<PAGE>
As filed with the Securities and Exchange Commission November 14, 2000
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2000
---------------------
WIPRO LIMITED
(Exact name of Registrant as specified in its charter)
---------------------
Not Applicable
(Translation of Registrant's name into English)
Karnataka, India
(Jurisdiction of incorporation or organization)
Doddakannelli
Sarjapur Road
Bangalore, Karnataka 560035, India
+91-80-844-0011
(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.
================================================================================
<PAGE>
CURRENCY OF PRESENTATION AND CERTAIN DEFINED TERMS
Unless the context otherwise requires, references herein to "the Company"
or to "Wipro" are to Wipro 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. "Wipro" is a registered trademark of
the company in India and the United States. 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") as of October 2, 2000, the first working day subsequent
to the end of the quarter, which was Rs. 46.10 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 differences include but are not limited to, those
discussed in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Risk Factors" 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 quarterly report and in the company's periodic reports and other documents
filed with the Securities and Exchange Commission ("SEC") from time to time.
-1-
<PAGE>
WIPRO LIMITED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
As of March 31,
--------------------------------------------------------
1999 2000 2000
--------------- --------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 4).............................. Rs. 637,253 Rs. 783,603 $ 16,998
Accounts receivable, net of allowances (Note 5)................. 3,602,884 4,431,360 96,125
Inventories (Note 6)............................................ 1,443,728 1,215,160 26,359
Deferred income taxes (Note 22)................................. 73,741 11,678 253
Other current assets (Note 7)................................... 909,456 981,661 21,294
--------------- --------------- --------
Total current assets........................................... 6,667,062 7,423,462 161,029
--------------- --------------- --------
Investment securities (Note 8)................................... 9,791 297,150 6,446
Property, plant and equipment, net (Note 9)...................... 3,254,425 3,603,681 78,171
Investments in affiliates (Note 14).............................. 310,250 704,885 15,290
Deferred income taxes (Note 22).................................. 202,536 256,073 5,555
Intangible assets, net (Note 10)................................. 7,230 10,795 234
Other assets (Note 7)............................................ 250,303 382,307 8,293
--------------- --------------- --------
Total assets................................................... Rs. 10,701,597 Rs. 12,678,353 $275,018
=============== =============== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings from banks (Note 16)................................. Rs. 1,780,792 Rs. 92,748 $ 2,012
Current portion of long term debt (Note 17)..................... 454,467 1,249,570 27,106
Accounts payable................................................ 1,959,930 1,387,606 30,100
Accrued expenses................................................ 867,722 1,490,250 32,326
Advances from customers......................................... 538,004 754,825 16,374
Net liabilities of discontinued business (Note 3)............... 855,793 - -
Other current liabilities (Note 11)............................. 420,330 435,561 9,448
Redeemable preferred stock (Note 20)............................ - 250,000 5,423
Total current liabilities...................................... 6,877,038 5,660,560 122,789
--------------- --------------- --------
Long-term debt, excluding current portion (Note 17).............. 767,102 211,144 4,580
Deferred income taxes (Note 22).................................. 62,593 17,974 390
Other liabilities (Note 12)...................................... 42,800 101,735 2,207
Preferred stock (Note 20)........................................ 250,000 - -
Total liabilities.............................................. 7,999,533 5,991,413 129,966
--------------- --------------- --------
Minority interest................................................ 53,840 - -
Stockholders' equity
Equity shares at Rs. 2 par value: 230,000,000
shares authorized as of March 31, 1999,
235,000,000 shares authorized as of March 31, 2000
and 375,000,000 shares authorized as of September
30, 2000; Issued and outstanding 229,156,350
shares (Note 18)................................................ 458,313 458,313 9,942
Additional paid-in capital (Note 23)............................. 182,562 800,238 17,359
Deferred stock compensation (Note 23)............................ (154,348) (208,358) (4,520)
Accumulated other comprehensive income (Note 8).................. 2,796 1,772 38
Retained earnings (Note 19)...................................... 2,158,969 5,635,050 122,235
Equity shares held by a controlled Trust:
1,409,485, 1,216,460, 1,409,485 and 1,252,235
shares as of March 31, 1999,2000, September 30,
1999 and September 30, 2000 (Note 23)........................... (68) (75) (2)
Total stockholders' equity..................................... 2,648,224 6,686,940 145,052
--------------- --------------- --------
Total liabilities and stockholders' equity....................... Rs. 10,701,597 Rs. 12,678,353 $275,018
=============== =============== ========
<CAPTION>
Six Months Ended September 30,
--------------------------------------------------------
1999 2000 2000
--------------- --------------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 4).............................. Rs. 492,464 Rs. 982,944 $ 21,322
Accounts receivable, net of allowances (Note 5)................. 3,844,854 4,966,273 107,728
Inventories (Note 6)............................................ 1,367,356 1,074,533 23,309
Deferred income taxes (Note 22)................................. 63,834 11,678 253
Other current assets (Note 7)................................... 879,414 2,581,791 56,004
--------- --------- --------
Total current assets........................................... 6,647,922 9,617,219 208,616
--------- --------- --------
Investment securities (Note 8)................................... 373,585 348,460 7,559
Property, plant and equipment, net (Note 9)...................... 3,441,135 4,156,064 90,153
Investments in affiliates (Note 14).............................. 331,450 761,057 16,509
Deferred income taxes (Note 22).................................. 131,984 256,073 5,555
Intangible assets, net (Note 10)................................. 7,935 9,800 213
Other assets (Note 7)............................................ 349,921 283,357 6,146
---------- ---------- --------
Total assets................................................... Rs. 11,283,932 Rs. 15,432,030 $334,751
=============== ============== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings from banks (Note 16)................................. Rs. 2,019,137 Rs. 151,495 $ 3,286
Current portion of long term debt (Note 17)..................... 242,458 1,322,729 28,693
Accounts payable................................................ 1,639,348 1,438,257 31,199
Accrued expenses................................................ 1,064,997 1,643,565 35,652
Advances from customers......................................... 512,864 705,529 15,304
Net liabilities of discontinued business (Note 3)............... 742,858 - -
Other current liabilities (Note 11)............................. 615,777 502,851 10,908
Redeemable preferred stock (Note 20)............................ 262,667 250,000 5,423
Total current liabilities...................................... 7,100,106 6,014,426 130,465
--------- --------- --------
Long-term debt, excluding current portion (Note 17).............. 369,468 139,571 3,027
Deferred income taxes (Note 22).................................. 62,551 17,687 384
Other liabilities (Note 12)...................................... 37,165 85,697 1,859
Preferred stock (Note 20)........................................ - - -
Total liabilities.............................................. 7,569,290 6,257,381 135,735
--------- --------- --------
Minority interest................................................ 56,549 - -
=========
Stockholders' equity
Equity shares at Rs. 2 par value: 230,000,000
shares authorized as of March 31, 1999,
235,000,000 shares authorized as of March 31, 2000
and 375,000,000 shares authorized as of September
30, 2000; Issued and outstanding 229,156,350
shares (Note 18)................................................ 458,313 458,313 9,942
Additional paid-in capital (Note 23)............................. 345,618 788,718 17,109
Deferred stock compensation (Note 23)............................ (258,941) (150,784) (3,271)
Accumulated other comprehensive income (Note 8).................. 1,587 1,721 37
Retained earnings (Note 19)...................................... 3,111,584 8,076,756 175,201
Equity shares held by a controlled Trust:
1,409,485, 1,216,460, 1,409,485 and 1,252,235
shares as of March 31, 1999,2000, September 30,
1999 and September 30, 2000 (Note 23)........................... (68) (75) (2)
Total stockholders' equity..................................... 3,714,642 9,174,649 199,016
--------------- -------------- --------
Total liabilities and stockholders' equity....................... Rs. 11,283,932 Rs. 15,432,030 $334,751
=============== ============== ========
</TABLE>
See accompanying notes to the consolidated financial statements
-2-
<PAGE>
WIPRO LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
---------------------------------------------- ----------------------------------------------
1999 2000 2000 1999 2000 2000
-------------- -------------- ------------ -------------- -------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Global IT Services............. Rs. 2,579,979 Rs. 4,157,073 $ 90,175 Rs. 4,592,827 Rs. 7,754,562 $ 168,212
Indian IT Services and
Products......................
Indian IT Services............ 352,880 468,161 10,155 652,150 851,816 18,477
Indian IT Products............ 1,840,823 2,026,173 43,952 2,824,736 3,297,123 71,521
Consumer Care and Lighting..... 770,181 813,143 17,639 1,520,297 1,571,684 34,093
Others......................... 271,019 282,670 6,132 431,686 534,922 11,604
-------------- -------------- ------------ -------------- -------------- ------------
Total........................ 5,814,882 7,747,220 168,053 10,021,696 14,010,107 303,907
Cost of revenues:
Global IT Services............. Rs. 1,870,262 Rs. 2,230,213 $ 48,378 Rs. 3,166,077 Rs. 4,139,181 $ 89,787
Indian IT Services and
Products......................
Indian IT Services............ 159,603 190,693 4,137 278,135 342,568 7,431
Indian IT Products............ 1,385,238 1,617,102 35,078 2,240,479 2,680,908 58,154
Consumer Care and Lighting..... 579,512 579,051 12,561 1,159,963 1,099,529 23,851
Others......................... 207,428 208,288 4,518 362,317 400,401 8,685
-------------- -------------- ------------ -------------- -------------- ------------
Total........................ 4,202,043 4,825,347 104,672 7,206,971 8,662,587 187,908
-------------- -------------- ------------ -------------- -------------- ------------
Gross profit.................... 1,612,839 2,921,873 63,381 2,814,725 5,347,520 115,999
Operating expenses:
Selling, general, and
administrative expenses......... 905,810 1,246,520 27,039 1,603,908 2,540,110 55,100
-------------- -------------- ------------ -------------- -------------- ------------
Operating income................ 707,029 1,675,353 36,342 1,210,817 2,807,410 60,899
Gain/(loss)on sale of stock
of affiliates, Including
direct issue of stock by
affiliate (Note 14)............. - - - - - -
Other expense, net (Note 21).... (45,340) 44,324 961 (60,693) 28,896 627
Income taxes(Note 22)........... (85,624) (206,923) (4,489) (149,000) (327,899) (7,113)
-------------- -------------- ------------ -------------- -------------- ------------
Income before share of
equity in earnings of
affiliates and minority
interest........................ 576,065 1,512,754 32,814 1,001,124 2,508,407 54,413
Equity in earnings of
affiliates (Note 14)............ 15,000 27,121 588 30,773 8,922 193
Minority interest............... (3,661) - - (3,661) - -
-------------- -------------- ------------ -------------- -------------- ------------
Income from continuing
operations...................... 587,404 1,539,875 33,402 1,028,236 2,517,329 54,606
Discontinued operations
(Note 3):
Income tax benefit on sale
of 50% interest............... - - - - - -
-------------- -------------- ------------ -------------- -------------- ------------
Net income.................... Rs. 587,404 Rs. 1,539,875 $ 33,402 Rs. 1,028,236 Rs. 2,517,329 $ 54,606
============== ============== ============ ============== ============== ============
Earnings per equity share:
Basic
Continuing Operations.......... 2.58 6.76 0.15 4.51 11.04 0.24
Discontinued operations........
Net income.................... 2.58 6.76 0.15 4.51 11.04 0.24
Earnings per equity share:
Diluted
Continuing operations.......... 2.58 6.69 0.15 4.51 10.94 0.24
Discontinued operations........
Net Income.................... 2.58 6.69 0.15 4.51 10.94 0.24
Weighted average number of
equity shares used in
computing earnings per
equity share
Basic......................... 227,675,969 227,792,160 227,792,160 227,746,865 227,922,003 227,922,003
Diluted....................... 227,675,969 230,175,635 230,175,635 227,746,865 230,055,507 230,055,507
<CAPTION>
Year ended March 31,
------------------------------
2000 2000
--------------- ------------
<S> <C> <C>
Revenues:
Global IT Services............. Rs. 10,206,078 $ 221,390
Indian IT Services and
Products......................
Indian IT Services............ 1,423,283 30,874
Indian IT Products............ 6,758,344 146,602
Consumer Care and Lighting..... 3,222,316 69,898
Others......................... 1,380,583 29,948
--------------- ------------
Total........................ 22,990,604 498,712
Cost of revenues:
Global IT Services............. Rs. 6,173,724 $ 133,920
Indian IT Services and
Products......................
Indian IT Services............ 609,574 13,223
Indian IT Products............ 5,573,518 120,901
Consumer Care and Lighting..... 2,251,238 48,834
Others......................... 1,070,031 23,211
--------------- ------------
Total........................ 15,678,085 340,089
--------------- ------------
Gross profit.................... 7,312,519 158,623
Operating expenses:
Selling, general, and
administrative expenses......... 3,820,154 82,867
--------------- ------------
Operating income................ 3,492,365 75,756
Gain/(loss)on sale of stock
of affiliates, Including
direct issue of stock by
affiliate (Note 14)............. 412,144 8,940
Other expense, net (Note 21).... (155,144) (3,365)
Income taxes(Note 22)........... (525,298) (11,395)
--------------- ------------
Income before share of
equity in earnings of
affiliates and minority
interest........................ 3,224,067 69,936
Equity in earnings of
affiliates (Note 14)............ 112,590 2,442
Minority interest............... (3,661) (79)
--------------- ------------
Income from continuing
operations...................... 3,332,996 72,299
Discontinued operations
(Note 3):
Loss from operations of
discontinued finance
division......................
Provision for operating
losses during phase out
period........................
Income tax benefit on sale
of 50% interest............... 218,707 4,744
--------------- ------------
Net income.................... Rs. 3,551,703 $ 77,043
=============== ============
Earnings per equity share:
Basic
Continuing Operations.......... 14.63 0.32
Discontinued operations........ 0.96 0.02
Net income.................... 15.59 0.34
Earnings per equity share:
Diluted
Continuing operations.......... 14.58 0.32
Discontinued operations........ 0.96 0.02
Net Income.................... 15.54 0.34
Weighted average number of
equity shares used in
computing earnings per
equity share
Basic......................... 227,843,378 227,843,378
Diluted....................... 228,648,134 228,648,134
</TABLE>
See accompanying notes to the consolidated financial statements
-3-
<PAGE>
WIPRO LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Additional
Equity Shares Paid in Deferred Stock Comprehensive
-----------------------------
No. of Shares Amount Capital Compensation Income
--------------- ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of March 31, 1997.............. 229,156,350 Rs. 458,313 Rs. 4,131 Rs. (2,846) Rs. --
Cash dividends paid....................... -- -- -- -- --
Shares forfeited, net of issued by
trust.................................... -- -- -- -- --
Compensation related to employee
stock incentive ......................... -- -- 9,816 (9,816) --
Amortization of compensation
related to employee stock
incentive plan........................... -- -- -- 2,227 --
Comprehensive income...................... -- -- -- -- --
Net income................................ -- -- -- -- 302,013
Other comprehensive income................ -- -- -- -- --
Unrealized gain/(loss) on -- --
investments, net......................... -- -- -- -- (8,102)
------------
Comprehensive income...................... -- -- -- -- Rs. 293,911
============
Balance as of March 31, 1998.............. 229,156,350 458,313 13,947 (10,435)
Cash dividends paid....................... -- -- -- -- --
Shares issued by Trust, net of
forfeitures.............................. -- -- -- -- --
Compensation related to employee
stock incentive plan..................... -- -- 168,615 (168,615) --
Amortization of compensation
related to employee stock
incentive plan........................... -- -- -- 24,702 --
Comprehensive income......................
