<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 September 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 September 30, 1999, which was Rs. 43.59 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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<TABLE>
<CAPTION>
Part I - Financial Information
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Item 1. Financial Statements
Balance Sheets as at
- ----------------------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998 March 31, 1999
(Unaudited) (Unaudited) (Audited)
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $104,131,114 $21,538,237 $ 98,874,963
Trade accounts receivable, net of allowances 30,626,659 14,728,377 20,056,678
Prepaid expenses and other current assets 7,482,365 5,006,263 5,735,323
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Total current assets 142,240,138 41,272,877 124,666,964
Property, plant and equipment - net 32,221,795 20,663,189 23,900,313
Deferred tax assets 1,350,849 1,332,399 1,715,375
Investments 177,938 362 177,938
Other assets 5,225,443 1,852,227 3,197,006
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Total assets $181,216,163 $65,121,054 $153,657,596
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 52,663 $ 104,721 $ 75,305
Client deposits 88,642 46,852 18,520
Other accrued liabilities 10,694,035 5,408,697 8,399,800
Income taxes payable 1,763,189 - 955,797
Unearned revenue 6,368,878 1,957,181 4,598,612
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Total current liabilities 18,967,407 7,517,451 14,048,034
PREFERRED STOCK OF SUBSIDIARY - 8,435,689 -
STOCKHOLDERS' EQUITY
Common stock, $ 0.32 par value;
50,000,000 shares authorized 8,592,137 4,545,811 8,592,137
Issued and outstanding Equity Shares -
33,069,400, 32,034,400 and 33,069,400
as of September 30, 1999, September 30, 1998
and March 31, 1999
Additional paid-in-capital 121,403,339 24,415,920 120,849,511
Accumulated other comprehensive income (14,033,267) (9,938,678) (9,100,662)
Deferred compensation - Employee Stock Offer Plan (20,173,346) (6,908,291) (21,686,799)
Retained earnings 66,459,893 37,891,786 40,955,375
Loan to trust - (838,634) -
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Total stockholders' equity 162,248,756 49,167,914 139,609,562
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Total liabilities and stockholders' equity $181,216,163 $65,121,054 $153,657,596
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See accompanying notes to financial statements
[BAR CHARTS APPEARS HERE]
__________________________________________________________________________________________________________________________________
3
</TABLE>
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<TABLE>
<CAPTION>
Statements of Income
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Three months ended Six months ended Year ended
September 30, September 30, March 31,1999
----------------------------------------------------------- (Audited)
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C> <C>
Revenues $47,941,680 $28,237,129 $87,670,580 $51,902,217 $120,955,226
Cost of revenues 26,103,672 16,067,440 46,723,936 29,606,988 65,331,006
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Gross profit 21,838,008 12,169,689 40,946,644 22,295,229 55,624,220
OPERATING EXPENSES
Selling, general and administrative expenses 5,929,995 3,526,461 11,482,051 7,140,883 16,199,055
Amortization of deferred stock compensation expense 1,293,002 461,577 2,543,102 923,154 3,645,576
Compensation arising from stock split - - - - 12,906,962
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Total operating expenses 7,222,997 3,988,038 14,025,153 8,064,037 32,751,593
Operating income 14,615,011 8,181,651 26,921,491 14,231,192 22,872,627
Equity in loss of deconsolidated subsidiary - (836,599) - (1,666,843) (2,085,887)
Other income, net 2,205,581 102,873 5,416,282 321,563 1,536,998
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Income before income taxes 16,820,592 7,447,925 32,337,773 12,885,912 22,323,738
Provisions for income taxes 2,100,081 1,288,545 4,306,383 1,950,766 4,877,650
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Net income $14,720,511 $ 6,159,380 $28,031,390 $10,935,146 $ 17,446,088
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EARNINGS PER EQUITY SHARE
Basic $0.45 $0.20 $0.85 $0.36 $0.57
Diluted $0.45 $0.20 $0.85 $0.36 $0.57
WEIGHTED EQUITY SHARES USED IN COMPUTING EARNINGS PER EQUITY SHARE
Basic 32,835,767 30,540,000 32,840,050 30,540,000 30,689,425
Diluted 32,835,767 30,591,636 32,840,050 30,586,650 30,753,690
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
_______________________________________________________________________________________________________________________________
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Stockholders' Equity (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Shares Additional Comprehensive Accumulated
paid-in Capital income Other
Comprehensive
Income
------------------------
Shares Par value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of March 31, 1997 29,038,400 $2,310,270 $ 15,712,247 - $(3,531,811)
- ----------------------------------------------------------------------------------------------------------------------------------
Stock split - 2,028,521 - -
Cash dividends declared - - - -
Common stock issued upon exercise of 2,996,000 207,020 1,813,330 -
warrants
Compensation related to stock option - - 6,890,343 -
grants
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)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared - - - - -
Amortization of compensation related - - - - -
to stock option grants
Comprehensive income
Net income - - - 10,935,146 -
Other comprehensive income
Translation adjustment - - - (2,896,449) (2,896,449)
Comprehensive income - - - $ 8,038,697 -
Repayment of loan to trust - - - -
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Balance as of September 30, 1998 32,034,400 $4,545,811 $ 24,415,920 - $(9,938,678)
- ----------------------------------------------------------------------------------------------------------------------------------
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in US$
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred Loan to Trust Retained Total
compensation - earnings stockholders'
Employee equity
Stock Offer Plan
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of March 31, 1997 $ (3,507,715) $ (24,502) $19,681,740 $ 30,640,229
- ----------------------------------------------------------------------------------------------------------------------------------
Stock split - - (2,028,521) -
Cash dividends declared - - (2,003,139) (2,003,139)
Common stock issued upon exercise of - (911,863) - 1,108,487
warrants
Compensation related to stock option (6,890,343) - - -
grants
Amortization of compensation related 2,566,613 - - 2,566,613
to stock option grants
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
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared - - (1,037,628) (1,037,628)
Amortization of compensation related 923,154 - - 923,154
to stock option grants
Comprehensive income
Net income - - 10,935,146 10,935,146
Other comprehensive income
Translation adjustment - - - (2,896,449)
Comprehensive income - - - -
Repayment of loan to trust - 97,731 - 97,731
- ----------------------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 1998 $ (6,908,291) $(838,634) $37,891,786 $ 49,167,914
- ----------------------------------------------------------------------------------------------------------------------------------
__________________________________________________________________________________________________________________________________
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Shares Additional Comprehensive Accumulated
paid-in Capital income Other
Comprehensive
Income
------------------------
Shares Par value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of September 30, 1998 32,034,400 $4,545,811 $ 24,415,920 - $(9,938,678)
- ----------------------------------------------------------------------------------------------------------------------------------
Stock split - 3,800,949 - -
Cash dividends declared - - - -
Common stock issued 1,035,000 245,377 66,025,699 -
Compensation related to stock option - - 30,407,892 -
grants
Amortization of compensation related - - - -
to stock option grants
Comprehensive income
Net income - - - 6,510,942 -
Other comprehensive income
Translation adjustment - - - 838,016 838,016
Comprehensive income - - - 7,348,958 -
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 - - (475,821) -
Cash dividends declared - - - -
Compensation related to stock option - - 1,029,649 -
grants
Amortization of compensation related - - - -
to stock option grants
Comprehensive income
Net income - - - 28,031,390 -
Other comprehensive income
Translation adjustment - - - (4,932,605) (4,932,605)
Comprehensive income - - - $23,098,785 -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 1999 33,069,400 $8,592,137 $121,403,339 - $(14,033,267)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Deferred Loan to Trust Retained Total
compensation - earnings stockholders'
Employee equity
Stock Offer Plan
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of September 30, 1998 $ (6,908,291) $(838,634) $37,891,786 $ 49,167,914
- ----------------------------------------------------------------------------------------------------------------------------------
Stock split - - (3,800,949) -
Cash dividends declared - - (2,115,235) (2,115,235)
Common stock issued - - - 66,271,076
Compensation related to stock option (30,407,892) - - -
grants
Amortization of compensation related 15,629,384 - - 15,629,384
to stock option grants
Comprehensive income
Net income - - 6,510,942 6,510,942
Other comprehensive income
Translation adjustment - - - 838,016
Comprehensive income - - - -
Adjustment on deconsolidation of - - 2,468,831 2,468,831
subsidiary
Repayment on loan to trust - $ 838,634 - 838,634
Balance as of March 31, 1999 (21,686,799) - 40,955,375 139,609,562
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock issued - - - (475,821)
Cash dividends declared - - (2,526,872) (2,526,872)
Compensation related to stock option (1,029,649) - - -
grants
Amortization of compensation related 2,543,102 - - 2,543,102
to stock option grants
Comprehensive income
Net income - - 28,031,390 28,031,390
Other comprehensive income
Translation adjustment - - - (4,932,605)
Comprehensive income - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 1999 $(20,173,346) - $66,459,893 $162,248,756
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
__________________________________________________________________________________________________________________________________
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of cash flows
- ------------------------------------------------------------------------------------------------------------------------------
Year ended
Six months ended September 30, March 31, 1999
------------------------------------
1999 1998 (Audited)
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,031,390 $10,935,146 $ 17,446,088
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of property, plant and equipment (10,749) - -
Depreciation 4,641,216 3,012,353 8,521,009
Deferred tax benefit 364,526 (242,451) (625,427)
Gain on sale of investment in deconsolidated subsidiary - - (620,958)
Amortization of deferred stock compensation expense 2,543,102 923,154 16,552,538
Loss relating to deconsolidated subsidiary - - 2,085,887
Subsidiary preferred stock dividend - 110,081 -
Changes in assets and liabilities :
Accounts receivables (10,569,981) (4,465,293) (10,113,425)
Prepaid expenses and other current assets (1,747,042) (1,254,974) (2,035,203)
Prepaid income taxes 807,392 536,969 1,492,766
Accounts payable (22,642) (44,365) (24,459)
Customer deposits 70,122 (143,321) (171,653)
Unearned revenue 1,770,266 1,957,181 4,598,612
Other accrued liabilities 2,294,235 429,391 3,015,104
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 28,171,835 11,753,871 40,120,879
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditure on property, plant and equipment (12,965,199) (6,985,759) (16,123,557)
Proceeds from sale of property, plant and equipment 13,250 5,720 5,704
Loans to employees (2,028,437) (826,622) (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 (14,980,386) (7,806,661) (16,977,144)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Equity Shares (475,821) - 66,271,076
Net proceeds from issuance of preferred stock by subsidiary - 6,008,108 -
Payment of cash dividends (2,526,872) (1,037,628) (2,371,673)
Loan to trust - 97,731 936,365
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (3,002,693) 5,068,211 64,835,768
- ------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (4,932,605) (2,896,449) (2,058,433)
Effect of deconsolidation on cash - - (2,465,372)
Net increase/(decrease) in cash and cash equivalents during the period 5,256,151 6,118,972 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 $104,131,114 $21,538,237 $ 98,874,963
- ------------------------------------------------------------------------------------------------------------------------------
Supplementary information:
Cash paid towards interest - - -
Cash paid towards taxes $ 3,498,991 $ 940,057 $ 3,364,318
______________________________________________________________________________________________________________________________
7
</TABLE>
<PAGE>
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 either on 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 services are performed.
________________________________________________________________________________
8
<PAGE>
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 cost of revenues at the time of acquisition. Third party
software expense during the six months period ended September 30, 1999,
September 30, 1998 and fiscal 1999 was $2,150,559, $2,445,040 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
________________________________________________________________________________
9
<PAGE>
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 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 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 September 30,
1999, September 30, 1998 and fiscal 1999 are as follows:
------------------------------------------------------------
Cost and fair value
------------------------------------------------------------
September 30, 1999
Cash and cash equivalents
Cash and bank deposits $ 86,665,237
Deposits with corporations 17,465,877
------------------------------------------------------------
$104,131,114
------------------------------------------------------------
September 30, 1998
Cash and cash equivalents
Cash and bank deposits $ 21,422,988
Deposits with corporations 115,249
------------------------------------------------------------
$ 21,538,237
------------------------------------------------------------
March 31, 1999
Cash and cash equivalents
Cash and bank deposits $ 96,119,672
Deposits with corporations 2,755,291
------------------------------------------------------------
$ 98,874,963
------------------------------------------------------------
2.2 Accounts receivable
Accounts receivable as of September 30, 1999 amounted to $30,626,659, net
of allowance for doubtful accounts of $724,337 and accounts receivable as
of September 30, 1998 amounted to $14,728,377, net of allowance for
doubtful accounts of $434,503. Accounts receivable as of March 31, 1999
amounted to $20,056,678, net of allowance for doubtful accounts of
$301,930. The age profile of accounts receivable is as given below.
