.16 $ 0.57
WEIGHTED EQUITY SHARES USED IN
COMPUTING EARNINGS PER EQUITY SHARE
Basic 32,844,333 30,540,000 30,689,425
Diluted 32,844,333 30,581,664 30,753,690
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
4
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<TABLE>
<CAPTION>
Statements of Stockholders' Equity (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Equity Shares Additional Comp- Accumulated
Shares Par value paid-in -rehensive Other Comp-
capital income -rehensive
income
- -------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1997 29,038,400 $2,310,270 $15,712,247 - $(3,531,811)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stock Split - 2,028,521 -
Cash dividends declared - - - -
Common stock issued upon
exercise of warrants 2,996,000 207,020 1,813,330 -
Compensation related to
stock option grants - - 6,890,343 -
Amortization of compensation
related to stock option grants - - - -
Comprehensive income
Net income - - - $ 12,344,188 -
Other comprehensive income
Translation adjustment - - - (3,510,418) (3,510,418)
Comprehensive income - - - $ 8,833,770 -
- -------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1998 32,034,400 4,545,811 24,415,920 (7,042,229)
- -------------------------------------------------------------------------------------------------------------------
Amortization of compensation
related to stock option grants - - - -
Comprehensive income
Net income - - - 4,775,766 -
Other comprehensive income
Translation adjustment - - - (2,810,545) (2,810,545)
Comprehensive income - - - $ 1,965,221 -
Repayment of loan to trust - - - -
- -------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1998 32,034,400 $4,545,811 $24,415,920 - $(9,852,774)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
in US$
- ------------------------------------------------------------------------------------------------------------
Deferred Loan to Retained Total
compensation Trust earnings stockholders'
- Employee equity
Stock Offer Plan
- ------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1997 $(3,507,715) $(24,502) $19,681,740 $30,640,229
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock Split - - (2,028,521) -
Cash dividends declared - - (2,003,139) (2,003,139)
Common stock issued upon
exercise of warrants - (911,863) - 1,108,487
Compensation related to
stock option grants (6,890,343) - - -
Amortization of compensation
related to stock option grants 2,566,613 - - 2,566,613
Comprehensive income
Net income - - 12,344,188 12,344,188
Other comprehensive income
Translation adjustment - - - (3,510,418)
Comprehensive income - - - -
- ------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1998 (7,831,445) (936,365) 27,994,268 41,145,960
- ------------------------------------------------------------------------------------------------------------
Amortization of compensation
related to stock option grants 461,577 - - 461,577
Comprehensive income
Net income - - 4,775,766 4,775,766
Other comprehensive income
Translation adjustment - - - (2,810,545)
Comprehensive income - - - -
Repayment of loan to trust - 80,233 - 80,233
- ------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1998 $(7,369,868) $(856,132) $32,770,034 $43,652,991
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Stockholders' Equity (Unaudited) (contd.)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Equity Shares Additional Comp- Accumulated
Shares Par value paid-in -rehensive Other Comp-
capital income -rehensive
income
- -------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1998 32,034,400 $4,545,811 $ 24,415,920 - $ (9,852,774)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stock split - 3,800,949 - -
Cash dividends declared - - - -
Common stock issued 1,035,000 245,377 66,025,699 -
Compensation related to
stock option grants - - 30,407,892 -
Amortization of compensation
related to stock option grants - - - -
Comprehensive income
Net income - - - 12,670,322 -
Other comprehensive income
Translation adjustment - - - 752,112 752,112
Comprehensive income - - - 13,422,434 -
Adjustment on deconsolidation of
subsidiary - - - - -
Repayment on loan to trust - - - - -
- -------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1999 33,069,400 8,592,137 120,849,511 - (9,100,662)
- -------------------------------------------------------------------------------------------------------------
Common stock issued - - (471,498) -
Compensation related to
stock option grants - - 1,029,649 -
Amortization of compensation
related to stock option grants - - - -
Comprehensive income
Net income - - - 13,310,879 -
Other comprehensive income
Translation adjustment - - - (3,952,172) (3,952,172)
Comprehensive income - - - $ 9,358,707 -
- -------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1999 33,069,400 $8,592,137 $121,407,662 - $(13,052,834)
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
in US$
- ------------------------------------------------------------------------------------------------------------
Deferred Loan to Retained Total
compensation Trust earnings stockholders'
- Employee equity
Stock Offer Plan
- -----------------------------------------------------------------------------------------------------------
$ (7,369,868) $(856,132) $32,770,034 $ 43,652,991
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock split - - (3,800,949) -
Cash dividends declared - - (3,152,863) (3,152,863)
Common stock issued - - - 66,271,076
Compensation related to
stock option grants (30,407,892) - - -
Amortization of compensation
related to stock option grants 16,090,961 - - 16,090,961
Comprehensive income
Net income - - 12,670,322 12,670,322
Other comprehensive income
Translation adjustment - - - 752,112
Comprehensive income - - - -
Adjustment on deconsolidation of - - 2,468,831 2,468,831
subsidiary
Repayment on loan to trust - $ 856,132 - 856,132
- -------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1999 (21,686,799) - 40,955,375 139,609,562
- -------------------------------------------------------------------------------------------------------------
Common stock issued - - - (471,498)
Compsensation related to
stock option grants (1,029,649) - - -
Amortization of compensation
related to stock option grants 1,250,100 - - 1,250,000
Comprehensive income
Net income - - 13,310,879 13,310,879
Other comprehensive income
Translation adjustment - - - (3,952,172)
Comprehensive income - - - -
- -------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1999 $(21,466,348) - $54,266,254 $149,746,871
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to finnacial statements
<PAGE>
<TABLE>
<CAPTION>
Statement of cash flows
- --------------------------------------------------------------------------------------------------------------------
Three months ended Year ended
- --------------------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
(Unaudited) (Unaudited) (Audited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,310,879 $ 4,775,766 $ 17,446,088
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of property, plant and equipment (1,110) - -
Depreciation 2,173,425 1,196,731 8,521,009
Deferred tax benefit 336,126 (59,948) (625,427)
Gain on sale of investment in deconsolidated subsidiary - - (620,958)
Amortization of deferred stock compensation expense 1,250,100 461,577 16,552,538
Loss relating to deconsolidated subsidiary - - 2,085,887
Subsidiary preferred stock dividend - 33,750 -
Changes in assets and liabilities:
Accounts receivables (4,575,880) (2,129,371) (10,113,425)
Prepaid expenses and other current assets (903,176) (115,711) (2,035,203)
Prepaid income taxes 1,145,409 (289,539) 1,492,766
Accounts payable (19,749) (1,025) (24,459)
Customer deposits (2,835) 604,457 (171,653)
Unearned revenue 603,147 - 4,598,612
Other accrued liabilities 122,303 (618,206) 3,015,104
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,438,639 3,858,481 40,120,879
====================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditure on property, plant and equipment (4,253,470) (1,510,961) (16,123,557)
Proceeds from sale of property, plant and equipment 3,530 2,811 5,704
Loans to employees (1,027,375) (719,887) (2,181,715)
Proceeds from sale of investment in
deconsolidated subsidiary - - 1,500,000
Purchase of investments in affiliates - - (177,576)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,277,315) (2,228,037) (16,977,144)
====================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Equity Shares (471,498) - 66,271,076
Net proceeds from issuance of
preferred stock by subsidiary - - -
Payment of cash dividends - - (2,371,673)
Loan to trust - 80,233 936,365
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (471,498) 80,233 64,835,768
====================================================================================================================
Effect of exchange rate changes on cash (3,952,172) (2,810,545) (2,058,433)
Effect of deconsolidation on cash - - (2,465,372)
Net increase/(decrease) in cash and
cash equivalents during the period 3,737,654 (1,099,868) 83,455,698
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the
beginning of the period 98,874,963 15,419,265 15,419,265
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $102,612,617 $14,319,397 $ 98,874,963
====================================================================================================================
Supplementary information:
Cash paid towards interest - - -
Cash paid towards taxes $ 1,060,893 $ 940,057 $ 3,364,318
</TABLE>
7
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Notes to Financial Statements
- ------------------------------------------------------------------------------
1. Significant accounting policies
1.1 The company
Infosys Technologies Limited (the "company") is one of India's leading
information technology ("IT") services companies. Infosys utilizes an
extensive offshore infrastructure to provide managed software solutions to
clients worldwide. Headquartered in Bangalore, India, the company has 11
state-of-the-art offshore software development facilities located
throughout India that enable it to provide high quality, cost-effective
services to clients in a resource-constrained environment. The company's
services, which are offered on either a fixed-price, fixed-time frame or a
time-and-materials basis, include custom software development, maintenance
(including Year 2000 conversion) and re-engineering services as well as
dedicated offshore software development centers for certain clients. In
addition, the company develops and markets certain software products.
1.2 Basis of preparation of financial statements
The accompanying financial statements have been prepared in accordance with
United States Generally Accepted Accounting Principles ("US GAAP"). All
amounts are stated in US dollars.
1.3 Principles of consolidation
The financial statements of the company were consolidated with the accounts
of its wholly owned subsidiary, Yantra Corporation ("Yantra") during fiscal
1997 and 1998. On October 20, 1998, the company's voting control of Yantra
declined to approximately 47%. Accordingly, the company has followed the
equity method of accounting for Yantra in fiscal 1999.
The company continues to own all the outstanding common shares of Yantra
but has no financial obligations or commitments to Yantra and does not
intend to provide Yantra with financial support. Accordingly, no losses
subsequent to October 20, 1998 have been recognized by the company. The
excess of the company's previously recognized losses over the basis of its
investments in Yantra as of October 20, 1998 have been credited to retained
earnings.
Yantra was incorporated in the United States in fiscal 1996 for the
development of software products in the retail and distribution areas. All
inter-company transactions between the company and Yantra have been
eliminated.
1.4 Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities on the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Examples of such estimates include estimates
of expected contract costs to be incurred to complete software development,
allowance for doubtful accounts, future obligations under employee benefit
plans and useful lives of property, plant and equipment. Actual results
could differ from those estimates.
1.5 Revenue recognition
The company derives its revenues primarily from software services and from
the licensing of software products. Revenue with respect to time-and-
material contracts is recognized as related costs are incurred. Revenue
from fixed-price, fixed-time frame contracts is recognized upon the
achievement of specified milestones identified in the related contracts, in
accordance with the percentage of completion method. Selling, general and
administrative expenses are charged to expense as incurred. 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 three-month warranty for
corrections of errors and telephone support for all its fixed-price, fixed-
time frame contracts. Costs associated with such services are accrued at
the time the related revenue is recorded.
Revenue from licensing of software products is recognized upon shipment of
products and fulfillment of acceptance terms, if any, provided that no
significant vendor obligations remain and the collection of the related
receivable is probable. When the company receives advance payments for
software products, such payments are reported as client deposits until all
conditions for revenue recognition are met. Maintenance revenue arising due
to the sale of software products is deferred and recognized ratably over
the term of the agreement, generally 12 months. Revenue from client
training, support, and other services arising due to the sale of software
products is recognized as the service is performed.
8
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1.6 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 consist of cash, cash on
deposit with banks, marketable securities and deposits with corporations.
1.7 Property, plant and equipment
Property, plant and equipment are stated at cost. The company computes
depreciation for all property, plant and equipment 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. The third
party software expense during period ended June 30, 1999, June 30, 1998 and
fiscal 1999 was $767,066, $1,003,156 and $3,538,590 respectively.
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.
1.8 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 exceed the fair value of the assets.
Assets to be disposed are reported at the lower of the carrying value or
the fair value less cost to sell.
1.9 Research and development
Research and development costs are expensed as incurred. Software product
development costs are expensed as incurred until technological feasibility
is achieved. Software product development costs incurred subsequent to the
achievement of technological feasibility have not been significant and have
been expensed as incurred.
1.10 Foreign currency translation
The accompanying financial statements are reported in US dollars. The
functional currency of the company is the Indian rupee. The translation of
the Indian rupee into US 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 simple 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 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.
1.11 Foreign currency transactions
The company enters into foreign exchange forward contracts to limit the
effect of exchange rate changes on its foreign currency receivables. Gains
and losses on these contracts are recognized as income or expense in the
statements of income as incurred, over the life of the contract.
1.12 Earnings per share
On January 1, 1998, the company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". In accordance with SFAS
No. 128, the basic earnings per share is 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
results would be anti-dilutive.
1.13 Income taxes
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying
9
<PAGE>
amounts of existing assets and liabilities, and their respective
tax bases and operating loss carryforwards. 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.
1.14 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.
1.15 Concentration of risk
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of cash equivalents and
trade receivables. The company's cash resources are invested with
corporations, financial institutions and banks with high investment grade
credit ratings. Limitations have been established by the company as to the
maximum amount of cash that may be invested with any such single entity. To
reduce its credit risk, the company performs ongoing credit evaluations of
clients.
1.16 Retirement benefits to employees
1.16.1 Gratuity
In accordance with the Indian law, the company provides for gratuity, a
defined benefit retirement plan (the "Gratuity Plan") covering all
employees. The plan provides a lump sum payment to vested employees at
retirement or termination of employment of an amount based on the
respective employee's salary and the years of employment with the company.
Until March 31, 1997, the company contributed each year to a gratuity fund
maintained by the Life Insurance Corporation of India based upon actuarial
valuations. No additional contributions were required to be made by the
company in excess of the unpaid contributions to the plan.
Effective April 1, 1997, the company established the Infosys Technologies
Limited Employees' Group Gratuity Fund Trust (the "Gratuity Fund Trust").
Liabilities with regard to the Gratuity Plan are determined by actuarial
valuation, based upon which the company makes contributions to the Gratuity
Fund Trust. Trustees administer the contributions made to the Gratuity Fund
Trust. The funds contributed to the Gratuity Fund Trust are invested in
specific securities as mandated by the law and generally consist of federal
and state government bonds and the debt instruments of government-owned
corporations.
1.16.2 Superannuation
Apart from being covered under the Gratuity Plan described above, the
senior officers of the company are also participants in a defined
contribution benefit plan maintained by the company. The plan is termed the
superannuation plan to which the company makes monthly contributions based
on a specified percentage of each covered employee's salary. The company
has no further obligations under the plan beyond its monthly contributions.
1.16.3 Provident Fund
In addition to the above benefits, all employees receive benefits from a
provident fund, which is a defined contribution plan. Both the employee and
employer make monthly contributions to the plan, each equal to 12% of the
covered employee's salary. Until July 1996, the company contributed to the
employees' provident fund maintained by the Government of India. Effective
August 1996, the company established a provident fund trust to which a part
of the contributions are made each month. The remainder of the
contributions are made to the Government's provident fund. The company has
no further obligations under the plan beyond its monthly contributions.
10
<PAGE>
1.17 Investments
Investments where the company controls between 20% and 50% of the voting
interest, are accounted for using the equity method. Investment securities
in which the company controls less than 20% voting interest are currently
classified as "available-for-sale" securities.
Investment securities designated as "available-for-sale" are carried at
fair value based on quoted market prices, with unrealized gains and losses,
net of deferred income taxes, reported as a separate component of
stockholders' equity. 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 on securities
classified as "available-for-sale" are included in interest income.
1.18 Stock-based compensation
The company uses the intrinsic value-based method of Accounting Principles
Board ("APB") Opinion No. 25 to account for its employee stock-based
compensation plan. The company has therefore adopted the pro forma
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation".
2. Notes to financial statements
2.1 Cash and cash equivalents
The cost and fair values for cash and cash equivalents as of June 30, 1999,
June 30, 1998 and fiscal 1999 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Cost and fair value
- --------------------------------------------------------------------------------
June 30, 1999
<S> <C>
Cash and cash equivalents
Cash and bank deposits $ 89,984,743
Deposits with corporations 12,627,874
- --------------------------------------------------------------------------------
$102,612,617
- --------------------------------------------------------------------------------
June 30, 1998
Cash and cash equivalents
Cash and bank deposits $ 13,064,182
Deposits with corporations 1,255,215
- --------------------------------------------------------------------------------
$ 14,319,397
- --------------------------------------------------------------------------------
March 31, 1999
Cash and cash equivalents
Cash and bank deposits $ 96,119,672
Deposits with corporations 2,755,291
- --------------------------------------------------------------------------------
$ 98,874,963
- --------------------------------------------------------------------------------
</TABLE>
2.2 Accounts receivable
The accounts receivable, as of June 30, 1999, amounted to $24,632,558, net
of allowance for doubtful accounts of $570,908 and the accounts receivable,
as of June 30, 1998, amounted to $12,392,455, net of allowance for doubtful
accounts of $61,024. The accounts receivable, as of March 31, 1999 amounted
to 20,056,678, net of allowance for doubtful accounts of $301,930. The age
profile is as given below.
<TABLE>
<CAPTION>
in %
- --------------------------------------------------------------------------------
Period in days June 30, 1999 June 30, 1998 March 31, 1999
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
0 - 30 55.0 51.0 58.8
31 - 60 27.4 34.7 24.5
61 - 90 10.2 11.2 10.8
More than 90 7.4 3.1 5.9
- --------------------------------------------------------------------------------
100.0 100.0 100.0
================================================================================
</TABLE>
11
<PAGE>
2.3 Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rent deposits $1,435,060 $1,238,596 $1,403,445
Deposits with government organizations 167,613 162,136 172,386
Loans to employees 2,640,844 652,178 1,983,319
Prepaid expenses 2,303,597 1,728,912 2,120,036
Other deposits 91,385 85,178 56,137
- -------------------------------------------------------------------------------------------------------
$6,638,499 $3,867,000 $5,735,323
=======================================================================================================
</TABLE>
Other deposits represent advance payments to vendors for the supply of goods and
rendering of services. Deposits with government organizations relate principally
to leased telephone lines and electricity supplies.
2.4 Property, plant and equipment - net
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 2,516,958 $ 1,133,996 $ 2,580,924
Buildings 7,941,854 4,565,386 6,831,097
Furniture and fixtures 5,353,467 3,299,596 4,966,929
Computer equipment 20,196,616 12,549,101 18,290,126
Plant and machinery 7,882,406 4,884,308 7,375,578
Vehicles 40,530 41,429 41,684
Capital work-in-progress 3,280,144 3,011,031 3,531,936
- -------------------------------------------------------------------------------------------------------
47,211,975 29,484,847 43,618,274
Accumulated depreciation (21,234,037) (12,477,925) (19,717,961)
- -------------------------------------------------------------------------------------------------------
$ 25,977,938 $ 17,006,922 $ 23,900,313
=======================================================================================================
</TABLE>
Depreciation expense amounted to $2,173,425, $1,196,731 and $8,521,009 for the
period ended June 30, 1999, June 30, 1998 and fiscal 1999 respectively.
2.5 Other assets
Other assets mainly represent the non-current portion of loans to employees.
2.6 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 rates at which the loans have been made to employees vary between 0% to 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 June 30,
1999, June 30, 1998 and March 31, 1999, amounts receivable from officers
amounting to $421,608, $270,014 and $265,669, are included in prepaid expenses
and other current assets and other assets in the accompanying balance sheets.
The required repayments of loans by employees are as detailed below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 - $1,108,464 -
2000 $2,640,844 439,404 $1,983,319
2001 1,203,661 343,820 953,440
2002 963,770 164,704 755,672
2003 635,195 106,705 528,918
2004 482,664 - 394,854
Thereafter 939,091 230,940 564,122
- -------------------------------------------------------------------------------------------------------
Total $6,865,225 $2,394,037 $5,180,325
=======================================================================================================
</TABLE>
The estimated fair value amounts of the related party receivables at the balance
sheet date, amounts to $6,442,125, $2,059,751 and $4,858,797 as of March 31,
1999, March 31, 1998 and fiscal 1999. These amounts have been determined using
available market information and appropriate valuation methodologies.
Considerable judgement is required to develop the estimates of fair value. Thus,
the estimates provided herein are not necessarily indicative of the amounts that
the company could realize in the market.