Net income............................... -- -- -- -- 889,449
Other comprehensive income...............
Unrealized gain/(loss) on
investments, net....................... -- -- -- -- 19,069
------------
Comprehensive income...................... Rs. 908,518
============
Balance as of March 31, 1999.............. 229,156,350 Rs. 458,313 Rs. 182,562 Rs. (154,348)
Cash dividends paid....................... -- -- -- -- --
Compensation related to employee
stock incentive plan..................... -- -- 163,056 (163,056) --
Amortization of compensation
related to employee stock
incentive plan........................... -- -- -- 58,463 --
Comprehensive income...................... -- -- -- -- 1,028,237
Net income............................... -- -- -- -- (1,209)
Other comprehensive income............... -- -- -- -- --
<CAPTION>
Accumulated
Other Equity Shares held by a Total
Comprehensive Retained Controlled Trust Stockholders
Income Earnings No. of Shares Amount Equity
------------- -------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of March 31, 1997.............. Rs. (8,171) Rs. 1,085,246 (1,937,575) Rs. (72) Rs. 1,536,601
Cash dividends paid....................... -- (42,012) -- -- (42,012)
Shares forfeited, net of issued by
trust.................................... -- -- (6,185) (21) (21)
Compensation related to employee
stock incentive plan..................... -- -- -- -- --
Amortization of compensation
related to employee stock
incentive plan........................... -- -- -- -- 2,227
Comprehensive income...................... -- -- -- -- --
Net income................................ -- 302,013 -- -- 302,013
Other comprehensive income................ -- -- -- -- --
Unrealized gain/(loss) on
investments, net......................... (8,102) -- -- -- (8,102)
Comprehensive income......................
Balance as of March 31, 1998.............. (16,273) 1,345,247 (1,943,760) (93) 1,790,706
Cash dividends paid....................... -- (75,727) -- -- (75,727)
Shares issued by Trust, net of
forfeitures.............................. -- -- 534,275 25 25
Compensation related to employee
stock incentive plan..................... -- -- -- -- --
Amortization of compensation
related to employee stock
incentive plan........................... -- -- -- -- 24,702
Comprehensive income......................
Net income............................... -- 889,449 -- -- 889,449
Other comprehensive income...............
Unrealized gain/(loss) on
investments, net....................... 19,069 -- -- -- 19,069
Comprehensive income......................
Balance as of March 31, 1999.............. Rs. 2,796 Rs. 2,158,969 (1,409,485) Rs. (68) Rs. 2,648,224
Cash dividends paid....................... -- (75,622) -- -- (75,622)
Compensation related to employee
stock incentive plan..................... -- -- -- -- --
Amortization of compensation
related to employee stock
incentive plan........................... -- -- -- -- 58,463
Comprehensive income...................... -- 1,028,237 -- -- 1,028,237
Net income............................... (1,209) -- -- -- (1,209)
Other comprehensive income............... -- -- -- -- --
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Additional
Equity Shares Paid in Deferred Stock Comprehensive
-----------------------------
No. of Shares Amount Capital Compensation Income
--------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Unrealized gain/(loss) on
investments, net....................... -- -- -- -- --
-------------
Comprehensive income...................... -- -- -- -- 1,027,028
=============
Balance as of September 30, 1999.......... 229,156,350 Rs. 458,313 Rs. 345,618 Rs. (258,941)
Shares issued by Trust, net of
forfeitures.............................. -- -- -- -- --
Sale of shares by Trust................... 466,768
Compensation related to employee
stock incentive plan..................... -- -- (12,148) 12,148 --
Amortization of compensation
related to employee stock
incentive plan........................... -- -- -- 38,435 --
Comprehensive income......................
Net income............................... -- -- -- -- 2,523,466
Other comprehensive income...............
Unrealized gain/(loss) on
investments, net....................... -- -- -- -- 185
-------------
Comprehensive income...................... 2,523,651
=============
Balance as of March 31, 2000.............. 229,156,350 Rs. 458,313 Rs. 800,238 Rs. (208,358)
Balance as of March 31, 2000.............. $ -- $ 9,942 $ 17,359 $ (4,520) --
Cash dividends paid (unaudited)...........
Shares forfeited, net of issued by
trust (unaudited)........................ -- -- -- -- --
Compensation related to employee
stock incentive plan (unaudited)......... -- -- (11,520) 11,520 --
Amortization of compensation
related to employee stock
incentive plan (unaudited)............... -- -- -- -- --
Comprehensive income (unaudited).......... -- -- -- 46,054 --
Net income (unaudited)................... -- -- -- -- 2,517,329
Other comprehensive income (unaudited)...
Unrealized gain/(loss) on
investments, net (unaudited)........... -- -- -- -- --
Comprehensive income (unaudited).......... -- -- -- -- 2,517,329
-------------
Balance as of September 30, 2000
(unaudited).............................. 229,156,350 Rs. 458,313 Rs. 788,718 Rs. (150,784)
=============
Balance as of September 30, 2000
(unaudited).............................. $ -- $ 9,942 $ 17,109 $ (3,271)
============ ============ ============ ============= =============
<CAPTION>
Accumulated
Other Equity Shares held by a Total
Comprehensive Retained Controlled Trust Stockholders
Income Earnings No. of Shares Amount Equity
------------- -------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Unrealized gain/(loss) on
investments, net....................... -- -- -- -- --
Comprehensive income...................... -- -- -- -- --
Balance as of September 30,
1999 (unaudited)......................... Rs. 1,587 Rs. 3,111,584 (1,409,485) Rs. (68) Rs. 3,658,093
Shares issued by Trust, net of
forfeitures.............................. -- -- 138,280 (10) (10)
Sale of shares by Trust................... 54,745 3 466,771
Compensation related to employee
stock incentive plan..................... -- -- -- -- --
Amortization of compensation
related to employee stock
incentive plan........................... -- -- -- -- 38,435
Comprehensive income...................... -- 2,532,466 -- -- 2,523,466
Net income............................... -- -- -- -- --
Other comprehensive income............... -- -- -- -- --
Unrealized gain/(loss) on
investments, net....................... 185 -- -- -- 185
Comprehensive income......................
Balance as of March 31, 2000.............. Rs. 1,772 Rs. 5,635,050 (1,216,460) Rs. (75) Rs. 6,686,940
Balance as of March 31, 2000.............. $ 38 $ 122,235 $ (2) $ 145,053
Cash dividends paid (unaudited)........... -- (75,622) -- (75,622)
Shares forfeited, net of issued by
trust.................................... -- -- (35,775) -- --
Compensation related to employee
stock incentive plan (unaudited)......... -- -- -- -- --
Amortization of compensation
related to employee stock
incentive plan (unaudited)............... -- -- -- -- 46,054
Comprehensive income...................... -- -- -- -- --
Net income............................... -- 2,517,329 2,517,329
Other comprehensive income............... -- -- -- -- --
Unrealized gain/(loss) on
investments, net (unaudited)........... (51) -- -- -- (51)
Comprehensive income (unaudited).......... -- -- -- -- --
Balance as of September 30, 2000
(unaudited).............................. Rs. 1,721 Rs. 8,076,757 (1,252,235) Rs. (75) Rs. 9,174,650
Balance as of September 30, 2000
(unaudited).............................. $ 37 $ 175,201 -- $ (2) $ 199,016
========== ============== ========== ========= ==============
</TABLE>
See accompanying notes to the consolidated financial statements
-5-
<PAGE>
WIPRO LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
<TABLE>
<CAPTION>
Years ended March 31, Six Months ended September 30,
-------------------------------------- -------------------------------------
1999 2000 2000 1999 2000 2000
---------- ---------- -------- --------- ---------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Income from continuing operations...... Rs. 1,579,564 Rs. 3,332,996 $ 72,299 Rs. 1,028,236 Rs. 2,517,329 $ 54,606
Adjustments to reconcile income
from continuing operations to
net cash provided by operating
activities:
Loss / (Gain) on sale of
property, plant and equipment........ (4,635) 22,944 498 (446) (19,757) (429)
Depreciation and amortization......... 631,149 738,723 16,024 307,873 406,637 8,821
Deferred tax charge / (benefit)....... (35,292) 182,553 3,960 80,460 -- --
Loss / (Gain) on sale of
short-term investments.......... -- (681) (15) (410) -- --
Loss / (Gain) on sale of stock
of affiliates, including direct
issue of stock by affiliate..... -- (412,144) (8,940) -- -- --
Amortization of deferred stock
compensation......................... 24,702 96,898 2,102 58,470 46,054 999
Undistributed equity in earnings
of affiliates........................ (76,032) (97,890) (2,123) (21,200) (1,572) (34)
Minority interest..................... 9,602 3,661 79 3,661 - -
Changes in operating assets and
liabilities:
Accounts receivable.................. (589,577) (858,439) (18,621) (241,971) (534,913) (11,603)
Inventories.......................... (27,765) 228,569 4,958 76,372 140,627 3,050
Other assets......................... (58,329) (237,449) (5,151) (70,529) (1,501,180) (32,564)
Accounts payable..................... 620,086 (523,951) (11,366) (490,027) 50,651 1,099
Accrued expenses..................... 249,727 622,528 13,504 272,147 153,314 3,326
Advances from customers.............. 89,529 216,820 4,703 (25,140) (49,296) (1,069)
Other liabilities.................... (30,778) 165,972 3,600 297,049 51,252 1,112
---------- ---------- -------- --------- ---------- --------
Net cash provided by continuing
operations............................ 2,381,951 3,481,110 75,511 1,274,545 1,259,146 27,314
Net cash provided by/(used in)
discontinued operations............... (21,432) -- -- -- -- --
---------- ---------- -------- --------- ---------- --------
Net cash provided by operating
activities............................ 2,360,519 3,481,110 75,511 1,274,545 1,259,146 27,314
---------- ---------- -------- --------- ---------- --------
Cash flows from investing
activities:
Expenditure on property, plant
and equipment......................... (1,720,645) (1,317,958) (28,589) (504,144) (1,068,051) (23,168)
Proceeds from sale of property,
plant and equipment................... 206,415 32,333 701 9,302 129,783 2,815
Funding of discontinued operations..... (935,810) (855,793) (18,564) (112,934) -- --
Purchase of minority interest in
subsidiary............................ -- (67,500) (1,464) -- -- --
Proceeds from sale of investments
in affiliates......................... -- 153,128 3,322 -- -- --
Purchase of investments................ -- (833,622) (18,083) (369,013) (202,552) (4,394)
Proceeds from sales and
maturities of investments............. -- 95,974 2,082 4,376 96,304 2,089
---------- ---------- -------- --------- ---------- --------
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Years ended March 31, Six Months ended September 30,
-------------------------------------- -------------------------------------
1999 2000 2000 1999 2000 2000
---------- ---------- -------- --------- ---------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net cash used in continuing
operations........................... (2,450,040) (2,793,438) (60,595) (972,413) (1,044,516) (22,658)
Net cash provided by discontinued
operations........................... 168,050 - - - - -
------------ ------------ --------- ----------- ------------ ----------
Net cash used in investing
activities........................... (2,281,990) (2,793,438) (60,595) (972,413) (1,044,516) (22,658)
------------ ------------ --------- ----------- ------------ ----------
Cash flows from financing
activities:
Proceeds from /(repayments of)
short term borrowing from banks,
net.................................. (229,678) (1,688,043) (36,617) 238,345 58,747 1,274
Proceeds from issuance of long
term debt............................ 500,000 1,010,219 21,914 (609,643) 1,586 34
Sale of shares by Trust............... 466,771 10,125 - - -
Repayment of long-term debt........... (463,086) (755,049) (16,379) - - -
Proceeds from issuance of
preferred stock...................... 250,000 - - - - -
Proceeds from issuance of common
stock by a subsidiary/affiliate...... - 502,345 10,897 - - -
Payment of cash dividends............. (75,727) (75,622) (1,640) (75,622) (75,622) (1,640)
------------ ------------ --------- ----------- ------------ ----------
Net cash provided by/(used in)
continuing operations................ (18,491) (539,379) (11,700) (446,920) (15,289) (332)
Net cash used in discontinued
operations........................... (158,422) - - - - -
------------ ------------ --------- ----------- ------------ ----------
Net cash provided by/( used in)
financing activities................. (176,913) (539,379) (11,700) (446,920) (15,289) (332)
------------ ------------ --------- ----------- ------------ ----------
Effect of de-consolidation of a
subsidiary on cash and cash
equivalents (Note 14)................ - (1,943) (42) - - -
------------ ------------ --------- ----------- ------------ ----------
Net increase/ (decrease) in cash
and cash equivalents during the
year................................. (98,384) 146,350 3,174 (144,788) 199,341 4,324
Cash and cash equivalents at the
beginning of the year................ 743,109 637,253 13,823 637,252 783,603 16,998
------------ ------------ -------- ------------ ------------ --------
Cash and cash equivalents at the
end of the year...................... Rs. 644,725 Rs. 783,603 $ 16,997 Rs. 492,464 Rs. 982,944 $ 21,322
============ ============ ======== ============ ============ ========
Supplementary information:
Cash paid for interest............... Rs. 344,886 Rs. 335,545 $ 7,279 Rs. 182,390 Rs. (36,172) $ (785)
Cash paid for taxes.................. 121,815 221,233 4,799 41,679 (467,306) (10,137)
</TABLE>
Cash and cash equivalents as of March 31, 1999 include cash balances of Rs.
7,472 relating to Wipro Finance. This balance is reflected as a component of
"net liabilities of discontinued business" in the consolidated balance sheet
as of March 31, 1999.
See accompanying notes to the consolidated financial statements
-7-
<PAGE>
WIPRO LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE SIX MONTHS AND THREE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA AND WHERE OTHERWISE STATED)
1. Overview
Wipro Limited ("Wipro"), together with its subsidiaries Wipro, Inc.,
EnThink, Inc., Wipro Prosper Limited, Wipro Welfare Limited, Wipro Trademarks
Holdings Limited, Wipro Japan KK and affiliates Wipro Net Limited, Wipro
ePeripherals Limited and Wipro GE Medical Systems Limited (collectively, the
"Company") is a leading India based provider of IT services globally. Further,
Wipro is in other businesses such as Indian IT Services and Products, Consumer
Care and Lighting and healthcare systems. Wipro is headquartered in Bangalore,
India.
2. Significant Accounting Policies
The preparation of consolidated financial statements in conformity with
United States generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses and disclosure of contingent assets and
liabilities. Actual results could differ from these estimates.
Basis of preparation of financial statements. The accompanying consolidated
financial statements have been prepared in accordance with United States
generally accepted accounting principles.
Functional currency. The functional and reporting currency of the Company
is the Indian rupee as a significant portion of the Company's activities are
conducted in India.
Convenience translation. The accompanying financial statements have been
prepared in Indian rupee, the national currency of India. Solely for the
convenience of the reader, the financial statements as of and for the six months
ended September 30, 2000 and as of and for the year ended March 31, 2000 have
been translated into United States dollars at the noon buying rate in New York
City on October 2, 2000 are for cable transfers in Indian rupees, as certified
for customs purposes by the Federal Reserve Bank of New York of $ 1 = Rs. 46.10.
No representation is made that the Indian rupee amounts have been, could have
been or could be converted into United States dollars at such a rate or any
other rate.