<TABLE>
<CAPTION>
in %
- -----------------------------------------------------------------------------------------------------------------------------
Period in days September 30, 1999 September 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0 - 30 53.6 53.3 58.8
31 - 60 33.0 36.2 24.5
61 - 90 10.3 8.3 10.8
More than 90 3.1 2.2 5.9
- -----------------------------------------------------------------------------------------------------------------------------
100.0 100.0 100.0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
2.3 Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
________________________________________________________________________________
11
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998 March 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rent deposits $1,594,247 $1,343,291 $1,403,445
Deposits with government organizations 334,066 74,246 172,386
Loans to employees 3,218,805 1,335,969 1,983,319
Prepaid expenses and supplier advances 2,291,132 2,208,206 2,120,036
Other deposits 44,115 44,551 56,137
- ---------------------------------------------------------------------------------------------------------------------------------
$7,482,365 $5,006,263 $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.
<TABLE>
<C> <S>
2.4 Property, plant and equipment - net
</TABLE>
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998 March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 2,590,065 $ 2,014,256 $ 2,580,924
Buildings 8,336,877 5,610,717 6,831,097
Furniture and fixtures 5,707,273 3,977,094 4,966,929
Computer equipment 21,312,132 14,986,866 18,290,126
Plant and machinery 8,192,230 5,388,729 7,375,578
Vehicles 31,306 41,380 41,684
Capital work-in-progress 9,474,515 2,889,113 3,531,936
- ------------------------------------------------------------------------------------------------------------------------
55,644,398 34,908,155 43,618,274
Accumulated depreciation (23,422,603) (14,244,966) (19,717,961)
$ 32,221,795 $ 20,663,189 $ 23,900,313
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation expense amounted to $4,641,216, $3,012,353 and $8,521,009 for
the six months period ended September 30, 1999, September 30, 1998 and for
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. These loans are generally secured by the assets acquired by
the employees. As of September 30, 1999, September 30, 1998 and fiscal
1999, amounts receivable from officers amounted to $383,716, $280,994 and
$265,669, respectively. These are included in prepaid expenses and other
current assets in the accompanying balance sheets.
The required repayments of loans by employees are as detailed below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 - $1,335,969 -
2000 $3,218,805 617,381 $1,983,319
2001 1,427,633 478,272 953,440
2002 1,120,968 267,625 755,672
2003 726,489 166,981 528,918
2004 567,179 - 394,854
Thereafter 1,383,174 318,753 564,122
- -----------------------------------------------------------------------------------------------------------------------------
Total $8,444,248 $3,184,981 $5,180,325
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The estimated fair value amounts of the related party receivables at the
balance sheet date, amount to $7,924,089, $2,992,707 and $4,858,797 as of
September 30, 1999, September 30, 1998 and fiscal 1999.
________________________________________________________________________________
12
<PAGE>
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.
2.7 Other accrued liabilities
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accrued compensation to staff $ 4,284,300 $1,759,009 $3,116,559
Accrued dividends 2,582,829 1,127,269 2,146,039
Provision for post sales client support 1,189,182 742,511 829,964
Others 2,637,724 1,779,908 2,307,238
- -----------------------------------------------------------------------------------------------------------------------------
$10,694,035 $5,408,697 $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 $112,612, $69,895and $145,051 to the superannuation
plan during the six months period ended September 30, 1999, September 30,
1998 and fiscal 1999, respectively.
2.8.2 Provident fund benefits
In addition, the company contributed $547,827, $371,283 and $812,117 to the
provident fund plan during the six months period ended September 30, 1999,
September 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
________________________________________________________________________________
13
<PAGE>
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:
<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 $2,526,872, $1,037,628 and
$3,152,863 during the six months period ended September 30, 1999, September
30, 1998 and fiscal 1999, respectively.
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>
- ---------------------------------------------------------------------------------------------------------------------------
Six months period ended Year ended
March 31, 1999
----------------------------------------
September 30, 1999 September 30, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income and others $2,849,746 $321,563 $ 916,040
Gain on sale of investment in subsidiary - - 620,958
Income from sale of special import licenses 301,166 - -
- ---------------------------------------------------------------------------------------------------------------------------
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Six months period ended
---------------------------------------- Year ended
September 30, 1999 September 30, 1998 March 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exchange differences on translation of foreign currency deposits 2,265,370 - -
- ---------------------------------------------------------------------------------------------------------------------------
$5,416,282 $321,563 $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 six months period ended September 30, 1999, September 30,
1998 and fiscal 1999 were $1,025,112, $850,167 and $1,770,413,
respectively. The operating leases can be cancelled at the company's
option.
The company also leases some of its office space under several non-
cancelable operating leases for periods ranging from 3-5 years. The
schedule of minimum future rental payments is as follows:
------------------------------------------------
Period ending September 30,
------------------------------------------------
2000 $ 752,633
2001 777,589
2002 700,318
2003 727,039
2004 650,191
------------------------------------------------
Total $3,607,770
------------------------------------------------
2.14 Research and development
Selling, general and administrative expenses in the accompanying statements
of income include research and development expenses of $899,586, $1,196,475
and $2,819,326, for the six months period ended September 30, 1999,
September 30, 1998 and fiscal 1999, respectively.
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. These warrants were issued to an
employee welfare trust (the "Trust") at Re. 1 each, and 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 at Re. 1 each.
Each warrant entitles the holder to purchase one of the company's equity
shares at a price of 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 share 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
vest 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 September 30, 1999, the company's
outstanding equity shares included 244,500 shares held by the Trust of
which 173,900 were allotted to employees, subject to vesting provisions and
have been included in the calculation of diluted earnings per share. The
balance 70,600 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 fiscal 1999, the company recorded deferred compensation of
$30,407,892, 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.
________________________________________________________________________________
15
<PAGE>
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. The company's 1998 stock offer plan provides for
the grant of non-statutory stock options and incentive stock options to
employees of the company. The establishment of the 1998 plan was approved
by the board of directors in 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 under the 1998 plan will be
exercisable for equity shares represented by American Depositary Shares
("ADSs"). 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 Initial Public
Offering ("IPO") issue price concurrent with the company's IPO in the
United States.
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>
- ----------------------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1999 March 31, 1999
--------------------------------------------------------------------------------------------
Shares Weighted Shares Weighted Shares arising Weighted
arising out average arising out average out of options average
of options exercise price of options exercise exercise
price price
- ----------------------------------------------------------------------------------------------------------------------------------
1994 Employees stock offer plan:
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning of the year 164,000 - 518,600 - 518,600 -
Granted 15,000 $2.31 - - 992,200 $ 1.18
Forfeited (5,100) $2.31 - - (18,200) 1.18
Exercised - - - - (1,328,600) -
Outstanding at the end of the year 173,900 - 518,600 - 164,000 -
Exercisable at the end of the year
Weighted-average fair value of grants $70.95 - - - - $36.85
during the period at less than market
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 - - - - $68.00 -
the year
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 1999:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding Exercisable
-------------------------------------------------------------------------------------------------------
Range of exercise Price Number of shares Weighted average Weighted average Number of shares Weighted average
arising out of remaining exercise price arising out of exercise price
options contractual life options
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.69-$ 68.00 280,400 3.77 years $27.26 280,400 $27.26
</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 shareholders 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
________________________________________________________________________________
16
<PAGE>
employees at an exercise price that 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 September 30, 1999, no options were issued to employees under the
1999 Plan.
<TABLE>
<C> <S>
2.16 Income taxes
</TABLE>
The provision for income taxes was composed of:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Six months period ended
---------------------------------------- Year ended
September 30, 1999 September 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes
Domestic taxes $1,182,557 $ 711,313 $ 777,351
Foreign taxes 2,759,300 1,481,904 4,725,726
- -----------------------------------------------------------------------------------------------
3,941,857 2,193,217 5,503,077
Deferred taxes
Domestic taxes 364,526 (242,451) (625,427)
Foreign taxes - - -
- -----------------------------------------------------------------------------------------------
364,526 (242,451) (625,427)
- -----------------------------------------------------------------------------------------------
Aggregate taxes $4,306,383 $1,950,766 $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>
- ----------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998 March 31, 1999
- ----------------------------------------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C> <C>
Property, plant and equipment $2,037,849 $1,332,399 $2,315,375
- ----------------------------------------------------------------------------------------------------------------
2,037,849 1,332,399 2,315,375
Less: Valuation allowance (687,000) - (600,000)
- ----------------------------------------------------------------------------------------------------------------
Net deferred tax assets $1,350,849 $1,332,399 $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 September 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 September 30, 1999, September 30, 1998 and fiscal 1999 has been
allocated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998 March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------
Deferred tax expense/ (benefit) allocated to:
<S> <C> <C> <C>
Continuing operations $364,526 $(242,451) $(625,427)
- -----------------------------------------------------------------------------------------------------------------------------
$364,526 $(242,451) $(625,427)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six months period ended Year ended
----------------------------------------- March 31, 1999
September 30, 1999 September 30, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income before taxes $ 32,337,773 $12,885,912 $22,323,738
Enacted tax rates in India 38.5% 35.0% 35.0%
________________________________________________________________________________________________________________________________
17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Six months period ended
----------------------------------------- Year ended
September 30, 1999 September 30, 1998 March 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax expense 12,450,043 4,510,069 7,813,308
Less: Tax effect due to non-taxable export income (12,290,413) (4,447,237) (7,680,942)
Others 217,339 406,032 19,558
Effect of tax rate change 1,131,822 - -
Effect of prior period tax adjustments 38,292 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for Indian income tax 1,547,083 468,864 151,924
Effect of tax on foreign income 2,759,300 1,481,902 3,701,898
Effect of prior period foreign tax adjustments - - 1,023,828
- ---------------------------------------------------------------------------------------------------------------------------------
Total current taxes $ 4,306,383 $ 1,950,766 $ 4,877,650
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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>
Six months period ended
---------------------------------------- Year ended
September 30, 1999 September 30, 1998 March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per equity share - weighted average number of common shares 32,840,050 30,540,000 30,689,425
outstanding
Effect of dilutive common equivalent shares - stock options outstanding - 46,650 64,265
Diluted earnings per equity share - weighted average number of 32,840,050 30,586,650 30,753,690
common shares and common equivalent shares outstanding
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2.18 Lines of credit
The company has a line of credit from its bankers for its working capital
requirement of $1,147,000, bearing interest at prime lending rates as
applicable from time to time. As ofSeptember 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 September 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 six
months period ended September 30, 1999, September 30, 1998 and fiscal 1999.
As of September 30, 1999, the company does not have any open foreign
exchange forward contracts.
<TABLE>
<C> <S>
2.20 Segment reporting
</TABLE>
2.20.1 Revenue by geographic area
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Six months period ended Year ended
---------------------------------------- March 31, 1999
September 30, 1999 September 30, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North America $68,293,247 $42,681,071 $ 99,203,989
</TABLE>
________________________________________________________________________________
18
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Six months period ended Year ended
---------------------------------------- March 31, 1999
September 30, 1999 September 30, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe 13,607,735 5,319,184 11,302,791
India 1,116,200 729,445 2,051,492
Rest of the world 4,653,398 3,172,517 8,396,954
$87,670,580 $51,902,217 $120,955,226
- -------------------------------------------------------------------------------------------------
</TABLE>
2.20.2 Significant clients
Two clients accounted for 13.0% and 11.6%, respectively, of the total
revenue for the period ended September 30, 1998. The accounts receivables
from those clients as of September 30, 1999 was $ 2,609,254 and $1,967,446,
respectively.
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 from the Year 2000
problem. The company has converted its financial applications software to
programs certified by the suppliers as Year 2000 compliant. In tests
conducted to-date on other systems, the company has not found any
significant Year 2000 related problems. Thus, with all the updates and
modifications made to its systems, the company believes that its internal
systems are substantially Year 2000 ready. These activities were carried
out by internal resources and when necessary, with the aid of vendor
support services.
Although the Company maintains redundant voice and data communication
links, any sustained disruption of the Company's ability to transmit and
receive voice and/or data would have a material adverse effect on the
Company's business, results of operations and financial condition. The
company believes that its telecommunication service providers are
substantially Year 2000 ready and therefore does not expect significant
disruption of these facilities.