<PAGE>
2.7 Other accrued liabilities
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accrued compensation to staff $3,587,142 $1,978,287 $ 3,116,559
Accrued dividends 1,194,438 224,653 2,146,039
Provision for post sales client support 943,728 323,376 829,964
Others 2,796,795 1,834,784 2,307,238
- -------------------------------------------------------------------------------------------------------
$8,522,103 $4,361,100 $ 8,399,800
=======================================================================================================
</TABLE>
Accrued dividends represent dividends recommended and proposed by the board of
directors, subject to the approval of the shareholders.
2.8 Employee post-retirement benefits
2.8.1 Superannuation benefits
The company contributed $58,294, $35,348 and $145,051 to the superannuation plan
during the period ended June 30, 1999, June 30, 1998 and fiscal 1999,
respectively.
2.8.2 Provident fund benefits
In addition, the company contributed $259,539, $180,569 and $812,117 to the
provident fund plan during the period ended June 30, 1999, June 30, 1998 and
fiscal 1999, respectively.
2.9 Preferred stock of subsidiary
In September 1997, the company's subsidiary, Yantra, sold 5,000,000 shares of
Series A Convertible Preferred Stock, par value $0.01 per share ("Series A
Convertible Preferred") at $0.75 per share for $3,750,000 in cash. The related
offering costs of $49,853 were offset against the proceeds of the issue. Of
these, 2,000,000 shares were issued to the company and 3,000,000 shares were
issued to third party investors. The preferred stock issued to the company is
eliminated upon consolidation. Preferred stock issued to third party investors
is reported in the balance sheet as preferred stock of subsidiary.
In August 1998, Yantra sold 4,800,000 shares of Series B Convertible Preferred
Stock, par value $0.01 per share ("Series B Convertible Preferred") at $1.25 per
share for $6,000,000 in cash to venture capitalists. The related offering costs
of $44,416 were offset against the proceeds of the issue. In connection with
this sale, Yantra issued warrants to purchase 810,811 shares of Series B-1
Convertible Preferred Stock, par value $0.01 per share ("Series B-1 Convertible
Preferred"), at $0.01 per share for $8,108 in cash. Such warrants are
immediately exercisable and expire in seven years. The exercise price of the
warrants is based upon the then current market price of the Series B-1
Convertible Preferred at the time of exercise.
The holders of Series A Convertible Preferred are entitled to the following
rights, privileges and restrictions:
Holders of Series A Convertible Preferred vote with holders of common stock on
an as-converted basis, except as otherwise required by Delaware law. The Series
A Convertible Preferred are convertible into common stock at a 1:1 ratio
(subject to certain adjustments): (i) automatically in the event of an initial
public offering with gross proceeds of $10,000,000 or more; or (ii) at any time
at the holder's option. The holders of Series A Convertible Preferred are
entitled to a 6% cumulative dividend ($0.045 per share) and to receive
additional dividends at the same rate of dividends, if any, declared and paid on
the common stock, calculated on an as-converted basis. Upon a liquidation or
sale of Yantra, holders of the Series A Convertible Preferred are entitled to a
liquidation preference of $0.75 per share plus accrued and unpaid dividends; and
any remaining assets will be distributed to holders of the common stock. The
Series A Convertible Preferred is redeemable at the election of holders of 75%
of the outstanding shares of Series A Convertible Preferred at any time after
September 29, 2004 at a redemption price of $0.75 per share plus accrued but
unpaid dividends.
The holders of Series B and B-1 Convertible Preferred are entitled to similar
rights, privileges and restrictions as that of Series A Convertible Preferred.
In October 1998, Infosys sold 1,363,637 shares of Series A Convertible Preferred
in Yantra, having a cost basis of $879,042 to a third party investor for
$1,500,000 thereby recognizing a gain of $620,958 and reducing its voting
interest in Yantra to approximately 47%. The company presently accounts for
Yantra by the equity method. De-consolidation of Yantra has resulted in a credit
to the company's retained earnings of an amount of $2,468,831 representing the
excess of Yantra's losses previously recognized by the company, amounting to
$4,445,903, over the company's residual investment basis in Yantra amounting to
$1,977,072. The net assets and liabilities of Yantra as of March 31, 1998 and
October 20, 1998 (unaudited) respectively, are presented below:
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
October 20, 1998 March 31, 1998
(unaudited)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred stock (net of Infosys' holdings) $ 9,485,228 $2,317,500
Current liabilities 1,288,913 325,947
- ----------------------------------------------------------------------------------------------------
Total liabilities 10,774,141 2,643,447
Current assets 7,422,303 2,836,372
Property, plant and equipment 491,044 243,196
Other assets 391,963 10,314
- ----------------------------------------------------------------------------------------------------
Total assets $ 8,305,310 $3,089,882
- ----------------------------------------------------------------------------------------------------
Net (Assets)/Liabilities $ 2,468,831 $ (446,435)
====================================================================================================
</TABLE>
2.10 Stockholders' equity
The company has only one class of capital stock referred to herein as equity
shares. In fiscal 1999, the board of directors authorized a two-for-one stock
split of the company's equity shares effected in the form of a stock dividend.
All references in the financial statements to number of shares, per share
amounts and market prices of the company's equity shares have been retroactively
restated to reflect the increased number of shares outstanding resulting from
the stock split.
2.11 Equity shares
Voting
Each holder of equity shares is entitled to one vote per share.
Dividends
Should the company declare and pay dividends, such dividends will be paid in
Indian Rupees and is paid pro rata from the date of holding such shares.
Indian law mandates that any dividend be declared out of distributable profits
only after the transfer of up to 10% of net income computed in accordance with
current regulations to a general reserve. Also, the remittance of dividends
outside India is governed by Indian law on foreign exchange. Such dividend
payments are also subject to applicable withholding taxes. The company declared
a cash dividend of $3,152,863 during fiscal 1999.
Liquidation
In the event of any liquidation of the company, the holders of common stock
shall be entitled to receive all of the remaining assets of the company, after
distribution of all preferential amounts, if any. Such amounts will be in
proportion to the number of shares of equity shares held by the shareholders.
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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Three months ended Year ended
June 30, 1999 June 30, 1998 March 31, 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income and others $1,313,329 $218,690 $ 916,040
Gain on sale of investment in subsidiary - - 620,958
Exchange differences on translation
of foreign currency deposits 1,897,372 - -
- ----------------------------------------------------------------------------------------------------
$3,210,701 $218,690 $1,536,998
====================================================================================================
</TABLE>
2.13 Operating leases
The company has various operating leases for office buildings that are renewable
on a periodic basis at its option. Rental expense for operating leases for the
period ended June 30, 1999, June 30, 1998 and fiscal 1999 were $479,608,
$420,234 and $1,770,413, respectively. The operating leases are can be cancelled
at the company's option.
2.14 Research and development
Selling, general and administrative expenses in the accompanying statements of
income include research and development expenses of $378,983, $368,846 and
$2,819,326, for the period ended June 30, 1999, June 30, 1998 and fiscal 1999,
respectively.
<PAGE>
2.15 Employees Stock Offer Plan
1994 Employees Stock Offer Plan. In September 1994, the company established the
Employees Stock Offer Plan ("ESOP") which provides for the issuance of 3,000,000
warrants (as adjusted for the stock split effective June 1997 and December 1998)
to eligible employees. The warrants were issued to an employee welfare trust
(the "Trust") at Re. 1 each. The warrants were purchased by the Trust using the
proceeds of a loan obtained from the company. The Trust holds the warrants and
transfers them to eligible employees. The warrants are transferred to employees
at Re. 1 each and each warrant entitles the holder to purchase one of the
company's equity shares at a price of Indian Rs. 100 per share. The warrants and
the equity shares received upon the exercise of warrants are subject to a five-
year aggregate vesting period from the date of issue of warrants to employees.
The warrants expire upon the earlier of five years from the date of issue or
September 1999. The fair market value of each warrant is the market price of the
underlying equity shares on the date of the grant.
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
with the proceeds of a loan obtained from the company. In connection with the
warrant exercise and the share dividend, on an adjusted basis, 1,505,600 equity
shares were issued to employees of the company who exercised stock purchase
rights and 1,494,400 equity shares were issued to the Trust for future issuance
to employees pursuant to the ESOP. Following such exercise, there were no longer
any rights to purchase equity shares from the company in connection with the
ESOP. Only equity shares held by the Trust remained for future issues to
employees, subject to vesting provisions. The equity shares acquired upon the
exercise of the warrants vests 100% upon the completion of five years of
service. The warrant holders were entitled to exercise early, but the shares
received are subject to the five year vesting period. As of June 30, 1999, the
company's outstanding equity shares included 228,200 shares held by the Trust of
which 177,500 were allotted to employees, subject to vesting provisions and have
been included in the calculation of diluted earnings per share. The balance
50,700 equity shares have not been considered outstanding in the diluted
earnings per share calculations. The warrants allotted and the underlying equity
shares are not subject to any repurchase obligations by the company.
The company has elected to use the intrinsic value-based method of APB Opinion
No. 25 to account for its employee stock-based compensation plan. During the
period ended June 30, 1999 and fiscal 1999, the company recorded deferred
compensation of $1,029,649 and $30,407,892, respectively, for the difference, on
the grant date, between the exercise price and the fair value as determined by
quoted market prices of the common stock underlying the warrants. The deferred
compensation is amortized on a straight-line basis over the vesting period of
the warrants/equity shares.
In fiscal 1999, the company declared a stock split of two equity shares for each
equity share outstanding to all its shareholders including participants in the
ESOP in the form of a stock dividend and consequently recognized an accelerated
compensation charge at the time of the stock dividend amounting to $12,906,962.
1998 Stock Option Plan. In January 1998, the company established the 1998 Stock
Option Plan (the "1998 Plan") which provides for the issuance of stock options
to employees of the company. The 1998 Plan was approved by the board of
directors in December 1997 and by the shareholders in January 1998. The
Government of India has approved the 1998 Plan, subject to a limit of $50
million on the aggregate market value of the equity shares reserved pursuant to
the 1998 Plan. Accordingly, the total equity shares reserved for issuance may be
reduced by the board of directors from time to time to comply with the
Government of India's $50 million limit. A total of 800,000 equity shares are
currently reserved for issuance pursuant to the 1998 Plan. Unless terminated
sooner, the 1998 plan will terminate automatically in January 2008. All options
issued under the 1998 Plan will be exercisable for American Depositary Shares
("ADSs") represented by equity shares. The 1998 Plan may be administered by the
board of directors or a committee of the board. Options to acquire an aggregate
of 106,500 equity shares were granted at an exercise price equal to the U.S.
Initial Public Offering ("IPO") price of the company's ADSs, concurrent with the
company's IPO.
<PAGE>
Activity in the warrants/equity shares held by the 1994 Employees Stock Offer
Plan and 1998 Stock Option Plan during the periods is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
Shares Weighted Shares Weighted Shares Weighted
arising average arising average arising average
out of exercise out of exercise out of exercise
options price options price options price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 Employees Stock Offer Plan:
Outstanding at the
beginning of the year 164,000 518,600 518,600
Granted 15,000 $ 2.31 - 992,200 $ 1.18
Forfeited (1,500) $ 2.31 - (18,200) 1.18
Exercised - (1,328,600)
Outstanding at the end of the year 177,500 518,600 164,000
Exercisable at the end of the year
Weighted-average fair value of
grants during the period
at less than market 70.95 - 36.85
1998 Stock Option Plan:
Outstanding at the
beginning of the year 106,500 - - - - -
Granted - - - - 106,500 $ 68.00
Forfeited - - - - - -
Exercised - - - - - -
Outstanding at the end of the year 106,500 - - - 106,500 -
Exercisable at the end of the year - - - -
Weighted-average fair value of
grants during the year - - - - 68.00 -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding as of
June 30, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Range of Number of Weighted Weighted Number of Weighted
exercise Price shares arising average average shares arising average
out of options remaining exercise out of options exercise
contractual life price price
- ------------------------------------------------------------------------------------------------------------------------------------
$ 0.69-$ 68.00 284,000 3.06 years $26.98 284,000 $26.98
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1999 Employees Stock Option Plan. In fiscal 2000, the Company established the
1999 Employees Stock Option Plan (the "1999 Plan"). The 1999 Plan was approved
by the share holders and the Board of Directors in June 1999. The 1999 Plan
provides for the issuance of 3,300,000 equity shares to employees. The 1999 Plan
is administered by a Compensation Committee comprised of a maximum of seven
members, the majority 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. Fair market
value means the closing price of the company's shares on the stock exchange that
has 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 also be issued to employees at exercise prices that are less than
fair market value only if specifically approved by the members of the company in
a general meeting. As of June 30, 1999, no options were issued to employees
under the 1999 Plan.
<PAGE>
2.16 Income taxes
The provision for income taxes was composed of:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Three months ended Year ended
- ----------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes
Domestic taxes $ 642,873 $ 156,470 $ 777,351
Foreign taxes 1,227,303 565,699 4,725,726
- ----------------------------------------------------------------------------------------------------
1,870,176 722,169 5,503,077
Deferred taxes
Domestic taxes 336,126 (59,948) (625,427)
Foreign taxes - - -
- ----------------------------------------------------------------------------------------------------
336,126 (59,948) (625,427)
- ----------------------------------------------------------------------------------------------------
Aggregate taxes $2,206,302 $ 662,221 $4,877,650
====================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Property, plant and equipment $1,379,249 $1,149,896 $2,315,375
- ----------------------------------------------------------------------------------------------------
1,379,249 1,149,896 2,315,375
- ----------------------------------------------------------------------------------------------------
Less: Valuation allowance - (600,000)
Net deferred tax assets $1,379,249 $1,149,896 $1,715,375
</TABLE>
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 June 30, 1999. 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 carryforward period are
reduced.
The difference in net deferred tax expense (benefit) during the period ended
June 30, 1999, June 30, 1998 and fiscal 1999 has been allocated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Three months ended Year ended
- -----------------------------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense/ (benefit) allocated to:
Continuing operations $ 336,126 $ (59,948) $ (625,427)
- -----------------------------------------------------------------------------------------------------------------------------
$ 336,126 $ (59,948) $ (625,427)
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
Net income before taxes $15,517,181 $5,460,034 $ 22,323,738
Enacted tax rates in India 38.5% 35.0% 35.0%
- -----------------------------------------------------------------------------------------------------------------------------
Computed expected tax expense 5,974,115 1,911,012 7,813,308
Less: Tax effect due to non-taxable
export income (5,916,567) (1,888,761) (7,680,942)
Others 378,349 74,271 19,558
Effect of tax rate change 543,102 - -
Effect of prior period tax adjustments - - -
- -----------------------------------------------------------------------------------------------------------------------------
Provision for Indian income tax 978,999 96,522 151,924
Effect of tax on foreign income 1,227,303 565,699 3,701,898
Effect of prior period foreign tax adjustments - - 1,023,828
- -----------------------------------------------------------------------------------------------------------------------------
Total current taxes $ 2,206,302 $ 662,221 $ 4,877,650
=============================================================================================================================
</TABLE>
17
<PAGE>
The provision for foreign taxes is due to income taxes payable overseas,
principally in the United States.
At present, in India, profits from export activities are deductible from taxable
income. Further, most of the company's operations come from "100% export
oriented units", which are entitled to a tax holiday for a period of ten years
from the date of commencement of operations.
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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per equity share -
weighted average number of
common shares outstanding 32,844,333 30,540,000 30,689,425
Effect of dilutive common equivalent shares -
stock options outstanding - 41,664 64,265
- -----------------------------------------------------------------------------------------------------------
Diluted earnings per equity share -
weighted average number of common shares
and common equivalent shares outstanding 32,844,333 30,581,664 30,753,690
- -----------------------------------------------------------------------------------------------------------
</TABLE>
2.18 Lines of credit
The company has a line of credit from its bankers for its working capital
requirement of $1,200,000, bearing interest at prime lending rates as applicable
from time to time. As of June 30, 1999, the prime lending rate for all its
bankers was 13.0%. This facility is secured by inventories and accounts
receivable. The line of credit contains certain financial covenants and
restrictions on indebtedness and is renewable every 12 months. As of June 30,
1999, the company had no balance outstanding under this facility.
2.19 Financial instruments
Foreign exchange forward contracts
The company enters into foreign exchange forward contracts to offset the foreign
currency risk arising from the accounts receivable denominated in currencies
other than the Indian rupee, primarily the US dollar.
The counterparty to the company's foreign currency forward contracts is
generally a bank. The company considers that risks or economic consequences of
non-performance by the counterparty are not material.
There were no significant foreign exchange gains and losses during the period
ended June 30, 1999, June 30, 1998 and fiscal 1999. The table, below,
summarizes -by currency - the contractual amounts of the company's open foreign
exchange forward contracts as of June 30, 1999. The "sell" amounts represent the
Indian rupee equivalent of contracts to sell foreign currencies.
- -----------------------------------------------------------------------------
As of Type of contract Currency Contract amount
- -----------------------------------------------------------------------------
June 30, 1999 Sell US dollars 6,000,000
All the above contracts mature within a period of one year. The fair value of
the foreign currency contracts as of March 31, 1999 was $5,970,235.
2.20 Segment reporting
2.20.1 Revenue by geographic area
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Three months ended Year ended
- ---------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North America $30,754,911 $20,006,656 $ 99,203,989
Europe 6,512,367 1,958,966 11,302,791
India 2,064,547 1,421,815 2,051,492
Rest of the world 397,075 277,651 8,396,954
- ---------------------------------------------------------------------------------------------
$39,728,900 $23,665,088 $120,955,226
=============================================================================================
</TABLE>
2.20.2 Significant clients
One client accounted for 11.4% of the total revenue for the period ended June
30, 1998. As of June 30, 1999, the accounts receivable from that client was
$1,454,860.
2.21 Year 2000
The company believes that it has identified the major systems, software
applications and related equipment used in connection with its internal
operations that must be modified or upgraded in order to minimize the
possibility of a material disruption to its business. The company has converted
its financial applications software to programs certified by the suppliers as
Year 2000 compliant. In the tests conducted to date on other systems, the
company
18
<PAGE>
has not found any significant problems arising in existing systems due
to the Year 2000 problem. The company is currently in the process of modifying
and upgrading the affected systems and expects these to be completed by August
31, 1999. All these activities are carried out by internal resources with some
help from the vendors who supplied the systems.
Although the Company maintains redundant software facilities and satellite
communication links, any sustained disruption of the Company's ability to
transmit voice and data through satellite and telephone communications would
have a material adverse effect on the Company's business, results of operations
and financial condition. Though most vendors and service providers have assured
their Year 2000 readiness, certain public communication suppliers have not been
able to guarantee this. The Company is keeping in touch with these suppliers to
expedite their Year 2000 readiness.
All costs associated with carrying out the company's plan to tackle the year
2000 problem are being expensed as incurred and have not been significant to
date. Contingency plans are in place in the event of failure of equipment
provided to the company by external vendors such as satellite and
telecommunication links, etc.
2.22 Commitments and contingencies
The company has various letters of credit outstanding to different vendors
totaling $185,842 as of June 30, 1998. The letters of credit are generally
established for the import of hardware, software and other capital items.
The company has outstanding performance guarantees for various statutory
purposes totaling $652,175, $782,226 and $760,329 as of June 30, 1999, June 30,
1998 and fiscal 1999 respectively. These guarantees are generally provided to
governmental agencies.
2.23 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.
2.24 Recent accounting pronouncements
The American Institute of Certified Public Accountants recently issued Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". SOP 98-1 requires that certain costs related to
the development of software for internal-use be capitalized or amortized over
the estimated useful life of the software. SOP 98-1 is effective for financial
statements issued for fiscal years beginning after December 15, 1998. The
company estimates that all software acquired for internal use has a relatively
short useful life, usually less than a year. The company, therefore, currently
charges, to income, the cost of acquiring such software, entirely at the time of
acquisition. The company does not believe that adopting the provisions of SOP
98-1 will have a significant impact on its financial statements.
Item 2. Management Discussion and Analysis of Financial Conditions 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" and "expect" and other
similar expressions as they relate to the company or its business are intended
to identify such forward-looking statements. The company undertakes 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 SEC, the factors discussed in the Form
20-F filed with the SEC, and those factors discussed elsewhere in this 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 the company's financial statements
included herein and the notes thereto.