Principles of consolidation. The consolidated financial statements include
the financial statements of Wipro and all of its subsidiaries, which are more
than 50% owned and controlled. All material inter-company accounts and
transactions are eliminated on consolidation. The Company accounts for
investments by the equity method where its investment in the voting stock gives
it the ability to exercise significant influence over the investee.
Pursuant to a joint venture agreement, effective December 27, 1999, the
shareholding of the Company in Wipro Net Limited ("Wipro Net") was reduced from
100% to 55%. The minority shareholder, KPN Group, holds 45% of the voting stock
and has certain significant participating rights which provide for its effective
involvement in significant decisions in the ordinary course of business.
Accordingly, the financial statements of Wipro Net, subsequent to December 27,
1999 have not been consolidated.
The financial statements of Wipro Finance Limited ("Wipro Finance"), a
majority owned subsidiary, were consolidated with Wipro in fiscal 1998 and 1999.
In December 1999, Wipro reduced its shareholding in Wipro Finance to 50%. Wipro
has no financial obligations or commitments to Wipro Finance and does not
-8-
<PAGE>
intend to provide Wipro Finance with further financial support. Accordingly,
Wipro has not provided for any losses beyond its equity investment and net
advances, and the financial statements of Wipro Finance have not been
consolidated since April 1, 1999.
Cash equivalents. The Company considers all highly liquid investments with
remaining maturities, at the date of purchase/investment, of three months or
less to be cash equivalents.
Revenue recognition. Revenues from software development services comprise
income from time-and-material and fixed-price contracts. Revenue with respect to
time-and-material contracts is recognized as related services are performed.
Revenue with respect to fixed-price contracts is recognized in accordance with
the percentage of completion method of accounting. Provisions for estimated
losses on contracts-in-progress are recorded in the period in which such losses
become probable based on the current contract estimates. Maintenance revenue is
deferred and recognized ratably over the term of the agreement. Revenue from
customer training, support, and other services is recognized as the related
service is performed. Revenue from the sales of goods is recognized, in
accordance with the sales contract, on dispatch from the factories/warehouses of
the Company. When the Company receives advance payments from customers for sale
of products or provision of services, such payments are reported as advances
from customers until all conditions for revenue recognition are met.
Inventories. Inventories are stated at the lower of cost and market. Cost
is determined using the weighted average method for all categories of
inventories.
Investment Securities. The Company classifies its debt and equity
securities in one of the three categories: trading, held-to-maturity or
available-for-sale, at the time of purchase and re-evaluates such
classifications as of each balance sheet date. Trading and available-for-sale
securities are recorded at fair value. Held-to-maturity securities are recorded
at amortized cost, adjusted for the amortization or accretion of premiums or
discounts. Unrealized holding gains and losses on trading securities are
included in earnings. Temporary unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from earnings
and are reported as a separate component of stockholders' equity until realized.
Realized gains and losses from the sale of available-for-sale securities are
determined on a specific identification basis and are included in earnings. A
decline in the fair value of any available-for-sale or held-to-maturity security
below cost that is deemed to be other than temporary results in a reduction in
carrying amount to fair value. Fair value is based on quoted market prices. The
impairment is charged to earnings.
Derivative Financial Instruments. The Company uses short-term forward
foreign exchange contracts to cover foreign exchange risk. These contracts
qualify as hedges, as changes in their fair value offset the effect of a change
in the fair value of the underlying exposure. Such contracts are revalued based
on the spot rates at the date of the balance sheet and the spot rates at the
inception of the contract. Gains and losses arising on revaluation are
recognized as offsets to gains and losses resulting from the transactions being
hedged. Premium or discount on such forward exchange contracts are recognized
over the life of the contract. The Company has entered into interest rate swap
agreements which hedge interest rate risk on underlying debt. These contracts
qualify as hedge transactions and are accounted for under the accrual method.
Investments in affiliated companies. The Company's equity in the earnings
of affiliates is included in the statement of income and the Company's share of
net assets of affiliates is included in the balance sheet.
Shares issued by subsidiary/affiliate. The issuance of stock by a
subsidiary/affiliate to third parties reduces the proportionate ownership
interest in the investee. Unless the issuance of such stock is part of a broader
corporate reorganization, the Company recognizes a gain or loss, equal to the
difference between the
-9-
<PAGE>
issuance price per share and the Company's carrying amount per share. Such gain
or loss, is recognized in the statement of income when the transaction occurs.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. The Company depreciates property, plant and equipment over the estimated
useful life using the straight-line method. Assets under capital leases are
amortized over their estimated useful life or the lease term, as appropriate.
The estimated useful lives of assets are as follows:
Buildings 30 to 60 years
Plant and machinery 2 to 21 years
Furniture, fixtures and equipment 2 to 5 years
Vehicles 4 years
Computer and software 2 years
Software for internal use is primarily acquired from third-party vendors
and is in ready to use condition. Costs for acquiring this software are
capitalized and subsequent costs are charged to revenue. The capitalized costs
are amortized on a straight-line basis over the estimated useful life of the
software. 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. The interest cost incurred for funding an asset during its
construction period is capitalized based on the actual investment in the asset
and the average cost of funds. The capitalized interest is included in the cost
of the relevant asset and is depreciated over the estimated useful life of the
asset.
Intangible Assets. The Company records as assets, costs incurred on assets
which are of enduring value at the consideration paid for it and amortizes the
cost by systematic charges to income over the period estimated to be benefited.
Cost of acquisition that result in a goodwill is reported as an intangible asset
and amortized over a period of five years.
Start-up costs. Cost of start-up activities including organization costs
are expensed as incurred.
Research and Development. Revenue expenditure on research and development
is expensed as incurred. Capital expenditure incurred on equipment and
facilities that are acquired or constructed for research and development
activities and having alternative future uses, is capitalized as tangible assets
when acquired or constructed. Software product development costs are expensed as
incurred until technological feasibility is achieved.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of.
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
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 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 amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
cost to sell.
Foreign Currency Transactions. The functional and reporting currency of the
Company is the Indian rupee. Foreign currency transactions are translated into
Indian rupees at the rates of exchange prevailing on the date of the respective
transactions. Assets and liabilities in foreign currency are translated into
Indian
-10-
<PAGE>
rupees at the exchange rate prevailing on the balance sheet date. The resulting
exchange gains/losses are included in the statement of income.
Earnings Per Share. The Company has adopted SFAS No. 128, Earnings Per
Share. In accordance with SFAS No. 128, basic earnings per share is computed
using the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding during the period,
using the treasury stock method for options and warrants, except where the
results would be antidilutive.
Income Taxes. Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in 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.
Retirement Benefits to Employees.
Gratuity: In accordance with applicable Indian laws, the Company provides
for gratuity, a defined benefit retirement plan (the "Gratuity Plan") covering
certain categories of employees. The Gratuity Plan provides a lump sum payment
to vested employees, at retirement or termination of employment, an amount based
on the respective employee's last drawn salary and the years of employment with
the Company. The Company provides the gratuity benefit through annual
contributions to a fund managed by the Life Insurance Corporation of India.
Under this scheme, the settlement obligation remains with the Company, although
the Life Insurance Corporation of India administers the scheme and determines
the contribution premium required to be paid by the Company. The impact of the
scheme is not material or expected to become material to the financial condition
or operations of the Company.
Superannuation: Apart from being covered under the Gratuity Plan described
above, the senior officers of the Company also participate in a defined
contribution plan maintained by the Company. This plan is administered by the
Life Insurance Corporation of India. The Company makes annual contributions
based on a specified percentage of each covered employee's salary. The Company
has no further obligations under the plan beyond its annual contributions.
Provident fund: In addition to the above benefits, all employees receive
benefits from a provident fund, a defined contribution plan. The employee and
employer each make monthly contributions to the plan equal to 12% of the covered
employee's salary. Until fiscal 1981, the Company contributed to the employees'
provident fund maintained by the Government of India. Effective fiscal 1982, 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.
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 plans. The Company has therefore adopted the pro forma
disclosure provisions of SFAS No. 123, Accounting for Stock-based Compensation.
Recent accounting pronouncements. In June 1998, the FASB issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in
-11-
<PAGE>
other contracts) be recorded on the balance sheet either as an asset or as a
liability and be measured at its fair value. The Statement requires that changes
in a derivative's fair value be recognized in the current period unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that the Company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for all fiscal periods beginning
after June 15, 1999. Application of the Statement will not have a significant
impact on the financial statements of the Company.
3. Discontinued Operations
The Company was involved in the financial services business through Wipro
Finance, a majority owned subsidiary. The Company, for strategic reasons,
decided to concentrate on its core businesses and as a result, in March 1999,
the Company decided to exit the financial services business and approved a
formal plan for winding down the operations of this business. Under the plan,
Wipro Finance will not accept any new business and the existing assets and
liabilities would be liquidated as per their contractual terms. The Company
estimated the shortfall in servicing liabilities of Wipro Finance through its
assets and decided to fund the shortfall through a fresh infusion of equity and
preferred stock amounting to Rs. 950,000.
The results of operations of Wipro Finance for all periods have been
reported separately as "loss from operations of discontinued finance division".
Similarly, the obligation of the Company to fund losses under the plan, in
excess of recognized losses as of March 31, 1999, has been accrued as "provision
for operating losses during phase-out period".
The assets and liabilities of Wipro Finance as of March 31, 1999 have been
aggregated and reported separately as "net liabilities of discontinued business"
as given below:
<TABLE>
<CAPTION>
As of March 31,
1999
---------------
<S> <C>
Assets:
Cash and cash equivalents................................................................................. Rs. 7,472
Loans, net of allowances.................................................................................. 1,278,533
Investment securities..................................................................................... 116,855
Property, plant and equipment, net........................................................................ 64,705
Other assets.............................................................................................. 147,063
---------------
Total assets.............................................................................................. 1,614,628
---------------
Liabilities:
Long term debt............................................................................................ 2,141,844
Accounts payable.......................................................................................... 33,058
Preferred stock........................................................................................... 286,000
Other liabilities......................................................................................... 9,519
---------------
Total liabilities......................................................................................... 2,470,421
---------------
Net liabilities of discontinued business............................................................... Rs. 855,793
===============
</TABLE>
The summarized information on results of operations of the discontinued
business is given below:
<TABLE>
<CAPTION>
Year Ended
March 31,
1999
-------------
<S> <C>
Revenue..................................................................................................... Rs. 469,582
Operating expenses.......................................................................................... (930,399)
-------------
Loss from operations of discontinued finance division....................................................... Rs. (460,817)
=============
</TABLE>
-12-
<PAGE>
In December 1999, the Company sold 50% of the interest in Wipro Finance to
certain investors for a nominal amount. As a result of the sale, the Company
does not have a controlling interest in Wipro Finance. The financial statements
of Wipro Finance have not been consolidated for the year ended March 31, 2000
and six months ended September 30, 1999 and 2000. The tax benefit of Rs.
218,707 arising on the sale has been reported separately as a component of
discontinued operations.
4. Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents as of March 31, 1999 and 2000 and September 30,
1999 and 2000 comprise of cash and cash on deposit with banks. Cash and cash
equivalents include deposits of Rs. 2,008, Rs. 2,108, Rs. 2,008 and Rs. 6,709 as
of March 31, 1999 and 2000 and September 30, 1999 and 2000 respectively placed
with banks as margin money in the normal course of business operations.
5. Accounts Receivable
The accounts receivable as of March 31, 1999, 2000 and September 30, 2000
are stated net of allowance for doubtful accounts. The Company maintains an
allowance for doubtful accounts based on present and prospective financial
condition of the customer and aging of the accounts receivable. Accounts
receivable are generally not collateralized.
The activity in the allowance for doubtful accounts receivable is given
below:
<TABLE>
<CAPTION>
Six months ended
Year ended March 31, September 30,
-------------------------------
1999 2000 2000
-------------- --------------- --------------------
(unaudited)
<S> <C> <C> <C>
Balance at the beginning of the period..................... Rs. 191,473 Rs. 277,841 196,602
Additional provision during the period..................... 123,039 299,122 148,924
Bad debts charged to provision............................. (36,671) (380,361) (21,402)
------------ ------------ -------
Balance at the end of the period........................... Rs. 277,841 Rs. 196,602 324,124
============ ============ =======
</TABLE>
6. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
Year ended March 31, Six months ended September 30,
------------------------------------ -----------------------------------
1999 2000 1999 2000
---------------- ----------------- ------------------ --------------
(unaudited)
<S> <C> <C> <C> <C>
Stores and spare parts................ Rs. 68,592 Rs. 42,914 Rs. 57,871 Rs. 46,166
Raw materials and components.......... 606,034 497,545 657,884 474,902
Work-in-process....................... 143,301 92,970 130,162 166,081
Finished goods........................ 625,801 581,731 521,439 387,384
-------------- -------------- -------------- -------------
Rs. 1,443,728 Rs. 1,215,160 1,367,356 1,074,533
============== ============== ============== =============
</TABLE>
-13-
<PAGE>
7. Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
Year ended March 31, Six months ended September 30,
------------------------------------ -----------------------------------
1999 2000 1999 2000
---------------- ----------------- ------------------ --------------
(unaudited)
<S> <C> <C> <C> <C>
Prepaid expenses......................... Rs. 270,462 Rs. 377,911 Rs. 431,142 Rs. 318,032
Advances to suppliers.................... 43,956 35,510 44,392 81,763
Balances with statutory authorities...... 134,202 224,215 40,606 108,378
Deposits................................. 255,930 382,307 359,956 575,415
Inter-Corporate deposit - 1,498,213
Advance income taxes..................... 273,501 125,000 169,789 4,065
Others................................... 181,708 219,025 183,450 279,282
---------------- --------------- ---------------- -------------
1,159,759 1,363,968 1,229,335 2,865,148
Less: Current assets..................... 909,456 981,661 879,414 2,581,791
---------------- --------------- ---------------- -------------
Rs. 250,303 Rs. 382,307 Rs. 349,921 Rs. 283,357
================ =============== ================ =============
</TABLE>
-14-
<PAGE>
8. Investment Securities
Investment securities consist of the following:
<TABLE>
<CAPTION>
As of March 31, 1999 As of March 31, 2000
----------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Carrying Holding Holding Carrying Holding Holding
Value Gains Losses Fair Value Value Gains Losses
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale:
Equity securities........... Rs. 233 Rs. 2,230 Rs. (30) Rs. 2,433 Rs. 233 Rs. 2,298 Rs. (27)
Mutual fund units........... 3,793 1,041 -- 4,834
Rs. 4,026 Rs. 3,271 Rs. (30) Rs. 7,267 Rs. 233 Rs. 2,298 Rs. (27)
Held-to-maturity:
Treasury securities......... Rs. 2,500 Rs. -- Rs. -- Rs. 2,500 Rs. -- Rs. -- Rs. --
Bonds and Debentures........ 24 24 Rs. 294,646 -- --
Rs. 2,524 Rs. -- Rs. -- Rs. 2,524 Rs. 294,646 Rs. -- Rs. --
Total....................... Rs. 6,550 Rs. 3,271 Rs. (30) Rs. 9,791 Rs. 294,879 Rs. 2,298 Rs. (27)
<CAPTION>
As of Six months ended September 30, 1999
-------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized
Carrying Holding Holding
Fair Value Value Gains Losses Fair Value
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Available-for-sale:
Equity securities........... Rs. 2,504 Rs. 233 Rs. 1,984 Rs. 2,217
Mutual fund units...........