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. 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. In the event of failure to equipment
provided to the company by external vendors such as satellite and
telecommunication links, etc., the company has contingency plans to
temporarily place additional IT professionals at client sites.
2.22 Commitments and contingencies
The company has various letters of credit outstanding to different vendors
totaling $89,918 as of September 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 $364,485, $685,836 and $760,329 as of September 30, 1999,
September 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 entirely charges the cost of
acquiring such software to income 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.
________________________________________________________________________________
19
<PAGE>
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 and 6-K, 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 either on 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 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 4.2% of total revenue during the quarter ended
September 30,1999. The company derived 78.2% of its total revenue from
North America, 14.8% from Europe, 1.5% from India and 5.5% from the rest of
the world during the quarter ended September 30, 1999.
In Second quarter of fiscal 2000 and fiscal 1999, the company derived 9.4%
and 22.9% 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 70% 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 as a
percentage of revenue, than the same quantum of services performed at
company facilities in India. As a result, total revenue, cost of revenue
and
________________________________________________________________________________
20
<PAGE>
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 September 30, 1999 compared to quarter ended
September 30, 1998
Revenue. Total revenue was $47.9 million for the quarter ended September
30, 1999, representing an increase of 69.9% over total revenue of $28.2
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 4.2% of total revenue for the
quarter ended September 30, 1999 as compared to 3.0% during the same period
in the prior year. Revenue from services represented 95.8% of total revenue
for the quarter ended September 30, 1999 as compared to 97.0% during the
same period in the prior year. Revenue from fixed-price, fixed-time frame
contracts and from time-and-materials contracts represented 29.5% and
70.5%, respectively, of total revenue for the quarter ended September 30,
1999 as compared to 39.0% and 61.0%, respectively, during the same period
in the prior year. Revenue from North America and Europe represented 78.2%
and 14.8%, respectively, of total revenue for the quarter ended September
30, 1999 as compared to 80.3% and 11.9%, respectively, during the same
period in the prior year.
Cost of Revenue. Cost of revenue was $26.1 million for the quarter ended
September 30, 1999, representing an increase of 63.1% over the cost of
revenue of $16.0 million for the same period in the prior year. The cost of
revenue represented 54.4% and 56.9% of total revenues for the quarter ended
September 30, 1999 and September 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 8.0% of total revenues for the quarter ended September 30, 1999
as compared to 11.3% of total revenue during the same period in the prior
year. The cost of revenue for services represented 55.0% and 56.6% of
revenues for services for the quarter ended September 30, 1999 and
September 30, 1998, respectively. Cost of revenue for product sales
represented 41.8% and 66.2% of revenues for product sales for the quarter
ended September 30,1999 and September 30,1998, respectively.
Gross Profit. Gross profit was $21.8 million for the quarter ended
September 30,1999 representing an increase of 78.7% over the gross profit
of $12.2 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 45.6% for the quarter ended September 30, 1999 from 43.1% for
the same period in the prior year. The gross profit from services was $20.7
million for the quarter ended September 30, 1999, an increase of 73.9% over
the gross profit of $11.9 million for the same period in the prior year.
The gross profit from the sales of Bancs2000 and other products was $1.1
million for the quarter ended September 30, 1999, an increase of 266.7%
from the gross profit of $0.3 million for the same period in the prior
year. As a percentage of service revenues, the gross profit from services
increased to 45.0% for the quarter ended September 30,1999 from 43.4% for
the same period in the prior year. As a percentage of product revenue, the
gross profit from product sales increased to 58.2% for the quarter ended
September 30,1999 from gross profit of 33.8% for the same period in the
prior year.
Selling, General and Administrative expenses. Selling, general and
administrative expenses were $5.9million for the quarter ended September
30,1999, an increase of 68.6% over selling, general and administrative
expenses of $3.5 million for the same period in the prior year. Selling,
general and administrative expenses were 12.4% and 12.5% of total revenue
for the quarter ended September 30, 1999 and September 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 5.0% of total
revenue for the
_______________________________________________________________________________
21
<PAGE>
quarter ended September 30, 1999, while rent and office maintenance
represented 1.8% of total revenue for the quarter ended September 30, 1999
as compared to 4.2% and 2.4%, 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
September 30, 1999, an increase of 160.0% over amortization of deferred
stock compensation expense of $0.5million 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 $14.6 million for the quarter
ended September 30, 1999, an increase of 78.0% over the operating income of
$8.2 million for the same period in the prior year. As a percentage of
revenues, operating income increased to 30.5% for the quarter ended
September 30, 1999 from 28.8% for the same period in the prior year.
Other Income. Other income was $2.2million for the quarter ended September
30, 1999 as compared to $103,000 for the same period in the prior year.
Other income during the quarter ended September 30, 1999 includes $ 368,000
arising due to exchange differences on translation of foreign currency
deposits, $ 301,000 from the sale of Special Import Licenses and interest
of $900,000 earned on deployment of funds raised through the issue of
American Depositary shares.
Provision for Income Taxes. Provision for income taxes was $2.1 million for
the quarter ended September 30, 1999 as compared to $1.3 million for the
same period in the prior year. The company's effective tax rate decreased
to 12.5% for the quarter ended September 30, 1999 as compared to 17.5% for
the same period in the prior year.
Net Income. The net income was $14.7million for the quarter ended September
30, 1999, an increase of 137.1% over the net income of $6.2 million for the
same period in the prior year. As a percentage of total revenue, the net
income increased to 30.7% for the quarter ended September 30, 1999 from
21.8% 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 placement 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 September 30, 1999, the company had $104.1 million in cash
and cash equivalents, $123.2 million in working capital and no outstanding
bank borrowings. As on September 30, 1999, the company also had an
aggregate facility of $1.1million in working capital line of credit from
two commercial banks.
Net cash provided by operating activities was $28.2 million and $11.8
million for the six months ended September 30, 1999 and the corresponding
period in the prior year, 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 16.0% and 13.0%, for the quarter ended September 30,
1999, and the corresponding period in the prior year, respectively. 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 $1.7 million and
$1.3 million during the six months period ended September 30, 1999 and the
corresponding periods in the prior year respectively. The increase during
the six months period ended September 30,1999 was primarily due to increase
in loans disbursed to employees.
Unearned revenue as on September 30, 1999 was $6.4 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 $15.0 million and $7.8 million,
during the six months period ended September 30, 1999 and September 30,
1998 respectively. Net cash used in investing activities during the six
months period ended September 30, 1999 and September 30, 1998, consisted
primarily of $13.0million and $7.0 million, respectively, towards
acquisition of property, plant and equipment.
_______________________________________________________________________________
22
<PAGE>
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. During the six months period ended September 30,
1999 and September 30, 1998, the company declared a dividend of $2.5
million and $1.0 million, respectively.
As on September 30, 1999, the company had contractual commitments for
capital expenditure of $14.1 million. The company has not yet made
contractual commitments for the majority of its budgeted capital
expenditure.
2.4 Reconciliation between US and Indian GAAP
There are material differences between the financial statements prepared as
per Indian and US GAAP. These differences arise due to provision for
deferred taxes, accounting for stock-based compensation, valuation of
short-term investments (which are marked to market and adjusted against
retained earnings), and consolidation of accounts of subsidiaries, as
required by US GAAP. 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>
- ---------------------------------------------------------------------------------------------------------------------------------
Three months period ended Six months period ended
------------------------------------------------------------------------------
Reconciliation of net income September 30, September 30, September 30, September 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net profit as per Indian GAAP 15,238,792 6,679,291 29,358,717 12,447,007
Adjustments:
Loss from Yantra Corporation accounted on - (836,599) - (1,666,843)
consolidation
Amortization of deferred stock compensation (1,293,002) (461,577) (2,543,102) (923,154)
Deferred income taxes (28,400) 182,503 (364,526) 242,451
Provision for investment in subsidiary - 595,762 - 835,685
Provision for contingencies - - 777,180 -
Provision for e-inventing the company 803,121 - 803,121 -
Net income as per US GAAP 14,720,511 6,159,380 28,031,390 10,935,146
- ---------------------------------------------------------------------------------------------------------------------------------
</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, 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 it, thereby reducing its 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 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 September 30, 1999, over 96% 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
_______________________________________________________________________________
23
<PAGE>
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
designated Software Technology Parks. 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 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
material disruption to its business from the Year 2000 problem. The company
has converted its financial applications software to programs certified by
the suppliers as Year 2000 compliant. In tests conducted to-date on other
systems, the company has not found any significant Year 2000 related
problems. Thus, with all the updates and modifications made to its systems,
the company believes that its internal systems are substantially Year 2000
ready. These activities were carried out with internal resources and when
necessary, with the aid of vendor support services. 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. 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
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maintains redundant voice and data communication links, any sustained
disruption of the company's ability to transmit and receive voice and/or
data 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. The company has been led to believe that its
telecommunication service providers are substantially Year 2000 ready and
therefore does not expect significant disruption of these facilities.
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 Year 2000 issues
that may pose a risk to its operations. Such plans 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
face Year 2000 problems 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 September 30, 1999 grew by 69.9% over
the quarter ended September 30, 1998. As of September 30, 1999, the company
employed approximately 4120 software professionals worldwide with 11
software development facilities in India as compared to approximately 2,640
as of September 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 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
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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 relaxation 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 interim Government of India, , has
since taking office in March 1998 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 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, 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
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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 September 30, 1999 and 1998, the
company's US dollar-denominated revenues represented 87.1% and 89.6%,
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 September 30, 1999, the company had
no outstanding forward contracts . 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 six months period ended September 30, 1999, the company's
foreign currency translation losses were approximately $3.5 million,
$2.1million and $4.9 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 September 30, 1999, the company had contractual commitments of $14.1
million for capital expenditure and has budgeted for significant expansion
of infrastructure 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 September 30, 1999, substantially all of the
company's personnel in the United States were working pursuant to H-1B
visas (561 persons) or L-1 visas ( 190 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.
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
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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 re-deploy 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 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
September 30, 1999, the company's largest client accounted for 10.5%, 6.4%
and 9.4% respectively, of the company's total revenue and its five largest
clients accounted for 35.1%, 28.4% and 33.2% 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.
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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 in India and to expand the number
of such centers in India as well as abroad. 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 facilities between its main
offices in Bangalore, the offices of its clients, and its other software
development facilities. Although the company maintains redundant voice and
data communication links, any significant loss of the company's ability to
transmit voice and/or data 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 9.4% and 22.9% of the company's
total revenue for the quarter ended September 30, 1999 and quarter ended
September 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 re-deploy 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 clients' 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,
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errors, mistakes or omissions in rendering its services, there can be no
assurance that 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.
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 September 30, 1999, the company derived 4.2% 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 pre-
emptive 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 pre-emptive 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 in intellectual property. Ownership of
software and associated 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
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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 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 31.0%
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. The company has converted its financial
applications software to programs certified by the suppliers as Year 2000
compliant. In tests conducted to-date on other systems, the company has not
found any significant Year 2000 related problems. Thus, with all the
updates and modifications made to its systems, the company believes that
its internal systems are substantially Year 2000 ready. However, there can
be no assurance 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 voice and
data communication links, any sustained disruption of the company's ability
to transmit and receive voice and/or data 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 sent two
separate questionnaires to
________________________________________________________________________________
31
<PAGE>
a majority of its third party suppliers. The company has been led to
believe that its telecommunication service providers are substantially Year
2000 ready and therefore does not expect significant disruption of these
facilities. However there can be no assurance that these third party
suppliers and their products are or will ultimately be Year 2000 compliant.
Any failure of these third party suppliers to resolve their Year 2000
problems 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 September 30, 1999, fiscal 1999
and fiscal 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
September 30, 1999, the Company had no outstanding forward contracts. 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. Devaluation 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.
________________________________________________________________________________
32
<PAGE>
Part II - Other Information
Item 1.Legal Proceedings
On October 8, 1999, the company received a demand notice from the Indian
Income Tax Authorities (the "Income Tax Authorities") requesting payment of
approximately $14.32 million in unpaid income tax liability and $2.07
million for accrued interest on such income tax for employee income taxes
that should have been witheld by the company on stock options issued to its
employees under the company's 1994 Employee Stock Offer Plan (the "1994
Stock Plan").