2.1 Overview
Infosys is an India-based IT services company formed in 1981 that utilizes an
extensive offshore infrastructure to provide managed software solutions to
clients worldwide. The company's services include custom software development,
maintenance (including Year 2000 conversion) and re-engineering services as well
as dedicated Offshore Software Development Centers (OSDC) for certain clients.
From fiscal 1995 through fiscal 1999, total revenue increased from $18.1 million
to $120.96 million, the number of the company's software professionals worldwide
increased from approximately 585 to approximately 3,160 and the number of its
India-based software development centers increased from two to eleven.
The company's revenues are generated principally from software services provided
on either a fixed-price, fixed-time frame or a time-and-materials basis.
Revenues from services provided on a time-and-materials basis are recognized in
the month that services are provided and related costs are incurred. Revenues
from services provided on a fixed-price, fixed-time frame basis are recognized
upon the achievement of specified milestones identified in the related
contracts, in accordance with the percentage of completion method. Cost of
completion
19
<PAGE>
estimates are subject to periodic revisions. Although the company has revised
its project completion estimates from time to time, such revisions have not, to
date, had a material adverse effect on the company's operating results or
financial condition. Since the company bears the risk of cost overruns and
inflation with respect to its fixed-price, fixed-time frame projects, the
company's 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. The company also
develops and markets certain software products, including banking software that
is licensed primarily to clients in Asia and Africa. Such software products
represented 1.5% of total revenue during the quarter ended June 30,1999. The
company derived 77.4% of its total revenue from North America, 16.4% from
Europe, 1.0% from India and 5.2% from the rest of the world (ROW) during the
quarter ended June 30, 1999.
In first quarter of fiscal 2000 and fiscal 1999, the company derived 12.1% and
24.0% of its total revenue, respectively, from Year 2000 conversion projects.
The company expects that Year 2000 conversion projects will decline
substantially during fiscal 2000. In line with its risk management policies, the
company has consistently limited its dependence on Year 2000 conversion
projects, and has only accepted such projects where there are opportunities to
create long-term relationships with its clients. The company expects that the
decline in Year 2000 conversion projects will be adequately made up by other
projects from these and other clients, and that the decline in Year 2000
conversion projects will not have a material adverse effect upon the company's
business, financial condition and results of operations. However, there can be
no assurance that: the company will be successful in generating additional
business from its Year 2000 clients for other services; the company will be
successful in replacing Year 2000 conversion projects with other projects as the
Year 2000 business declines; or the margins from any such future projects will
be comparable to those obtained from Year 2000 conversion projects.
Cost of revenue consists, primarily, of salary and other compensation expenses,
depreciation, data communications expenses, computer maintenance, cost of
software for internal use, certain pre-opening expenses for new software
development centers, and foreign travel expenses. The company depreciates
personal computers and servers over two years and mainframe computers over three
years. Third party software is expensed in the period in which it is acquired.
The company assumes full project management responsibility for each project that
it undertakes. Approximately 80% of the work on a project is performed at the
company's facilities in India, and the balance of the work is performed at the
client site. The proportions of work performed at company facilities and at
client sites varies from quarter to quarter. The company charges higher rates
and incurs higher compensation expenses for work performed at the client site.
Services performed at a client site typically generate higher revenues per
capita, but at a lower gross margin, than the same quantum of services performed
at company facilities in India. As a result, total revenue, cost of revenue and
gross profit in absolute terms, and as a percentage of revenue, fluctuate from
quarter to quarter based on the proportions of work performed offshore at
company facilities and at client sites.
Revenue and gross profit are also affected by employee utilization rates.
Utilization rates depend, among other factors, on the number of employees
enrolled for in-house training programs, particularly the 14-week training
course provided to new employees. Since a large percentage of new hires begin
their training in the second quarter, utilization rates have historically been
lower in the second and third quarters of a fiscal year.
Selling, general and administrative expenses consist primarily of expenses
relating to salary and other compensation, travel, marketing,
telecommunications, management, finance, administration and rentals.
Other income includes interest income and income from the sale of special import
licenses. Under current export-import policy, exports by Indian companies
generate credits for the exporter called "special import licenses". These
credits can be sold and also used for the import of goods included on a
"restricted list" maintained by the Government of India. The value of these
special import licenses has declined over time, as the restricted list has been
shortened. The company's general policy is to sell such special import licenses
in the period in which it receives such credits.
2.2 Results of operations
2.2.1 Quarter ended June 30, 1999 compared to quarter ended June 30, 1998
Revenue. Total revenue was $39.7 million for the quarter ended June 30, 1999,
representing an increase of 67.9% over total revenue of $23.7 million during the
same period in the prior year. Revenue continued to increase in all segments of
the company's services. Custom software development, re-engineering, maintenance
and software development through OSDCs formed a majority of the company's
revenues. The increase in revenue was attributable, in part, to a substantial
increase in business from certain existing clients and from certain new clients,
particularly in the insurance, banking and financial services industries. Net
sales of Bancs2000 and other products represented 1.5% of total revenue for the
quarter ended June 30, 1999 as compared to 1.4% during the same period in the
prior year. Revenue from services represented 98.5% of total revenue for the
quarter ended June 30, 1999 as compared to 98.6% during the same period in the
prior year. Revenue from fixed-price, fixed-time frame contracts and from time-
and-materials contracts represented 30.9% and 69.1%, respectively, of total
revenue for the quarter ended June 30, 1999 as compared to 37.0% and 63.0%,
respectively, during the same period in the prior year. Revenue from North
America and Europe represented 77.4% and 16.4%, respectively, of total revenue
20
<PAGE>
for the quarter ended June 30, 1999 as compared to 84.5% and 8.3%, respectively,
during the same period in the prior year.
Cost of Revenue. Cost of revenue was $20.6 million for the quarter ended June
30, 1999, representing an increase of 52.3% over the cost of revenue of $13.5
million for the same period in the prior year. The cost of revenue represented
51.9% and 57.2% of total revenues for the quarter ended June 30, 1999 and June
30, 1998, respectively. This decrease in costs as a percentage of total revenue
was attributable to a favorable business mix and a decrease in depreciation and
software expenses, which represented 7.4% of total revenues for the quarter
ended June 30, 1999 as compared to 9.3% of total revenue during the same period
in the prior year. The cost of revenue for services represented 51.0% and 55.8%
of revenues for services for the quarter ended June 30, 1999 and June 30, 1998,
respectively. Cost of revenue for product sales represented 108.4% and 152.6% of
revenues for product sales for the quarter ended June 30,1999 and June 30,1998,
respectively.
Gross Profit. Gross profit was $19.1 million for the quarter ended June 30,1999
representing an increase of 88.7% over the gross profit of $10.1 million for the
same period in the prior year. This increase was attributable to a favorable
business mix and a decrease in depreciation and software expenses. As a
percentage of total revenue, the gross profit increased to 48.1% for the quarter
ended June 30, 1999 from 42.8% for the same period in the prior year. The gross
profit from services was $19.2 million for the quarter ended June 30, 1999, an
increase of 85.9% over the gross profit of $10.3 million for the same period in
the prior year. The gross loss from the sales of Bancs2000 and other products
was $0.05 million for the quarter ended June 30, 1999, a decrease of 72.1% from
the gross loss of $0.18 million for the same period in the prior year. As a
percentage of service revenues, the gross profit from services increased to
49.0% for the quarter ended June 30,1999 from 44.2% for the same period in the
prior year. As a percentage of product revenue, the gross loss from product
sales decreased to 8.4% for the quarter ended June 30,1999 from gross loss of
52.6% for the same period in the prior year.
Selling, General and Administrative expenses. Selling, general and
administrative expenses were $5.6 million for the quarter ended June 30,1999, an
increase of 53.6% over selling, general and administrative expenses of $3.6
million for the same period in the prior year. Selling, general and
administrative expenses were 14.0% and 15.3% of total revenue for the quarter
ended June 30, 1999 and June 30, 1998, respectively. This decrease in expense as
a percentage of revenues was a result of the company's ability to increase
revenues in the current quarter without a proportionate increase in management,
finance, administrative, and occupancy costs. Salaries for support staff
represented 6.0% of total revenue for the quarter ended June 30, 1999, while
rent and office maintenance represented 1.9% of total revenue for the quarter
ended June 30, 1999 as compared to 5.0% and 3.0%, respectively, for the same
period in the prior year.
Amortization of Deferred Stock Compensation Expense. Amortization of deferred
stock compensation expense was $1.3 million for the quarter ended June 30, 1999,
an increase of 170.8% over amortization of deferred stock compensation expense
of $0.5 million for the same period in the prior year. Compensation expense
increased for new grants of stock purchase rights in part because of the rising
market price of the equity shares. The increase in deferred stock compensation
expense also reflects the continued amortization of compensation expense from
stock purchase rights granted in prior periods.
Operating Income. The operating income was $12.3 million for the quarter ended
June 30, 1999, an increase of 103.4% over the operating income of $6.0 million
for the same period in the prior year. As a percentage of revenues, operating
income increased to 31.0% for the quarter ended June 30, 1999 from 25.6% for the
same period in the prior year.
Other Income. Other income was $3.2 million for the quarter ended June 30, 1999
as compared to $0.2 million for the same period in the prior year. Other income
during the quarter ended June 30, 1999 includes $1.9 million arising due to
exchange differences on translation of foreign currency deposits and interest of
$0.8 million earned on deployment of funds raised through the issue of American
Depositary shares.
Provision for Income Taxes. Provision for income taxes was $2.2 million for the
quarter ended June 30, 1999 as compared to $0.7 million for the same period in
the prior year. The company's effective tax rate increased to 14.2% for the
quarter ended June 30, 1999 as compared to 12.2% for the same period in the
prior year. The effective tax rate increased due to an increase in foreign tax
liabilities offset, in part, by a decrease in Indian tax liability resulting
from a higher proportion of the company's operations qualifying for Indian tax
exemptions applicable to designated Software Technology Parks.
Net Income. The net income was $13.3 million for the quarter ended June 30,
1999, an increase of 178.7% over the net income of $4.8 million for the same
period in the prior year. As a percentage of total revenue, the net income
increased to 33.5% for the quarter ended June 30, 1999 from 20.2% for the same
period in the prior year.
2.3 Liquidity and capital resources
The growth of the company has been financed largely from cash generated from
operations and, to a lesser extent, from the proceeds of equity issues and
borrowings. In 1993, the company raised approximately $4.4 million in gross
aggregate proceeds from its initial public offering of equity shares on Indian
stock exchanges. In 1994, the company raised an additional $7.7 million through
private placements of its equity shares with foreign institutional investors.
During 1999, the company raised $66.3 million through issue of American
Depositary Receipts (ADRs) with foreign investors. As on June 30, 1999, the
company had $102.6 million in cash
21
<PAGE>
and cash equivalents, $118.0 million in working capital and no outstanding bank
borrowings. As on June 30, 1999, the company also had an aggregate facility of
$1.2 million in working capital line of credit from two commercial banks.
Net cash provided by operating activities was $13.4 million and $3.9 million in
the quarter ended June 30, 1999 in fiscal 2000, and the corresponding periods in
fiscal 1999 respectively. Net cash provided by operations consisted primarily of
net income offset, in part, by an increase in accounts receivable. In recent
years, accounts receivable have increased at a rate faster than sales. Accounts
receivable as a percentage of total revenue, represented 15.5% and 13.1%, for
the quarter ended June 30, 1999 in fiscal 2000, and the corresponding periods in
fiscal 1999 respectively. Further, the average days outstanding of accounts
receivable has increased in the 31-60, 61-90 and greater than 90 day aging
periods and decreased in the 0-30 day aging period. The company believes that
this is due to an increase in proportion of revenue from large companies, who
tend to have better cash management practices than smaller companies. The
company does not expect significant additional increases in the average-days-
outstanding of its accounts receivable. The company's policy on accounts
receivable includes a periodic review of all such outstandings. The company
reviews, among other things, the age, amount, and quality of each account
receivable; the relationship with, size of, and history of the client; and the
quality of service delivered by the company for the client to determine the
classification of an account receivable. Should the review so demand, the
company will classify the accounts into secured and unsecured (doubtful)
accounts. The company makes provisions for all accounts receivable classified as
unsecured or doubtful and for all accounts receivable that are outstanding more
than 180 days.
Prepaid expenses and other current assets increased by $0.9 million and $0.1
million during the quarter ended June 30, 1999 in fiscal 2000, and the
corresponding periods in fiscal 1999 respectively. The increase during the
quarter ended June 30,1999 was primarily due to loans to employees, which
increased by $0.7 million.
Unearned revenue as on June 30, 1999 was $5.2 million and consists primarily of
advance client billings on fixed-price, fixed-time frame contracts for which
related costs were not yet incurred.
Net cash used in investing activities was $5.3 million and $2.2 million in the
quarter ended June 30, 1999 in fiscal 2000, and the corresponding periods in
fiscal 1999, respectively. Net cash used in investing activities in the first
quarter of fiscal 1999 and 1998 consisted primarily of $4.3 million and $1.5
million, respectively, for property, plant and equipment.
Publicly-traded Indian companies customarily pay dividends. For fiscal 1999, the
company declared a dividend of $3.2 million, which was paid partly in fiscal
1999. For fiscal 1998, the company declared a dividend of $1.5 million, which
was paid partly in fiscal 1998 and partly in fiscal 1999.
As on June 30, 1999, the company had contractual commitments for capital
expenditure of $7.9 million. The company has not yet made contractual
commitments for the majority of its budgeted capital expenditure.
2.4 Reconciliation between the US and the Indian GAAP
There are material differences between the financial statements prepared as per
the Indian and the US GAAP. The material differences arise due to provision for
deferred taxes, accounting for stock-based compensation and valuation of short-
term investments, which are marked to market and adjusted against retained
earnings, and consolidation of accounts of subsidiary, as required by US GAAP.
The Indian GAAP does not require provision for deferred taxes, amortization of
deferred stock compensation, consolidation of accounts of subsidiaries and only
requires a provision for diminution in the value of current investments.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Reconciliation of net income Three months ended
June 30, 1999 June 30, 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net profit as per Indian GAAP $14,119,925 $5,767,716
Adjustments:
Loss from Yantra Corporation accounted on consolidation - (830,244)
Amortization of deferred stock compensation (1,250,100) (461,577)
Deferred income taxes (336,126) 59,948
Provision for investment in subsidiary 239,923
Provision for contingencies 777,180 -
Net income as per US GAAP $13,310,879 $4,775,766
- ---------------------------------------------------------------------------------------------
</TABLE>
2.5 Investment in Yantra Corporation
Prior to October 20, 1998, the company owned a majority of the voting stock of
Yantra which develops and markets an open system software package for warehouse
management. As a result, all of Yantra's operating losses through October 20,
1998 were recognized in the company's consolidated financial statements. For
fiscal 1998 and fiscal 1999, the Yantra losses recognized in the company's
financial statements were $1.6 million and $2.0 million, respectively. On
October 20, 1998, the company sold a portion of the Yantra shares held by the
company, thereby reducing the company's interest to less than one-half of the
voting stock of Yantra. As a result, Yantra's results after October 20, 1998
have not been recognized in the company's financial statements under U.S. GAAP.
On June 14,1999, Yantra issued Series C Preferred Stock amounting to $15.0
million to various existing and new investors. Yantra's revenues were $1.3
million and $2.0 million for fiscal 1998 and for the period ended
22
<PAGE>
October 20, 1998, respectively, while gross profits were $574,000 and $546,000,
respectively, for these same periods. Yantra's revenues were 1.9% and 2.3% of
the company's revenues for fiscal 1998 and for the period ended October 20,
1998, respectively. Yantra's gross profits were 2.0% and 1.4% of the company's
gross profits for these same periods. No minority interest has been recorded
because all of the common stock is owned by the company.
2.6 Principles of Currency Translation
In the quarter ending June 30, 1999, over 95% of the company's revenues were
generated in U.S. dollars and European currencies. A majority of the company's
expenses were incurred in rupees, and the balance was incurred in U.S. dollars
and European currencies. The functional currency of the company is the Indian
rupee. Revenues generated in foreign currencies are translated into Indian
rupees using the exchange rate prevailing on the date the revenue is recognized.
Expenses of overseas operations incurred in foreign currencies are translated
into Indian rupees at either the monthly average exchange rate or the exchange
rate on the date the expense is incurred, depending on the source of payment.
Assets and liabilities of foreign branches held in foreign currency are
translated into Indian rupees at the end of the applicable reporting period. For
U.S. GAAP reporting, the financial statements are translated into U.S. 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
shareholders' equity. The company expects that a majority of its revenues will
continue to be generated in U.S. dollars for the foreseeable future and that a
significant portion of the company's expenses, including personnel costs as well
as capital and operating expenditures, will continue to be denominated in
rupees. Consequently, the company's results of operations will be adversely
affected to the extent the rupee appreciates against the U.S. dollar.
2.7 Income Tax Matters
The company benefits from certain significant tax incentives provided to
software firms under the 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").
Under present law, the Export Deduction remains available after expiration of
the STP Tax Holiday. All but one of the company's software development
facilities are located in a designated Software Technology Park. The benefits of
these tax incentive programs have historically resulted in an effective tax rate
for the company well below statutory rates, and the company expects this trend
to continue absent a change in policy by the Government of India. There is no
assurance that the Government of India will continue to provide these
incentives. The company pays corporate income tax in foreign countries on income
derived from operations in those countries .
2.8 Effects of Inflation
The company's most significant costs are the salaries and related benefits for
its employees. Competition in India and the United States for IT professionals
with the advanced technological skills necessary to perform the services offered
by the company have caused wages to increase at a rate greater than the general
rate of inflation. As with other IT service providers, the company must
adequately anticipate wage increases and other cost increases, particularly on
its long-term contracts. Historically, the company's wage costs in India have
been significantly lower than prevailing wage costs in the United States for
comparably-skilled employees, although wage costs in India are presently
increasing at a faster rate than in the United States. There can be no assurance
that the company will be able to recover cost increases through increases in the
prices that it charges for its services in the United States.
2.9 Year 2000 Compliance
Many existing computer systems, software applications and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. Others do not correctly
process "leap year" dates. As a result, such systems and applications could fail
or create erroneous results unless modified so that they can correctly process
data related to the year 2000 and beyond. As a result, during the last three
years, the company has continued to assess the impact that the Year 2000 problem
may have on its operations and has identified the following areas of its
business that may be affected:
Client IT Services and Products. The company has evaluated each of its IT
services and software products and believes that each is substantially Year 2000
compliant. In making such evaluations, the company has utilized its experience
in providing Year 2000 compliance services to its clients.
Internal Infrastructure. The Year 2000 problem could affect the systems,
transaction processing, computer applications and devices used by the company to
operate and monitor all major aspects of its business, including financial
systems (such as general ledger, accounts payable and payroll), customer
services, infrastructure, materials requirement planning, master project
scheduling, networks and telecommunications systems. The company believes that
it has identified the major systems, software applications and related equipment
used in connection with its internal operations that must be modified or
upgraded in order to minimize the possibility of a
23
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material disruption to its business. The company has converted its financial
applications software to programs certified by the suppliers as Year 2000
compliant and is currently in the process of modifying and upgrading all other
affected systems. All costs associated with carrying out the company's plan for
the Year 2000 problem are being expensed as incurred and have not been
significant to date. The company believes the total of such costs will not have
a material adverse effect on the company's business, results of operations and
financial condition.
Third Party Suppliers. The company relies directly and indirectly on systems
utilized by its suppliers for telecommunications, utilities, electronic hardware
and software applications. Pursuant to its service delivery model, the company
must maintain active voice and data communications between its main offices in
Bangalore, the offices of its clients and its other software development
facilities. Although the company maintains redundant software facilities and
satellite communications links, any sustained disruption of the company's
ability to transmit voice and data through satellite and telephone
communications would have a material adverse effect on the company's business,
results of operations and financial condition. To assess supplier Year 2000
readiness, the company has sent two separate questionnaires to a majority of its
third party suppliers. Though most of the vendors and service providers have
assured the company of being Year 2000 ready, certain public communication
suppliers have not been able to guarantee their Year 2000 readiness. The company
is in touch with these communication suppliers to expedite they becoming Year
2000 ready. While the company expects to resolve any significant Year 2000
problems with its suppliers in a timely manner, there can be no assurance that
these suppliers will not encounter delays or unforeseen problems that affect
their service to the company. The company currently believes that any required
upgrades, modifications or replacements of these third party systems will be
fulfilled without cost to the company and will not have a material adverse
effect on the company's business, results of operations and financial condition.