Rs. 2,504 Rs. 233 Rs. 1,984 Rs. 2,217
Held-to-maturity:
Treasury securities......... Rs. -- Rs. -- Rs. -- Rs. Rs. --
Bonds and Debentures........ Rs. 294,646 Rs. 371,368 Rs. 371,368
Rs. 294,646 Rs. 371,368 Rs. -- Rs. Rs. 371,368
Total....................... Rs. 297,150 Rs. 371,601 Rs. 1,984 Rs. Rs. 373,585
<CAPTION>
As of Six months ended September 30, 2000
------------------------------------------------------------------
Gross Gross
Unrealized Unrealized
Carrying Holding Holding
Value Gains Losses Fair Value
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities........... Rs. 233 Rs. 1,969 Rs. (35) Rs. 2,167
Mutual fund units...........
Rs. 233 Rs. 1,969 Rs. (35) Rs. 2,167
Held-to-maturity:
Treasury securities......... Rs. 47,952 -- -- Rs. 47,952
Bonds and Debentures........ Rs. 298,341 -- -- Rs. 298,341
Rs. 346,293 Rs. -- -- Rs. 346,293
Total....................... Rs. 346,526 Rs. 1,969 Rs. (35) Rs. 348,460
</TABLE>
_____________________
Debt securities, held to maturity as of September 30, 2000 mature between
one through five years.
Dividends from securities available for sale, during the years ended March
31, 1999 and 2000, were Rs. 131 and Rs. 22 respectively and is included in
other income. Proceeds from the sale of securities, available for sale were
Rs. 4,474 during the year ended March 31, 2000.
-15-
<PAGE>
9. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
As of March 31, Six months ended September 30,
-------------------------------- ----------------------------------
1999 2000 1999 2000
--------------- --------------- ---------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Land....................................... Rs. 195,590 Rs. 273,804 Rs. 195,589 Rs. 389,517
Buildings.................................. 396,408 701,839 523,977 894,508
Plant and machinery........................ 2,901,546 3,202,434 3,152,922 3,569,786
Furniture, fixtures, and equipment......... 455,609 647,590 528,780 769,523
Vehicles................................... 158,448 217,729 175,668 250,337
Computer software for internal use......... 169,452 298,105 230,890 422,933
Capital work-in-progress................... 860,063 709,146 794,987 570,177
-------------- -------------- ---------------- --------------
5,137,116 6,050,647 5,602,813 6,866,781
Accumulated depreciation and amortization.. (1,882,691) (2,446,966) (2,161,678) (2,710,717)
-------------- -------------- ---------------- --------------
Property, plant and equipment, net......... Rs. 3,254,425 Rs. 3,603,681 Rs. 3,441,135 Rs. 4,156,064
============== ============== ================ ==============
</TABLE>
Depreciation expense for the years ended March 31, 1999 and 2000 and six
months ended September 30, 1999 and 2000 is Rs. 630,543 Rs. 734,473, Rs. 307,053
and Rs. 405,405 respectively. This includes Rs. 29,871, Rs. 53,261, Rs. 26,630
and Rs. 79,070 being amortization of capitalized internal use software during
the years ended March 31, 1999 and 2000 and six months ended September 30, 1999
and 2000 respectively.
10. Intangible Assets
Intangible assets consisting of technical know-how and goodwill, are stated
net of accumulated amortization of Rs. 1,397, Rs. 5,647, Rs. 2,217 and Rs. 1,952
as of March 31, 1999, 2000 and six months ended September 30, 2000 respectively.
Technical know-how is amortized over six years. Amortization expenses for the
years ended March 31, 1999 and 2000 and six months ended September 30, 1999 and
2000 are Rs. 606, Rs. 4,250, Rs. 820 and Rs. 1,232 respectively.
In October 1999, the Company acquired the 45% minority interest in Wipro
Computers Limited for a consideration of Rs. 67,500. The acquisition resulted
in a goodwill of Rs. 10,500 which is reported as an intangible asset. The
goodwill is being amortized over a period of 5 years.
11. Other Current Liabilities
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
As of March 31, Six months ended September 30,
---------------------------- -------------------------------
1999 2000 1999 2000
-------------- ------------ -------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Inter-corporate deposits.......... Rs. Rs. 49,692 Rs. 150,000 Rs.
Statutory dues payable............ 69,707 154,958 40,756 327,938
Sundry deposits................... -- -- -- 143,545
Taxes payable..................... 303,295 195,497 298,412 17,024
Others............................ 47,328 35,414 126,609 14,344
------------ ----------- ------------ ------------
Rs. 420,330 Rs. 435,561 Rs. 615,777 Rs. 502,851
============ =========== ============ ============
</TABLE>
-16-
<PAGE>
12. Other Liabilities
Other liabilities consist of security deposits collected from the
Company's dealers.
13. Operating Leases
The Company leases office and residential facilities under cancellable
operating lease agreements that are renewable on a periodic basis at the option
of both the lessor and the lessee. Rental expense under those leases was Rs.
209,830, Rs. 237,693, Rs. 114,874 and Rs. 134,269 for the years ended March 31,
1999, 2000 and six months ended September 30, 1999 and 2000 respectively.
14. Investments in Affiliates
Wipro GE Medical Systems ("Wipro GE"). The Company has accounted for its
49% interest in Wipro GE by the equity method. The carrying value of the
investment in Wipro GE as of March 31, 1999 and 2000 and September 30, 1999 and
2000 was Rs. 310,250, Rs. 434,299, Rs. 331,450 and Rs. 525,929 respectively. The
Company's equity in the income of Wipro GE for the year ended March 31, 1999 and
2000 and six months ended September 30, 1999 and 2000 was Rs. 95,632, Rs.
138,749, Rs. 30,773 and Rs. 98,980 respectively.
Wipro Net. As of March 31, 1999, the Company held a 100% interest in Wipro
Net represented by 15,219,180 equity shares of Rs. 10 each. Wipro Net is
engaged in value added networking and communication services. The financial
statements of Wipro Net were consolidated in fiscal 1999. In fiscal 2000, the
Company sold 2,903,410 equity shares to a minority shareholder for a
consideration of Rs. 203,000 pursuant to a joint venture agreement. The gain on
sale of Rs. 146,144 is included in the statement of income. Additionally, Wipro
Net directly issued 7,173,132 shares to the joint venture partner at a price of
Rs. 70 per share. As a result of the transactions, the Company's interest in
Wipro Net reduced to 55%. The shareholders' agreement provides the minority
shareholder in the joint venture with significant participating rights, which
provide for its effective involvement in significant decisions in the ordinary
course of business. Further, the shareholders' agreement requires the Company
to reduce its interest from 55% to 45% within 2 to 3 years. Therefore,
subsequent to the dilution, the Company has accounted for its 55% interest by
the equity method. The carrying value of the investment in Wipro Net as of
March 31, 2000 and September 30, 2000 was Rs. 270,586 and Rs. 175,010
respectively. The carrying value has increased by Rs. 266,000 due to the direct
issue of shares to the minority shareholder. As the direct issue of shares by
Wipro Net is not part of a broader corporate reorganization, the gain due to the
change in the carrying value of the investment has been included in the
statement of income. The Company's equity in the loss of Wipro Net for the year
ended March 31, 2000 and the six months ended September 30, 2000 was Rs. 26,159
and Rs. 95,577 respectively.
Wipro ePeripherals Ltd. On September 1, 2000, the Peripherals Sales
Division ("PSD") of Wipro Ltd., which was engaged in the business of
manufacture, sales and trading of computer peripherals was transferred into a
separate legal entity, Wipro ePeripherals Ltd. ("WeP"). All the assets and
liabilities of PSD were transferred to the new entity, at fair value of Rs.
270,888, for cash of Rs. 116,288, 1,000,000 12.5% unsecured debentures of Rs.
100 each repayable at par in fiscal 2005 and 5,460,000 equity shares of Rs. 10
each in WeP. WeP has also sought equity participation from certain strategic
investors and employees of Wipro Limited. Strategic investors and employees hold
61% equity interest in WeP. Our share in the income of WeP is accrued in
proportion to our equity interest of 39% in WeP. The carrying value of the
investment in WeP as of September 30, 2000 was Rs. 60,119. The Company's equity
in the income of WeP for the six months ended September 30, 2000 was Rs. 5,519.
-17-
<PAGE>
15. Financial Instruments and Concentration of Risk
Concentration of risk. Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of cash
equivalents, investment securities and accounts receivable. The Company's cash
resources are invested with financial institutions and commercial corporations
with high investment grade credit ratings. Limits 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 customers. No single customer accounted for 10% or more of
accounts receivable as of March 31, 1999 and 2000 and September 30, 1999 and
2000.
Derivative financial instruments. The Company enters into forward foreign
exchange contracts and interest rate swap agreements where the counterparty is
generally a bank. The Company considers the risks of non-performance by the
counterparty as non-material. The following table presents the aggregate
contracted principal amounts of the Company's derivative financial instruments
outstanding :
<TABLE>
<CAPTION>
As of March 31, As of September 30,
-------------------------------------------
1999 2000 2000
---------------------- ------------------- --------------------------
(unaudited)
<S> <C> <C> <C>
Forward contracts.......................................... $ 7,863,403(sell) $ 48,487,662(sell) $ 54,903,630(sell)
Interest rate swaps........................................ $ 9,750,000 $ 6,500,000 $ 4,875,000
</TABLE>
The foreign forward exchange contracts mature between one to six months.
Interest rate swap agreements mature between one to five years.
16. Borrowings from Banks
The Company has a line of credit of Rs. 2,650,000 from its bankers for
working capital requirements. The line of credit is renewable annually. The
credit bears interest at the prime rate of the bank, which averaged 13.12% in
fiscal 1999 and 2000 and 12.8% in the six months ended September 30, 2000. The
facilities are secured by inventories, accounts receivable and certain property
and contain financial covenants and restrictions on indebtedness.
17. Long-term Debt
Long-term debt consists of the following:
In December 1999, the Company has transferred an 8% interest in Wipro Net
to a financial institution. Under the terms of the transfer, the Company has a
call option to repurchase the transferred shares at a pre-determined
consideration. Additionally, the financial institution has a put option to sell
the shares to
<TABLE>
<CAPTION>
As of September 30,
-------------------------------
1999 2000
------------- -------------
(unaudited)
<S> <C> <C>
Debentures and bonds......................... Rs. 6,667 Rs. -
Foreign currency borrowings.................. 353,364 194,698
Rupee term loans from banks and financial
institutions................................ 188,679 1,255,412
Foreign currency term loans from
financial institutions...................... 29,806 -
Others....................................... 33,410 42,190
------------- -------------
611,926 1,462,300
Less: Current portion........................ 242,458 1,322,729
------------- -------------
Rs. 369,468 Rs 139,571
============= =============
</TABLE>
-18-
<PAGE>
the Company at a pre-determined consideration. The financial institution cannot
transfer the shares to a third party within the period of the call option. The
Company has recorded the transfer as a secured borrowing with a pledge of
collateral. As of September 30, 2000, the rupee term loans include Rs. 1,100,312
representing such a borrowing. The call and put options can be exercised between
13 months to 18 months from the date of transfer. The principal shareholder of
the Company has pledged certain shares held in Wipro to further secure the
borrowing.
All other long term debt is secured by a specific charge over the property,
plant and equipment of the Company and contains certain financial covenants and
restrictions on indebtedness.
Foreign currency borrowing represents a fixed rate U.S. dollar borrowing.
In order to hedge the foreign exchange risk on the borrowing, Wipro entered into
a structured swap agreement with a bank in September 1999. Under this
agreement, the bank would assume all responsibilities to repay the borrowing and
interest thereon in foreign currency as per the scheduled maturity of the
borrowing. In exchange, the Company would pay the bank a fixed amount in Indian
rupees per an agreed schedule. In order to secure the Indian rupee payment
streams to the bank, Wipro made an investment in certain discount bonds, the
proceeds of which have been assigned as security to the bank. The swap
agreement has been accounted as a hedge with the hedge cost amortized to income
over the life of the contract. The discount bonds are classified as "held to
maturity" investment securities.
An interest rate profile of long term debt is given below:
<TABLE>
<CAPTION>
As of March 31, As of September 30,
---------------------------- -----------------------------
1999 2000 1999 2000
------------ ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Debentures and bonds..................... 14.0 to 18.5% --% 18.5% --%
Foreign currency borrowings.............. 6.7% 6.7% 6.7% 6.7%
Rupee term loans from banks and 13.5 to 15.0% 13.9% 13.5 to 6.7% 12.8%
financial institutions..................
Foreign currency term loans from 7.5% --% 7.5% --%
financial institutions..................
</TABLE>
A maturity profile of long term debt outstanding as of September 30, 2000
is set out below :
<TABLE>
<CAPTION>
<S> <C>
Maturing in:
2001.................................................................. 1,322,730
2002.................................................................. 90,793
2003.................................................................. 20,105
2004.................................................................. 28,305
Thereafter............................................................ 627
---------
Total................................................................. 1,462,560
=========
</TABLE>
18. Equity Shares and Dividends
The Company presently has only one class of equity shares. For all matters
submitted to vote in the shareholders meeting, every holder of equity shares, as
reflected in the records of the Company on the date of the shareholders meeting
shall have one vote in respect of each share held by him or her.
Indian statutes mandate that dividends shall 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. Should
the Company declare and pay dividends, such dividends will be paid in Indian
rupees to each holder of equity shares in proportion to the number of shares
held by him to the total equity shares outstanding as on
-19-
<PAGE>
that date. Indian statutes on foreign exchange govern the remittance of dividend
outside India. Such dividend payments are subject to withholding taxes
applicable at the time of payment.
In the event of liquidation of the affairs of the Company, all preferential
amounts, if any, shall be discharged by the Company. The remaining assets of
the Company, after such discharge, shall be distributed to the holders of equity
shares in proportion to the number of shares held by them.
The Company paid cash dividends of Rs. 75,727 and Rs. 75,622 and Rs. 75,622
during the years ended March 31, 1999, 2000 and the six months ended September
30, 2000, respectively. The dividend per share was Rs. 0.30 during the years
ended March 31, 1999, 2000 and the six months ended September 30, 2000.
In November 1997, the Company effected a two-for-one share split in the
form of a share dividend. In September 1999, the Company effected a five-for-
one share split of the Company's equity shares. All references in the
consolidated financial statements to number of shares and per share amounts of
the Company's equity shares have been retroactively restated to reflect the
increased number of equity shares outstanding resulting due to the share splits.
19. Retained Earnings
The Company's retained earnings as of March 31, 1999 and 2000 and September
30, 1999 and 2000 include restricted retained earnings of Rs. 30,773, Rs.
23,585, Rs. 30,773 and Rs. 24,335 respectively which are not distributable as
dividends under Indian company and tax laws. These relate to requirements
regarding earmarking a part of the retained earnings for redemption of
debentures and to avail specific tax allowances.
Retained earnings as of March 31, 1999 and 2000 and September 30, 1999 and
2000 also include Rs. 261,250, Rs. 532,885, Rs. 282,450 and Rs. 534,298
respectively of undistributed earnings in equity of affiliates.
20. Redeemable Preferred stock
Preferred stock issued by companies incorporated in India carries a
preferential right to be paid on liquidation, and a preferential right to be
repaid over the equity shares. The Company has two series of redeemable
preferred stock as detailed below that are reflected as a liability in the
balance sheets.