The company has requested relief and clarifications on the taxability of
such stock option issuances from the Income Tax Authorities since 1995 and
has received a legal opinion that the company would have no tax liability
on its 1994 Stock Plan. Additionally, the company has entered into
indemnification agreements with each option holder which indemnify the
company in the event such tax liabilities are assessed by the Income Tax
Authorities. Accordingly, the company believes that any payment of such
taxes would have no material adverse impact on its earnings.
Item 2.Changes in Securities and Use of Proceeds
As of September 30,1999, $ 10.3 million out of the net proceeds were used
for capital expenditure incurred on construction of the Company's software
development facilities at Pune, Mangalore, Chennai and construction of
Infosys Park, Phase I & II, adjacent to the company's headquarters in
Electronics City.
Item 3. Default upon senior securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
Infosys filed no reports on Form 8-K during the quarter ended September 30,
1999.
________________________________________________________________________________
33
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit Number Description of Document
- --------------------------------------------------------------------------------
19.1. Infosys Quarterly report to the shareholders for the
quarter ended September 30, 1999.
27.1. Financial Data Schedule.
________________________________________________________________________________
34
<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: 15 October, 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
________________________________________________________________________________
35
<PAGE>
EXHIBIT 19.1
INFOSYS TECHNOLOGIES LIMITED
Report for the second quarter ended September 30, 1999
[GRAPHIC APPEARS HERE]
- --------------------------------------------------------------------------------
1
<PAGE>
At a glance - Indian GAAP
- --------------------------------------------------------------------------------
Rs. in crores, except per equity share data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter ended Half year ended Year ended
September 30, September 30, March 31,
---------------------------------------------------------------- 1999
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the period
Total revenue 217.88 120.44 401.94 218.86 512.74
Export revenue 205.07 118.10 373.69 214.48 500.25
Operating profit (PBIDT) 85.93 42.05 163.86 73.66 191.75
Profit after tax (PAT) from ordinary 65.71 28.40 126.32 52.07 132.92
activities
PBIDT as a percentage of total 38.98% 34.92% 39.29% 33.66% 37.40%
revenue
PAT (from ordinary activities) as a 29.63% 23.58% 29.72% 23.79% 25.92%
percentage of total revenue
Earnings per share (from ordinary 19.37 8.59 35.24 15.75 40.19
activities)
Dividend per share NA NA 3.00 2.50 7.50
Dividend amount NA NA 9.92 4.00 12.11
Capital investment 38.56 22.70 59.76 33.16 71.68
At the end of the period
Total assets 687.68 220.62 574.43
Fixed assets - net 140.42 85.75 100.72
Cash and equivalent 453.80 63.64 416.66
Working capital 546.50 127.63 472.96
Total debt - - -
Net worth 687.68 220.62 574.43
Equity 33.07 16.02 33.07
Market capitalization 23,589.06 4,086.79 9,672.80
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Rs. One crore equals Rs. 10 million.
All ratios are calculated excluding income from exchange differences on
translation of foreign currency deposits kept abroad. Market capitalization is
calculated by considering the Indian market price for shares outstanding at the
period / year-end.
EPS figures have been calculated for the period and has not been annualized.
[BAR CHARTS APPEARS HERE]
- --------------------------------------------------------------------------------
2
<PAGE>
Letter to shareholders
- --------------------------------------------------------------------------------
Dear Shareholder,
We are delighted at the company's performance this quarter. Total income
(Revenues) for the quarter was Rs. 217.88 crore ($47.9 million) compared to Rs.
120.44 crore ($28.2 million) for the corresponding quarter in the previous year,
a growth of 81% (70%). Export income (Export revenues) grew to Rs. 205.07 crore
($47.3 million) from Rs. 118.10 crore ($27.8 million) for the corresponding
quarter in the previous year, a growth of 74% (70%).
Net profit from ordinary activities (Net income) for the quarter was Rs. 65.71
crore ($14.7 million) as compared to Rs. 28.40 crore ($6.2 million) for the
corresponding quarter in the previous year, an increase of 131% (139%).
Operating profit (Operating income) was Rs. 85.93 crore ($14.6 million) as
compared to Rs. 42.06 crore ($8.2 million) for the corresponding quarter in the
previous year, a growth of 104% (79%).
Other income (Other income, net) of Rs. 9.58 crore ($2.2 million) in the current
quarter includes Rs. 3.91 crore ($0.9 million) of interest on deployment of
funds raised through issue of American Depositary Shares (ADS), Rs. 1.30 crore
($0.3 million) from the sale of Special Import Licences, and an amount of Rs.
1.65 crore ($0.4 million) arising from exchange rate differences on translation
of foreign currency deposits. Excluding the above, net profit (net income) for
the current quarter was Rs. 58.85 crore ($13.1 million), a 107% (113%) increase
over the comparable net profit of Rs. 28.40 crore ($6.2 million) for the quarter
ended September 30, 1998.
The shift in the business towards e-commerce related work is rapid. Your company
is committed to creating knowledge infrastructure, acquiring people with
technical skills in the e-commerce area and e-inventing the company. This may
require your company to incur business restructuring costs. A provision of Rs.
3.50 crore (based on current estimates) was made in the Indian GAAP financial
statements in the current quarter towards costs related to e-inventing the
company. During this quarter, 10.3% of your company's total income were
e-commerce related and we are continuing our focus in this area. Your company's
strategic approach to the Year 2000 opportunity has ensured top and bottom line
growth, despite a planned decline in Year 2000 revenues to 9.4% of total income
in the quarter.
Your 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 from the Year 2000 problem.
Your company has converted its financial applications software to programs
certified by its suppliers as Year 2000 compliant. In tests conducted to-date on
other systems, no significant Year 2000-related problems have been found.
Consequent to all the updates and modifications made to its systems, your
company believes that its internal systems are Year 2000 ready. All these
activities were carried out with internal resources and where necessary, with
aid from the vendors who supplied the systems.
Although your company maintains redundant voice and data communication links,
any sustained disruption of your company's ability to transmit and receive voice
and/or data would have a material adverse effect on its business, results of
operations and financial condition. Your company has been led to believe that
all its telecommunication service providers are Year 2000 ready and therefore
does not expect significant disruption of these facilities.
Your company added 22 new clients in the quarter. New clients include E-business
clients like Expense Vision, Petopia.com and Man.com. These clients have availed
of the "Product Co-development Service" of your company. As part of this
service, your company sets up a dedicated Product Competency Center which
becomes a virtual extension of the client's software engineering team, ensuring
faster time-to-market and better quality.
During the quarter, your company accelerated the hiring resulting in a net
addition of 835 employees. The total strength of your company increased to 4,778
as of this quarter end. Your company's global delivery model enables it to
recruit and train large number of employees ahead of the requirements without
substantially impacting the margins. As the IT environment becomes more complex
and ever changing, your company's strategy of investing in continuous education
of its people and research is paying off.
Mr. N. S. Raghavan, one of the founders and Joint Managing Director, expressed
his intention to seek retirement from the membership of the Board of Directors
in order to enable him to pursue charitable activities on a full-time basis. The
Board reluctantly accepted his request. Mr. N. S. Raghavan will retire from the
Board of Directors and the post of Joint Managing Director with effect from
February 7, 2000. It is difficult to imagine Infosys without Mr. N. S. Raghavan.
He has been a close and affectionate colleague in this marathon of building
Infosys. His desire to spend his post-retirement time on charitable activities
deserves our applause.
As part of the globalization process, your company had earlier stated its
intention to start development centers outside India. Based on the
recommendations of an internal committee, your company decided to set up an
overseas software development center in Canada. This initiative will help
satisfy client requirements more effectively.
The construction of Phase I of the software development facility at Pune
Infotech Park, Hinjawadi, Pune is nearing completion. Two software blocks (each
with a capacity to accommodate 300 employees) and the concomitant support
facilities are scheduled for inauguration in mid-October. The Phase II of the
software development facility at Pune Infotech Park, Hinjawadi, Pune to
accommodate 600 employees is also progressing satisfactorily. Construction of
one more block of 70,000 sq. ft of Infosys Park, Phase I is progressing well.
Construction of 2,70,000 sq. ft at Infosys Park, Phase II, adjacent to the
company's headquarters in Electronics City, is progressing as per schedule.
We thank all Infoscions, who through their hard work, dedication and commitment
have made this yet another productive quarter, and look forward to reporting to
you the results of the quarter ending December 31, 1999.
Bangalore Nandan M. Nilekani N. R. Narayana Murthy
October 8, 1999 Managing Director, President Chairman
and Chief Operating Officer and Chief Executive Officer
Note: Figures and terminology in parenthesis refer to US GAAP financial
statements, and are in US dollars.
- --------------------------------------------------------------------------------
3
<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 September, 1999 and the Profit and Loss Accounts of the
Company for the half-year and 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 Accounts dealt with by this
report are in agreement with the books of account.
d. In our opinion, 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 September, 1999; and
ii. in the case of the Profit and Loss Accounts, of the profit for
the half-year and quarter ended on that date.
3. We have also examined the attached Cash Flow Statements of the Company for
the half-year and quarter ended 30 September, 1999. The Statements have
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
October 08, 1999 Partner
- --------------------------------------------------------------------------------
4
<PAGE>
<TABLE>
<CAPTION>
Balance Sheet as at
- ------------------------------------------------------------------------------------------------------------------------------------
in Rs.
- --------------------------------------------------------------------------------------------------------------------
September 30 March 31
---------------------------------------
1999 1998 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 654,61,29,197 204,60,49,410 541,36,15,748
- --------------------------------------------------------------------------------------------------------------------
687,68,24,697 220,62,22,910 574,43,11,248
- --------------------------------------------------------------------------------------------------------------------
APPLICATION OF FUNDS
FIXED ASSETS
Gross block 201,20,83,575 133,32,67,084 168,92,38,345
Less : Depreciation 102,07,57,018 59,84,23,054 83,09,14,934
- --------------------------------------------------------------------------------------------------------------------
Net block 99,13,26,557 73,48,44,030 85,83,23,411
Add : Capital work-in-progress 41,28,99,285 12,26,42,827 14,88,35,800
- --------------------------------------------------------------------------------------------------------------------
140,42,25,842 85,74,86,857 100,71,59,211
INVESTMENTS 75,48,469 7,24,71,960 75,48,469
CURRENT ASSETS, LOANS AND ADVANCES
Sundry debtors 133,47,09,804 59,01,34,640 84,51,88,425
Cash and bank balances 377,68,71,030 63,63,59,775 405,04,82,999
Loans and advances 164,28,14,672 41,67,37,697 68,35,96,522
- --------------------------------------------------------------------------------------------------------------------
675,43,95,506 164,32,32,112 557,92,67,946
Less: Current liabilities 58,78,14,181 19,97,43,633 42,83,42,481
Provisions 70,15,30,939 16,72,24,386 42,13,21,897
- --------------------------------------------------------------------------------------------------------------------
NET CURRENT ASSETS 546,50,50,386 127,62,64,093 472,96,03,568
- --------------------------------------------------------------------------------------------------------------------
687,68,24,697 220,62,22,910 574,43,11,248
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SIGNIFICANT ACCOUNTING POLICIES AND
NOTES ON ACCOUNTS
The Schedules referred to above and the notes thereon form an integral part of
the Balance Sheet.
This is the Balance Sheet referred
to in our report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<CAPTION>
Ravi Ramu N.R. Narayana Murthy Nandan M. Nilekani Susim M. Datta Deepak M. Satwalekar
<S> <C> <C> <C> <C>
Partner Chairman and Managing Director, Director Director
Chief Executive Officer President
and Chief Operating
Officer
Ramesh Vangal Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan
Director Director Joint Managing Deputy Managing Director
Director
Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V. Viswanathan
Date: October 8, 1999 Director Director Sr. Vice-President Company Secretary
(F&A)
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
<TABLE>
<CAPTION>
Profit and Loss Account
- ------------------------------------------------------------------------------------------------------------------------------------
in Rs.