Facilities. Systems such as air conditioning and security systems at the
company's facilities may also be affected by the Year 2000 problem. These have
been assessed and found to be Year 2000 ready.
The company has put in place contingency plans to address the Year 2000 issues
that may pose a risk to its operations. Such plans may include accelerated
replacement of affected systems or software, temporary use of redundant or back-
up systems or the implementation of manual procedures. The company believes that
the most reasonably likely worst case scenario should Infosys not achieve Year
2000 Compliance is the intermittent or temporary disruption in
telecommunications, which could cause inefficiencies and delays, particularly,
delays in providing support services to clients. To minimize the impact of any
potential telecommunications disruptions, the company is also considering
temporary measures such as placing additional IT professionals at client sites.
In assessing the worst case scenario, the company has taken into account the
nature of its operations as well as the availability of its IT professionals to
attend to any internal problems that may arise. There can be no assurance that
any contingency plans implemented by the company would be adequate to meet the
company's needs without materially impacting its operations, that any such plan
would be successful or that the company's business, results of operations and
financial condition would not be materially adversely affected by the delays and
inefficiencies inherent in conducting operations in an alternative manner.
The information above contains forward-looking statements which reflect the
current views of the company with respect to Year 2000 compliance of the
company's internal systems and third party suppliers, and the related costs and
potential impact on the company's financial performance. As indicated above,
these assessments may ultimately prove to be inaccurate.
2.10 Accounting Pronouncements
The American Institute of Certified Public Accountants recently issued Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." SOP 98-1 requires that certain costs related to
the development of internal-use software be capitalized or amortized over the
estimated useful life of the software. SOP 98-1 is effective for financial
statements issued for fiscal years beginning after December 15, 1998. The
company estimates that all software acquired for internal use has a relatively
short useful life, usually less than one year. The company, therefore, currently
charges to income the cost of acquiring such software entirely at the time of
acquisition. The company does not believe that adopting the provisions of SOP
98-1 will have a significant impact on its consolidated financial statements.
2.11 Risk factors
2.11.1 Management of growth
The company has experienced significant growth in recent periods. The company's
revenues in quarter ended June 30, 1999 grew 67.9% over the quarter ended June
30, 1998. As of June 30, 1999, the company employed approximately 3,320 software
professionals worldwide with 11 software development facilities in India as
compared to approximately 2,500 with nine facilities as of June 30, 1998. The
company's growth is expected to place significant demands on its management and
other resources and will require it to continue to develop and improve its
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 the company's high
quality standards; and preserving the company's culture and values and its
entrepreneurial environment. The company's
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inability to manage its growth effectively could have a material adverse effect
on the quality of the company's services and projects, its ability to attract
clients as well as skilled personnel, its business prospects, and its results of
operations and financial condition.
2.11.2 Potential fluctuations in future operating results
Historically, the company's operating results have fluctuated, and may continue
to fluctuate in future, depending on a number of factors, including: the size,
timing and profitability of significant projects; the proportion of services
that are performed at client sites rather than at the company's offshore
facilities; the accuracy of estimates of resources and time required to complete
ongoing projects, particularly projects performed under fixed-price, fixed-time
frame contracts; a change in the mix of services provided to its clients or in
the relative proportion of services and product revenues; the timing of tax
holidays and other Government of India incentives; the effect of seasonal hiring
patterns and the time required to train and productively utilize new employees;
the size and timing of facilities expansion; unanticipated increases in wage
rates; the company's success in expanding its sales and marketing programs;
currency exchange rate fluctuations and other general economic factors. A high
percentage of the company's operating expenses, particularly personnel and
facilities, are fixed in advance of any particular quarter. As a result,
unanticipated variations in the number and timing of the company's projects or
in employee utilization rates may cause significant variations in operating
results in any particular quarter. The company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Due to all of
the foregoing factors, it is possible that in some future quarter the company's
operating results may be below the expectations of public market analysts and
investors. In such event, the market price of the equity shares and ADSs are
likely to be materially adversely affected.
2.11.3 Risks related to investments in Indian securities
The company is incorporated in India, and substantially all of its assets and a
substantial majority of its employees are located in India. Consequently, the
company's performance may be affected by changes in exchange rates and controls,
interest rates, Government of India policies, including taxation policy, as well
as political, social and economic developments affecting India.
Political and Economic Environment. During the past decade and particularly
since 1991, the Government of India has pursued policies of economic
liberalization, including significant relaxations of 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. Additionally, since 1996, the Government of India has changed three
times. The current Government of India, formed in March 1998, has announced
policies and taken initiatives that support the continuation of the economic
liberalization policies pursued by previous governments and has, in addition,
set up a special IT task force to promote the IT industry. However, the speed of
economic liberalization could change, and specific laws and policies affecting
IT companies, foreign investment, currency exchange rates and other matters
affecting investment in the company's securities could change as well. Further,
there can be no assurance that the liberalization policies will continue in the
future. A significant change in the Government of India's economic
liberalization and deregulation policies could adversely affect business and
economic conditions in India generally and the company's business in particular.
On May 13, 1998, the United States imposed economic sanctions against India in
response to India's testing of nuclear devices. While these sanctions imposed on
India have not had a material impact on the company to date, there can be no
assurance that additional economic sanctions of this nature will not be imposed,
or that such sanctions will not have a material adverse effect on the company's
business. Furthermore, financial turmoil in certain Asian countries, Russia and
elsewhere in the world has affected market prices in the world's securities
markets, including the United States and Indian markets. Continued or increased
financial downturns in these countries could cause further decreases in
securities prices on the United States and Indian exchanges, including the
market prices of the company's equity shares and its ADSs. South Asia has from
time to time experienced instances of civil unrest and hostilities among
neighboring countries. 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 and on the business of the company.
Government of India Incentives and Regulation. The company benefits from a
variety of incentives given to software firms in India, such as relief from
import duties on hardware, a tax exemption for income derived from software
exports, and tax holidays and infrastructure support for companies, such as
Infosys, operating in specially designated "Software Technology Parks". There
can be no assurance that these incentives will continue in future. Further,
there is a risk that changes in tax rates or laws affecting foreign investment,
currency exchange rates or other regulations will render the Government of
India's regulatory scheme less favorable to the company and could adversely
affect the market price of the company's equity shares and its ADSs. Should the
regulations and incentives promulgated by the Government of India become less
favorable to the company, the company's results of operations and financial
condition could be adversely affected.
Restrictions on Foreign Investment. Foreign investment in Indian securities is
generally regulated by the Foreign Exchange Regulation Act, 1973. In certain
emerging markets, including India, Global Depositary Shares and ADSs may trade
at a discount or premium, as the case may be, to the underlying shares, in part
because of restrictions on foreign ownership of the underlying shares. In
addition, under current Indian laws and regulations,
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the Depositary cannot accept deposits of outstanding equity shares and issue
ADRs evidencing ADSs representing such equity shares. Therefore, a holder of
ADSs who surrenders ADSs and withdraws equity shares is not permitted
subsequently to deposit such equity shares and obtain ADSs nor would a holder to
whom such equity shares are transferred be permitted to deposit such equity
shares. This inability to convert equity shares into ADSs increases the
probability that the price of the ADSs will not trade on par with the price of
the equity shares as quoted on the Indian stock exchanges. Holders who seek to
sell in India any equity shares withdrawn from the depositary facility and to
convert the rupee proceeds from such sale into foreign currency and repatriate
such foreign currency from India will have to obtain RBI approval for each such
transaction. Further, under current Indian regulations and practice, the
approval of the RBI is required for the sale of equity shares underlying ADSs by
a non-resident of India to a resident of India as well as for renunciation of
rights to a resident of India. There can be no assurance that any such approval
can be obtained.
Exchange Rate Fluctuations. The exchange rate between the rupee and the US
dollar has changed substantially in recent years and may fluctuate substantially
in the future. During the four-year period from March 31, 1995 through March 31,
1999, the value of the rupee against the US dollar declined by 35.2%. For
quarter ended June 30, 1999 and 1998, the company's US dollar-denominated
revenues represented 87.1% and 91.5%, respectively, of total revenue. The
company expects that a majority of its revenues will continue to be generated in
US dollars for the foreseeable future and that a significant portion of the
company's expenses, including personnel costs as well as capital and operating
expenditures, will continue to be denominated in rupees. Consequently, the
company's results of operations will be adversely affected to the extent the
rupee appreciates against the US dollar. The company has sought to reduce the
effect of exchange rate fluctuations on operating results by periodically
purchasing foreign exchange forward contracts to cover a portion of outstanding
accounts receivable. As of June 30, 1999, the company had outstanding forward
contracts of $6,000,000. 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 market exchange rate on the date of cancellation. The company uses
these instruments only as a hedging mechanism and not for speculative purposes.
There can be no assurance that the company will purchase contracts adequate to
insulate itself from foreign exchange currency risks or that any such contracts
will perform adequately as a hedging mechanism. Depreciation of the rupee will
result in foreign currency translation losses. For example, for fiscal 1998,
fiscal 1999 and the quarter ended June 30, 1999, the company's foreign currency
translation losses were approximately $3.5 million, $2.1million and $4.0 million
respectively. Fluctuations in the exchange rate between the rupee and the US
dollar also will affect the US 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 Indian rupee and the US
dollar will affect the US dollar equivalent of the Indian rupee price of equity
shares on the Indian Stock Exchanges and, as a result, are likely to affect the
market prices of the ADSs in the United States, and vice versa. 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. There can be no assurance that
holders will be able to convert rupee proceeds into US dollars or any other
currency or with respect to the rate at which any such conversion could occur.
2.11.4 Substantial investment in new facilities
As of June 30, 1999, the company had contractual commitments of $7.9 million for
capital expenditure and has budgeted for significant infrastructural expansion
in the near future. Since such an expansion will significantly increase the
company's fixed costs, the company's results of operations will be materially
adversely affected if the company is unable to grow its business
proportionately. Although the company has successfully developed new facilities
in the past, there can be no assurance that the company will not encounter cost
overruns or project delays in connection with any or all of the new facilities.
Furthermore, there can be no assurance that future financing for additional
facilities, whether within India or elsewhere, would be available on attractive
terms or at all.
2.11.5 Restrictions on US immigration
The company's professionals who work on-site at client facilities in the United
States on temporary and extended assignments are typically required to obtain
visas. As of June 30, 1999, substantially all of the company's personnel in the
United States were working pursuant to H-1B visas (418 persons) or L-1 visas
(140 persons). Although there is no limit to new L-1 petitions, there is a limit
to the number of new H-1B petitions that the United States Immigration and
Naturalization Service may approve in any government fiscal year. In years in
which this limit is reached, the company may be unable to obtain the H-1B visas
necessary to bring its critical Indian IT professionals to the United States on
an extended basis. This limit was reached in June 1999 for the US government's
fiscal year ending September 30, 1999. While the company anticipated that such
limit would be reached prior to the end of the US government's fiscal year and
made efforts to plan accordingly, there can be no assurance that the company
will continue to be able to obtain a sufficient number of H-1B visas. Changes in
existing US immigration laws that make it more difficult for the company to
obtain H-1B and L-1 visas could impair the company's ability to compete for and
provide services to clients and could have a material adverse effect on the
company's results of operations and financial condition.
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2.11.6 Risks related to international operations
While to date all of the company's software development facilities are located
in India, the company intends to develop new software development facilities in
other regions, including potentially Southeast Asia, Latin America and Europe.
The company has not yet made substantial contractual commitments to develop such
new software development facilities, and there can be no assurance that the
company will not significantly alter or reduce its proposed expansion plans. The
company's lack of experience with facilities outside of India subject the
company to further risk with regard to foreign regulation and overseas
facilities management. Increasing the number of software development facilities
and the scope of operations outside of India subjects the company to a number of
risks, including, among other things, difficulties relating to administering its
business globally, managing foreign operations, currency exchange rate
fluctuations, restrictions against the repatriation of earnings, export
requirements and restrictions, and multiple and possibly overlapping tax
structures. Such developments could have a material adverse effect on the
company's business, results of operations and financial condition.
2.11.7 Dependence on skilled personnel; risks of wage inflation
The company's ability to execute project engagements and to obtain new clients
depends, in large part, on its ability to attract, train, motivate and retain
highly skilled IT professionals, particularly project managers, software
engineers and other senior technical personnel. An inability to hire and retain
additional qualified personnel will impair the company's ability to bid for or
obtain new projects and to continue to expand its business. The company believes
that there is significant competition for IT professionals with the skills
necessary to perform the services offered by the company. There can be no
assurance that the company will be able to assimilate and manage new IT
professionals effectively. Any increase in the attrition rates experienced by
the company, particularly the rate of attrition of experienced software
engineers and project managers, would adversely affect the company's results of
operations and financial condition. There can be no assurance that the company
will be successful in recruiting and retaining a sufficient number of
replacement IT professionals with the requisite skills to replace those IT
professionals who leave. Further, there can be no assurance that the company
will be able to redeploy and retrain its IT professionals to keep pace with
continuing changes in IT, evolving standards and changing client preferences.
Historically, the company's wage costs in India have been significantly lower
than wage costs in the United States for comparably skilled IT professionals.
However, wage costs in India are presently increasing at a faster rate than
those in the United States. In the long-term, wage increases may have an adverse
effect on the company's profit margins unless the company is able to continue
increasing the efficiency and productivity of its professionals.
2.11.8 Client concentration
The company has derived, and believes that it will continue to derive, a
significant portion of its revenues from a limited number of large corporate
clients. For fiscal 1998 and fiscal 1999 and the quarter ended June 30, 1999,
the company's largest client accounted for 10.5%, 6.4% and 8.8% respectively, of
the company's total revenue and its five largest clients accounted for 35.1%,
28.4% and 30.6% respectively, of the company's total revenue. The volume of work
performed for specific clients is likely to vary from year to year, particularly
since the company is usually not the exclusive outside service provider for its
clients. Thus, a major client in one year may not provide the same level of
revenues in a subsequent year. The loss of any large client could have a
material adverse effect on the company's results of operations and financial
condition. Since many of the contracted projects are critical to the operations
of its clients' businesses, any failure to meet client expectations could result
in a cancellation or non-renewal of a contract. However, there are a number of
factors other than the company's performance that could cause the loss of a
client and that may not be predictable. For example, in 1995, the company chose
to reduce significantly the services provided to its then-largest client rather
than accept the price reductions and increased company resources sought by the
client. In other circumstances, the company reduced significantly the services
provided to its 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. There
can be no assurance that the same circumstances may not arise in future.
2.11.9 Fixed-price, fixed-time frame contracts
As a core element of its business strategy, the company continues to offer a
significant portion of its services on a fixed-price, fixed-time frame basis,
rather than on a time-and-materials basis. Although the company uses specified
software engineering processes and its past project experience to reduce the
risks associated with estimating, planning and performing fixed-price, fixed-
time frame projects, the company bears the risk of cost overruns, completion
delays and wage inflation in connection with these projects. The company's
failure to estimate accurately the resources and time required for a project,
future rates of wage inflation and currency exchange rates or its failure to
complete its contractual obligations within the time frame committed could have
a material adverse effect on the company's results of operations and financial
condition.
2.11.10 Infrastructure and potential disruption in telecommunications
A significant element of the company's business strategy is to continue to
leverage its various software development centers in Bangalore, Bhubaneswar,
Chennai, Mangalore and Pune, India and to expand the number
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of such centers in India as well as outside India. The company believes that the
use of a strategically located network of software development centers will
provide the company with cost advantages, the ability to attract highly skilled
personnel in various regions, the ability to service clients on a regional and
global basis, and the ability to provide 24-hour service to its clients.
Pursuant to its service delivery model, the company must maintain active voice
and data communication between its main offices in Bangalore, the offices of its
clients, and its other software development facilities. Although the company
maintains redundant software development facilities and satellite communications
links, any significant loss of the company's ability to transmit voice and data
through satellite and telephone communications would have a material adverse
effect on the company's results of operations and financial condition.
2.11.11 Expected decrease in demand for Year 2000 services
Year 2000 conversion projects represented 12.1% and 24.0% of the company's total
revenue for the quarter ended June 30, 1999 and quarter ended June 30, 1998,
respectively. The company expects that Year 2000 conversion projects will
continue to represent a material portion of the company's business in fiscal
2000. The high demand for these time-sensitive projects results in pricing and
margins that are favorable to the company. The company believes that demand for
Year 2000 conversion services will begin to diminish rapidly as many Year 2000
conversion solutions are implemented and tested. There can be no assurance that
the company will be successful in generating additional business from its Year
2000 clients for other services, that the company will be successful in
replacing Year 2000 conversion projects with other projects as the Year 2000
business declines or that margins from any such future projects will be
comparable to those obtained from Year 2000 conversion projects. There is an
additional risk that the company may be unable to retrain and redeploy IT
professionals who are currently assigned to Year 2000 conversion projects
involving legacy computer systems after such projects are completed.
Furthermore, as Year 2000 conversion projects are completed, there is a
likelihood of increased competition for other types of projects from firms
formerly dependent on Year 2000 business.
2.11.12 Competition
The market for IT services is highly competitive. Competitors include IT
services companies, large international accounting firms and their consulting
affiliates, systems consulting and integration firms, temporary employment
agencies, other technology companies and client in-house MIS departments.
Competitors include international firms as well as national, regional and local
firms located in the United States, Europe and India. The company expects that
future competition will increasingly include firms with operations in other
countries, potentially including countries with lower personnel costs than those
prevailing in India. Historically, one of the company's key competitive
advantages has been a cost advantage relative to service providers in the United
States and Europe. Since wage costs in India are presently increasing at a
faster rate than those in the United States, the company's ability to compete
effectively will become increasingly dependent on its reputation, the quality of
its services, and its expertise in specific markets. Many of the company's
competitors have significantly greater financial, technical and marketing
resources and generate greater revenue than the company, and there can be no
assurance that the company will be able to compete successfully with such
competitors and will not lose existing clients to such competitors. The company
believes that its ability to compete also depends in part on a number of factors
outside its control, including the ability of its competitors to attract, train,
motivate and retain highly skilled IT professionals, the price at which its
competitors offer comparable services, and the extent of its competitors'
responsiveness to client needs.
2.11.13 Dependence on key personnel
The company's success depends to a significant degree upon continued
contributions of members of the company's senior management and other key
research and development and sales and marketing personnel. The company
generally does not enter into employment agreements with its senior management
and other key personnel that provide for substantial restrictions on such
persons leaving the company. The loss of any of such persons could have a
material adverse effect on the company's business, financial condition and
results of operations.
2.11.14 Potential liability to clients; risk of exceeding insurance coverage
Many of the company's contracts involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be difficult
to quantify. Any failure in a client's system could result in a claim for
substantial damages against the company, regardless of the company's
responsibility for such failure. Although the company attempts to limit its
contractual liability for damages arising from negligent acts, errors, mistakes
or omissions in rendering its services, there can be no assurance the
limitations of liability set forth in its service contracts will be enforceable
in all instances or will otherwise protect the company from liability for
damages. The company maintains general liability insurance coverage, including
coverage for errors or omissions; however, there can be no assurance 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. The successful assertion of
one or more large claims against the company that exceed available insurance
coverage or changes in the company's insurance policies, including premium
increases or the imposition of large deductible or co-insurance requirements,
could adversely affect the company's results of operations and financial
condition.
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2.11.15 Risks associated with possible acquisitions
The company intends to evaluate potential acquisitions and strategic investments
on an ongoing basis. As of the date, however, the company has no understanding,
commitment or agreement with respect to any material future acquisition or
investment. Since the company has not made any acquisitions in the past, there
can be no assurance that the company will be able to identify suitable
acquisition candidates available for sale at reasonable prices, consummate any
acquisition, or successfully integrate any acquired business into the company's
operations. Further, acquisitions may involve a number of special risks,
including diversion of management's attention, failure to retain key acquired
personnel and clients, unanticipated events or circumstances, legal liabilities
and amortization of acquired intangible assets, some or all of which could have
a material adverse effect on the company's results of operations and financial
condition. Under Indian law, except in certain limited circumstances, the
company may not make any acquisition of, or investment in, a non-Indian company
without RBI and, in most cases, Government of India approval. Even if the
company does encounter an attractive acquisition candidate, there can be no
assurance that RBI and, if required, Government of India approval can be
obtained.