Redeemable preferred stock of Wipro. The Company has issued 25,000,000
shares of preferred stock aggregating Rs. 250,000 to a financial institution
bearing a dividend at 10.25% per annum. The preferred stock does not bear a
conversion option and is redeemable at the option of the holder at par value in
December 2000.
Redeemable preferred stock of Wipro Finance. On March 31, 1998, Wipro
Finance issued 2,500,000 shares of preferred stock aggregating Rs. 250,000 to a
financial institution. The preferred stock is convertible to equity shares of
Wipro Finance at a formula price based on the net asset value of Wipro Finance
on the conversion date. Alternatively, the investor has the option to seek
redemption at a determinable price. The Company has accrued for dividends at the
effective yield of 14.4% representing the difference between the par value and
the redemption price. The dividend on the preferred stock has been treated as
interest expense and reported as a component of "loss from operations of
discontinued finance business". As of March 31, 1999, the preferred stock with a
carrying value of Rs. 286,000 has been reported as a component of "net
liabilities of discontinued business".
-20-
<PAGE>
21. Other Expense, Net
Other expense consists of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended Year ended
September 30, September 30, March 31,
-------------------------- -------------------------- ------------
1999 2000 1999 2000 2000
------------ ----------- ------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Interest expense, net of capitalized interest........... Rs. (80,847) Rs. (36,833) Rs. (154,090) Rs. (59,519) Rs. (283,627)
Foreign exchange gain/(loss)............................ 16,147 30,769 43,608 19,214 51,603
Others.................................................. 19,360 50,388 49,789 69,201 76,880
------------ ----------- ------------ ----------- ------------
Total................................................... Rs. (45,340) Rs. 44,324 Rs. (60,693) Rs. 28,896 Rs. (155,144)
============ =========== ============ =========== ============
</TABLE>
Rs. 53,980 and Rs. 10,000 of interest has been capitalized during the years
ended March 31, 2000, and six months ended September 30, 2000 respectively.
22. Income Taxes
Income taxes consist of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended Year ended
September 30, September 30, March 31,
-------------------------- --------------------------- ------------
1999 2000 1999 2000 2000
----------- ----------- ----------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current Taxes
Domestic.............................................. Rs. 15,000 Rs. 129,357 Rs. 15,000 Rs. 179,800 Rs. 167,825
Foreign............................................... 30,540 77,566 53,540 148,099 174,920
----------- ----------- ----------- ------------ ------------
45,540 206,923 68,540 327,899 342,745
----------- ----------- ----------- ------------ ------------
Deferred Taxes
Domestic.............................................. 40,084 - 80,460 - 182,553
----------- ----------- ----------- ------------ ------------
40,084 - 80,460 327,899 182,553
----------- ----------- ----------- ------------ ------------
Total income tax expense................................ Rs. 85,624 Rs. 206,923 Rs. 149,000 Rs. 327,899 Rs. 525,298
=========== =========== =========== ============ ============
</TABLE>
The reported income tax expense differed from amounts computed by applying
the enacted tax rates to income from continuing operations before income taxes
as a result of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended Year ended
September 30, September 30, March 31,
--------------------------- ---------------------------- -------------
1999 2000 1999 2000 2000
----------- ------------ ------------ ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Income from continuing operations before taxes.... 672,775 1,746,889 1,176,284 2,845,229 RS. 3,858,294
Enacted tax rate in India......................... 38.5% 38.5% 38.5% 38.5% 38.5%
----------- ------------ ------------ ------------ -------------
Computed expected tax expense..................... 259,018 672,552 452,869 1,095,413 1,485,443
Effect of:
Income exempt from tax in India.................. (222,948) (534,500) (401,808) (944,154) (1,104,111)
Change in enacted tax rate....................... (17,434) -- (22,385) -- (22,385)
Others........................................... 36,448 (8,660) 66,784 28,541 (8,569)
----------- ------------ ------------ ------------ -------------
Domestic income taxes............................. 55,084 129,392 95,460 179,800 350,378
Effect of tax on foreign income................... 30,540 77,566 53,540 148,099 174,920
----------- ------------ ------------ ------------ -------------
Total income tax expense.......................... Rs. 85,624 Rs. 206,958 Rs. 149,000 Rs. 327,899 Rs. 525,298
=========== ============ ============ ============ =============
</TABLE>
A substantial portion of the profits of the Company's India operations are
exempt from Indian income taxes because they are attributable to export
operations and profits from undertakings located in Software Technology and
Hardware Technology Parks. Under the tax holiday scheme, the taxpayer can
utilize an exemption from income taxes for a period of any ten consecutive
years. The Company has opted for this exemption from the year ended March 31,
1997 for undertakings situated in Software Technology and Hardware Technology
Parks. The aggregate rupee and per share effects of the tax holiday are Rs.
1,104,111 and Rs. 4.85 for the year ended March 31, 2000,
-21-
<PAGE>
Rs. 401,808 and Rs. 1.76 per share for the six months ended September 30, 1999
and Rs. 944,154 and Rs. 4.14 per share for the six months ended September 30,
2000 respectively.
<TABLE>
<CAPTION>
As of March 31, Six months ended September 30,
-------------------------- ------------------------------
1999 2000 1999 2000
------------ ------------ -------------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Deferred tax assets
Allowance for doubtful accounts........... Rs. 151,090 Rs. 37,366 Rs. 113,895 Rs. 37,366
Carry-forward business losses............. 43,264 -- -- --
Carry-forward capital losses.............. 17,921 24,446 17,921 24,446
Transfer of stock of affiliate............ -- 194,261 -- 194,261
Others.................................... 64,002 11,678 64,002 11,678
------------ ------------ -------------- --------------
Total.................................... Rs. 276,277 Rs. 267,751 Rs. 195,818 Rs. 267,751
============ ============ ============== ==============
Deferred tax liabilities
Property, plant and equipment............. Rs. 59,557 Rs. 16,610 Rs. 59,557 Rs. 16,610
Unrealized gain on available for sale 439 500 397 213
securities...............................
Borrowing costs........................... 2,597 864 2,597 864
------------ ------------ -------------- --------------
Total.................................... Rs. 62,593 Rs. 17,974 Rs. 62,551 Rs. 17,687
============ ============ ============== ==============
</TABLE>
Management is of the opinion that the realizability of the deferred tax
assets recognized as of March 31, 1999 and 2000 and September 30, 1999 and 2000
is more likely than not. Management has considered estimated future taxable
income and the impact of tax exemption currently available to the Company, while
analyzing the realizability of the deferred tax asset.
23. Employee Stock Incentive Plans
In fiscal 1985, the Company established a controlled trust called the Wipro
Equity Reward Trust or ("WERT"). Under this plan, the WERT would purchase shares
of Wipro out of funds borrowed from Wipro. The Company's Compensation Committee
would recommend to the WERT, officers and key employees, to whom the WERT will
grant shares from its holding. The shares have been granted at a nominal price.
Such shares would be held by the employees subject to vesting conditions. The
shares held by the WERT are reported as a reduction from stockholders' equity.
392,355, 530,635 and 700,000 shares held by employees as of March 31, 1999, 2000
and September 30, 2000 respectively, subject to vesting conditions are included
in outstanding equity shares.
In February 2000, the WERT sold 54,745 shares to third parties for a
consideration of Rs. 524,475. The gain on the sale aggregating Rs. 524,472, net
of the realized tax impact of Rs. 57,704 has been credited to additional paid-in
capital.
The movement in the shares held by the WERT is given below:
<TABLE>
<CAPTION>
As of March 31, Six months ended September 30,
--------------------- ------------------------------
1999 2000 1999 2000
--------- --------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Shares held at the beginning of the period. 1,943,760 1,409,485 1,409,485 1,216,460
Shares granted to employees................ (558,125) (254,100) -- (2,660)
Sale of Shares by the WERT................. -- (54,745) -- --
Grants forfeited by employees.............. 23,850 115,820 -- 38,435
--------- --------- --------- ---------
Shares held at the end of the period....... 1,409,485 1,216,460 1,409,485 1,252,235
========= ========= ========= =========
</TABLE>
The Company has elected to use the intrinsic value-based method of APB
Opinion No. 25 to account for its employee stock-based compensation plan.
During the years ended March 31, 1999 and 2000,
-22-
<PAGE>
six months ended September 30, 2000, the Company has recorded deferred
compensation of Rs. 168,615, Rs. 150,908 and Rs. 4,373 respectively for the
difference between the grant price and the fair value as determined by quoted
market prices of the equity shares at the grant date. The deferred compensation
is amortized on a straight-line basis over the vesting period of the shares
which ranges from 6 to 60 months. The weighted-average-grant-date fair values of
the shares granted during the years ended March 31, 1999, 2000 and the six
months ended September 30, 2000 are Rs. 360, Rs. 1,028 and Rs. 1,853
respectively. The amortization of deferred stock compensation for the year ended
March 31, 1999 and 2000 and the six months ended September 30, 1999 and 2000 was
Rs. 24,702, Rs. 96,898, Rs. 58,000 and Rs. 46,053 respectively. The stock-based
compensation has been allocated to cost of revenues and selling, general and
administrative expenses as follows:
<TABLE>
<CAPTION>
Six months ended
Year ended March 31, September 30,
------------------------------ ----------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cost of revenues................................ Rs. 16,087 Rs. 36,299 Rs. 22,230 Rs. 16,458
Selling, general and administrative expenses.... 8,615 60,599 36,240 29,596
----------- ----------- ----------- -----------
Total........................................... Rs. 24,702 Rs. 96,898 Rs. 58,470 Rs. 46,054
=========== =========== =========== ===========
</TABLE>
In July 1999, the Company established Wipro Employee Stock Option Plan 1999
(the "1999 Plan"). Under the 1999 Plan, the Company is authorized to issue up to
5 million equity shares of common stock to eligible employees. Employees covered
by the 1999 Plan are granted an option to purchase shares of the Company subject
to the requirements of vesting. The Company has elected to use the intrinsic
value-based method of APB Opinion No. 25 to account for the 1999 Plan. During
the year ended March 31, 2000 and six months ended September 30, 2000 the
Company has not recorded any deferred compensation as the exercise price was
equal to the fair market value of the underlying equity shares on the grant
date.
Stock option activity under the 1999 Plan is as follows:
<TABLE>
<CAPTION>
Year ended March 31, 2000
------------------------------------------------------------------------------
Weighted Weighted-
Range of exercise average exercise average
Shares arising prices and grant price and grant remaining
out of options date fair values date fair values contractual life
--------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the period........ -- -- -- --
Granted during the period......................... 2,558,150 Rs. 1,024 to 2,522 Rs. 1,091 36 months
Forfeited during the period....................... (146,000) 1,086 1,086 39 months
Outstanding at the end of the period.............. 2,412,150 1,024 to 2,522 1,091 36 months
-------------- ------------------ ---------------- -----------------
Exercisable at the end of the period.............. -- Rs. -- Rs. -- -- months
============== ================== ================ =================
</TABLE>
<TABLE>
<CAPTION>
Six months ended September 30, 2000
------------------------------------------------------------------------------
Weighted Weighted-
Range of exercise exercise average average
Shares arising prices and grant price and grant remaining
out of options date fair values date fair values contractual life
--------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the period........ 2,412,150 Rs. 1,024 to 2,522 1,091 36 months
Granted during the period......................... 2,672,000 1,853 to 2,420 1,860 38 months
Forfeited during the period....................... (92,200) 1,086 1,086 33 months
Outstanding at the the end of the period.......... 4,991,950 1,024 to 2,522 1,503 34 months
-------------- ------------------ ---------------- -----------------
Exercisable at the end of the period.............. 231,995 Rs. 1,024 to 1,086 Rs. 1,085 -- months
============== ================== ================ =================
</TABLE>
The Company has adopted the pro forma disclosure provisions of SFAS No.
123. Had compensation cost been determined in a manner consistent with the fair
value approach described in SFAS No. 123, the
-23-
<PAGE>
Company's net income and basic earnings per share as reported would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Six months ended
Year ended March 31, September 30,
------------------------------- ---------------------------------
1999 2000 1999 2000
------------ -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
Net income......................................
As reported.................................. Rs. 889,449 Rs. 3,551,703 Rs. 1,028,237 Rs. 2,517,329
Adjusted pro forma........................... 889,449 3,317,287 1,028,237 2,003,345
Earnings per share: Basic.......................
As reported.................................. 3.91 15.59 4.51 11.05
Adjusted pro forma........................... 3.91 14.56 4.51 8.79
Earnings per share: Diluted.....................
As reported.................................. 3.91 15.54 4.51 10.99
Adjusted pro forma........................... 3.91 14.51 4.51 8.75
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes model with the following assumptions.
<TABLE>
<S> <C>
Dividend yield............................................................................................ 0.03%
Expected life............................................................................................. 42 months
Risk free interest rates.................................................................................. 11.88%
Volatility................................................................................................ 0.80
</TABLE>
24. Earnings per share
A reconciliation of the equity shares used in the computation of basic and
diluted earnings per equity share is set out below
<TABLE>
<CAPTION>
As of March 31, Six months ended September 30,
----------------------------- ------------------------------
1999 2000 1999 2000
------------ ------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Basic earnings per equity share -- weighted average
number of equity shares outstanding.................. 227,479,728 227,843,378 227,746,865 227,922,003
Effect of dilutive equivalent shares-stock options
Outstanding.......................................... -- 804,756 -- 2,133,504
------------ ------------ ------------ ------------
Diluted earnings per equity share -- weighted average
number of equity shares and equivalent shares 227,479,728 228,648,134 227,746,865 230,055,507
outstanding.......................................... ============ ============ ============ ============
</TABLE>
Shares held by the controlled WERT have been reduced from the equity shares
outstanding and shares held by employees subject to vesting conditions have been
included in outstanding equity shares for computing basic and diluted earnings
per share.
25. Employee Benefit Plans
The Company contributed Rs. 121,4277, Rs. 161,723, Rs. 82,627 and Rs.
117,501 to various defined contribution plans during the years ended March 31,
1999 and 2000 and six months ended September 30, 1999 and 2000 respectively.
The following table sets out the funded status of the Gratuity Plan and the
amounts recognized in the Company's financial statements in fiscal 1999 and
2000. The Company adopted the provisions of SFAS
-24-
<PAGE>
No. 87 with effect from April 1, 1998. The impact of adopting SFAS No. 87 on
prior periods was not material.