- ---------------------------------------------------------------------------------------------------------------------
Quarter ended September 30 Half year ended September 30 Year ended
March 31
--------------------------------------------------------------
1999 1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME
Software development services and
products
Overseas 205,07,22,424 118,09,83,329 373,69,33,425 214,47,71,315 500,25,40,418
Domestic 3,22,64,605 1,90,05,058 4,87,60,599 3,04,47,144 8,63,71,250
Sale of special import licenses 1,29,96,393 - 1,29,96,393 - -
Other income 8,28,22,042 43,71,375 22,07,35,287 1,33,97,323 3,84,71,833
- ---------------------------------------------------------------------------------------------------------------------
217,88,05,464 120,43,59,762 401,94,25,704 218,86,15,782 512,73,83,501
- ---------------------------------------------------------------------------------------------------------------------
EXPENDITURE
Software development expenses 113,07,67,428 65,92,35,809 202,26,48,720 121,74,92,099 261,51,74,052
Administration and other expenses 15,37,31,464 9,92,83,387 28,98,70,425 19,91,90,300 45,75,30,137
Provision for Contingencies - - 3,33,00,000 - 6,66,00,000
Provision towards e-inventing the 3,50,00,000 - 3,50,00,000 - -
Company
Provision for investment in - 2,53,00,000 - 3,53,00,000 7,05,95,674
subsidiary
- ---------------------------------------------------------------------------------------------------------------------
131,94,98,892 78,38,19,196 238,08,19,145 145,19,82,399 320,98,99,863
Operating profit (PBIDT) 85,93,06,572 42,05,40,566 163,86,06,559 73,66,33,383 191,74,83,638
Interest - - - - -
Depreciation 10,72,23,769 7,40,72,227 20,04,41,918 12,34,36,092 35,89,30,078
Profit before tax 75,20,82,803 34,64,68,339 143,81,64,641 61,31,97,291 155,85,53,560
Provision for tax
- earlier periods 17,00,000 1,75,00,000 17,00,000 1,75,00,000 4,32,00,000
- current period 9,33,00,000 4,50,00,000 17,33,00,000 7,50,00,000 18,62,00,000
Profit after tax from ordinary 65,70,82,803 28,39,68,339 126,31,64,641 52,06,97,291 132,91,53,560
activities
Extraordinary income (net of tax) - - - - 2,34,54,103
Net profit 65,70,82,803 28,39,68,339 126,31,64,641 52,06,97,291 135,26,07,663
- ---------------------------------------------------------------------------------------------------------------------
AMOUNT AVAILABLE FOR APPROPRIATION 65,70,82,803 28,39,68,339 126,31,64,641 52,06,97,291 135,26,07,663
- ---------------------------------------------------------------------------------------------------------------------
Dividend
Interim 9,92,08,200 4,00,43,000 9,92,08,200 4,00,43,000 4,00,43,011
Final 8,10,32,734
Dividend Tax 1,09,12,902 40,04,300 1,09,12,902 40,04,300 1,21,07,574
Amount transferred
- capital reserve - - - - 2,34,54,103
- general reserve - - - - 119,59,70,241
Balance in Profit and Loss Account 54,69,61,701 23,99,21,039 115,30,43,539 47,66,49,991 -
- ---------------------------------------------------------------------------------------------------------------------
65,70,82,803 28,39,68,339 126,31,64,641 52,06,97,291 135,26,07,663
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SIGNIFICANT ACCOUNTING
POLICIES AND NOTES ON ACCOUNTS
The Schedules referred to above and the notes thereon form an integral part of
the Profit and Loss Account.
This is the Profit & Loss Account
referred to in our report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<CAPTION>
Ravi Ramu N.R.Narayana Murthy Nandan M. Nilekani Susim M. Datta Deepak M. Satwalekar
<S> <C> <C> <C> <C>
Partner Chairman and Managing Director, Director Director
Chief Executive Officer President
and Chief Operating
Officer
Ramesh Vangal Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan
Director Director Joint Managing Deputy Managing Director
Director
Place: Bangalore K. Dinesh S.D. Shibulal T.V.Mohandas Pai V.Viswanathan
Date: October 8, 1999 Director Director Sr. Vice-President Company Secretary
(F&A)
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
<TABLE>
<CAPTION>
Schedules to the Profit and Loss Account
- ------------------------------------------------------------------------------------------------------------------------------------
in Rs.
- -----------------------------------------------------------------------------------------------------------------------------
Quarter ended September 30 Half year ended September 30 Year ended March 31
------------------------------------------------------------------------------------
1999 1998 1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER INCOME
Interest received on deposits with 6,52,40,572 35,08,437 12,10,22,337 1,23,10,678 3,67,00,927
banks and others.
Tax deducted at source Rs. 52,48,295
(Rs. 6,74,082)
Profit on sale of Assets 4,16,230 - 4,63,777 - -
Miscellaneous income 7,08,917 8,62,938 14,90,472 10,86,645 17,70,906
Exchange differences * 1,64,56,323 - 9,77,58,701 - -
- ---------------------------------------------------------------------------------------------------------------------------
8,28,22,042 43,71,375 22,07,35,287 1,33,97,323 3,84,71,833
- ---------------------------------------------------------------------------------------------------------------------------
*Exchange differences on translation of foreign currency deposit maintained abroad
SOFTWARE DEVELOPMENT EXPENSES
Salaries and bonus including 73,71,21,957 35,98,78,983 132,43,61,020 69,31,81,636 151,56,56,923
overseas staff expenses
Staff welfare 1,01,02,147 78,05,647 1,97,02,371 1,40,42,054 3,06,17,200
Contribution to provident and other 4,04,04,539 1,77,94,463 6,09,67,314 4,63,64,461 11,42,90,209
funds
Foreign tour and travel 19,44,34,563 14,43,03,794 37,35,69,658 24,67,37,676 58,11,20,975
Consumables 47,39,041 18,97,536 1,06,07,532 27,63,865 1,06,44,207
Cost of software packages
for own use 6,00,62,634 6,13,26,147 9,28,54,660 10,25,34,030 14,86,91,737
for domestic software 24,53,002 23,04,627 40,65,059 40,16,868 1,78,19,890
development
Provision for post-sales client 1,09,23,398 1,78,08,473 1,75,96,154 1,92,09,784 2,19,18,587
support
Computer maintenance 61,45,308 1,34,23,968 1,00,78,359 1,86,21,544 3,29,08,467
Communication expenses 5,64,28,375 2,21,19,577 9,47,60,089 4,78,98,292 9,59,08,515
Consultancy charges 79,52,464 1,05,72,594 1,40,86,504 2,21,21,889 4,55,97,342
- ---------------------------------------------------------------------------------------------------------------------------
113,07,67,428 65,92,35,809 202,26,48,720 121,74,92,099 261,51,74,052
- ---------------------------------------------------------------------------------------------------------------------------
ADMINISTRATION AND OTHER EXPENSES
Rent 2,37,09,030 1,82,67,185 4,42,39,431 3,56,24,624 7,44,54,587
Legal and professional charges 1,69,66,773 1,12,73,529 2,94,93,829 2,35,37,784 5,37,56,388
Travelling and conveyance 1,64,00,037 94,18,657 2,71,78,379 1,87,25,381 4,15,37,200
Telephone charges 1,07,93,680 1,56,74,390 2,45,99,217 2,67,15,939 5,15,34,846
Power and fuel 1,00,90,670 61,23,149 2,01,08,110 1,18,07,207 2,73,37,769
Provision for bad and doubtful debts 70,23,453 18,26,947 1,90,43,237 44,14,374 (13,06,919)
Office maintenance 97,79,872 64,89,180 1,81,88,757 1,45,81,303 2,95,44,190
Printing and stationery 70,99,944 32,72,629 1,53,91,827 83,07,159 1,76,34,923
Donations 1,01,86,367 22,19,735 1,41,86,367 40,21,335 1,49,82,357
Sundry marketing expenses 53,93,530 35,60,383 1,30,53,262 63,77,852 1,92,56,725
Other miscellaneous expenses 90,58,142 42,02,716 1,27,87,412 1,02,96,746 1,80,79,939
Advertisements 68,68,674 11,59,566 1,12,36,927 26,89,853 76,84,502
Insurance charges 49,72,795 25,19,451 90,30,631 57,47,241 1,28,78,968
Postage and courier 25,29,800 14,14,441 61,99,736 35,98,107 79,15,959
Rates and taxes 37,24,887 34,21,294 57,43,646 67,84,556 1,16,79,290
Repairs to plant and machinery 27,39,781 24,96,561 41,49,262 42,09,715 86,47,678
Repairs to building 13,87,841 23,24,990 40,04,836 45,28,897 1,08,24,460
Commission Charges - - 34,84,800 4,96,700 7,40,413
Research Grants 25,00,000 - 25,00,000 - 3,09,00,000
Books and periodicals 8,34,026 23,64,234 21,48,750 40,71,713 76,72,725
Bank charges and commission 8,08,085 8,66,850 17,62,932 18,78,814 38,95,031
Auditor's remuneration
- audit fees 4,67,500 3,50,000 8,92,500 7,00,000 14,35,000
- certification charges - - - - 2,00,000
- other services - - - - 8,00,000
- out-of-pocket expenses 50,000 37,500 1,00,000 75,000 1,50,000
Bad loans and advances written off 3,46,577 - 3,46,577 - 52,94,106
- ---------------------------------------------------------------------------------------------------------------------------
15,37,31,464 9,92,83,387 28,98,70,425 19,91,90,300 45,75,30,137
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------------
in Rs.
- ------------------------------------------------------------------------------------------------------------------------
Quarter ended September 30, Half year ended September 30, Year ended
March 31, 1999
----------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operations
Profit before tax 75,20,82,803 34,64,68,339 143,81,64,641 61,31,97,291 155,85,53,560
Other Income (8,21,13,125) (35,14,051) (21,92,44,815) (1,23,56,967) (3,67,00,927)
Provision for contingencies - - 3,33,00,000 - 6,66,00,000
Provision for e-inventing the Company 3,50,00,000 - 3,50,00,000 - -
Provision for investment in subsidiary - 2,53,00,000 - 3,53,00,000 7,05,95,674
Depreciation, depletion and amortization 10,72,23,769 7,40,72,227 20,04,41,918 12,34,36,092 35,89,30,078
Decrease (increase) in sundry debtors (26,71,34,722) (7,25,12,893) (48,95,21,379) (19,12,85,973) (44,63,39,758)
Decrease (increase) in loans and (8,30,09,030) (5,85,36,394) (17,73,97,884) (10,42,08,713) (15,32,76,222)
advances
Increase (decrease) in current 4,17,59,020 3,10,80,523 17,70,67,854 10,69,16,563 33,82,24,214
liabilities and provisions
Income taxes paid (10,92,26,480) (2,51,95,430) (13,84,37,481) (6,90,39,814) (16,79,23,184)
- ------------------------------------------------------------------------------------------------------------------------
Net cash from operations 39,45,82,235 31,71,62,321 85,93,72,854 50,19,58,479 158,86,63,435
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing
Proceeds from issue of American - - - - 296,86,28,400
Depositary Shares
Expenses relating to issue of American (3,26,400) - (2,05,30,090) - (17,33,14,415)
Depositary Shares
Dividends paid (including dividend tax) - - (8,91,36,007) (5,79,89,512) (10,20,36,824)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for financing (3,26,400) - (10,96,66,097) (5,79,89,512) 269,32,77,161
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing
Income from investments 6,52,40,572 35,14,051 12,10,22,337 1,23,56,967 3,67,00,927
Proceeds of sale of investments (net of - - - - 6,06,20,029
tax)
Proceeds of sale of fixed assets 4,20,448 1,23,860 5,71,709 2,39,716 2,39,716
Purchase of fixed assets (38,55,70,016) (22,69,54,087) (59,76,16,481) (33,16,25,584) (71,67,91,924)
Other long-term investments - - - - (75,38,109)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for investing (31,99,08,996) (22,33,16,176) (47,60,22,435) (31,90,28,901) (62,67,69,361)
- ------------------------------------------------------------------------------------------------------------------------
Effect of exchange differences on 1,64,56,323 - 9,77,58,701 - -
translation of foreign currency deposit
maintained abroad
Total increase (decrease) in cash and 7,43,46,839 9,38,46,145 27,36,84,322 12,49,40,066 365,51,71,235
cash equivalents during the period
CASH AND CASH EQUIVALENTS AT THE 444,72,30,805 54,25,13,630 416,65,90,944 51,14,19,709 51,14,19,709
BEGINNING OF THE PERIOD
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF 453,80,33,967 63,63,59,775 453,80,33,967 63,63,59,775 416,65,90,944
THE PERIOD
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
These are the Cash Flow Statements
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 Deepak M. Satwalekar
Partner Chairman and Managing Director, Director Director
Chief Executive President
Officer and Chief Operating Officer
Ramesh Vangal Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan
Director Director Joint Managing Director Deputy Managing Director
Place: Bangalore K. Dinesh S.D. Shibulal T.V. Mohandas Pai V.Viswanathan
Date: October 8, 1999 Director Director Sr. Vice-President Company Secretary
(F&A)
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
Reconciliation of Balance Sheet items with cash flow items
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
in Rs.