2.11.16 Risks related to software product sales
In the quarter ended June 30, 1999, the company derived 1.5% of its total
revenue from the sale of software products. The development of the company's
software products requires significant investments. The markets for the
company's primary software product are competitive and currently located in
developing countries, and there can be no assurance that such a product will
continue to be commercially successful. In addition, there can be no assurance
that any new products developed by the company will be commercially successful
or that the costs of developing such new products will be recouped. A decrease
in the company's product revenues or margins could adversely affect the
company's results of operations and financial condition. Additionally, software
product revenues typically occur in periods subsequent to the periods in which
the costs are incurred for development of such products. There can be no
assurance that such delayed revenues will not cause periodic fluctuations of the
company's results of operations and financial condition.
2.11.17 Restrictions on exercise of preemptive rights by ADS holders
Under the Indian Companies Act, 1956 (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 company's
shareholders. US 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 (the "Securities Act"), is effective with
respect to such rights or an exemption from the registration requirements of the
Securities Act is available. The company's 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 the
company considers appropriate at the time. No assurance can be given that the
company would file a registration statement under these circumstances. If the
company issues any such securities in future, such securities may be issued to
the Depositary, which may sell such securities for the benefit of the holders of
the ADSs. There can be no assurance as to the value, if any, the Depositary
would receive upon the sale of such securities. To the extent that holders of
ADSs are unable to exercise preemptive rights granted in respect of the equity
shares represented by their ADSs, their proportional interests in the company
would be reduced.
2.11.18 Intellectual property rights
The company relies upon a combination of non-disclosure and other contractual
arrangements and copyright, trade secrets and trademark laws to protect its
proprietary rights. Ownership of software and associate deliverables created for
clients is generally retained by or assigned to the client, and the company does
not retain an interest in such software and deliverables. The company also
develops foundation and application software products, or software "tools",
which are licensed to clients and remain the property of the company. The
company has obtained registration of INFOSYS as a trademark in India but not in
the United States, and does not have any patents or registered copyrights in the
United States. The company currently requires its IT professionals to enter into
non-disclosure and assignment of rights agreements to limit use of, access to,
and distribution of its proprietary information. There can be no assurance that
the steps taken by the company in this regard will be adequate to deter
misappropriation of proprietary information or that the company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights.
Although the company believes that its services and products do not infringe
upon the intellectual property rights of others, there can be no assurance that
such a claim will not be asserted against the company in future. Assertion of
such claims against the company could result in litigation, and there can be no
assurance that the company would be able to prevail in such litigation or be
able to obtain a license for the use of any infringed intellectual property from
a third party on commercially reasonable terms. There can be no assurance that
the company will be able to protect such licenses from infringement or misuse,
or prevent infringement claims against the company in connection with its
licensing efforts. The company expects that the risk of infringement claims
against the company will increase if more of the company's competitors are able
to obtain patents for software products and
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processes. Any such claims, regardless of their outcome, could result in
substantial cost to the company and divert management's attention from the
company's operations. Any infringement claim or litigation against the company
could, therefore, have a material adverse effect on the company's results of
operations and financial condition.
2.11.19 Control by principal shareholders, officers and directors; anti-
takeover provisions
The company's officers and directors, together with members of their immediate
families, in the aggregate, beneficially own approximately 31.1% of the
company's issued equity shares. As a result, such persons, acting together, will
likely still have the ability to exercise significant control over most matters
requiring approval by the shareholders of the company, including the election
and removal of directors and significant corporate transactions. Such control by
the company's officers and directors could delay, defer or prevent a change in
control of the company, impede a merger, consolidation, takeover or other
business combination involving the company, or discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of the
company.
The Indian Companies Act and the company's Articles of Association (the
"Articles") require that: (i) at least two-thirds of the company's directors
shall serve for a specified term and shall be subject to re-election by the
company's shareholders at the expiration of such terms; and (ii) at least one-
third of the company's directors who are subject to re-election shall be up for
re-election at each annual meeting of the company's shareholders. In addition,
the company's Articles provide that Mr. N. R. Narayana Murthy, one of the
company's principal founders and its Chairman of the Board and Chief Executive
Officer, shall serve as the company's Chairman of the Board and shall not be
subject to re-election as long as he and his relatives, own at least 5% of the
company's outstanding equity securities. Furthermore, any amendment to the
company's Articles would require the affirmative vote of three-fourths of the
company's shareholders. Finally, foreign investment in Indian companies is
highly regulated. These provisions could delay, defer or prevent a change in
control of the company, impede a business combination involving the company or
discourage a potential acquirer from attempting to obtain control of the
company.
2.11.20 Year 2000 compliance
Many existing computer systems, software applications and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. Others do not correctly
process "leap year" dates. As a result, such systems and applications could fail
or create erroneous results unless modified so that they can correctly process
data related to the year 2000 and beyond. While the company has evaluated each
of its IT services and software products and believes that each is substantially
Year 2000 compliant, there can be no assurance that the company's IT services
and products are or will ultimately be Year 2000 compliant. The company relies
on its systems, computer applications and devices to operate and monitor all
major aspects of its business, including financial systems (such as general
ledger, accounts payable and payroll), customer services, infrastructure,
materials requirement planning, master project scheduling, networks and
telecommunications systems. Although the company has converted its financial
applications software to programs certified by the suppliers as Year 2000
compliant and is currently in the process of modifying and upgrading all other
affected systems, there can be no assurance that such modifications and upgrades
will be completed in a timely manner at reasonable costs, or that such
modifications and upgrades will be able to anticipate all of the problems
resulting from the actual impact of the Year 2000. The company relies directly
and indirectly on systems utilized by its suppliers for telecommunications,
utilities, electronic hardware and software applications. Although the company
maintains redundant software facilities and satellite communications links, any
significant loss of the company's ability to transmit voice and data through
satellite and telephone communications would have a material adverse effect on
the company's business, results of operations and financial condition. Any
failure of these third party suppliers to resolve their Year 2000 problems in a
timely manner could disrupt the company's operations, which could have a
material adverse effect on the company's business, results of operations and
financial condition.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
3.1 Foreign Currency Market Risk
Market risks relating to the Company's operations result primarily from
changes in interest rates and changes in foreign exchange rates. The
Company's functional currency is the Indian Rupee although it transacts a
major portion of its business in foreign currencies and accordingly has
foreign currency exposure through its sales in the United States and
purchases from overseas suppliers in U.S. dollars. In its U.S. operations,
the Company currently does not, actively hedge against exchange rate
fluctuations, although it may elect to do so in the future. Accordingly,
changes in exchange rates may have a material adverse effect on the
Company's 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 the Company's business, operating results and financial condition.
The exchange rate between the rupee and the U.S. dollar has changed
substantially in recent years and may fluctuate substantially in the future.
During the four-year period from March 31, 1995 through March 31, 1999, the
value of the rupee against the U.S. dollar declined by approximately 35.2%.
For the quarter ended June 30, 1999, fiscal 1999 and fiscal
30
<PAGE>
1998, the Company's U.S. dollar-denominated revenues represented 87.1%,
88.1% and 90.0%, respectively, of total revenues. The Company expects that a
majority of its revenues will continue to be generated in U.S. dollars for
the foreseeable future and that a significant portion of the Company's
expenses, including personnel costs as well as capital and operating
expenditures, will continue to be denominated in rupees. Consequently, the
Company's results of operations will be adversely affected to the extent the
rupee appreciates against the U.S. dollar. The Company has sought to reduce
the effect of exchange rate fluctuations on operating results by
periodically purchasing foreign exchange forward contracts to cover a
portion of outstanding accounts receivable. As of June 30, 1999, the Company
had outstanding forward contracts of $6,000,000. 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 market exchange rate on the date of
cancellation. The Company uses these instruments only as a hedging mechanism
and not for speculative purposes. There can be no assurance that the Company
will purchase contracts adequate to insulate itself from foreign exchange
currency risks or that any such contracts will perform adequately as a
hedging mechanism. Devaluations of the rupee will result in foreign currency
translation losses. For example, for fiscal 1998 and fiscal 1999, the
Company's foreign currency translation losses were approximately $3.5
million and $2.1 million, respectively.
31
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
The company is not currently a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
The company has only one class of shares which are identified as equity
shares, either independently or evidenced by American Depositary Shares. The
Indian Companies Act gives shareholders the right to subscribe for new equity
shares in proportion to their respective existing shareholdings unless
otherwise determined by a special resolution passed by a General Meeting of
the shareholders in terms of Section 81(1)(A) of the Indian Companies Act
waiving their pre-emptive rights in issuance of additional securities.
During the quarterly period ending June 30, 1999 the members of the company in
its Annual General Meeting held on June 12, 1999, through a special resolution
in terms of Section 81(1)(A) of the Indian Companies Act, approved and
authorized the Board of Directors (the "Board") to issue 3,300,000 equity
shares of nominal value Rs. 10/- each to the employees of the company, or of a
subsidiary whether now or hereafter existing, in India or overseas, (including
executive and non-executive directors but excluding the Promoter Directors)
pursuant to a new 1999 Employees Stock Option Plan (the "1999 Option Plan") to
be created by the company for the benefit of the employees inter alia on the
following terms and conditions:
a) Each option to be granted to eligible employees shall entitle the employee
to apply for and be allotted one equity share of nominal value Rs. 10/-,
each at a fair market price to be determined by the Board of Directors (the
"Board") or the Compensation Committee to be appointed by the Board for the
purpose and subject to any regulation or guidelines of the Securities and
Exchange Board of India (the "SEBI") in regard to the pricing of the
options, as applicable from time to time.
b) Each option shall be vested in the optionee after a minimum of 12 months
from the date of grant of the option or at such times as may be determined
by the Board from time to time, subject to the minimum vesting period.
c) The options shall be valid and exercisable for such periods as may be
determined by the Board, from time to time.
d) The payment for the shares to be allotted upon exercise of an option, may
consist of cash, cheque or consideration received by the company under a
cash-less exercise program implemented by the company in connection with
the 1999 Option Plan or any combination of the foregoing methods of
payment.
e) The options to be granted to eligible employees shall be determined by the
Board based on an appraisal process consisting inter alia of the employee's
grade, years of service, present performance, future potential
contribution, conduct and such other factors as may be specified.
f) No employee shall, during any fiscal year of the company be granted options
exceeding the limit fixed by the SEBI in this regard from time to time,
without a specific special resolution of the members in General Meeting.
g) The company shall conform to the accounting policies mandated by applicable
law or regulations of the SEBI or any other relevant regulation as is
applicable to the accounting of such options.
h) Subject to the approval of the stock exchanges, the relevant equity share
on exercise of the options shall be listed on the stock exchanges.
i) The equity shares issued upon exercise of the options shall rank pari passu
in all respects with the existing equity shares save and except their
entitlement to dividend which will commence only from the date of allotment
of such equity shares and pro-rata for the financial year in which the
dividend is declared.
j) The Board shall have the power to make a fair and reasonable adjustment to
the number of options and to the exercise price in case of rights issues,
bonus issues and other corporate actions.
Item 3. Default upon senior securities
None
32
<PAGE>
Item 4. Submission of matters to a vote of security holders
a) During the quarterly period ending June 30, 1999 the Company held its
Annual General Meeting ("AGM") on June 12, 1999.
b) The following directors retired by rotation at the AGM held on June 12,
1999 and being eligible for re-election offered themselves for re-
election to the post of Director:
-----------------------------------------------------------------------
Name of the Director who retired by rotation and being eligible,
offered themselves for re-election
-----------------------------------------------------------------------
1. N. S. Raghavan - Elected Unanimously
2. S. Gopalakrishnan - Elected Unanimously
3. S. D. Shibulal - Elected Unanimously
The following are the other directors whose term of office as a
director continues after the meeting:
-----------------------------------------------------------------------
Name of the Director
-----------------------------------------------------------------------
1. N. R. Narayana Murthy
2. Nandan M. Nilekani
3. K. Dinesh
4. Susim M. Datta
5. Deepak M. Satwalekar
6. Prof. Marti G. Subrahmanyam
7. Ramesh Vangal
c) The following is a brief description of the matters voted upon at the
AGM of the Company held on June 12, 1999 along with votes cast for,
against or withheld, as well as the number of abstentions and broker
non-votes, as to each matter. The matters to be voted upon were
notified to the shareholders on record and all Registered Holders of
the American Depositary Receipts (the "ADRs") who were holding the ADRs
as on a record date determined by the Depositary. The notice to the
shareholders containing the business to be transacted at the AGM and
the matters to be voted upon had been filed with the SEC as an Exhibit
to the Form 6-K report filed by the Company with the Commission on May
14, 1999
<TABLE>
<CAPTION>
ORDINARY BUSINESS
- -------------------------------------------------------------------------------------------------------------------
Brief Description of the matter put to vote Votes for Votes against/ Abstentions/
(1) (2) (3) Withheld Broker Non-votes
(1) (2) (3) (1) (2) (3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To receive, consider and adopt the Balance Sheet as at
March 31, 1999 and the Profit & Loss Account for the
year ended on that date and the Report of Directors'
and Auditors' thereon. 253 0 0
2. To declare a final dividend of Rs. Five per share pro-rata. 253 0 0
3. To appoint a director in place of Mr. N. S. Raghavan who
retires by rotation and is eligible for re-election. 253 0 0
4. To appoint a director in place of Mr. S. Gopalakrishnan
who retires by rotation and is eligible for re-election. 253 0 0
5. To appoint a director in place of Mr. S. D. Shibulal
who retires by rotation and is eligible for re-election. 253 0 0
6. To appoint Auditors to hold office from the conclusion
of this meeting until the conclusion of the next Annual
General Meeting and to fix their remuneration. 253 0 0
- -------------------------------------------------------------------------------------------------------------------
SPECIAL BUSINESS
7. To appoint Mr. N. R. Narayana Murthy as the Chairman &
Chief Executive Officer of the company for the period
from February 11, 1999 to April 30, 2002 on the same
remuneration, pay scale and other terms and conditions as
approved by the company in the AGM held on June 7, 1997
with effect from May 1, 1997. As part of the company's
Strategic planning, the Board considered it expedient to
appoint Mr. N. R. Narayana Murthy as the Chairman & Chief
Executive Officer of the company at its meeting held on
February 10, 1999. 253 0 0
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C> <C>
8. To appoint Mr. Nandan M. Nilekani as the Managing Director,
President & Chief Operating Officer of the company for the
period from February 11, 1999 to April 30, 2002 on the
same remuneration, pay scale and other terms and conditions
as approved by the company in the AGM held on June 7, 1997
Mr. Nandan M. Nilekani was appointed as the Deputy Managing
Director of the company for a period of five years with
effect from May 1, 1997. As part of the company's strategic
planning, the Board considered it expedient to appoint
Mr. Nandan M. Nilekani as the Managing Director, President
& Chief Operating Officer of the company at its meeting
held on February 10, 1999. 253 0 0
9. To approve by way of a Special resolution in terms of
Section 81(1)(A) of the Companies Act, and authorize the
Board to institute a new ESOP and reserve 3,300,000 shares
thereunder to be allotted against the stock options granted
to employees of the company located in India and overseas,
to institute the new ESOP. See "Changes in Securities" 252 1 0
</TABLE>
(1) Under the Indian Companies Act, voting 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 paid-up capital of at least Rs. 50,000. Under the Articles of
the Company a member present by proxy shall be entitled to vote only on a
poll but not on a show of hands, unless such member is a body corporate
present by a representative in which case such proxy shall have a vote on
the show of hand as if he were a member.
(2) Under the Indian Companies Act and as per the Articles of the Company, on a
show of hands every member present in person shall have one vote and upon a
poll the voting rights of every member whether present in person or by
proxy, shall be in proportion to his share of the paid-up capital of the
Company.
(3) The votes represent the number of votes in a show of hands. No poll was
demanded during the AGM.
Item 5. Other Information
None
Item 6. Exhibits and Reports
Infosys filed no reports on Form 8-K during the quarter ended June 30, 1999.
34
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit Number Description of Document
- --------------------------------------------------------------------------------
4.1. 1999 Employees Stock Option Plan.
19.1. Infosys Quarterly report to the shareholders for the
quarterly period ended June 30, 1999.
27.1. Financial Data Schedule.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly organized.
Dated: August 2, 1999. INFOSYS TECHNOLOGIES LIMITED
By: /s/ Narayana N. R. Murthy
----------------------------------------
Narayana N. R. Murthy,
Chairman and Chief Executive Officer
/s/ Nandan M. Nilekani
----------------------------------------
Nandan M. Nilekani,
Managing Director, President and
Chief Operating Officer
36
<PAGE>
EXHIBIT 4.1
INFOSYS TECHNOLOGIES LIMITED
----------------------------
1999 EMPLOYEES STOCK OPTION PLAN
--------------------------------
(Adopted by Resolution of the Members of the Company on the 12th day of June
1999 at the Annual General Meeting of the Company held at Hotel Taj Residency,
41/3, M.G. Road, Bangalore 560 001)
1. Short title, extent and commencement:
-------------------------------------
a) This Plan may be called the "1999 Option Plan".
b) It applies only to the bonafide Employees of the Company and all
Subsidiaries whether now or hereafter existing, who are in whole time
employment with the Company.
c) It shall be deemed to have come into force on the June 12, 1999.
2. Object:
-------
a) In pursuance to the SEBI guidelines issued on March 19, 1999 relating to
Employee Stock Option Plans, this Plan has been adopted by resolution of
the Board of Directors of the Company, pursuant to the enabling authority
of the members of the Company in General Meeting, with the object of
granting, at the discretion of the Company, to, such of the Company's
Employees as are eligible and qualify under the Plan, Options to acquire
equity Shares directly from the Company and to be allotted Equity Shares of
the Company on Exercise of such Options.
3. Definitions:
------------
In this Plan, unless the context otherwise requires,
a) "Administrator" means the Compensation Committee established under Section
5 and which shall be administering the Plan in accordance with Section 6
hereof.
b) "Applicable Laws" means the legal requirements relating to stock Option
plans, including, without limitation, the tax, securities or corporate laws
of India, any stock exchange or quotation on which the Shares are listed or
quoted
c) "Board" means the Board of Directors for the time being of the Company.
d) "Company" means INFOSYS TECHNOLOGIES LIMITED.
e) "Compensation Committee" means the Compensation committee constituted by
the Board
<PAGE>
f) "Director" means a member of the Board
g) "Disability" shall mean "Permanent total Disability" as defined in the
Workmen's Compensation Act, 1923.
h) "Eligible Employee" means an Employee who qualifies for issue of Options
under this Plan and who fulfils the minimum conditions of service and other
conditions as decided in the appraisal process
Provided that, Promoter Employees and Promoter Directors, as per the list
given below are not eligible under this Plan.