<TABLE>
<CAPTION>
As of March 31,
-----------------------------------------
1999 2000
------------------ -----------------
<S> <C> <C>
Change in the benefit obligation
Projected Benefit Obligation (PBO) at the beginning of the year. Rs. 44,216 Rs. 52,047
Service cost.................................................... 3,218 4,049
Interest cost................................................... 4,698 5,512
Benefits paid................................................... (5,506) (7,882)
Amortization of unrecognized net loss........................... 5,421 57
----------- -----------
PBO at the end of the year...................................... 52,047 53,783
----------- -----------
Change in plan assets
Fair value of plan assets at the beginning of the year.......... 22,720 22,757
Actual return on plan assets.................................... 2,635 2,494
Employer contributions.......................................... 2,908 7,133
Benefits paid................................................... (5,506) (7,882)
----------- -----------
Plan assets at the end of the year.............................. 22,757 24,502
----------- -----------
Funded status................................................... (29,290) (29,281)
----------- -----------
Unrecognized actuarial loss..................................... 5,129 4,936
Unrecognized transitional obligation............................ 19,622 17,748
Accrued benefit................................................. (4,539) (6,597)
</TABLE>
Net gratuity cost for the years ended March 31, 1999 and 2000 included:
<TABLE>
<CAPTION>
As of March 31,
-----------------------------------------
1999 2000
------------------ -----------------
<S> <C> <C>
Service cost.................................................... Rs. 3,218 Rs. 4,049
Interest cost................................................... 4,698 5,512
Expected return on assets....................................... (2,344) (2,351)
Amortization of transition liabilities.......................... 1,874 1,874
Net gratuity cost............................................... Rs. 7,446 Rs. 9,084
</TABLE>
The actuarial assumptions used in accounting for the Gratuity Plan are :
<TABLE>
<CAPTION>
As of March 31,
-----------------------------------------
1999 2000
------------------ -----------------
<S> <C> <C>
Discount rate................................................... 11 % 11 %
Rate of increase in compensation levels......................... 10 % 10 %
Rate of return on plan assets................................... 10.5% 10.5%
</TABLE>
26. Related Party Transactions
During the years ended March 31, 1999, 2000 and six months ended September
30, 2000, the Company sold goods and provided services in the nature of
administrative and management support for a consideration of Rs. 15,079, Rs.
54,535 and Rs. 0 respectively to Wipro GE and to Wipro Net for computer and
network maintenance support of Rs. 1,386 and to WeP for Rs. 350 for the six
months ended September 30, 2000. The Company paid rental charges of Rs. 1,198,
Rs. 1,198 and Rs. 600 during the years ended March 31, 1999, 2000 and six months
ended September 30, 2000 respectively to Wipro GE for use of
-25-
<PAGE>
office premises. During the year ended March 31, 2000, the Company provided
consultancy services to Wipro Net for a consideration of Rs. 12,186.
In April 1999, the Company entered into a cancellable agreement with the
principal shareholder for lease of residential premises. Rs. 1,200 and Rs. 600
has been paid to the principal shareholder as lease rentals for the year ended
March 31, 2000 and six months ended September 30, 2000.
The Company has the following receivables from related parties, which are
reported as "other assets" in the balance sheet.
<TABLE>
<CAPTION>
Six months ended
As of March 31, September 30,
------------------------
1999 2000 2000
----------- ----------- ------------
(unaudited)
<S> <C> <C> <C>
Wipro GE................................................... Rs. 581 Rs. -- Rs. --
Wipro Net.................................................. -- 12,186 114,868
Wipro ePeripherals......................................... (1,313)
Security deposit given to Hasham Premji, a firm under
common control............................................ 25,000 25,000 25,000
----------- ----------- ------------
Rs. 25,581 Rs. 37,186 Rs. 138,555
=========== =========== ============
</TABLE>
27. Commitments and Contingencies
Capital commitments. As of March 31, 1999, 2000 and September 30, 2000, the
Company had committed to spend approximately Rs. 478,061, Rs. 160,084 and Rs.
230,814 respectively under agreements to purchase property and equipment. This
amount is net of capital advances paid in respect of these purchases.
Guarantees. As of March 31, 1999, 2000 and September 30, 2000 performance
guarantees provided by banks on behalf of the Company to certain Indian
Government and other agencies amount to approximately Rs. 448,938, Rs. 880,557
and Rs. 395,706 respectively as part of the bank line of credit.
Other commitments. The Company's Indian operations have been established as
a Software Technology Park Unit under a plan formulated by the Government of
India. As per the plan, the Company's India operations have export obligations
to the extent of 1.5 times the employee costs for the year on an annual basis
and 1.5 times (increased to 5 times during fiscal 2000) the amount of foreign
exchange released for capital goods imported, over a five year period. The
consequence of not meeting this commitment in the future, would be a retroactive
levy of import duty on certain computer hardware previously imported duty free.
As of six months ended September 30, 2000, the Company has met all commitments
under the plan.
Contingencies. The Company is involved in lawsuits, claims, investigations
and proceedings, including patent and commercial matters, which arise in the
ordinary course of business. There are no such matters pending that Wipro
expects to be material in relation to its business.
28. Segment Information
The Company has adopted SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, which establishes standards for reporting
information about operating segments and related disclosures about products,
geographic information and major customers.
The Company is organized by segments, including Global IT Services, Indian
IT Services and Products, Consumer Care and Lighting and other segments. Each of
the segments has a Vice Chairman /
-26-
<PAGE>
Chief Executive Officer who reports to the Chairman of the Company. The Chairman
of the Company has been identified as the Chief Operating Decision Maker as
defined by SFAS No. 131. The Chairman of the Company evaluates the segments
based on their revenue growth, operating income and return on capital employed.
The accounting policies for the segment are the same as described in the summary
of significant accounting policies and practices except that exchange rate
fluctuations and interest income by lending to the other segments within the
Company is considered as a component of total revenue and operating income for
segment data.
With effect from the quarter ended June 30, 2000 the chief operating
decision maker evaluates revenue growth and operating income of the segments
excluding interest income earned by the segment by lending to other segments
within the company as a component of revenue and operating income of the
segment.
Consequently from the quarter ended June 30, 2000, interest income earned
by lending to other segments within the company is not considered as a component
of revenue and operating income for segment data. The Company has three
reportable segments:
The Global IT Services ("Wipro Technologies") segment provides research and
development services for hardware and software design to technology and
telecommunication companies and software application development services to
corporate enterprises.
The Indian IT Services and Products ("Wipro Infotech") segment focuses
primarily on meeting all the IT and electronic commerce requirements of Indian
companies.
The Consumer Care and Lighting segment manufactures, distributes and sells
soaps, toiletries, lighting products and hydrogenated cooking oils for the
Indian market.
The "Others" segment consists of various business segments that did not
meet the requirements individually for a reportable segment as defined in SFAS
No. 131.
Information on reportable segments is as follows:
<TABLE>
<CAPTION>
Year ended March 31, 1999
--------------------------------------------------------------------------------------------
Indian IT Consumer
Global IT Services Care and Others (net of Reconciling
Services and Products Lighting eliminations) Items Entity Total
------------- ------------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues Rs. 6,359,305 Rs. 7,262,349 Rs. 3,464,806 Rs. 805,649 Rs. -- Rs. 17,892,109
Exchange rate Fluctuations............ 100,629 (30,881) (5,747) -- (64,001) --
Interest income on funding other
segments, net....................... 141,467 -- 36,100 -- (177,567) --
------------- ------------- ------------- ------------- ----------- --------------
Total revenues........................ 6,601,401 7,231,468 3,495,159 805,649 (241,568) 17,892,109
Cost of revenues...................... (4,056,996) (5,358,144) (2,585,403) (581,558) -- (12,582,101)
Selling, general and administrative
expenses............................ (1,076,692) (1,602,839) (503,817) (319,088) -- (3,502,436)
------------- ------------- ------------- ------------- ----------- --------------
Operating income of segment........... Rs. 1,467,713 Rs. 270,485 Rs. 405,939 Rs. (94,997) Rs.(241,568) Rs. 1,807,572
============= ============= ============= ============= =========== ==============
Total assets of segment............... Rs. 5,259,706 Rs. 3,603,224 Rs. 1,240,716 Rs. 597,951 Rs. -- Rs. 10,701,597
Capital employed...................... 3,612,051 1,360,772 714,330 372,665 -- 6,059,818
Return on capital employed............ 41% 20% 57% -- -- --
Accounts receivable................... 1,407,923 1,745,873 140,436 308,652 -- 3,602,884
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
Year ended March 31, 2000
--------------------------------------------------------------------------------------------
Indian IT Consumer
Global IT Services Care and Others (net of Reconciling
Services and Products Lighting eliminations) Items Entity Total
------------- -------------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. Rs.10,206,078 Rs. 8,181,627 Rs. 3,222,316 Rs. 1,380,583 Rs. -- Rs. 22,990,604
Exchange rate fluctuations........... 88,946 (13,923) (2,090) -- (72,933) --
Interest income on funding other --
segments, net..................... 163,500 -- 43,000 -- (206,500)
------------- -------------- ------------- -------------- ----------- --------------
Total revenues....................... 10,458,524 8,167,704 3,263,226 1,380,583 (279,433) 22,990,604
Cost of revenues..................... (6,173,724) (6,183,092) (2,251,238) (1,070,031) -- (15,678,085)
Selling, general and administrative
expenses.......................... (1,391,265) (1,549,302) (533,023) (346,564) -- (3,820,154)
------------- -------------- ------------- -------------- ----------- --------------
Operating income of segment.......... Rs. 2,893,535 Rs. 435,310 Rs. 478,965 Rs. (36,012) Rs.(279,433) Rs. 3,492,365
============== ============= ============= ============== =========== ==============
Total assets of segment.............. Rs. 5,116,501 Rs. 3,788,784 Rs. 1,282,676 Rs. 2,490,392 Rs. -- Rs. 12,678,353
Capital employed..................... 2,711,042 1,474,491 678,549 3,569,708 -- 8,433,790
Return on capital employed........... 107% 30% 71% -- -- --
Accounts receivable.................. 2,163,931 1,743,789 133,889 389,751 -- 4,431,360
</TABLE>
<TABLE>
<CAPTION>
Six months ended September 30, 1999 (Unaudited)
--------------------------------------------------------------------------------------------
Indian IT Consumer
Global IT Services Care and Others (net of Reconciling
Services and Products Lighting eliminations) Items Entity Total
------------- -------------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. Rs. 4,592,827 Rs. 3,476,886 Rs. 1,520,297 Rs. 431,687 Rs. -- Rs. 10,021,696
Exchange rate fluctuations........... 138,000 -- 18,000 (156,000) --
------------- -------------- ------------- -------------- ----------- --------------
Total revenues....................... 4,730,827 3,476,886 1,538,297 431,687 -- 10,021,696
Cost of revenues..................... (3,166,077) (2,518,614) (1,159,963) (362,317) -- (7,206,971)
Selling, general and administrative
expenses.......................... (468,514) (810,273) (172,333) (152,788) -- (1,603,908)
------------- -------------- ------------- -------------- ----------- --------------
Operating income of segment.......... Rs. 1,096,235 Rs. 147,999 Rs. 206,001 Rs. (83,417) Rs.(156,000) Rs. 1,210,818
============= ============== ============= ============== =========== ==============
Total assets of segment.............. Rs. 5,661,879 Rs. 3,197,827 Rs. 1,212,082 Rs. 1,212,144 Rs. -- Rs. 11,283,932
Capital employed..................... 4,802,079 1,167,889 878,468 399,652 -- 7,248,088
Return on capital employed........... 46% 25% 47% -- -- 33%
Accounts receivable.................. 1,816,117 1,579,417 119,643 329,677 -- 3,844,854
</TABLE>
<TABLE>
<CAPTION>
Six months Ended September 30, 2000 (Unaudited)
--------------------------------------------------------------------------------------------
Indian IT Consumer
Global IT Services Care and Others (net of Reconciling
Services and Products Lighting eliminations) Items Entity Total
------------- -------------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. Rs. 7,754,562 Rs. 4,148,939 Rs. 1,571,684 Rs. 534,922 Rs. -- Rs. 14,010,107
Exchange rate fluctuations........... 58,990 -- -- -- (58,990) --
------------- -------------- ------------- -------------- ----------- --------------
Total revenues....................... 7,813,552 4,148,939 1,571,684 534,922 (58,990) 14,010,107
Cost of revenues..................... (4,139,181) (3,023,476) (1,099,529) (400,401) -- (8,662,587)
Selling, general and administrative
expenses.......................... (1,156,338) (882,383) (315,927) (185,462) -- (2,540,110)
------------- -------------- ------------- -------------- ----------- --------------
Operating income of segment.......... Rs. 2,518,033 Rs. 243,080 Rs. 156,228 Rs. (50,941) Rs. (58,990) Rs. 2,807,410
============= ============== ============= ============== =========== ==============
Total assets of segment.............. Rs. 7,025,502 Rs. 2,594,928 Rs. 1,084,420 Rs. 4,709,706 Rs. -- Rs. 15,414,557
Capital employed..................... 5,786,393 443,918 668,658 4,205,386 -- 11,104,355
Return on capital employed........... 87% 110% 45% -- -- 50%
Accounts receivable.................. 3,009,045 1,452,154 130,301 373,362 -- 4,964,862
</TABLE>
The Company has three geographic segments: India, United States, and Rest
of the world. Revenues from the geographic segments based on domicile of
customer is as follows:
Six months
ended
Year ended March 31, September 30,
------------------------------------------------
1999 2000 2000
--------------- --------------- --------------
(Unaudited)
India.................. Rs. 11,352,121 Rs. 12,407,632 Rs. 6,092,581
United States.......... 4,271,577 6,522,166 4,563,802
Rest of the world...... 2,268,411 4,060,806 3,353,724
--------------- --------------- --------------
Total................. Rs. 17,892,109 Rs. 22,990,604 Rs. 14,010,107
=============== =============== ==============
-28-
<PAGE>
29. Fair Value of Financial Instruments
The fair value of the Company's current assets and current liabilities
approximate their carrying values because of their short-term maturity. Such
financial instruments are classified as current and are expected to be
liquidated within the next twelve months. The fair value of held to maturity
investment securities and long term debt approximates their carrying value as
the interest rates reflect prevailing market rates.
30. Year 2000
To date, the Company has not encountered any material Year 2000 issues
concerning its respective computer programs. The Company's plan for the Year
2000 included replacing or updating existing systems which were not Year 2000
compliant, assessing the Year 2000 preparedness of customers and counter-parties
and formulating a contingency plan to ensure business continuity in the event of
unforeseen circumstances. All costs associated with carrying out the Company's
plan for the Year 2000 problem have been expensed as incurred.
Item 2. Management Discussion and Analysis of Financial Conditions and Results
of Operations
Overview
We are a leading India based provider of IT services globally. We provide
high-end IT solutions to leading companies worldwide and have other profitable
businesses in niche markets in India. Our objective is to be a world leader in
providing comprehensive IT services by continuing to provide world-class quality
services and building on the Wipro brand name. We have three primary business
segments we operate through independent divisions.
. Global IT Services. We provide research and development services for
hardware and software design to technology and telecommunication companies and
software application development services to corporate enterprises. These
services are marketed and delivered through our Wipro Technologies division.
. Indian IT Services and Products. We are a leader in the Indian IT
market and focus primarily on meeting all the IT and e-commerce requirements of
Indian companies through our Wipro Infotech division.
. Consumer Care and Lighting. We leverage our brand name and
distribution strengths to sustain a profitable presence in niche markets in the
areas of soaps, toiletries, lighting products and hydrogenated cooking oils for
the Indian market. We have been in the consumer care business since our
inception in 1945 and the lighting business since 1992.
Up to March 31, 2000, we evaluated our revenue and operating income for
each business segment by including the impact of exchange rate fluctuations and
net interest income received on inter-business segment loans. As of April 1,
2000 we started excluding net interest income received on inter-business segment
loans in evaluating revenue and operating income from each business segment.