- --------------------------------------------------------------------------------------------------------------------------------
Quarter ended September 30, Half year ended September 30, Year ended
March 31, 1999
-----------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
1. Loans and advances
<S> <C> <C> <C> <C> <C>
As per Balance sheet 164,28,14,672 41,67,37,697 164,28,14,672 41,67,37,697 68,35,96,522
Less: Deposits with financial (76,11,62,937) - (76,11,62,937) - (11,61,07,945)
institutions/body corporate, included
in cash equivalents
Advance income taxes considered (32,78,45,496) (8,93,96,851) (32,78,45,496) (8,93,96,851) (19,10,80,222)
separately
----------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow 55,38,06,239 32,73,40,846 55,38,06,239 32,73,40,846 37,64,08,355
statement
----------------------------------------------------------------------------------------------------------------------------
2. Additions to fixed assets
As per Balance sheet 11,48,32,169 23,19,78,997 33,35,52,996 28,21,96,029 64,11,69,396
Add: Closing capital work-in-progress 41,28,99,285 12,26,42,827 41,28,99,285 12,26,42,827 14,88,35,800
Less: Opening capital work-in-progress (14,21,61,438)(12,76,67,737)(14,88,35,800) (7,32,13,272) (7,32,13,272)
----------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow 38,55,70,016 22,69,54,087 59,76,16,481 33,16,25,584 71,67,91,924
statement
----------------------------------------------------------------------------------------------------------------------------
3. Cash and cash equivalents
As per Balance sheet 377,68,71,030 63,63,59,775 377,68,71,030 63,63,59,775 405,04,82,999
Add: Deposits with financial 76,11,62,937 - 76,11,62,937 - 11,61,07,945
institutions/body corporate (as per 1
above)
----------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow 453,80,33,967 63,63,59,775 453,80,33,967 63,63,59,775 416,65,90,944
statement
----------------------------------------------------------------------------------------------------------------------------
4. Income taxes paid
As per Profit and Loss account 9,50,00,000 6,25,00,000 17,50,00,000 9,25,00,000 22,94,00,000
Add: Decrease(increase) in balance in (9,50,05,897) (2,17,00,000) (17,33,27,793) (1,69,52,470) (15,66,52,471)
provision for taxes account
Increase(decrease) in balance in advance 10,92,32,377 (1,56,04,570) 13,67,65,274 (65,07,716) 9,51,75,655
income tax account
----------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow 10,92,26,480 2,51,95,430 13,84,37,481 6,90,39,814 16,79,23,184
statement
----------------------------------------------------------------------------------------------------------------------------
5. Other income
As per Profit and Loss account 9,58,18,435 43,71,375 23,37,31,680 1,33,97,323 3,84,71,833
Less: Income from operating activities (1,37,05,310) (8,57,324) (1,44,86,865) (10,40,356) (17,70,906)
----------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow 8,21,13,125 35,14,051 21,92,44,815 1,23,56,967 3,67,00,927
statement
----------------------------------------------------------------------------------------------------------------------------
6. Current liabilities and provisions
As per Balance sheet 128,93,45,120 36,69,68,019 128,93,45,120 36,69,68,019 84,96,64,378
Less: Provision for taxation considered (40,46,85,281)(9,16,57,487) (40,46,85,281) (9,16,57,487) (23,13,57,488)
separately
Provision for dividend considered (9,92,08,200) (4,00,43,000) (9,92,08,200) (4,00,43,000) (8,10,32,734)
separately
Provision for dividend tax considered (1,09,12,902) (40,04,300) (1,09,12,902) (40,04,300) (81,03,273)
separately
Provision for contingencies (9,99,00,000) - (9,99,00,000) - (6,66,00,000)
Provision for e-inventing the Company (3,50,00,000) - (3,50,00,000) - -
----------------------------------------------------------------------------------------------------------------------------
Balance considered for preparing the cash flow 63,96,38,737 23,12,63,232 63,96,38,737 23,12,63,232 46,25,70,883
statement
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
These are the Cash Flow Statements
referred to in our report of even date.
for Bharat S Raut & Co.
Chartered Accountants
<TABLE>
<CAPTION>
Ravi Ramu N.R.Narayana Murthy Nandan M. Nilekani Susim M. Datta Deepak M. Satwalekar
<S> <C> <C> <C> <C>
Partner Chairman and Managing Director, Director Director
Chief Executive Officer President
and Chief Operating
Officer
Ramesh Vangal Marti G. Subrahmanyam N.S. Raghavan S. Gopalakrishnan
Director Director Joint Managing Director Deputy Managing Director
Place: Bangalore K. Dinesh S.D. Shibulal T.V.Mohandas Pai V.Viswanathan
Date: October 8, 1999 Director Director Sr. Vice-President (F&A) Company Secretary
</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. Revenue 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
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.
- --------------------------------------------------------------------------------
10
<PAGE>
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.
Notes on accounts
- --------------------------------------------------------------------------------
The previous period's figures have been recast / restated, wherever necessary,
to conform to the current period's classification.
1. Contingent liabilities
a. The estimated amount of contracts remaining to be executed on capital
account, and not provided for (net of advance) is Rs 61,66,53,437 as
at September 30, 1999. The amount of such contracts as at September
30, 1998 was Rs. 18,18,16,277.
b. The company has outstanding counter guarantees of Rs. 1,58,84,263 as
at September 30, 1999, to various banks, in respect of guarantees
given by the said banks in favour of various government authorities.
The counter guarantees outstanding, as at September 30, 1998 was Rs.
2,91,13,719.
c. Claims against the company, not acknowledged as debts, amounted to Rs.
17,91,814 as at September 30, 1999. Such claims as at September 30,
1998 was Rs. Nil.
- --------------------------------------------------------------------------------
11
<PAGE>
d. The Company has issued letters of credit outstanding to various
vendors amounting to Rs. Nil as at September 30, 1999. The
corresponding figure as at September 30, 1998 was Rs. 38,17,000.
2. Quantitative details
The company is engaged in the development and maintenance of computer
software. The production and sale of such software cannot be expressed in
any generic unit. Hence, it is not possible to give the quantitative
details of sales and certain information as required under paragraphs 3, 4C
and 4D of part II of Schedule VI to the Companies Act, 1956.
<TABLE>
<CAPTION>
3. Managerial remuneration paid to the chairman, managing director and
whole-time directors
in Rs.
-------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
September 30, September 30,
---------------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salary 9,73,800 9,73,800 19,47,600 19,47,600
Contribution to provident and other funds 3,09,780 3,09,780 6,19,560 6,19,560
Perquisites 6,32,970 8,66,783 15,78,369 17,35,505
4. Managerial remuneration paid to non-whole-time directors
in Rs.
-------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
September 30, September 30,
---------------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
Sitting fees 4,000 8,000 44,000 30,000
Reimbursement of expenses 2,25,891 2,66,850 4,56,605 4,11,701
5. Imports on CIF basis
in Rs.
-------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
September 30, September 30,
---------------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
Capital goods 7,75,09,947 9,97,13,370 15,38,94,938 12,01,66,669
Software packages 1,67,09,821 1,82,49,612 2,08,06,798 2,62,35,025
6. Expenditure in foreign currency
in Rs.
-------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
September 30, September 30,
---------------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
Travel expenses 14,18,36,600 14,81,73,047 31,35,70,860 23,16,94,796
Professional charges 58,93,140 34,77,006 1,20,76,246 1,01,60,920
Other expenditure incurred overseas for 58,00,33,181 23,26,90,925 92,16,15,097 49,91,43,886
software development
7. Earnings in foreign exchange
in Rs.
-------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
September 30, September 30,
---------------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
Income from software development charges and 182,51,55,780 110,84,46,434 348,81,42,974 195,13,76,128
products on a receipt basis
Interest received on deposits with banks 4,31,26,392 35,08,437 8,55,70,358 1,05,57,901
</TABLE>
<PAGE>
8. Depreciation on assets costing less than Rs. 5,000 each
During the quarter, the Company charged depreciation at one hundred percent
in respect of assets costing less than Rs. 5,000 each, amounting to Rs.
1,50,93,874 and Rs. 2,27,08,905 for the three months period ended September
30, 1999 and six months period ended September 30, 1999 respectively. The
corresponding figure for the previous period amounted to Rs. 4,40,64,957
and Rs. 5,24,82,496 respectively.
9. Depreciation
With effect from October 1, 1998, the Company revised the estimates of
useful lives of buildings (software centers and others) from 28 years / 58
years to 15 years. Due to this change, depreciation for the three months
period ended September 30,1999 and six months period ended September 30,
1999 is higher by Rs. 52,23,571 and Rs. 1,08,76,561. As a result, the
profit for the three months period ended September 30, 1999 and six months
period ended September 30,1999 is lower by Rs. 52,23,571 and Rs.
1,08,76,561 on a comparative basis.
10. Exchange differences
The Company has earned net realized and unrealized exchange gains of Rs.
6.89 crore and Rs. 8.39 crore for the three months period ended September
30, 1999 and September 30, 1998 respectively and Rs.18.64 crore and Rs.
13.50 crore for the six months period ended September 30, 1999 and
September 30, 1998 respectively. This includes Rs. 1.65 crore (previous
period Rs. nil ) and Rs. 9.78 crore (previous period Rs. nil) for the three
months and six months period ended September 30, 1999 respectively arising
from exchange differences on translation of foreign currency deposits with
State Bank of India, Nassau, OBU, New York, disclosed separately under
"Other income" in the financial statements. The balance of Rs. 5.24 crore
and Rs. 8.39 crore, for the three months period ended September 30, 1999
and September 30, 1998 and Rs. 8.86 crore and Rs. 13.50 crore for the six
months period ended September 30, 1999 and September 30, 1998 respectively,
and is included under "Income from software development services and
products-overseas".
11 Research and development expenditure
Research and development expenses charged to the Profit and Loss Account on
both capital and revenue accounts for the three month period ended
September 30, 1999 and six month period ended September 30, 1999 amounted
to Rs. 2,26,17,590 and Rs. 3,88,51,990 (previous period - Rs. 1,65,94,875
and Rs. 3,18,95,500). This includes Rs. nil being the depreciation charged
at 100% in respect of R & D assets acquired during the period (previous
period - Rs. 1,01,625).
12 Investment in subsidiary
During the quarter ended September 30, 1998, the Company made a provision
for Rs. 2,53,00,000 on its investment in Yantra Corporation, a subsidiary
company. The corresponding figure for the current quarter is nil.
13 Provision for contingencies
The Company had instituted a contingency plan effective October 1, 1998 to
meet any possible disruption in client support due to the Year 2000 impact
on the technology and communication infrastructure provided to the Company
by its vendors. The contingency plan called for the creation of a total
provision of Rs. 20.00 crore based on an initial estimate. This provision
was required to be made over six quarters starting October 1998.
Accordingly, the Company has made a total provision of Rs. 9.99 crore up to
the quarter ended June 30, 1999 (including Rs. 3.33 crore for the quarter
ended June 30, 1999). The Company has been led to believe that all its
telecommunication service providers are Year 2000 ready and therefore does
not expect significant disruption of these facilities. During this quarter,
the Company made an appraisal and re-estimated the provision required for
meeting such contingencies over the next two quarters and is of the opinion
that the provision already made is adequate for the purpose and hence no
further provision is required.
14. Provision for e-inventing the Company
The shift in the business towards e-commerce related work is very rapid.
The Company is committed to creating knowledge infrastructure, acquiring
people with technical skills in the e-commerce area, and for e-inventing
the Company which may require the Company to incur business restructuring
cost. A provision of Rs. 3.50 crore was made during this quarter towards
costs (based on the current estimates) related to e-inventing the Company.
No such provision was made during the earlier quarters.
15 Unearned revenue
Unearned revenue as of September 30, 1999 of Rs. 27.76 crore consists
primarily of client billings on fixed-price, fixed-time-frame contracts for
which related costs were not yet incurred.
16 Dues to Small-Scale Industrial undertakings
As of September 30, 1999, the Company had no outstanding dues to
small-scale industrial undertakings.