1. Mr. N. R. Narayana Murthy
2. Mr. N. S. Raghavan
3. Mr. Nandan M. Nilekani
4. Mr. K. Dinesh
5. Mr. S. D. Shibulal
6. Mr. S. Gopalakrishnan.
Further provided that any person holding 2% of the outstanding share
capital of the Company's equity Shares at any time after the commencement
of this Plan shall not be eligible under this Plan.
i) "Employee" means any person, including officers and Directors, employed by
the Company or any Parent or Subsidiary of the Company. An Employee shall
not cease to be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company
or between the Company, its Parent, any Subsidiary, or any successor.
j) "Employee Compensation" means the total cost incurred by the Company
towards Employee Compensation including basic salary, dearness allowance,
other allowances, bonuses and commissions, and the value of all perquisites
provided, but does not include the fair value of the Options granted under
any Option Plan .
k) "Exercise" is the act of a written application being made by the Eligible
Employee to the Company to have the Options vested in him issued as Shares
upon payment of the Exercise Price. Exercise can take place as specified
after Vesting.
l) "Exercise Period " means, the period after 12 months of the date of issue
of Options to the Eligible Employee but within 60 months from the date of
Vesting of the Options by the Company. On the expiry of the Exercise
Period, any Options that have not been exercised will lapse and cease to be
valid for any purpose.
m) "Exercise Price" means, such amount as may be decided by the Compensation
Committee from time to time that shall be paid by an Optionee at the time
of Exercise.
n) "Fair Market Value" of a share on a given date means the closing price in
the stock exchange where there is highest trading volume during that date
and if the Shares are not quoted on the given date then the share price on
the next trading day.
o) "Option" means a stock Option granted pursuant to the Plan, comprising of a
right but not an obligation granted to an Employee under the Plan to apply
for and be allotted
<PAGE>
Shares of the Company at the Exercise Price determined earlier, during or
within the Exercise Period, subject to the requirements of Vesting.
p) "Option Agreement" means a written or electronic agreement between the
Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
q) "Optionee" means the holder of an outstanding Option granted pursuant to
this Plan
r) "Plan" mean this 1999 Option Plan
s) "Qualifying Date" means the 31st day of March of every year or the last day
of the financial year of the Company, or such date as the Compensation
Committee may decide. However, the Compensation Committee may relax the
Qualifying Date condition on a case to case basis.
t) "Shares" mean, the equity Shares of the Company with a nominal par value of
Rs.10/- (Rupees ten only) which have no preference in respect of dividends
or in respect of amounts payable in the event of any voluntary liquidation
or winding up of the Company.
u) "Subsidiary" means a Subsidiary of the Company, whether now or hereafter
existing as defined under Section 4 of the Companies Act, 1956.
v) "Vesting" means the event of the Option granted under this Plan becoming
effective and shall occur on the expiry of 12 months from the date of issue
of the Options to the Eligible Employee or at such time after the expiry of
12 months from the date of issue of the Options, as may be determined by
the Compensation Committee.
4. Stock subject to the Plan
-------------------------
a) Subject to the provisions of section, of the Plan the maximum aggregate
number of Shares, which may be subject to Option and granted under the
Plan, are 33,00,000 Shares. The Shares may be authorised but unissued, or
reacquired.
b) If an Option expires or becomes unexercisable without having been exercised
in full, the unpurchased Shares, which were subject thereto, shall become
available for future grant or sale under the Plan (unless the Plan has been
terminated). However, Shares that have actually been issued under the Plan
upon Exercise of an Option, shall not be returned to the Plan and shall not
become available for future distribution under the Plan.
5. Establishment of the Compensation Committee:
--------------------------------------------
a) The Board shall, as soon, as may be possible, after the date of coming into
force of this Plan, constitute a Committee by the name of the "Compensation
Committee".
b) The Compensation Committee shall consist of such number of members not
exceeding seven (7), as the Board may deem fit.
<PAGE>
Provided that the majority of the Committee shall consist of independent
Directors of the Company.
6. Administration of the 1999 Option Plan:
--------------------------------------
(a) The Plan shall be administered by Compensation Committee appointed by the
Board, which Committee shall be constituted to comply with Applicable
Laws.
(b) Subject to the provisions of the Plan, and subject to the approval of any
relevant authorities, the Compensation Committee shall have the authority
in its discretion:
i) to determine Exercise Price;
ii) to select the Employees to whom Options may from time to time be
granted hereunder;
iii) to determine the number of Shares to be covered by each such Option
granted hereunder;
iv) to determine the Vesting period and the Exercise Period.
v) to approve forms of agreement for use under the Plan;
vi) to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any Option granted hereunder;
vii) to prescribe, amend and rescind rules and regulations relating to the
Plan; and
viii) to construe and interpret the terms of the Plan and Options granted
pursuant to the Plan.
(c) All decisions, determinations and interpretations of the Compensation
Committee shall be final and binding on all Optionees.
7. Appraisal of Eligible Employees:
--------------------------------
a) As soon as may be possible after the Qualifying Date, the Compensation
Committee shall, based on the various criteria for selection of the
Eligible Employees during the year (which criteria shall be decided from
time to time by the Compensation Committee for assessing the contribution
of the Employees) decide on the Eligible Employees who qualify under the
Plan and the number of Options of the Company that may be issued to them.
8. Grant of Options:
----------------
a) The Compensation Committee may, on such dates as it shall determine, grant
to such Eligible Employees as it may in its absolute discretion select,
Options of the Company on the terms and conditions and for the
consideration as it may decide .
<PAGE>
b) The date of grant of an Option shall, for all purposes, be the date on
which the Compensation Committee makes the determination granting such
Option, or such other date as is determined by the Compensation Committee.
Notice of the determination shall be given to each Employee to whom an
Option is so granted within a reasonable time after the date of such grant.
9. Term of Plan and Option:
-----------------------
a) The Plan shall become effective upon its adoption by the Board. It shall
continue in effect for a term of ten (10) years unless all the Options
granted under the Plan are exercised or have been extinguished or unless
the Plan is terminated under Section 13 of the Plan.
b) The term of each Option shall be stated in the Option Agreement; provided,
however, that the term shall be no more than five (5) years from the date
of Vesting thereof.
10. Option Exercise Price and Consideration:
---------------------------------------
a) The per share Exercise Price for the Shares to be issued upon Exercise of
an Option shall be such price as is determined by the Administrator.
Provided that in no case shall, the per Share Exercise Price of an Option
be less than the Fair Market Value on the date of grant. Notwithstanding
the foregoing, the Compensation Committee may, after getting the approval
of the members in general meeting, grant Options with a per Share Exercise
Price lesser than the Fair Market Value.
b) The consideration to be paid for the Shares to be issued upon Exercise of
an Option, including the method of payment, shall be determined by the
Compensation Committee at the time of grant. Such consideration may consist
of (1) cash, (2) check, (3) promissory note (4) consideration received by
the Company under a cash-less Exercise program implemented by the Company
in connection with the Plan, or (5) any combination of the foregoing
methods of payment.
11. Individual Limits for Grant of Options:
--------------------------------------
a) No Employee shall be granted, in any fiscal year of the Company, Options to
purchase more than or equaling 1% of the outstanding issued share capital
as on the date of grant, (excluding outstanding Options and conversions).
Notwithstanding the foregoing, pursuant to a specific special resolution
passed by the members in General Meeting, the Compensation Committee may
grant to the Employee/s mentioned in such special resolution, Options to
purchase Shares exceeding or equal to 1% of the of the outstanding issued
share capital as on the date of the grant, (excluding outstanding Options
and conversions).
12. Exercise of Option and Rights as a Shareholder:
-----------------------------------------------
<PAGE>
a) Any Option granted hereunder shall be exercisable according to the terms
hereof at such times and under such conditions as determined by the
Compensation Committee and set forth in the Option Agreement. Unless the
Compensation Committee provides otherwise, the Vesting of Options granted
hereunder shall be tolled during any unauthorised unpaid leave of absence.
An Option may not be exercised for a fraction of a share.
b) An Option shall be deemed exercised when the Company receives: (i) written
or electronic notice of Exercise (in accordance with the Option Agreement)
from the person entitled to Exercise the Option, and (ii) full payment for
the Shares with respect to which the Option is exercised. Full payment may
consist of any consideration and method of payment authorized by the
Compensation Committee and permitted by the Option Agreement and the Plan.
Shares issued upon Exercise of an Option shall be issued in the name of the
Optionee. Until the Shares are issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of
the Company), no right to vote or receive dividends or any other rights as
a shareholder shall exist with respect to the Shares, notwithstanding the
Exercise of the Option. The Company shall issue (or cause to be issued)
such Shares promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to
the date the Shares are issued.
13. Termination of Relationship as an Employee:
------------------------------------------
a) If an Optionee ceases to be an Employee, (whether by reason of resignation
or superannuation) subject to the specific approval of the Compensation
Committee in each case, such Optionee may Exercise his or her Option within
such period of time as is specified in the Option Agreement to the extent
that the Option is vested on the date of termination (but in no event later
than the expiration of the term of the Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for three (3) months following the
Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall again become available for issuance under the
Plan. If, after termination, the Optionee does not Exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall again become
available for issuance under the Plan.
14. Death or Disability of Optionee:
-------------------------------
a) If an Optionee dies while an Employee, or ceases to be an Employee as a
result of the Optionee's Disability, the Vesting and exercisability of the
Option shall accelerate in full and the Option may be exercised within such
period of time as is specified in the Option Agreement to the extent that
the Option is vested on the date of death (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement)
by the Optionee or Optionee's estate or by a person who acquires the right
to Exercise the Option by bequest or inheritance. In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable
for twelve (12) months following the Optionee's death or Disability. If the
Option is not so exercised within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall again become
available for issuance under the Plan.
<PAGE>
15. Adjustments Upon Changes in Capitalization, Merger or Asset Sale:
----------------------------------------------------------------
a) Changes in Capitalization: Subject to any required action by the
-------------------------
shareholders of the Company, the number of Shares covered by each
outstanding Option, and the number of Shares, which have been authorized
for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per Share covered by each
such outstanding Option, shall be proportionately adjusted for any increase
or decrease in the number of issued Shares resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Shares, or any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company. The conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the
Company of Shares of stock of any class, or securities convertible into
Shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of the Shares
subject to an Option.
b) Dissolution or Liquidation: In the event of the proposed dissolution or
--------------------------
liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an
Optionee to have the right to Exercise his or her Option until 15 days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable.
To the extent it has not been previously exercised, an Option will
terminate immediately prior to the consummation of such proposed action.
c) Merger or Asset Sale: In the event of a merger of the Company with or into
--------------------
another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option shall be assumed or an equivalent Option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in
and have the right to Exercise the Option as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or
exercisable. If an Option becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing that the Option shall be
fully exercisable for a period of 15 days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the Option confers the right to
purchase or receive, for each Share subject to the Option immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Shares for each Share held on the effective date of the
transaction (and if the holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the
outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely equity Shares (or their
equivalent) of the
<PAGE>
successor corporation or its Parent, the Administrator may, with the
consent of the successor corporation, provide for the consideration to be
received upon the Exercise of the Option, for each Share subject to the
Option, to be solely equity Shares (or their equivalent) of the successor
corporation or its Parent equal in Fair Market Value to the per Share
consideration received by holders of Share in the merger or sale of assets.
16. Non-Transferability of Options:
------------------------------
a) The Options may not be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any manner other than by will or by the laws of descent
or distribution and may be exercised, during the lifetime of the Optionee,
only by the Optionee
17. Terms and Conditions of the Shares:
-----------------------------------
a) All Shares allotted on Exercise of Warrants will rank pari-passu with all
other equity Shares of the Company for the time being in issue (save as
regards any right attached to such Shares by reference to a record date
prior to the date of allotment).
18. Amendment and Termination of the Plan:
-------------------------------------
a) The Compensation Committee may at any time amend, alter, suspend or
terminate the Plan.
Provided that the Company obtains shareholder approval of any Plan
amendment to the extent necessary and desirable to comply with Applicable
Laws.
b) No amendment, alteration, suspension or termination of the Plan shall
impair the existing rights of any Optionee, unless mutually agreed
otherwise between the Optionee and the Administrator, which agreement must
be in writing and signed by the Optionee and the Company. Termination of
the Plan shall not affect the Administrator's ability to Exercise the
powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
19. General:
--------
a) This Plan shall not form part of any contract of employment between the
Company and the Employee. The rights and obligations of any individual
under the terms of his office or employment with the Company shall not be
affected by his participation in this Plan or any right which he may have
to participate in it and nothing in this Plan shall be construed as
affording such an individual any additional rights as to compensation or
damages in consequence of the termination of such office or employment for
any reason.
b) This Plan shall not confirm on any person any legal or equitable rights
(other than that to which he would be entitled as an ordinary member of the
Company) against the Company either directly or indirectly or give rise to
any cause of action in law or in equity against the Company.
<PAGE>
EXHIBIT 19.1
INFOSYS TECHNOLOGIES LIMITED
Report for the first quarter ended June 30, 1999
[LOGO OF INFOSYS APPEARS HERE]
1
<PAGE>
<TABLE>
<CAPTION>
At a glance - Indian GAAP
- -----------------------------------------------------------------------------------------------------------------
Rs. in crores, except per equity share data
- -----------------------------------------------------------------------------------------------------------------
Quarter ended Year ended
June 30, 1999 June 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the period
Total revenue 184.06 98.43 512.74
Export revenue 168.62 96.38 500.25
Operating profit (PBIDT) 77.93 31.61 191.75
Profit after tax (PAT) from ordinary activities 60.61 23.67 132.92
PBIDT as a percentage of total revenue 39.67% 32.11% 37.40%
PAT (from ordinary activities)
as a percentage of total revenue 29.83% 24.05% 25.92%
Earnings per share* (from ordinary activities) 63.48 28.63 40.19
Dividend per share NA NA 7.50
Dividend amount NA NA 12.11
Capital investment 21.21 10.47 71.68
At the end of the period
Total assets 633.02 196.63 574.43
Fixed assets - net 112.59 70.47 100.72
Cash and equivalents 444.72 54.25 416.66
Working capital 519.68 116.38 472.96
Total debt - - -
Net worth 633.02 196.63 574.43
Equity 33.07 16.02 33.07
Market capitalization 12,040.57 3,560.22 9,672.80
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
Note: Rs. One crore equals to Rs. 10 million. All ratios are calculated
excluding income from exchange differences on translation of foreign
currency deposit kept abroad. Market capitalization is calculated by
considering the Indian market price for shares outstanding at the period /
year end.
[BAR CHARTS APPEARS HERE]
<PAGE>
Letter to the shareholders
- --------------------------------------------------------------------------------
Dear Shareholder,
We are delighted to report on your company's performance during the first
quarter (April - June 1999) of the financial year 1999-2000.
This quarter has been one of growth. Total income (Revenues) for the quarter was
Rs. 184.06 crore ($39.7 million) compared to Rs. 98.43 crore ($23.7 million) in
the first quarter of the financial year 1998-99, which is a growth of 87% (68%).
Export income (Export revenues) grew to Rs. 168.62 crore ($39.3 million) in the
first quarter compared to Rs. 96.38 crore ($23.4 million) in the corresponding
quarter of the previous year, which is a growth of 75% (68%).
Net profit from ordinary activities (Net income) for the quarter was Rs. 60.61
crore ($13.3 million), as compared to Rs. 23.67 crore ($4.8 million) in the
corresponding quarter of the previous year, an increase of 156% (179%).
Operating profit (Operating income) was Rs. 77.93 crore ($12.3 million) as
compared to Rs. 31.61 crore ($6.0 million) in the corresponding quarter of the
previous year, a growth of 147% (103%).
We must point out that "Other income" (Other income, net) of Rs. 13.79 crore
($3.2 million) for the current quarter includes Rs. 3.52 crore ($0.8 million)
towards interest on deployment of funds raised through issue of American
Depositary Shares (ADS) and an amount of Rs. 8.13 crore ($1.9 million) arising
from exchange differences on translation of foreign currency deposits, which may
be non-recurring. Excluding such exchange differences and the interest earned on
funds raised through the ADS offering, the net profit (net income) was Rs. 48.96
crore ($10.6 million), an increase of 107% (122%) over the net profit of Rs.
23.67 crore ($4.8 million) for the quarter ended June 30, 1998.
Your company has reported growth and profits while at the same time reducing
revenue from Year 2000 business to just 12% of total revenue in the quarter.
During the quarter, we found that our clients renewed investments in new core
business applications and in moving their organizations to the new Internet
paradigm. Your company has successfully managed its skill-sets to take advantage
of these new opportunities, thereby positioning itself as a strategic partner of
choice with both existing and new clients. 19 new clients were added in the
quarter, including several leading Internet companies like Amazon.com and Value
America. Revenue from e-commerce projects represented 6.4% of revenues in the
quarter.
We expect to grow at industry compatible growth rates, and are led to believe
that the Indian software industry will grow at a rate of around 30-40% p.a. in
dollar terms.
As you are aware, the company's voting control in Yantra declined to
approximately 47% during October 1998, due to sale of part of our Convertible
Preferred Stock holding. During the current quarter, Yantra received an
investment of $15 million from both existing and new investors in the form of
Series `C' Preferred Stock. With this, our stake in Yantra has come down to 25%.
The detailed financial statements of Yantra are therefore not provided with this
report.
The construction of Phase I of the software development facility at Pune
Infotech Park, Hinjawadi, Pune is progressing well and is expected to be
completed on schedule. Another building with a capacity to accommodate 225
employees, and a Food Court were commissioned in Infosys Park. Construction of
Infosys Park, Phase II began on a 14.06 acre plot of land adjacent to the
company's headquarters in Electronics City.
The Infosys family has grown to 3,943 at the end of the quarter, including the
addition of another 177 employees (net). Investments in people, training and
technology continue to be fundamental tenets of our business model.
We thank all Infoscions, who through their hard work, dedication and commitment
have made this yet another successful quarter, and look forward to reporting to
you the results of the quarter ended September 30, 1999.
Bangalore Nandan M. Nilekani N. R. Narayana Murthy
July 9, 1999 Managing Director, President Chairman
and Chief Operating Officer and Chief Executive Officer
3
Note: Figures and terminology in parenthesis refer to US GAAP financial
statements, and are in US dollars.
<PAGE>
Auditor's report to the members of Infosys Technologies Limited
- --------------------------------------------------------------------------------
We have audited the attached Balance Sheet of Infosys Technologies Limited (the
Company) as at 30 June, 1999 and the Profit and Loss Account of the Company for
the quarter 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. The Balance Sheet and Profit and Loss Account dealt with by this
report have been prepared in compliance with the accounting standards
referred to in sub section(3C) of Section 211 of the Companies Act,
1956, to the extent applicable;
e. 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 30 June, 1999; and
ii. in the case of the Profit and Loss Account, of the profit for the
quarter ended on that date.
3. We have also examined the attached Cash Flow Statement of the Company for
the quarter ended 30 June, 1999. 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
Bangalore Ravi Ramu
July 9, 1999 Partner
4
<PAGE>
Balance Sheet as at
============================================================================
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
in Rs.
- ------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOURCES OF FUNDS
SHAREHOLDERS' FUNDS
Share capital 33,06,95,500 16,01,73,500 33,06,95,500
- -----------------------------------------------------------------------------------
Reserves and surplus 599,94,93,896 180,61,28,371 541,36,15,748
633,01,89,396 196,63,01,871 574,43,11,248
===================================================================================
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 190,40,05,553 110,14,70,963 168,92,38,345
Less : Depreciation 92,02,83,178 52,44,09,843 83,09,14,934
Net block 98,37,22,375 57,70,61,120 85,83,23,411
Add : Capital work-in-progress 14,21,61,438 12,76,67,737 14,88,35,800
112,58,83,813 70,47,28,857 100,71,59,211
- -----------------------------------------------------------------------------------
INVESTMENTS 75,48,469 9,77,71,960 75,48,469
CURRENT ASSETS,LOANS AND ADVANCES
Sundry debtors 106,75,75,082 51,76,21,747 84,51,88,425
Cash and bank balances 389,99,38,741 48,92,92,531 405,04,82,999
Loans and advances 123,67,02,392 42,70,26,972 68,35,96,522
- -----------------------------------------------------------------------------------
620,42,16,215 143,39,41,250 557,92,67,946
Less : Current liabilities 55,69,78,559 18,64,71,583 42,83,42,481
Provisions 45,04,80,542 8,36,68,613 42,13,21,897
- -----------------------------------------------------------------------------------
NET CURRENT ASSETS 519,67,57,114 116,38,01,054 472,96,03,568
- -----------------------------------------------------------------------------------
633,01,89,396 196,63,01,871 574,43,11,248
===================================================================================
</TABLE>
This is the Balance
Sheet referred to in our
report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Ravi Ramu N. R. Narayana Murthy Nandan M. Nilekani Susim M. Datta Prof. Marti G. Subrahmanyam
Partner Chairman and Managing Director, President Director Director
Chief Executive Officer and Chief Operating Officer
N. S. Raghavan S. Gopalakrishnan K. Dinesh S. D. Shibulal
Jt. Managing Director Dy. Managing Director Director Director
Bangalore T. V. Mohandas Pai V. Viswanathan
July 9, 1999 Senior Vice President Company Secretary
(Finance & Administration)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Profit and Loss Account
- ----------------------------------------------------------------------------------------------
in Rs.