This change has been made to comply with the draft guidelines on segment
reporting which all listed companies in India are likely to be required to adopt
starting from the year ended March 31, 2001. A breakdown of our revenue and
operating income is provided below:
-29-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------- ---------------------
1999 2000 1999 2000
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Global IT Services............................................. 45% 54% 46% 55%
Indian IT Services and Products................................ 37% 32% 34% 30%
Consumer Care and Lighting..................................... 13% 10% 15% 11%
Other.......................................................... 5% 4% 4% 4%
---- ---- ---- ----
100% 100% 100% 100%
Operating Income:
Global IT Services............................................. 70% 84% 80% 88%
Indian IT Services and Products................................ 18% 11% 11% 9%
Consumer Care and Lighting..................................... 15% 4% 15% 5%
Others......................................................... (3%) 1% (6%) (2%)
---- ---- ---- ----
100% 100% 100% 100%
</TABLE>
The Others category in the table above includes our other lines of business
such as Wipro Fluid Power, and unallocated corporate overhead including human
resources, corporate marketing, information management systems, quality
assurance and finance.
<TABLE>
<CAPTION>
Global IT Services
------------------------------------------
Three Months Ended Six Months Ended
September 30, September 30,
--------------------- -------------------
1999 2000 1999 2000
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenue......................................................... 2,639 4,209 4,731 7,807
Cost of Revenue................................................. 1,870 2,230 3,166 4,139
Selling, general and administrative expenses.................... 227 529 469 1,150
Operating Income................................................ 542 1,450 1,096 2,518
Revenue growth rate over prior period........................... -- 59% -- 65%
Operating margin................................................ 21% 34% 23% 32%
</TABLE>
Global IT Services revenue is derived from technology and software services
provided on either a time and materials or fixed-price, fixed-time frame basis.
Our business segment revenue also includes the impact of exchange rate
fluctuations and net interest income received on inter-business segment loans.
Revenue from services provided on a time and materials basis is recognized in
the period that services are provided and costs incurred. Revenue from fixed-
price, fixed-time frame projects is recognized on a percentage of completion
basis. Provisions for estimated losses on projects in progress are recorded in
the period in which we determine such losses to be probable. To date, a
substantial majority of our services revenue has been derived from time and
materials projects. For the three months ended September 30, 2000, time and
materials projects generated 87% of Global IT Services revenue, while fixed-
price, fixed-time frame projects generated 13%. The proportion of revenue from
fixed- price, fixed-time frame projects may increase. Our operating results
could be adversely affected by factors such as cost overruns due to delays,
unanticipated costs, and wage inflation.
The cost of Global IT Services revenue consists primarily of compensation
expenses for all of our IT professionals, data communication expenses, computer
maintenance, travel expenses and occupancy expenses associated with services
rendered. We recognize these costs as incurred. Selling, general and
administrative expenses consist primarily of sales and marketing expenses and
allocated corporate overhead expenses associated with management, human
resources, corporate marketing, information management systems, quality
assurance and finance.
-30-
<PAGE>
Our Global IT Services revenues and profits for any period are
significantly affected by the proportion of work performed at our facilities in
India and at client sites overseas and by the utilization rates of our IT
professionals. Services performed in India generally yield better profit
margins because the higher costs of performing overseas work more than offset
the higher rates we charge. For this reason, we seek to move a project as early
as possible from overseas locations to our Indian development centers. For the
three months ended September 30, 2000, 76% of our Global IT Services
professionals were located in India, and 49% of our Global IT Services revenues
were generated from work performed at our facilities in India.
In our segment reporting only, management included the impact of exchange
rate fluctuations and net interest income on inter-business segment loans in its
revenue till the fiscal year ended March 31, 2000. As of April 1, 2000
management started excluding net interest income received on inter- business
segment loans in segment revenues to allow us to comply with accounting
guidelines in India that all listed companies in India are likely to be required
to adopt starting from the year ended March 31, 2001. Excluding the impact of
these items, net revenue would have been Rs. 2,580 million and Rs. 4,157 million
for the three months ended September 1999 and 2000 respectively. Rs. 4,593
million and Rs. 7,755 million for the six months ended September 30, 1999 and
2000 respectively.
<TABLE>
<CAPTION>
Indian IT Services and Products
----------------------------------------------------
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- ----------------------
1999 2000 1999 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Indian IT Services............................................. Rs. 353 Rs. 468 Rs. 652 Rs. 852
Indian IT Products............................................. Rs. 1,841 Rs. 2,026 Rs. 2,825 Rs 3,304
Cost of Revenue
Indian IT Services............................................. 159 191 278 343
Indian IT Products............................................. 1,386 1,617 2,241 2,681
Selling, general and administrative expenses.................... 504 501 810 889
Operating income................................................ 145 185 148 243
Revenue growth rate over prior period........................... -- 14% -- 20%
Operating margin................................................ 7% 7% 4% 6%
</TABLE>
Our Indian IT services revenue is derived principally from hardware and
software support, maintenance and consulting services. Our business segment
revenue also includes the impact of exchange rate fluctuations and net interest
income received on inter-business segment loans. We recognize revenue from
these services over the contract period or when the services are accepted by the
client, depending on the contract terms. We recognize revenue for Indian IT
products at the time of shipment or upon installation, depending on the contract
terms.
On July 27, 2000, at our Annual General Meeting, our shareholders approved
the sale of our peripherals business unit, which is engaged in the manufacture
of printers, and the distribution of printers, storage devices, consumables and
other peripherals. Effective as of September 1, 2000, all assets and
liabilities of our peripherals division were transferred to a new entity, Wipro
ePeripherals Limited, at fair market value for cash, unsecured debentures, and
an equity interest in Wipro ePeripherals Limited.
The cost of revenue for Indian IT services consists primarily of
compensation expense and replacement parts for our maintenance services. We
recognize these costs as incurred. The cost of revenue for Indian IT products
consists of manufacturing costs for products, including materials, labor and
facilities. In addition, a portion of the costs reflects products manufactured
by third parties and sold by us. We generally recognize these costs at the time
of sale. Selling, general and administrative expenses for our Indian IT Services
and Products business segment are similar in type to those for our Global IT
Services business segment.
-31-
<PAGE>
Historically, our Indian IT products revenue has accounted for a
substantial majority of revenue and a much smaller portion of operating income
of our Indian IT Services and Products business segment. Our strategy in the IT
market in India is to improve our profitability by focusing on IT services,
including systems integration, support services, software and networking
solutions, and Internet and e-commerce applications.
In our segment reporting only, management included the impact of exchange
rate fluctuations and net interest income on inter-segment business loans in its
revenue. Since April 1, 2000, we have pro-actively begun excluding net interest
income received on inter-business segment loans in segment revenues to allow us
to comply with accounting guidelines in India that all listed companies in India
are likely to be required to adopt beginning with the year ending March 31,
2001. Excluding the impact of these items, revenue would have been Rs. 2,194
and Rs. 2,494 million for the three months ended September 30, 1999 and 2000
respectively. Rs. 3,477 and Rs. 4,149 million for the six months ended
September 30, 1999 and 2000 respectively.
<TABLE>
<CAPTION>
Consumer Care and Lighting
----------------------------------------------------
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- ----------------------
1999 2000 1999 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue......................................................... Rs. 781 Rs. 813 Rs. 1,538 Rs. 1,571
Cost of Revenue................................................. 580 580 1,160 1,100
Selling, general and administrative expenses.................... 86 162 172 315
Operating income................................................ 115 71 206 156
Revenue growth rate over prior period........................... -- 4% -- 2%
Operating margin................................................ 15% 9% 14% 10%
</TABLE>
We have been in the consumer care business since 1945 and the lighting
business since 1992. The consumer care business has historically generated
surplus cash. Our strategy is to maintain a steady growth in operating income
for these businesses. Revenue in this segment may fluctuate as commodity prices
change and as we emphasize profitability and cash generation over volume sales.
We recognize revenue from product sales at the time of shipment. Cost of
products consists primarily of raw materials and other manufacturing expenses
such as overheads for facilities. Selling, general and administrative expenses
are similar in type to those for our other business segments.
In our segment reporting only, management included the impact of exchange
rate fluctuations and net interest income on inter-segment business loans in its
revenue. As of April 1, 2000, we have pro-actively begun excluding net interest
income received on inter-business segment loans in segment revenues to allow us
to comply with accounting guidelines in India that all listed companies in India
are likely to be required to adopt beginning with the year ended March 31, 2001.
Excluding the impact of these items, revenue would have been Rs. 770 million and
Rs. 813 million for the three months ended September 30, 1999 and 2000
respectively. Rs. 1,520 and Rs. 1,571 million for the six months ended
September 30, 1999 and 2000 respectively.
Amortization of Deferred Stock Compensation
We have amortized deferred stock compensation expense of Rs. 97 million,
Rs. 29 million, Rs. 58 million, Rs. 17 million, Rs. 46 million for the year
ended March 31, 2000, three months and six months ended September 1999 and 2000
respectively, in connection with equity shares issued to our employees pursuant
to our Wipro Equity Reward Trust. We use the intrinsic value based method of
APB Opinion No. 25 and record deferred stock compensation expense for the
difference between the sale price of equity shares and the fair
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<PAGE>
value as determined by quoted market prices of our equity shares on the date of
grant. The deferred stock compensation is amortized on an straight-line basis
over the vesting period of the equity shares, which ranges from six months to
five years.
The stock compensation charge has been allocated to cost of revenues and
selling, general and administrative expenses in line with the nature of the
service rendered by the employee who received the benefit. The amortization is:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------ ----------------------
1999 2000 1999 2000
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cost of revenues................................................ Rs. 11 Rs. 5 Rs. 22 Rs. 16
Selling, general and administrative expenses.................... 18 12 36 30
---------- --------- --------- ---------
Total.......................................................... Rs. 29 Rs. 17 Rs. 58 Rs. 46
</TABLE>
Other Expense (Net)
Our other expense includes net interest expense on short and long-term
debt, and exchange rate fluctuations. Exchange rate fluctuations consist of the
difference between the rate of exchange at which a transaction is recorded and
the rate of exchange on the date the transaction is settled, and the gains and
losses on revaluation of foreign currency assets and liabilities outstanding at
the end of a period.
Equity in Earnings of Affiliate
We hold a 49% equity interest in Wipro GE Medical Systems Limited, a joint
venture with General Electric, and a 55% equity interest in Wipro Net Ltd., a
joint venture with KPN Telecom. On September 1, 2000, we spun off our
peripherals services division into a new legal entity Wipro ePeripherals Ltd.
(WeP). WeP has equity participation from certain strategic investors and
employees of Wipro. Our share in income of WeP is accrued in proportion to our
equity interest of 39%. In December 1999, we decreased our interest in Wipro
Net Ltd. from 100% to 55%. Historically, the results of operations of Wipro Net
Ltd. have not been material in relation to our consolidated financial
statements. Consequently, the decrease in our interest in Wipro Net Ltd. has
not significantly impacted our revenues and operating income for the three
months ended September 30, 2000.
Minority Interest
We held a 55% equity interest in Wipro Computers Limited, a joint venture
with Acer. The share of income from this venture attributable to Acer has been
recorded in our accounts as a minority interest. We purchased Acer's 45% equity
interest in Wipro Computers Limited in the year ended March 31, 2000.
Gain/Loss on Sale of Stock of Affiliates
Pursuant to a joint venture agreement in the year ended March 31, 2000, our
affiliate, Wipro Net Ltd., issued equity shares to KPN Telecom which increased
the carrying value of our equity interest by Rs. 266 million. Further, we sold
equity shares of Wipro Net Ltd. that we held to KPN Telecom for a gain of Rs.
146 million.
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<PAGE>
Income Taxes
Our net income earned from providing services in client premises outside
India are subject to tax in the country where we perform the work. Most of our
tax paid in countries other than India can be applied as a credit against our
Indian tax liability to the extent that the same income is subject to tax in
India.
Currently, we benefit from tax holidays the Government of India gives to
the export of information technology services from specially designated
"Software Technology Parks" in India. As a result of these incentives, our
operations have been subject to relatively insignificant Indian tax liabilities.
These tax incentives currently include a 10-year tax holiday from payment of
Indian corporate income taxes for the operation of our Indian facilities, all of
which are "Export Oriented Undertakings" or located in "Software Technology
Parks" or "Export Processing Zones;" and an income tax deduction of 100% for
profits derived from exporting information technology services. We can use
either of these two tax incentives. As a result, a substantial portion of our
pre-tax income has not been subject to significant tax in recent years. For the
year ended March 31, 2000, three months and six months ended September 30, 2000
we realized tax benefits of Rs. 1,104 million, Rs. 535 million and Rs. 944
million from such tax incentives.
The recently enacted Finance Act, 2000 phases out the 10-year tax holiday
over a ten year period from fiscal 1999-2000 to fiscal 2008-2009. Accordingly,
facilities set up on or before March 31, 2000 have a 10-year tax holiday, new
facilities set up on or before March 31, 2001 would have a 9-year tax holiday
and so forth until March 31, 2009, after which the tax holiday will no longer be
available to new facilities. Our current tax holidays expire in stages by 2009.
In addition, the recently enacted law restricts the scope of the tax
exemption to export income earned by software development centers that are
"Export Oriented Undertakings" or located in "Software Technology Parks" or
"Export Processing Zones" as compared to the earlier exemption which was
available to the business profits earned by them. For companies opting for the
100% tax deduction for profits derived from exporting information technology
services, the Finance Act, 2000 phases out the income tax deduction over the
next five years by decreasing the tax deduction by 20% each year, beginning on
April 1, 2000.
Results of Operations
Three months ended September 30, 1999 and 2000
Revenue. Our total revenue increased 33% from Rs. 5,815 million for the
three months ended September 30, 1999, to Rs. 7,747 million for the three months
ended September 30, 2000. The total increase in revenue was attributable to
increases of 82%, 15%, 2% and 1% in revenue from Global IT Services, Indian IT
Services and Products, Consumer Care and Lighting and Others.
Global IT Services revenue increased 61% from Rs. 2,580 million for the
three ended September 30, 1999, to Rs. 4,157 million for the three months ended
September 30, 2000. The increase resulted from growth in e-commerce services,
which accounted for 30% of the revenues of our enterprise solutions division in
the three ended September 30, 2000, up from 12% in the three months ended
September 30, 1999. Over 33 new clients were added in the three months ended
September 30, 2000, accounting for 6% of our Global IT Services revenue for the
quarter.
Indian IT Services and Products revenue increased 14%, from Rs. 2,194
million for the three months ended September 30, 1999, to Rs. 2,494 million for
the three months ended September 30, 2000. The increase primarily resulted from
33% growth in service revenues.
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<PAGE>
Consumer Care and Lighting revenues increased 6%, from Rs. 770 million in
the three months ended September 30, 1999, to Rs. 813 million in the three
months ended September 30, 2000. A reduction in sales of hydrogenated oil
products by 45% was offset by an increase in sales of soaps by 19% and lighting
products by 23%.
Revenue from Others increased marginally from Rs. 271 million for the three
months ended September 30, 1999, to Rs. 283 million for the three months ended
September 30, 2000.
Cost of revenue. As a percentage of total revenue, cost of revenue
decreased from 72% for the three months ended September 30, 1999, to 62% for the
three months ended September 30, 2000. This decrease was primarily attributable
to an increase in the proportion of Global IT Services revenue from 44% of total
revenues for the three months ended September 30, 1999, to 54% of total revenues
for the three months ended September 30, 2000. Our Global IT Services business
segment typically has a higher gross margin than our other lines of business.