- --------------------------------------------------------------------------------
13
<PAGE>
17 Balance of unutilized money raised by issue
During the year ended March 31, 1999, the Company made an Initial Public
Offering (IPO) of American Depositary Shares (ADS) amounting to Rs 296.86
crore (equivalent to US$ 70,380,000). The ADSs are listed on the NASDAQ
exchange in the United States (US). The unutilized monies out of the issue,
after meeting issue expenses, amounting to Rs 300.49 crore (equivalent to
US$ 68,950,554) is included under "Deposit accounts in foreign currency
with Scheduled Banks" in the financial statements.
18 ADS issue expenses
During the half year ended September 30, 1999, the company received
additional bills for costs incurred during the ADS issue. The details of
such expenses are given under:
in Rs.
------------------------------------------------------------------
Legal and accounting fees 1,28,26,437
------------------------------------------------------------------
Printing charges 77,03,653
------------------------------------------------------------------
TOTAL 2,05,30,090
------------------------------------------------------------------
19 Stock options
The Company currently has two stock option plans. These are summarized
below.
1998 Stock Offer plan(the 1998 plan)
The Company's 1998 Plan provides for the grant of non-statutory stock
options and incentive stock options to employees of the Company. The
establishment of the 1998 Plan was approved by the Board of Directors in
December 1997 and by the shareholders in January 1998. The Government of
India approved the 1998 Plan, subject to a limit of US$ 50 million on the
aggregate value of equity shares reserved under the 1998 Plan. Accordingly,
the number of equity shares reserved under the 1998 Plan may be reduced by
the Board of Directors from time to time to comply with this limit of US$
50 million. A total of 8,00,000 equity shares are currently reserved for
issuance pursuant to the 1998 Plan. These options may be issued at an
exercise price that is not less than 90% of the fair market value of the
underlying equity share on the date of the grant. The 1998 Plan will
terminate in January 2008, unless terminated sooner. All options under the
1998 Plan are exercisable for ADSs representing equity shares. A committee
of the Board of Directors administers the 1998 Plan. As of September 30,
1999, options to acquire an aggregate of 106,500 equity shares were granted
to employees concurrent with the Company's IPO in the US at an exercise
price equal to the IPO issue price.
1999 Stock Offer Plan (the 1999 Plan)
In fiscal 2000, the Company instituted 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 issue of 33,00,000 equity shares to employees.
The 1999 Plan is administered by a Compensation Committee comprising 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 in
the stock exchange where there is the highest trading volume on a given
date and if the shares are not traded on that day, the closing price on the
next trading day. Under the 1999 Plan, options may also be issued to
employees at exercise prices that are less than FMV only if specifically
approved by the members of the Company in a general meeting. As of
September 30, 1999, no options have been issued to employees under the 1999
Plan.
20 Employee Stock Option Plan (ESOP)
The Securities and Exchange Board of India (SEBI) recently issued the
(Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999 which is effective for all stock option schemes
established after June 19, 1999. In accordance with these guidelines, the
excess of the market price of the underlying equity shares as of the date
of the grant of the options over the exercise price of the options,
including up-front payments, if any is to be recognized and amortized on a
straight line basis over the vesting period.
The Companies 1994 stock option plan was established prior to the SEBI
guidelines on stock options.
Had the stock compensation costs for this stock option plan been determined
as per the guidelines issued by SEBI, the Company's reported net profit
would have been reduced to the proforma amounts indicated below.
<TABLE>
<CAPTION>
in Rs.
---------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
September 30, September 30,
----------------------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net profit:
- As reported 65,70,82,803 28,39,68,339 126,31,64,641 52,06,97,291
- Adjusted pro forma 60,09,10,486 26,43,55,932 115,34,29,790 48,20,37,140
---------------------------------------------------------------------------------------------------------------
</TABLE> 14
<PAGE>
21 Provision for taxation
The Company's profits from export activities are deductible from taxable
income. Further, most of the Company's operations are conducted through
100% Export Oriented Units, which are entitled to a tax holiday for a
period of ten years from the date of commencement of operations. The
provision for taxation includes taxes payable in respect of domestic income
and that arising on the Company's overseas operations, primarily in the
United States, Europe, Far East and South East Asia.
22 Cash and Bank balance
The Company has a deposit of USD 73,841,730 (Rs. 321,80,22,575) in EEFC
account as at September 30, 1999. Bank balances in overseas deposit account
includes an net amount of USD 68,950,554 (Rs. 300,48,65,132) received on
ADS program and maintained as deposit along with the accrued interest with
State Bank of India, Nassau, OBU, New York.
23 Loans and advances
Advances recoverable in cash or kind or for value to be received mainly
comprise of prepaid travel and per-diem expenses and advance paid to
vendors towards current assets.
Deposits with financial institutions consists of Rs. 25,47,68,334 and Rs.
25,32,64,877 deposited with Housing Development Finance Corporation
Limited, and ICICI Limited, respectively. Mr. Deepak M Satwalekar, is the
Managing Director in Housing Development Finance Corporation Limited. Mr. N
R Narayana Murthy and Prof. Marti G. Subrahmanyam are Directors in ICICI
Limited. Except as directors in these financial institutions they have no
direct interest in these transactions. Deposit with a body corporate
consists of Rs. 25,31,29,726 deposited with GE Capital Services India. All
these financial institutions and a body corporate have AAA rating from
CRISIL. There is no unpaid interest as on date.
Provision for doubtful loans and advances comprise of provisions made for
deposit kept with a Company and for loans and advances given to employees.
The Company has filed recovery suit against this company in a court of law
and the court has attached the property of this company against the claims
of unpaid deposit amount. The adjudication on this issue is pending.
However as matter of abundant precaution,a provision has been made.
24 Current liabilities
Sundry creditors for other liabilities represent mainly the retention
amount payable to the vendors, and amounts accrued for various other
operational expenses.
25 Fixed assets
The Company has entered into lease cum sale agreements to acquire certain
properties. In accordance with the terms of these agreements, the Company
has the option to purchase the properties outright at the expiry of the
lease period. The Company has already paid 99% of the value of the
properties at the time of entering into the lease cum sale agreement. These
amounts are disclosed as "Land - leasehold" under "Fixed assets" in the
financial statements.
26 Set off of unearned revenues
The Company entered into an agreement with a customer for providing
software services in an earlier year. The Company collected a portion of
amounts receivable from this customer in respect of work performed for the
customer under this agreement. The customer subsequently went into
liquidation. In fiscal 1999, the company raised invoices in its books of
account for the remainder of the contracted value of the services to be
performed under the agreement amounting to Rs 3,24,52,521 in order to stake
its claim in the liquidation proceedings. The Company subsequently informed
the Reserve Bank of India about the claim raised by it on the customer.
This amount was treated as "Unearned revenues" in the financial statements
for fiscal 1999. The Company has set off the amount receivable from the
customer against the amount earlier treated as "Unearned revenue", in the
previous quarter. The Company is actively pursuing liquidation proceedings
to recover this amount.
- --------------------------------------------------------------------------------
15
<PAGE>
<TABLE>
<CAPTION>
At a glance - US GAAP
- -----------------------------------------------------------------------------------------------------------------------------------
US$ in millions, except per equity share data
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter ended Half-year ended Year ended
------------------------------------------------------------
September 30, September 30, September 30, September 30, March 31, 1999
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the period
Total revenue 47.94 28.24 87.67 51.90 120.96
Operating income 14.62 8.18 26.92 14.23 22.87
Net income 14.72 6.16 28.03 10.94 17.45
Operating income as a percentage of total revenue 30.49% 28.96% 30.71% 27.41% 18.91%
Net income as a percentage of total revenue 30.70% 21.81% 31.97% 21.07% 14.42%
Basic earnings per share 0.45 0.20 0.85 0.36 0.57
Capital investment 8.72 5.48 12.97 6.99 16.12
At the end of the period
Total assets 181.22 65.12 153.66
Property, plant and equipment - net 32.22 20.66 23.90
Cash and equivalents 104.13 21.54 98.87
Working capital 123.27 33.76 110.62
Total debt - - -
Shareholders' equity 162.25 49.17 139.61
Common stock 8.59 4.55 8.59
Market capitalization 9,457.85 962.73 2,852.24
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Market capitalization is calculated by considering the NASDAQ market price
for shares outstanding at the period/year end except as of Sep 30, 1998 where
the same has been calculated by considering the Indian market price.
[BAR CHARTS APPEARS HERE]
- --------------------------------------------------------------------------------
16
<PAGE>
Form 6 - K
- --------------------------------------------------------------------------------
Page 16 - 47
- --------------------------------------------------------------------------------
17
<PAGE>
<TABLE>
<CAPTION>
Shareholder information
- --------------------------------------------------------------------------------
<S> <C>
1. Listing on stock exchanges in India at Bangalore Stock Exchange Ltd.
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
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, National and Bangalore Stock Exchanges during the
three-month period ended September 30, 1999 are:
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
BSE NSE BgSE
---------------------------------------------------------------------------------------------
High Low Volume High Low Volume High Low Volume
Rs. Rs. Nos. Rs. Rs. Nos. Rs. Rs. Nos.
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July, 1999 5,960 3,622 27,22,986 5,515 3,641 24,76,873 * * *
August 5,715 4,820 17,65,916 5,740 4,780 16,50,790 5,775 4,800 570
September 7,955 5,400 15,64,028 7,960 5,406 15,77,086 7,500 5,600 147
-----------------------------------------------------------------------------------------------------------------------
Total 60,52,930 57,04,749 717
-----------------------------------------------------------------------------------------------------------------------
% of volume traded to
total number of shares
outstanding 18.90%# 17.81%# 0.01%#
</TABLE>
# The number of shares outstanding has been taken to be 3,20,34,400. The
American Depositary Shares (ADSs) have been excluded for the purpose of
this calculation.
* There was no trading in the shares of Infosys on the Bangalore Stock
Exchange during July 1999.
<TABLE>
<CAPTION>
<S> <C>
6. Share transfers in physical Karvy Consultants Limited
form and other communication
regarding share Registrars and Share Transfer Agents
certificates, dividends, and
change of address, etc., in T.K.N. Complex, No. 51/2, Vanivilas Road,
India may be addressed to
Opp. National College, Basavanagudi,
Bangalore - 560 004.
Tel.: 91-80-662 1184, Fax: 91-80-662 1169
Email: [email protected]
</TABLE>
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. A
list of Depositary Participants is available with the National Securities
Depositary Limited (NSDL). A booklet entitled "An Investor's Guide to
Depositaries" is available at www.itlinfosys.com.
Shares sent for physical transfer are generally 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 September 30, 1999 was 2,87,568 (previous year - 2,23,727). 99.79% of
transfers (previous year - 73.54%) were completed within 15 days. Shares in
dematerialized form were transferred within 10 days, on the average.
- --------------------------------------------------------------------------------
18
<PAGE>
<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 25 12 2,86,168 99.51 52 42 1,20,115 53.69
11-15 6 0 800 0.28 26 18 44,410 19.85
16 - 20 2 0 200 0.07 36 29 38,302 17.12
*21 and above 1 2 400 0.14 19 11 20,900 9.34
-----------------------------------------------------------------------------------------------------------
34 14 2,87,568 100.00 133 100 2,23,727 100.00
-----------------------------------------------------------------------------------------------------------
</TABLE>
* Delays beyond 21 days were due to compliance of legal requirements.
8. Investors' services - Complaints received during the three-month period
ended September 30
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------
Nature of complaints Received Cleared Received Cleared
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Non-receipt of share certificates 0 0 24 24
2. Non-receipt of bonus shares 22 22 3 3
3. Letters from Stock Exchanges, SEBI, etc. 0 0 0 0
4. Non-receipt of dividend warrants 16 16 10 10
-----------------------------------------------------------------------------------------------------
38 38 37 37
-----------------------------------------------------------------------------------------------------
</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 September 30, 1999.
9. Legal proceedings
There are some pending cases relating to disputes over title to shares, in
which the company was made a party. These cases are however not material in
nature.