- ----------------------------------------------------------------------------------------------
Quarter ended Year ended
June 30, 1999 June 30, 1998 March 31, 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Software development services and
products
Overseas 168,62,11,001 96,37,87,986 500,25,40,418
Domestic 1,64,95,994 1,14,42,086 8,63,71,250
Other income 13,79,13,245 90,25,948 3,84,71,833
- ----------------------------------------------------------------------------------------------
184,06,20,240 98,42,56,020 512,73,83,501
==============================================================================================
EXPENDITURE
Software development expenses 89,18,81,292 55,82,56,290 261,51,74,052
Administration and other expenses 13,61,38,961 9,99,06,913 45,75,30,137
Provision for contingencies 3,33,00,000 - 6,66,00,000
Provision for investment in
subsidiary - 1,00,00,000 7,05,95,674
- ----------------------------------------------------------------------------------------------
106,13,20,253 66,81,63,203 320,98,99,863
Operating profit (PBIDT) 77,92,99,987 31,60,92,817 191,74,83,638
Interest - - -
Depreciation 9,32,18,149 4,93,63,865 35,89,30,078
Profit before tax 68,60,81,838 26,67,28,952 155,85,53,560
Provision for tax - earlier period/year - - 4,32,00,000
- current period/year 8,00,00,000 3,00,00,000 18,62,00,000
Profit after tax from ordinary
activities 60,60,81,838 23,67,28,952 132,91,53,560
Extraordinary income (net of tax) - - 2,34,54,103
Net profit 60,60,81,838 23,67,28,952 135,26,07,663
- ----------------------------------------------------------------------------------------------
AMOUNT AVAILABLE FOR APPROPRIATION 60,60,81,838 23,67,28,952 135,26,07,663
- ----------------------------------------------------------------------------------------------
Dividend
Interim - - 4,00,43,011
Final - - 8,10,32,734
Dividend tax - - 1,21,07,574
Amount transferred - capital reserve - - 2,34,54,103
- general reserve - - 119,59,70,241
- ----------------------------------------------------------------------------------------------
Balance in Profit and Loss Account 60,60,81,838 23,67,28,952 -
- ----------------------------------------------------------------------------------------------
60,60,81,838 23,67,28,952 135,26,07,663
==============================================================================================
</TABLE>
This is the Profit and Loss
Account referred to in our
report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<S> <C> <C> <C> <C>
Ravi Ramu N. R. Narayana Murthy Nandan M. Nilekani Susim M. Datta Prof. Marti G. Subrahmanyam
Partner Chairman and Managing Director, President Director Director
Chief Executive Officer and Chief Operating Officer
N. S. Raghavan S. Gopalakrishnan K. Dinesh S. D. Shibulal
Jt. Managing Director Dy. Managing Director Director Director
Bangalore T. V. Mohandas Pai V. Viswanathan
July 9, 1999 Senior Vice President Company Secretary
(Finance & Administration)
</TABLE>
6
<PAGE>
Schedules to the Profit and Loss Account
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
in Rs.
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter ended Year ended
June 30, 1999 June 30, 1998 March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER INCOME
Interest received on deposits with banks and
others 5,57,81,765 88,02,241 3,67,00,927
Tax deducted at source Rs. 14,86,424
(Previous period - Rs. 7,97,570;
Previous year - Rs. 21,21,726)
Profit on sale of Assets 47,547 - -
Miscellaneous income 7,81,555 2,23,707 17,70,906
Exchange differences * 8,13,02,378 - -
- ------------------------------------------------------------------------------------------------------------------------------------
13,79,13,245 90,25,948 3,84,71,833
====================================================================================================================================
* Exchange differences on translation of foreign currency deposit maintained
abroad
SOFTWARE DEVELOPMENT EXPENSES
Salaries and bonus including
overseas staff expenses 58,72,39,063 33,33,02,653 151,56,56,923
Staff welfare 96,00,224 62,36,407 3,06,17,200
Contribution to provident and other funds 2,05,62,775 2,85,69,998 11,42,90,209
Foreign tour and travel 17,91,35,095 10,24,33,882 58,11,20,975
Consumables 58,68,491 8,66,329 1,06,44,207
Cost of software packages
- for own use 3,27,92,026 4,12,07,883 14,86,91,737
- for domestic software development 16,12,057 17,12,241 1,78,19,890
Provision for post-sales client support 66,72,756 14,01,311 2,19,18,587
Computer maintenance 39,33,051 51,97,576 3,29,08,467
Communication expenses 3,83,31,714 2,57,78,715 9,59,08,515
Consultancy charges 61,34,040 1,15,49,295 4,55,97,342
- ------------------------------------------------------------------------------------------------------------------------------------
89,18,81,292 55,82,56,290 261,51,74,052
====================================================================================================================================
ADMINISTRATION AND OTHER EXPENSES
Travelling and conveyance 1,07,78,342 93,06,724 4,15,37,200
Rent 2,05,30,401 1,73,57,439 7,44,54,587
Telephone charges 1,38,05,537 1,10,41,549 5,15,34,846
Legal and professional charges 1,25,27,056 1,22,64,255 5,37,56,388
Printing and stationery 82,91,883 50,34,530 1,76,34,923
Advertisements 43,68,253 15,30,287 76,84,502
Office maintenance 84,08,885 80,92,123 2,95,44,190
Repairs to building 26,16,995 22,03,907 1,08,24,460
Repairs to plant and machinery 14,09,481 17,13,154 86,47,678
Power and fuel 1,00,17,440 56,84,058 2,73,37,769
Insurance charges 40,57,836 32,27,790 1,28,78,968
Rates and taxes 20,18,759 33,63,262 1,16,79,290
Donations 40,00,000 18,01,600 1,49,82,357
Auditor's remuneration - audit fees 4,25,000 3,50,000 14,35,000
- certification charges - - 2,00,000
- other services - - 8,00,000
- out-of-pocket expenses 50,000 37,500 1,50,000
Provision for bad and doubtful debts 1,20,19,784 25,87,427 (13,06,919)
Provision for doubtful loans and advances - - 52,94,106
Bank charges and commission 9,54,847 10,11,964 38,95,031
Commission charges 34,84,800 4,96,700 7,40,413
Miscellaneous expenses 1,63,73,662 1,28,02,644 5,29,25,348
Research grants - - 3,09,00,000
- ------------------------------------------------------------------------------------------------------------------------------------
13,61,38,961 9,99,06,913 45,75,30,137
====================================================================================================================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows
- --------------------------------------------------------------------------------------------------------
in Rs.
- --------------------------------------------------------------------------------------------------------
Quarter ended Year ended
June 30, 1999 June 30, 1998 March 31, 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operations
Profit before tax 68,60,81,838 26,67,28,952 155,85,53,560
Other income (5,58,29,312) (88,42,916) (3,67,00,927)
Provision for contingencies 3,33,00,000 - 6,66,00,000
Provision for investment
in subsidiary - 1,00,00,000 7,05,95,674
Depreciation, depletion
and amortization 9,32,18,149 4,93,63,865 35,89,30,078
Decrease (increase) in
sundry debtors (22,23,86,657) (11,87,73,080) (44,63,39,758)
Decrease (increase) in
loans and advances (9,43,88,854) (4,56,72,319) (15,32,76,222)
Increase (decrease) in
current liabilities and
provisions 13,53,08,834 7,58,36,040 33,82,24,214
Income taxes paid (2,92,11,001) (4,91,16,158) (16,79,23,184)
- --------------------------------------------------------------------------------------------------------
Net cash from operations 54,60,92,997 17,95,24,384 158,86,63,435
- --------------------------------------------------------------------------------------------------------
Cash flows from financing
Cash received from
issuance of
share capital (net of
issue expenses) (2,02,03,690) - 279,53,13,985
Dividends paid (including
dividend tax) (8,91,36,007) (5,27,17,738) (10,20,36,824)
- --------------------------------------------------------------------------------------------------------
Net cash used for financing (10,93,39,697) (5,27,17,738) 269,32,77,161
- --------------------------------------------------------------------------------------------------------
Cash flows from investing
Income from investments 5,57,81,765 88,42,916 3,67,00,927
Proceeds of sale of
investments (net of tax) - - 6,06,20,029
Proceeds of sale of fixed
assets 1,51,261 1,15,856 2,39,716
Purchase of fixed assets (21,20,46,465) (10,46,71,497) (71,67,91,924)
Other long term investments - - (75,38,109)
- --------------------------------------------------------------------------------------------------------
Net cash used for investing (15,61,13,439) (9,57,12,725) (62,67,69,361)
- --------------------------------------------------------------------------------------------------------
Total increase (decrease)
in cash and equivalents
during the period 28,06,39,861 3,10,93,921 365,51,71,235
Cash and equivalents at the
beginning of the period 416,65,90,944 51,14,19,709 51,14,19,709
- --------------------------------------------------------------------------------------------------------
Cash and equivalents at
the end of the period 444,72,30,805 54,25,13,630 416,65,90,944
========================================================================================================
These are the Cash Flow Statements
referred to in our report of even date.
for Bharat S Raut & Co.
Chartered Accountants
Ravi Ramu N. R. Narayana Murthy Nandan M. Nilekani Susim M. Datta Prof. Marti G.
Partner Chairman and Managing Director, Director Director
President
Chief Executive Officer and Chief Operating Officer
N. S. Raghavan S. Gopalakrishnan K. Dinesh S. D. Shibulal
Jt. Managing Director Dy. Managing Director Director Director
Bangalore T. V. Mohandas Pai V. Viswanathan
July 9, 1999 Senior Vice President Company Secretary
(Finance & Administration)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows
- ----------------------------------------------------------------------------------------------------------
in Rs.
- ----------------------------------------------------------------------------------------------------------
Quarter ended Year ended
June 30, 1999 June 30, 1998 March 31, 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of Balance Sheet items with cash flow items
1. Loans and advances
As per Balance sheet 123,67,02,392 42,70,26,972 68,35,96,522
Less: Deposits with financial institutions / body
corporate, included in cash equivalents (54,72,92,064) (5,32,21,099) (11,61,07,945)
Advance income taxes considered separately (21,86,13,119) (10,50,01,421) (19,10,80,222)
-------------------------------------------------------------------------------------------------------
Balance considered for preparing
the cash flow statement 47,07,97,209 26,88,04,452 37,64,08,355
-------------------------------------------------------------------------------------------------------
2. Additions to fixed assets
As per Balance sheet 21,87,20,827 5,02,17,032 64,11,69,396
Add: Closing capital work-in-progress 14,21,61,438 12,76,67,737 14,88,35,800
Less: Opening capital work-in-progress (14,88,35,800) (7,32,13,272) (7,32,13,272)
-------------------------------------------------------------------------------------------------------
Balance considered for preparing
the cash flow statement 21,20,46,465 10,46,71,497 71,67,91,924
-------------------------------------------------------------------------------------------------------
3. Cash and cash equivalents
As per Balance sheet 389,99,38,741 48,92,92,531 405,04,82,999
Add: Deposits with financial institutions /
body corporate (as per 1 above) 54,72,92,064 5,32,21,099 11,61,07,945
-------------------------------------------------------------------------------------------------------
Balance considered for preparing
the cash flow statement 444,72,30,805 54,25,13,630 416,65,90,944
-------------------------------------------------------------------------------------------------------
4. Income taxes paid
As per profit and loss account 8,00,00,000 3,00,00,000 22,94,00,000
Add: Decrease (increase) in balance in
provision for taxes account (7,83,21,896) 1,00,19,304 (15,66,52,471)
Increase (decrease) in balance in
advance income tax account 2,75,32,897 90,96,854 9,51,75,655
-------------------------------------------------------------------------------------------------------
Balance considered for preparing
the cash flow statement 2,92,11,001 4,91,16,158 16,79,23,184
-------------------------------------------------------------------------------------------------------
5. Other Income
As per profit and loss account 13,79,13,245 90,25,948 3,84,71,833
Less: Income from operating activities (8,20,83,933) (1,83,032) (17,70,906)
-------------------------------------------------------------------------------------------------------
Balance considered for preparing
the cash flow statement 5,58,29,312 88,42,916 3,67,00,927
-------------------------------------------------------------------------------------------------------
6. Current liabilities and provisions
As per Balance sheet 100,74,59,101 27,01,40,196 84,96,64,378
Less: Provision for taxation considered separately (30,96,79,384) (6,99,57,487) (23,13,57,488)
Provision for dividend considered separately - - (8,10,32,734)
Provision for dividend tax considered separately - - (81,03,273)
Provision for contingencies (9,99,00,000) - (6,66,00,000)
-------------------------------------------------------------------------------------------------------
Balance considered for preparing
the cash flow statement 59,78,79,717 20,01,82,709 46,25,70,883
-------------------------------------------------------------------------------------------------------
</TABLE>
These are the Cash Flow Statements referred to in our report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<S> <C> <C> <C> <C>
Ravi Ramu N. R. Narayana Murthy Nandan M. Nilekani Susim M. Datta Prof. Marti Subrahmanyam
Partner Chairman and Managing Director, President Director Director
Chief Executive Officer and Chief Operating Officer
N. S. Raghavan S. Gopalakrishnan K. Dinesh S. D. Shibulal
Jt. Managing Director Dy. Managing Director Director Director
Bangalore T. V. Mohandas Pai V. Viswanathan
July 9, 1999 Senior Vice President Company Secretary
(Finance & Administration)
</TABLE>
9
<PAGE>
Significant accounting policies
1 Basis for preparation of financial statements
The financial statements are prepared under the historical cost convention,
in accordance with Indian Generally Accepted Accounting Principles (GAAP),
the accounting standards issued by the Institute of Chartered Accountants
of India and the provisions of the Companies Act, 1956, as adopted
consistently by the Company. All income and expenditure having a material
bearing on the financial statements are recognized on the accrual basis.
The preparation of the financial statements in conformity with GAAP
requires that the management make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities as of the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting period.
Examples of such estimates include estimates of expected contract costs to
be incurred to complete software development, provision for doubtful debts,
future obligations under employee retirement benefit plans and the useful
lives of fixed assets. Actual results could differ from those estimates.
2 Revenue recognition
Revenue from software development on a time-and-material basis is
recognized based on software developed and billed to clients as per the
terms of specific contracts. In the case of fixed-price contracts, revenue
is recognized based on the milestones achieved as specified in the
contracts, on the percentage of completion basis. Revenue from the sale of
software products is recognized when the sale has been completed with the
passing of title. Revenues from Annual Technical Services (ATS) is
recognized on a pro rata basis over the period in which such services are
rendered. Interest on deployment of surplus funds is recognized using the
time-proportion method, based on interest rates implicit in the
transaction. Dividend income is recognized when the right to receive
dividend is established. Revenue from the sale of Special Import Licences
is recognized when the licences are actually sold.
3 Expenditure
Expenses are accounted on the accrual basis and provisions are made for all
known losses and liabilities. Provisions are made for future unforeseeable
factors which may affect the ultimate profit on fixed-price software
development contracts. The cost of software purchased for use in software
development and services is charged to revenue in the same year. The leave
encashment liability of the Company is provided on the basis of actuarial
valuation. Provisions are made towards likely expenses on providing post-
sales client support for fixed-price contracts.
4 Fixed assets
Fixed assets are stated at the cost of acquisition, less accumulated
depreciation. Direct costs are capitalized till the assets are ready to be
put to use. These costs include financing costs relating to specific
borrowing(s) attributable to fixed assets.
5 Capital work-in-progress
Advances paid towards the acquisition of fixed assets, and the cost of
assets not put to use before the period-end, are disclosed under capital
work-in-progress.
6 Depreciation
Depreciation on fixed assets is provided using the straight-line method,
based on useful lives as estimated by the management. Depreciation is
charged on a pro rata basis for assets purchased / sold during the period.
Individual assets costing less than Rs. 5,000 are depreciated in full in
the year of purchase. The management's estimate of useful lives for the
various fixed assets is given below.
Building 15 years
Plant and machinery 5 years
Computer equipment 2-5 years
Furniture and fixtures 5 years
Vehicles 5 years
7 Retirement benefits to employees
7.1 Gratuity
In accordance with the Indian law, Company provides for gratuity, a defined
benefit retirement plan covering all employees. The plan provides a lump
sum payment to vested employees at retirement, death or termination of
employment, based on the respective employee's salary, and the years of
employment with the Company.
The Company has established the Infosys Technologies Limited Employees'
Group Gratuity Fund Trust (the Trust). Liabilities with regard to the
gratuity plan are determined by actuarial valuation, based upon which, the
10
<PAGE>
Company makes contributions to the Trust. Trustees administer the
contributions made to the Trust. The funds contributed to the Trust are
invested in specific designated securities as mandated by law, and
generally comprise central and state government bonds, and debt instruments
of government-owned corporations.
7.2 Superannuation
Apart from being covered under the gratuity plan described above, the
senior officers of the Company are also participants of a defined
contribution benefit plan. The plan is termed the superannuation plan to
which the Company makes monthly contributions, based on a specified
percentage of each covered employee's salary. The Company has no further
obligations under the plan beyond its monthly contributions.
7.3 Provident fund
In addition to the above benefits, all employees receive benefits from a
provident fund which is a defined contribution plan. Both the employee and
the employer make monthly contributions to the plan equal to 12% of the
covered employee's salary.
The Company has established a Provident Fund Trust to which a part of the
contributions are made each month. The remainder of the contributions are
made to the Government's provident fund. The Company has no further
obligations under the plan beyond its monthly contributions.
8 Research and development
Capital and revenue expenditure incurred on research and development is
charged off to revenue in the same year in which such expenditure is
incurred.
9 Foreign currency transactions
Sales made to clients outside India and realizations deposited into foreign
currency bank accounts are accounted for on the basis of the exchange rate
as on the date of the transaction. Adjustments are made for any variations
in the sale proceeds on conversion into Indian currency upon actual
receipt. 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. Fixed assets purchased at overseas offices are
accounted for on the basis of the actual cost incurred at the exchange rate
prevalent at the time of purchase. Depreciation is charged as per Company
policy. Exchange differences arising on foreign currency transactions are
recognized as income or expense in the period in which they arise.
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 accounted for 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.
10 Investments
Investments are classified into current investments and long-term
investments. Current investments are carried at the lower of the cost and
the fair value, and provision is made to recognize any decline in the
carrying value. Long-term investments are carried at cost, and provision is
made to recognize any decline, other than temporary, in the value of such
investment. Overseas investments are carried at their original rupee cost
less provision as described above.
11 Investment in subsidiary
The investment in the subsidiary is accounted on the cost method, whereby,
the Company recognizes only dividends received from the subsidiary as
income. In case of losses made by the subsidiary, other than temporary,
adequate provision is made to recognize any decline in the value of the
investment.
12 Income tax
Provision is made for income tax on a yearly basis, under the tax-payable
method, based on the tax liability as computed after taking credit for
allowances and exemptions. In case of matters under appeal, due to
disallowances or otherwise, full provision is made when the said
liabilities are accepted by the Company.
11
<PAGE>
<TABLE>
<CAPTION>
At a glance - US GAAP
US$ in millions, except per equity share data
- -----------------------------------------------------------------------------------------------------------------
Quarter ended Year ended
June 30, 1999 June 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the period
Total revenue 39.73 23.67 120.96
Export revenue 39.35 23.39 118.91
Operating income 12.31 6.05 22.87
Net income 13.31 4.78 17.45
Operating income as a percentage
of total revenue 30.98% 25.56% 18.91%
Net income as a percentage of total revenue 28.73% 20.18% 14.42%
Basic earnings per share 0.35 0.16 0.57
Dividend per share NA NA 0.18
Dividend amount NA NA 3.15
Capital investment 4.25 1.51 16.12
At the end of the period
Total assets 165.64 51.31 153.66
Property, plant and equipment - net 25.98 17.01 23.90
Cash and equivalents 102.61 14.32 98.87
Working capital 117.99 26.10 110.62
Total debt - - -
Shareholders' equity 149.75 43.65 139.61
Common stock 8.59 4.55 8.59
Market capitalization 2,778.17 839.68 2,295.40
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Note: All ratios are calculated excluding income from exchange differences on
translation of foreign currency deposit kept abroad.