10. Distribution of shareholding as on September 30
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------
No. of equity No. of % of No. of % of No. of % of No. of % of
share- share- shares share- share- share- shares share-
shares held holders holders holding holders holders holding
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 - 100 6,864 44.92 2,10,821 0.66 1,192 19.16 1,13,762 0.71
101 - 200 2,060 13.48 3,96,053 1.24 1,638 26.34 3,49,768 2.18
201 - 500 2,626 17.18 9,85,410 3.08 1,968 31.65 8,63,223 5.38
501 - 1000 2,051 13.42 15,51,110 4.84 687 11.04 8,48,537 5.29
1001 - 5000 1,297 8.49 26,26,305 8.20 455 7.32 5,58,495 3.48
5001 - 10000 153 1.00 11,00,813 3.44 79 1.27 11,87,032 7.41
10001 and above 231 1.51 2,48,54,933 77.58 201 3.22 1,20,96,383 75.55
Shares in transit in NSDL - - 3,08,955 0.96 - - - -
-------------------------------------------------------------------------------------------------
15,282 100.00 3,20,34,400 100.00 6,215 100.00 1,60,17,200 100.00
American Depositary 1* 10,35,000 - -
Shares
-------------------------------------------------------------------------------------------------
Total 15,283 3,30,69,400 6,215 1,60,17,200
-------------------------------------------------------------------------------------------------
</TABLE>
* Held by beneficial owners outside India.
- --------------------------------------------------------------------------------
19
<PAGE>
11. Categories of shareholders as on September 30
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------
Voting
Category No. of Voting No. of No. of strength No. of
shareholders strength (%) shares held shareholders (%) shares held
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Individuals 14,272 25.18 83,27,240 5,833 28.08 44,97,043
Companies 646 1.37 4,54,021 179 2.44 3,91,157
FIIs 154 25.58 84,59,343 102 24.67 39,52,550
OCBs and NRIs 88 0.74 2,44,908 26 0.25 39,700
Founders and their families 18 29.58 97,82,100 18 30.77 49,27,800
Mutual Funds, Banks, FIs 104 13.48 44,57,833 57 13.79 22,08,950
Shares in transit in NSDL - 0.94 3,08,955 - - -
American Depositary Shares 1* 3.13 10,35,000 - - -
-----------------------------------------------------------------------------------------------------------
Total 15,283 100.00 3,30,69,400 6,215 100.00 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>
--------------------------------------------------------------------------------------------
Number of shares subject to lock-in as on September 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 3,95,200 1,052 - -
3-4 years 2,52,400 342 1,08,100 161
2-3 years 1,03,200 152 1,33,200 110
1-2 years 1,30,600 106 1,11,900 77
0-1 years 1,07,100 75 - -
--------------------------------------------------------------------------------------------
</TABLE>
As on September 30, 1999, 588 employees hold rights to 1,73,900 shares
which are subject to a lock-in of 4-5 years. Currently, 1,667 employees are
beneficiaries of the ESOP. The ITL Employees Welfare Trust holds, as on
September 30, 1999, 70,600 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 do not have to pay depositary participants the
custodial fee charged by the NSDL, on their holding. This payment of a
one-time custodial fee extends to the issue of bonus shares too. The
company hopes that this initiative will enthuse shareholders to
dematerialize their holding in the company. Over 87% of the company's
shares are now held in electronic form.
A detailed letter explaining the methodology of using a Depositary as well
as a booklet entitled "An Investor's Guide to Depositaries" was sent to all
shareholders in November 1998. Copies of this booklet are available to
shareholders on request.
<TABLE>
<CAPTION>
14. Financial calendar (tentative and subject to change)
<S> <C>
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>
15. Investors' correspondence in India may be addressed to:
Mr. V. Viswanathan,
Company Secretary, Investors' Service Cell,
Infosys Technologies Ltd., Electronics City,
Hosur Road, Bangalore - 561 229, India.
Tel.: 91-80-852 1518, Fax: 91-80-852 0362
(e-mail address: [email protected])
Any queries relating to the financial statements of the company may be
addressed to:
Mr. T. V. Mohandas Pai,
Senior Vice President (F&A),
Infosys Technologies Ltd., Electronics City, Hosur Road,
Bangalore - 561 229, India.
Tel.: 91-80-852 0396, Fax: 91-80-852 0362
(e-mail address: [email protected])
- --------------------------------------------------------------------------------
20
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
16. Reuters code - INFY.BO (BSE) Bloomberg code - INFO IN (BSE) Bridge code - IN;INF (BSE)
INFY.NS (NSE) NINFO IN (NSE) IN;INFN (NSE)
INFY.O (NASDAQ) US;INFY (NASDAQ)
</TABLE>
<TABLE>
17. Stock market data relating to American Depositary Shares (ADSs)
<S> <C>
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 September 30, 1999 are:
</TABLE>
---------------------------------------------------------------------------
High Low Volume
$ Rs.# $ Rs.# Nos.
---------------------------------------------------------------------------
July, 1999 121.88 10,550 57.38 4,966 23,40,200
August 107.75 9,368 79.75 6,933 8,53,700
September 147.75 12,878 97.81 8,525 12,01,900
---------------------------------------------------------------------------
Percentage of volume traded to total float 212.36%
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]
2 ADSs = 1 equity share (Source: Bloomberg)
<TABLE>
<CAPTION>
<S> <C>
f. Investor correspondence in P. R. Ganapathy
the US may be addressed to Investor Relations Officer
Infosys Technologies Limited
34760, Campus Drive,
Fremont CA 94555, USA.
Tel.: 1-510-742-3030, Mobile: 1-510-872-4412,
Fax: 1-510-742-2930, 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.
h. 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.
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
<TABLE>
<CAPTION>
Segment information
- ------------------------------------------------------------------------------------------------------------------------------------
Rs. in lakhs
- ------------------------------------------------------------------------------------------------------------
Quarter ended Half-year ended Year ended
September September September September March
30, 1999 30, 1998 30, 1999 30, 1998 31, 1999
- ------------------------------------------------------------------------------------------------------------
Geographical segment
<S> <C> <C> <C> <C> <C>
North America 16,718.10 9,643.25 31,082.53 17,887.91 41,739.11
Europe 3,084.40 1,418.43 5,876.59 2,225.72 4,753.03
Rest of the World 1,109.73 748.16 1,998.19 1,334.09 3,533.26
India 875.82 233.76 1,236.95 438.44 1,248.43
- ------------------------------------------------------------------------------------------------------------
21,788.05 12,043.60 40,194.26 21,886.16 51,273.83
============================================================================================================
Business segment
Branded services 2,096.91 3,376.24 4,243.18 6,173.97 11,321.57
Products 875.41 367.56 1,132.33 507.94 1,444.89
Software development and maintenance 17,857.55 8,256.09 32,481.44 15,070.28 38,122.66
Treasury 958.18 43.71 2,337.31 133.97 384.71
- ------------------------------------------------------------------------------------------------------------
21,788.05 12,043.60 40,194.26 21,886.16 51,273.83
============================================================================================================
</TABLE>
* Exchange differences arising on translation of foreign currency deposits
kept abroad have been included under Treasury.
By geographical area - quarter ended September 30, 1999
By business segment - quarter ended September 30, 1999
Data for charts for the quarter ended Sep 30, 1999
Geographical segment
North America 76.7%
Europe 14.2%
Rest of the World 5.1%
India 4.0%
- ---------------------------------------------------------
=========================================================
Business segment
Branded services 9.6%
Products 4.0%
Software development and maintenance 82.0%
Treasury 4.4%
[CHART APPEARS HERE]
- --------------------------------------------------------------------------------
22
<PAGE>
<TABLE>
<CAPTION>
Ratio analysis
- -------------------------------------------------------------------------------------------------------------------
Quarter ended Half-year ended Year ended
September September September September March 31,
30, 1999 30, 1998 30, 1999 30, 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratios - Financial performance
Export revenue/Total revenue (%) 94.84 98.06 95.29 98.00 97.57
Domestic revenue/Total revenue (%) 1.49 1.58 1.24 1.39 1.68
Other income/Total revenue (%) 3.67 0.36 3.47 0.61 0.75
Employee costs/Total revenue (%) 36.42 32.01 35.83 34.43 32.39
Administration expenses/Total revenue (%) 7.11 8.24 7.39 9.10 8.92
Operating expenses/Total revenue (%) 61.02 65.08 60.71 66.34 62.60
Depreciation/Total revenue (%) 4.96 6.15 5.11 5.64 7.00
Tax/Total revenue (%) 4.39 5.19 4.46 4.23 4.47
Effective tax rate (Tax/PBT) (%) 12.91 18.04 13.06 15.08 14.72
EBIDTA/Total revenue (%) 38.98 34.92 39.29 33.66 37.40
PAT from ordinary activities/Total revenue (%) 29.63 23.58 29.72 23.79 25.92
PAT from ordinary activities/Average net worth 35.61 47.92 34.05 46.74 54.16
(%)*
ROCE (PBIT/Average capital employed) (%)* 40.90 58.47 39.17 55.04 63.51
Return on invested capital (%)* 118.38 75.28 113.83 73.56 86.30
Invested capital output ratio* 4.28 3.22 4.11 3.14 3.39
Ratios - Balance Sheet
Debt-Equity ratio - - -
Debtors turnover ( Days) 64 50 61
Current ratio 5.24 4.48 6.57
Cash and equivalents/Total assets (%) 65.49 28.84 72.51
Cash and equivalents/Total assets (%) 42.98 28.84 46.50
(excluding ADR issue proceeds)
Depreciation for the period/Average gross block 21.66 20.70 26.19
(%)
Technology investment/Total revenue (%) 6.65 10.62 8.55
Ratios - Growth**
Export revenue (%) 74 100 74 108 99
Total revenue (%) 80 95 79 103 97
Operating expenses (%) 68 93 64 100 87
Operating profit (%) 100 97 109 110 116
Net profit (from ordinary activities) (%) 126 106 124 126 120
Per share data
Earnings per share from ordinary activities 19.37 8.59 35.24 15.75 40.19
(Rs.)
Cash earnings per share from ordinary 22.61 10.83 41.30 19.48 51.05
activities (Rs.)
Book value (Rs.), period end 205.00 66.72 205.00 66.72 174.00
Price/Earning, end of the period 92.05 74.23 101.21 80.98 72.77
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** 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.
EPS figures have been calculated for the period and has not been
annualized.
Invested capital ratios has been calculated by adjusting the average liquid
assets against the average net worth and adjusting the revenue earned from
liquid assets after taxes against net profits.
- --------------------------------------------------------------------------------
23
<PAGE>
US
Infosys Technologies Limited
34760, Campus Drive
Fremont CA 94555.
Tel: (510) 742-3000
Fax: (510) 742-3090
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 Bankers
Infosys Technologies Limited State Bank of Mysore
4F, Madre Matsuda Building Hongkong and Shanghai Banking Corporation Ltd.
4-13 Kioi-cho, Chiyoda-ku State Bank of India
Tokyo 102-0094, Japan. ICICI Banking Corporation Limited
Tel: 81-3-3234-3597 Bank of America
Fax: 81-2-3239-3300 Company Secretary
India V. Viswanathan
Infosys Technologies Limited Auditors
Electronics City, Hosur Road Bharat S Raut and Company
Bangalore 561 229, India. Chartered Accountant
Tel: 91-80-8520261 Independent auditors - US GAAP
Fax: 91-80-8520362 KPMG Peat Marwick
- --------------------------------------------------------------------------------
24
<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> JUL-01-1999 JUL-01-1998 APR-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998 MAR-31-1999
<CASH> 104,131,114 21,538,237 98,874,963
<SECURITIES> 177,938 362 177,938
<RECEIVABLES> 30,626,659 14,728,377 20,056,678
<ALLOWANCES> 724,337 434,503 301,930
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 142,240,138 41,272,877 124,666,964
<PP&E> 32,221,795 20,663,189 23,900,313
<DEPRECIATION> 2,467,791 1,815,622 8,521,009
<TOTAL-ASSETS> 181,216,163 65,121,054 153,657,596
<CURRENT-LIABILITIES> 18,967,407 7,517,451 14,048,034
<BONDS> 0 0 0
0 0 0
0 8,435,689 0
<COMMON> 8,592,137 4,545,811 8,592,137
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 181,216,163 65,121,054 153,657,596
<SALES> 47,941,680 28,237,129 120,955,226
<TOTAL-REVENUES> 47,941,680 28,237,129 120,955,226
<CGS> 26,103,672 16,067,440 65,331,006
<TOTAL-COSTS> 26,103,672 16,067,440 65,331,006
<OTHER-EXPENSES> 7,222,997 3,988,038 32,751,593
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 16,820,592 7,447,925 22,323,738
<INCOME-TAX> 2,100,081 1,288,545 4,877,650
<INCOME-CONTINUING> 14,720,511 6,159,380 17,446,088
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 14,720,511 6,159,380 17,446,088
<EPS-BASIC> 0.45 0.20 0.57
<EPS-DILUTED> 0.45 0.20 0.57
</TABLE>