Market capitalization is calculated by considering the Indian market
price for shares outstanding at the period / year end.
[BAR CHARTS APEARS HERE]
12
<PAGE>
Form 6-K
Pages 13-48
13
<PAGE>
<TABLE>
<CAPTION>
Shareholder information
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Listing on stock exchanges Bangalore Stock Exchange Ltd.
in India at Stock Exchange Towers, No. 51, 1st Cross, J.C. Road, Bangalore - 560027.
Tel.: 91-80-299 5234, Fax: 91-80-299 5242
The Stock Exchange, Mumbai
Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai - 400 001.
Tel.: 91-22-265 5581, Fax: 91-22-265 8121
National Stock Exchange of India Ltd.
Trade World, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013.
Tel.: 91-22-497 2950, Fax: 91-22-491 4275 / 85
2. Listing fees Paid for all the above stock exchanges for 1999-2000.
3. Listing on stock exchanges NASDAQ National Market in the United States
outside India 33 Whitehall Street, New York, NY-1004-4087
Tel.: 1-212-709-2400, Fax: 1-212-709-2496
4. Registered office Electronics City, Hosur Road, Bangalore - 561 229, India.
Tel.: 91-80-852 0261, Fax: 91-80-852 0362
Homepage: www.itlinfosys.com
</TABLE>
5. Stock market data relating to shares listed in India
a. 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.
b. Monthly high and low quotations as well as the volume of shares traded
at Mumbai and National Stock Exchanges during the three-month period
ended June 30, 1999 are:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
BSE NSE
High Low Volume High Low Volume
Rs. Rs. Nos. Rs. Rs. Nos.
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
April, 1999 2,910 2,510 18,14,254 2,910 2,511 21,59,195
May 3,325 2,580 21,08,934 3,319 2,579 20,81,333
June 3,774 3,032 18,95,197 3,770 3,015 17,16,361
-------------------------------------------------------------------------------------------------------------------------
Total 58,18,385 59,56,889
-------------------------------------------------------------------------------------------------------------------------
% of volume traded to
total number of
shares outstanding 18.16% 18.60%
</TABLE>
# The number of shares outstanding have been taken to be 3,20,34,400. The
ADSs have been excluded for the purpose of this calculation.
Note: There was no trading in the shares of Infosys on the Bangalore Stock
Exchange during the period May 1998 to June 1999. The last trade on
the Bangalore Stock Exchange was on April 24, 1998. The highest
share price in April 1998 was Rs. 2,240, while the lowest was Rs.
1,225 with a volume of 2,100 shares.
<TABLE>
<S> <C>
6. Share transfers in physical form Karvy Consultants Limited
and other communication regarding Registrars and Share Transfer Agents
share certificates, dividends, and T.K.N. Complex, No. 51/2, Vanivilas Road,
change of address, etc., in India Opp. National College, Basavanagudi,
may be addressed to Bangalore - 560 004.
Tel.: 91-80-662 1184, Fax: 91-80-662 1169
Email: [email protected]
</TABLE>
14
<PAGE>
7. Share transfer system
The Securities and Exchange Board of India (SEBI) has mandated that
investors should compulsorily trade in dematerialized form in the
securities of Infosys from January 4, 1999. Investors are required to open
an account with a Depositary Participant to trade in dematerialized form.
The list of Depositary Participants are available with the National
Securities Depositary Limited (NSDL). A booklet - An Investor's Guide to
Depositaries is available at www.itlinfosys.com.
Shares sent for physical transfer would be registered and returned within a
period of 15 days from the date of receipt, if the documents are clear in
all respects. The Share Transfer Committee of the company meets as often as
required.
The total number of shares transferred in physical form during the quarter
ended June 30, 1999 were 20,900 (previous year - 7,34,877). 92.35% of
transfers (previous year - 34.55%) were completed within 15 days. Shares in
dematerialized form were transferred within 10 days .
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
1999 1998
Transfer No. of No. of No. of No. of
period transferees (folios) shares % transferees (folios) shares %
in days New Existing New Existing
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 - 10 16 9 15,600 74.65 59 69 1,82,070 24.78
11 - 15 8 2 3,700 17.70 28 34 71,800 9.77
16 - 20 3 - 1,200 5.74 12 19 1,85,992 25.31
* 21 and above 3 - 400 1.91 114 108 2,95,015 40.14
----------------------------------------------------------------------------------------------------------
30 11 20,900 100.00 213 230 7,34,877 100.00
----------------------------------------------------------------------------------------------------------
</TABLE>
*Delays beyond 21 days were due to compliance of legal requirements.
8. Investors' services - Complaints received during the three-month period
ended June 30
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Nature of complaints 1999 1998
Received Cleared Received Cleared
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
1. Non-receipt of share certificates 3 3 27 27
2. Non-receipt of bonus shares 38 38 7 7
3. Letters from Stock Exchanges, SEBI, etc. 1 1 1 1
4. Non-receipt of dividend warrants 2 2 12 12
-------------------------------------------------------------------------------------------
44 44 47 47
-------------------------------------------------------------------------------------------
</TABLE>
The Company has attended to most of the investors'
grievances/correspondence within a period of 10 days from the date of
receipt of the same, during the quarter ended June 30, 1999.
9. Legal proceedings
There are some pending cases relating to disputes over title to shares, in
which the company is made a party. These cases are however not material in
nature.
10. Distribution of shareholding as on June 30
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
1999 1998
No. of equity No. of % of No. of % of No. of % of No. of % of
shares held share- share- shares share- share- share- shares share-
holders holders holding holders holders holding
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 - 100 5,969 41.02 1,95,973 0.61 1,001 16.09 96,576 0.60
101 - 200 2,124 14.60 4,19,619 1.31 1,743 28.02 3,48,468 2.18
201 - 500 2,516 17.29 9,88,558 3.09 2,255 36.25 8,74,548 5.46
501 - 1000 2,172 14.93 16,68,490 5.21 719 11.56 5,52,520 3.45
1001 - 5000 1,309 9.00 28,75,471 8.98 385 6.19 8,23,292 5.14
5001 - 10000 189 1.30 14,42,466 4.50 58 0.93 4,34,100 2.71
10001 and above 270 1.86 2,44,43,823 76.30 60 0.96 128,87,696 80.46
--------------------------------------------------------------------------------------------------------------------
14,549 100.00 3,20,34,400 100.00 6,221 100.00 1,60,17,200 100.00
American Depositary Shares 1* 10,35,000 - -
--------------------------------------------------------------------------------------------------------------------
Total 14,550 3,30,69,400
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* Held by beneficial owners outside India.
15
<PAGE>
11. Categories of shareholders as on June 30
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
1999 1998
Category No. of Voting No. of shares No. of Voting No. of shares
shareholders strength (%) held shareholders strength (%) held
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Individuals 13,505 26.45 87,47,694 5,886 26.61 42,61,964
Companies 713 2.67 8,84,060 151 1.79 2,87,200
FIIs 151 24.00 79,34,839 76 27.19 43,54,500
OCBs and NRIs 76 0.26 85,971 24 0.23 37,000
Founders and their families 18 29.69 98,19,600 18 30.90 49,49,800
Mutual Funds, Banks, FIs 86 13.80 45,62,236 66 13.28 21,26,736
American Depositary Shares 1* 3.13 10,35,000 - - -
----------------------------------------------------------------------------------------------------------------------------
Total 14,550 100.00 3,30,69,400 6,221 100.00 1,60,17,200
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Held by beneficial owners outside India .
12. Shares under lock-in
Details of shares held by employees under the Employee Stock Offer Plan
(ESOP) subject to lock-in are given below. These shares are also included
in the categories of shareholders given in (11) above.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
No. of shares subject to lock-in as on June 30
1999 1998
Period of lock-in No. of shares No. of employees No. of shares No. of employees
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4-5 years 4,01,500 1,081 - -
3-4 years 2,54,800 345 1,10,100 165
2-3 years 1,06,200 156 1,34,000 112
1-2 years 1,31,200 107 1,11,900 77
0-1 years 1,11,100 76 - -
------------------------------------------------------------------------------------
</TABLE>
During the quarter, rights to 15,000 shares were awarded to 14 employees,
which are subject to a lock-in of 4-5 years as on June 30, 1999. During the
quarter ended March 31, 1999, rights to 1,62,500 shares were awarded to 600
employees, which are subject to a lock-in of 4-5 years as of June 30, 1999.
Currently, 1,726 employees are beneficiaries of the ESOP. The ITL Employees
Welfare Trust holds, as on June 30, 1999, 50,700 shares for future grants.
Shares subject to lock-in held by the employees will be transferred back to
the ITL Employees Welfare Trust when such employees leave the services of
the company.
13. Dematerialization of shares and liquidity
Your company 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 are exempted from paying to the depositary
participants, custodial fee charged by the NSDL on their holding. This
payment of one-time custodial fee extends to the issue of bonus shares
also. The company hopes that this initiative will enthuse shareholders to
dematerialize their holding in the company. Over 83% of the company's
shares are now held in electronic form.
A detailed letter explaining the methodology of using the Depositary as
well as a booklet - An Investor's Guide to Depositories - was sent by the
company to all its shareholders during November 1998. Copies of the booklet
will be made available to shareholders on request.
The Stock Exchange, Mumbai has permitted trading of your company's shares
in the `A' group. This move is expected to increase the liquidity of your
company's shares.
14. Financial calendar (tentative and subject to change)
<TABLE>
<CAPTION>
<S> <C>
Financial reporting for the second quarter ending September 30, 1999 October 8, 1999
Interim dividend payment (if any) November 1999
Financial reporting for the third quarter ending December 31, 1999 January 11, 2000
Financial results for the year ending March 31, 2000 April 11, 2000
Annual General Meeting for the year ending March 31, 2000 May 2000
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
15. Investors' correspondence in India Any queries relating to the financial statements of
may be addressed to: the company may be addressed to:
Mr. V. Viswanathan, Mr. T. V. Mohandas Pai,
Company Secretary, Investors' Service Cell, Senior Vice President (F&A),
Infosys Technologies Ltd., Electronics City, Infosys Technologies Ltd., Electronics City,
Hosur Road, Bangalore - 561 229, India. Hosur Road, Bangalore - 561 229, India.
Tel.: 91-80-852 1518, Fax: 91-80-852 0362 Tel.: 91-80-852 0396, Fax: 91-80-852 0362
(e-mail address: [email protected]) (e-mail address: [email protected])
</TABLE>
<TABLE>
<S> <C> <C>
16. Reuters code - INFO.BO (BSE) Bloomberg code - INFO IN (BSE) Bridge code - IN;IFS (BSE)
- INFO.NS (NSE) - NINFO IN (NSE) - IN;IFSN (NSE)
- US;INFY (NASDAQ)
</TABLE>
17. Stock market data relating to American Depositary Shares (ADSs)
a. ADS listed at NASDAQ National Market in the United States
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 United States on
March 11, 1999. The monthly high and low quotations as well as the volume
of ADSs traded at NASDAQ National Market for the quarter ended June 30,
1999 are:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
High Low Volume
$ Rs./#/ $ Rs./#/ Nos
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
April, 1999 45.81 3,901 39.25 3,343 13,77,200
May 50.38 4,295 41.38 3,528 13,91,700
June 61.25 5,309 48.50 4,204 11,64,400
-------------------------------------------------------------------------
</TABLE>
Percentage of volume traded to total float 190.01%
US$ have been converted into Rupees at the monthly closing rates.
/#/ 2 ADS = 1 equity share
e. American Depositary Shares premium to the shares traded on the Indian
Stock Exchanges
[CHART APPEARS HERE]
17
<PAGE>
f. Investor correspondence in P. R. Ganapathy
the US may be addressed to Investor Relations Officer
Infosys Technologies Limited
42808 Christy Street, Suite 203
Fremont CA 94538, USA.
Tel.: 1-510-770-3400 Ext. 412,
Mobile: 1-510-872-4412,
Fax: 1-510-770-9469,
E-mail: [email protected]
g. Name and address of the Bankers Trust Company
Depositary Bank Corporate Trust and Agency Services
4 Albany Street
New York, NY 10006, USA.
Tel.: 1-212-250-8500,
Fax: 1-212-250-5644.
Bankers Trust Company
702, Dalamal House
Jamnalal Bajaj Marg, Nariman Point
Mumbai - 400 021, India.
Tel.: 91-22-284 3593,
Fax: 91-22-284 3652.
i. Name and address of the ICICI Limited
Custodian in India Mistry Bhavan, 1 Floor
Sir Dinshaw Vacha Road
122, Backbay Reclamation
Mumbai - 400 020, India.
Tel.: 91-22-204 4370,
Fax: 91-22-204 4237.
18
<PAGE>
Segment information
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Rs. in lakhs
- ----------------------------------------------------------------------------------------------
Quarter ended Year ended
- ----------------------------------------------------------------------------------------------
June 30, 1999 June 30, 1998 March 31, 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Geographical segment
North America 14,364.42 8,244.66 41,739.11
Europe 2,792.19 807.29 4,753.03
Rest of the World 888.46 585.93 3,533.26
India 361.13 204.68 1,248.43
- ----------------------------------------------------------------------------------------------
18,406.20 9,842.56 51,273.83
==============================================================================================
Business segment
Branded services 2,146.27 2,797.73 11,321.57
Products 256.92 140.38 1,444.89
Software development and maintenance 14,623.88 6,814.19 38,122.66
Treasury 1,379.13 90.26 384.71
- ----------------------------------------------------------------------------------------------
18,406.20 9,842.56 51,273.83
==============================================================================================
</TABLE>
* Exchange differences of Rs. 813.02 lakhs arising on translation of foreign
currency deposits kept abroad has been included under treasury.
By geographical area - quarter ended June 30, 1999
- --------------------------------------------------
[CHART APPEARS HERE]
India - 2%
- -----------------------
- --------------------
ROW - 5%
- --------------
Europe - 15%
North America - 78%
- -------------------
By business segment - quarter ended June 30, 1999
- -------------------------------------------------
[CHART APPEARS HERE]
Treasury - 7%
- ------------------------
- ------------------------
Products - 1%
- ------------------------
Branded services - 12 %
- ------------------------
Software development and
maintenance - 80%
19
<PAGE>
<TABLE>
<CAPTION>
Ratio analysis
- --------------------------------------------------------------------------------------------------------
Quarter ended Year ended
June 30, 1999 June 30, 1998 March 31, 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ratios - Financial performance
Export revenue/Total revenue (%) 95.84 97.92 97.57
Domestic revenue/Total revenue (%) 0.94 1.16 1.68
Other income/Total revenue (%) 3.22 0.92 0.75
Employee costs/Total revenue (%) 35.09 37.40 32.39
Administration expenses/Total revenue (%) 7.74 10.15 8.92
Operating expenses/Total revenue (%) 60.33 67.89 62.60
Depreciation/Total revenue (%) 5.30 5.02 7.00
Tax/Total revenue (%) 4.55 3.05 4.47
Effective tax rate (Tax/PBT) (%) 13.23 11.25 14.72
EBIDTA/Total revenue (%) 39.67 32.11 37.40
PAT from ordinary activities/Total revenue (%) 29.83 24.05 25.92
PAT from ordinary activities/Average net worth (%)* 30.94 42.98 54.16
ROCE (PBIT/Average capital employed) (%)* 35.66 48.43 63.51
Return on invested capital (%)* 112.93 69.94 86.30
Capital output ratio* 4.07 2.98 3.39
Ratios - Balance Sheet
Debt-Equity ratio - - -
Debtors turnover ( Days) 57 48 61
Current ratio 6.16 5.31 6.57
Cash and equivalents/Total assets (%) 71.17 27.59 72.51
Cash and equivalents/Total assets (%)
(excluding ADR issue proceeds) 44.76 27.59 46.50
Depreciation for the period/Average gross block (%) 20.75 18.34 26.19
Technology investment/Total revenue (%) 8.02 7.29 8.55
Ratios - Growth**
Export revenue (%) 75 120 99
Total revenue (%) 79 115 97
Operating expenses (%) 59 108 87
Operating profit (%) 121 130 116
Net profit (from ordinary activities) (%) 122 157 120
Per share data
Earnings per share from ordinary activities (Rs.)* 63.48 28.63 40.19
Cash earnings per share from ordinary activities (Rs.)* 74.75 34.61 51.05
Book value (Rs.), period end 188.96 59.45 174.00
Price/Earning, end of the period 57.36 37.60 72.77
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Annualised
** Denotes growth compared with figures of the corresponding period in the
previous year.
Note: The ratio calculations are based on Indian GAAP.
All ratios are calculated excluding income from exchange differences on
translation of foreign currency deposit kept abroad.
20
<PAGE>
US
Infosys Technologies Limited
42808 Christy Street
Suite 203
Fremont CA 94538.
Tel: (510) 770-3400
Fax: (510) 770-9469
Infosys Technologies Limited
20 Commerce Drive
Cranford NJ 07016.
Tel: (908) 497-1710
Fax: (908) 497-1770
Canada
Infosys Technologies Limited
208 Evans Avenue #207
Toronto ON M8Z 1J7, Canada.
Tel: 416-259-9578
Fax: 416-259-1046
UK
Infosys Technologies Limited
Suite 412, Premier Suites
Exchange House
494 Midsummer Boulevard
Milton Keynes MK9 2EA, UK.
Tel: 44-1-908-608-272
Fax: 44-1-908-608-279
Germany
Infosys Technologies Limited
T.O.P.A.S 2 Mergenthalerallee 79-81
65760 Eschborn, Frankfurt
Germany.
Tel: 49-6196-9202115
Fax: 49-6196-9202200
Japan
Infosys Technologies Limited
4F, Madre Matsuda Building
4-13 Kioi-cho, Chiyoda-ku
Tokyo 102-0094, Japan.
Tel: 81-3-3234-3597
Fax: 81-2-3239-3300
India
Infosys Technologies Limited
Electronics City, Hosur Road
Bangalore 561 229, India.
Tel: 91-80-8520261
Fax: 91-80-8520362
Bankers
State Bank of Mysore
Hongkong and Shanghai Banking Corporation Ltd.
State of India
Bank of America
Company Secretary
V. Viswanathan
Auditors
Bharat S Raut and Company
Chartered Accountant
Independent auditors - US GAAP
KPMG Peat Marwick
- -------------------------------------------------------
Visit Infosys on the worldwide web at www.itlinfoys.com
- -------------------------------------------------------
Send your e-mail to [email protected]
- -------------------------------------------------------
Call us at 1-800-ITL-INFO
- -------------------------------------------------------
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998 APR-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998 MAR-31-1999
<CASH> 102,612,617 14,319,397 98,874,963
<SECURITIES> 177,938 362 177,938
<RECEIVABLES> 24,632,558 12,392,455 20,056,678
<ALLOWANCES> 570,908 61,024 301,930
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 133,883,674 31,405,360 124,666,964
<PP&E> 25,977,938 17,006,922 23,900,313
<DEPRECIATION> 2,173,425 1,196,731 8,521,009
<TOTAL-ASSETS> 165,643,180 51,308,032 153,657,596
<CURRENT-LIABILITIES> 15,986,309 5,303,791 14,048,034
<BONDS> 0 0 0
0 0 0
0 2,351,250 0
<COMMON> 8,592,137 4,545,811 8,592,137
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 165,643,180 51,308,032 153,657,596
<SALES> 39,728,900 23,665,088 120,955,226
<TOTAL-REVENUES> 39,728,900 23,665,088 120,955,226
<CGS> 20,620,264 13,539,548 65,331,006
<TOTAL-COSTS> 20,620,264 13,539,548 65,331,006
<OTHER-EXPENSES> 6,802,156 4,075,999 32,751,593
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 15,517,181 5,437,987 22,323,738
<INCOME-TAX> 2,206,302 662,221 4,877,650
<INCOME-CONTINUING> 13,310,879 4,775,766 17,446,088
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 13,310,879 4,775,766 17,446,088
<EPS-BASIC> 0.40 0.16 0.57
<EPS-DILUTED> 0.40 0.16 0.57
</TABLE>