As a percentage of Global IT Services revenue, cost of Global IT Services
revenue decreased from 72% for the three months ended September 30, 1999, to 54%
for the three months ended September 30, 2000. This decrease as a percentage of
revenue resulted from increased billing rates and increased IT professional
utilization rates. Billing rates increased on average by over 12% during the
three months ended September 30, 2000, compared to billing rates during the
three months ended September 30, 1999. Utilization rates of our IT professionals
increased by 3% during the three months ended September 30, 2000, over
utilization rates during the three months ended September 30, 1999.
As a percentage of Indian IT Products revenue, cost of Indian IT Products
revenue remained at 70%.
As a percentage of Consumer Care and Lighting revenue, cost of Consumer
Care and Lighting revenue decreased from 75% for the three months ended
September 30, 1999, to 71% for the three months ended September 30, 2000. Most
of the decrease as a percentage of revenues resulted from an increase in the
proportion of revenue from soaps and lighting products, which typically has a
higher gross margin than hydrogenated oils.
As a percentage of revenue from Others, cost of revenue from Others
decreased from 76% for the three months ended September 30, 1999, to 73% for the
three months ended September 30, 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 38% from Rs. 906 million for the three months
ended September 30, 1999, to Rs. 1,246 million for the three months ended
September 30, 2000. The total increase in selling, general and administrative
expense of Rs. 340 million in the three months ended September 30, 2000, was
attributable to an increase of Rs. 302 million in Global IT Services, a decrease
of Rs. 3 million in Indian IT Services and Products, an increase of Rs. 81
million in Consumer Care and Lighting and a decrease of Rs. 31 million in Others
for the three months ended September 30, 2000.
Selling, general and administrative expenses for Global IT Services
increased 133%, from Rs. 227 million and for the three months ended September
30, 1999, to Rs. 529 million for the three months ended September 30, 2000. The
increase resulted primarily from an increase in sales personnel, resulting in
increased staff and travel costs and other sales related expenses.
Selling, general and administrative expenses for Indian IT Services and
Products have remained at approximately Rs. 500 million for the three months
ended September 30, 2000.
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<PAGE>
Selling, general and administrative expenses for Consumer Care and Lighting
increased 101%, from Rs. 86 million for the three months ended September 30,
1999, to Rs. 162 million for the three months ended September 30, 2000. This
increase resulted from staff salary increases and an increase of Rs. 37 million
in advertising and sales promotion expenses.
Selling, general and administrative expenses for Others decreased 35%, from
Rs. 89 million for the three months ended September 30, 1999, to Rs. 54 million
for the three months ended September 30, 2000.
Operating income. As a result of the foregoing factors, operating income
increased 137%, from Rs. 707 million for the three months ended September 30,
1999, to Rs. 1,675 million for the three months ended September 30, 2000.
Other expense (net). Other expense (net) was Rs. 43 million for the three
months ended September 30, 2000, and Rs. 45 million for the three months ended
September 30, 1999.
Income taxes. Provision for income taxes increased from Rs. 86 million for
the three months ended September 30, 1999, to Rs. 205 million for the three
months ended September 30, 2000. Our effective tax rate decreased to 12 % for
the three months ended September 30, 2000, from 13% for the three months ended
September 30, 1999. The decrease resulted from an increase in the proportion of
tax-exempt income.
Income from continuing operations. Income from continuing operations
increased 162% from Rs. 587 million for the three months ended September 30,
1999, to Rs. 1,540 million for the three months ended September 30, 2000.
Six months ended September 30, 1999 and 2000
Revenue. Our total revenue increased 40%, from Rs. 10,022 million for the
six months ended September 30, 1999, to Rs. 14,010 million for the six months
ended September 30, 2000. The total increase in revenue was attributable to
increases of 79%, 17%, 1% and 3% in revenue from Global IT Services, Indian IT
Services and Products, Consumer Care and Lighting and Others.
Global IT Services revenue increased 69%, from Rs. 4,593 million for the
six months ended September 30, 1999, to Rs. 7,755 million for the six months
ended September 30, 2000. The increase resulted from growth in e-commerce
services, which accounted for 29% of the revenues of our enterprise solutions
division for the six months ended September 30, 2000, up from 11% for the six
months ended September 30, 1999. Over 56 new clients were added in the six
months ended September 30, 2000, accounting for 4% of our Global IT Services
revenue for the same period.
Indian IT Services and Products revenue increased 19%, from Rs. 3,477
million for the six months ended September 30, 1999, to Rs. 4,149 million for
the six months ended September 30, 2000. The increase primarily resulted from a
31% growth in service revenues.
Consumer Care and Lighting revenues increased 3%, from Rs. 1,520 million in
the six months ended September 30, 1999, to Rs. 1,571 million in the six months
ended September 30, 2000. A reduction in sales of hydrogenated oil products by
49% was offset by an 18% increase in sales of soaps and a 36% increase in sales
of lighting products.
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<PAGE>
Revenue from Others increased 24%, from Rs. 432 million for the six months
ended September 30, 1999, to Rs. 535 million for the six months ended September
30, 2000. The increase resulted primarily from an increase in sales in our Wipro
Fluid Power business from Rs. 286 million for the six months ended September 30,
1999 to Rs. 333 million for the six months ended September 30, 2000.
Cost of revenue. As a percentage of total revenue, cost of revenue
decreased from 72% for the six months ended September 30, 1999, to 62% for the
six months ended September 30, 2000. This decrease was primarily attributable to
an increase in the proportion of Global IT Services revenue from 46% of total
revenues for the six months ended September 30, 1999, to 55% of total revenues
for the six months ended September 30, 2000. Our Global IT Services business
segment typically has a higher gross margin than our other lines of business.
As a percentage of Global IT Services revenue, cost of Global IT Services
revenue decreased from 69% for the six months ended September 30, 1999, to 53%
for the six months ended September 30, 2000. This decrease as a percentage of
revenue resulted from increased billing rates and increased IT professional
utilization rates. Billing rates increased on average by over 11% during the six
months ended September 30, 2000, compared to billing rates during the six months
ended September 30, 1999. Utilization rates of our IT professionals increased by
4% during the six months ended September 30, 2000, over utilization rates during
the six months ended September 30, 1999.
As a percentage of Indian IT Products revenue, cost of Indian IT Products
revenue remained at 72%.
As a percentage of Consumer Care and Lighting revenue, cost of Consumer
Care and Lighting revenue decreased from 76% for the six months ended September
30, 1999, to 70% for the six months ended September 30, 2000. Most of the
decrease as a percentage of revenues resulted from an increase in the proportion
of revenue from soaps and lighting products, which typically has a higher gross
margin than hydrogenated oils.
As a percentage of revenue from Others, cost of revenue from Others
decreased from 84% for the six months ended September 30, 1999, to 75% for the
six months ended September 30, 2000. The decrease is primarily due to the fact
that Wipro Net, which had been consolidated as part of Others, is now accounted
for under equity method.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 58% from Rs. 1,604 million for the six months
ended September 30, 1999, to Rs. 2,540 million for the six months ended
September 30, 2000. The total increase in selling, general and administrative
expense of Rs. 936 million in the six months ended September 30, 2000, was
attributable to increase of Rs. 681 million , Rs. 79 million , Rs. 143 million,
and Rs. 33 million in Global IT Services, Indian IT Services and Products and
Consumer Care and Lighting and Others in the six months ended September 30,
2000.
Selling, general and administrative expenses for Global IT Services
increased 145% , from Rs. 469 million and for the six months ended September 30,
1999, to Rs. 1,150 million for the six months ended September 30, 2000. The
increase resulted primarily from an increase in sales personnel, and the
corresponding increases in staff and travel costs and other sales related
expenses.
Selling, general and administrative expenses for Indian IT Services and
Products have increased 10% from Rs. 810 million for the six months ended
September 30, 1999 to Rs 889 million for the six months ended September 30,
2000. Higher composition of service revenue and ramp up in sales leveraging on
existing distribution network contributed to the containment of selling general
and administrative expenses over the six months ended September 30, 2000.
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<PAGE>
Selling, general and administrative expenses for Consumer Care and Lighting
increased 83%, from Rs. 172 million for the six months ended September 30, 1999,
to Rs. 315 million for the six months ended September 30, 2000. This increase
resulted from staff cost increases and an increase of Rs. 61 million in
advertising and sales promotion expenses.
Selling, general and administrative expenses for Others increased 22 % ,
from Rs. 153 million for the six months ended September 30, 1999, to Rs. 186
million for the six months ended September 30, 2000. The increase resulted
primarily from increased sales and marketing expenses associated with a 17%
increase in revenue in our fluid power business for the six months ended
September 30, 2000 and higher costs of corporate services.
Operating income. As a result of the foregoing factors, operating income
increased 132%, from Rs. 1,211 million for the six months ended September 30,
1999, to Rs. 2,807 million for the six months ended September 30, 2000.
Other expense (net). Other expense (net) was Rs. 29 million for the six
months ended September 30, 2000, and Rs. 61 million for the six months ended
September 30, 1999.
Income taxes. Provision for income taxes increased from Rs. 149 million for
the six months ended September 30, 1999, to Rs. 328 million for the six months
ended September 30, 2000. Our effective tax rate decreased to 12% for the six
months ended September 30, 2000, from 13% for the six months ended September 30,
1999. The decrease resulted from an increase in the proportion of tax-exempt
income.
Income from continuing operations. Income from continuing operations
increased 145% from Rs. 1,028 million for the six months ended September 30,
1999, to Rs. 2,517 million for the six months ended September 30, 2000. This
increase resulted from the foregoing factors.
Liquidity and Capital Resources
Our capital requirements relate primarily to financing the growth of our
Global IT Services and Indian IT Services and Products businesses. We have
historically financed the majority of our working capital, capital expenditure
and other requirements through our operating cash flow, and to a limited extent,
bank loans.
For the year ended March 31, 2000, and six months ended September 30, 2000,
we generated cash from operations of Rs. 3,481 million, and Rs. 2,612 million.
The increase is attributable to a significant increase in operating income. For
the year ended March 31, 2000, and the six months ended September 30, 2000,
capital expenditure was Rs. 1,318 million, Rs. 1,068 million, respectively. This
expenditure was financed primarily through our operating cash flow.
We expect that our primary financing requirements in the future will be
capital expenditures and working capital requirements in connection with growing
our business. We believe that cash generated from operations, along with the net
proceeds of our initial U.S. public offering of 2,750,000 American Depositary
Shares representing 2,750,000 Equity Shares on October 19, 2000, will be
sufficient to satisfy our currently foreseeable working capital and capital
expenditure requirements. However, our liquidity and capital requirements are
affected by many factors, some of which are based on the normal ongoing
operations of our businesses and some of which arise from uncertainties related
to global economies and the sectors that we target for our services. In the
future, we may require or choose to obtain additional debt or equity financing.
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<PAGE>
We cannot be certain that additional financing, if needed, will be available on
favorable terms. We routinely review potential acquisitions, however we have no
agreements to enter into any material acquisition as of the date of this report.
Quantitative and Qualitative Disclosures About Market Risk
General
Market risk is the risk of loss of future earnings, to fair values or to
future cash flows that may result from a change in the price of a financial
instrument. The value of a financial instrument may change as a result of
changes in the interest rates, foreign currency exchange rates, commodity
prices, equity prices and other market changes that affect market risk sensitive
instruments. Market risk is attributable to all market risk sensitive financial
instruments including foreign currency receivables and payables and long term
debt.
Our exposure to market risk is a function of our borrowing activities and
our revenue generating activities in foreign currency. The objective of market
risk management is to avoid excessive exposure of our earnings and equity to
loss. Most of our exposure to market risk arises out of our foreign currency
account receivables.
Risk Management Procedures
We manage market risk through a corporate treasury department, which
evaluates and exercises independent control over the entire process of market
risk management. Our corporate treasury department recommends risk management
objectives and policies which are approved by senior management. The activities
of this department include borrowing strategies, implementing hedging strategies
for foreign currency exposures, management of cash resources and ensuring
compliance with market risk limits and policies on a daily basis.
Components of Market Risk
Our exposure to market risk arises principally from exchange rate risk.
Interest rate risk is the other component of our market risk. These factors are
discussed in the following paragraphs.
Exchange rate risk. Our exchange rate risk primarily arises from our
foreign currency revenues, receivables and payables, and foreign currency debt.
We evaluate our net exchange rate exposure arising from these transactions and
hedge such exposure based on approved risk management policies. These policies
require us to hedge a significant portion of our net exposure. Our net exchange
rate exposure as of March 31, 1999 and 2000, and as of September 30, 2000, was
$2.6 million, $6.9 million and $54.9 million. We hedge our exchange rate
exposure through foreign currency forward exchange contracts which typically
mature between one through six months. The counterparties for our exchange
contracts are banks, and we consider the risk of non-performance by the
counterparties as non-material.
Due to our hedging policies, we estimate that changes in exchange rates
will not have a material impact on our operating results or cash flows.
Interest rate risk. Our interest rate risk primarily arises from our long
term debt. We adopt appropriate borrowing strategies to manage our interest rate
risk. Additionally, we enter into interest rate swap agreements to hedge
interest rate risk.
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<PAGE>
As of September 30, 2000 fixed-interest rate debt represented 75% of long
term debt. The interest rate on balance debt is re-set periodically based on
benchmark rates. A maturity profile of our debt is set forth below:
<TABLE>
<CAPTION>
Fixed Variable
Maturing in: interest-rate interest-rate Total
--------------- ---------------- -----------
(in millions)
<S> <C> <C> <C>
2001....................................... Rs. 1,100 Rs. 223 Rs. 1,323
2002....................................... -- 91 91
2003....................................... -- 20 20
2004....................................... -- 28 28
Thereafter................................. -- 1 1
--------- -------- ---------
Total................................... Rs. 1,100 Rs. 363 Rs. 1,463
========= ======== =========
</TABLE>
As of March 31, 2000, and September 30, 2000, we have interest rate swap
agreements outstanding in the notional principal amount of $6.5 million and $4.9
million, which represent hedges of interest rate risk on our foreign currency
debt. The counterparties for our interest rate agreements are banks, and we
consider the risk of non-performance by the counterparties as non-material.
Based on the maturity profile and composition of our debt portfolio, we
estimate that changes in interest rates will not have a material impact on our
operating results or cash flows.
Our temporary resources are generally invested in short-term investments,
which do not expose us to significant interest rate risk.
Fair value. The fair value of our market rate risk sensitive instruments
closely approximates their carrying value.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments and
requires recognition of all derivatives as assets and liabilities in our balance
sheet and measurement of those instruments at fair value. The statement is
effective for fiscal years beginning after June 15, 1999. We will adopt the
standard no later than the first quarter of fiscal 2001 and in our assessment
the adoption of this statement will not have a significant impact on our
consolidated financial statements. In September 2000, the Financial Accounting
Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" replacing SFAS No. 125.
This statement outlines accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. The statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. In our assessment the adoption of
this statement will not have a significant impact on our consolidated financial
statements
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<PAGE>
RISK FACTORS
Risks Related to our Company
Our revenues are difficult to predict because they can fluctuate significantly
given the nature of the markets in which we operate. This increases the
likelihood that our results could fall below the expectation of market analysts,
which could cause the price of our equity shares and ADSs to decline.
. Our revenues historically have fluctuated and may fluctuate in the
future depending on a number of factors, including:
. the size, timing and profitability of significant projects or product
orders;
. the proportion of services we perform at our clients' sites rather than
at our offshore facilities;
. seasonal changes that affect the change in the mix of services we
provide to our clients or in the relative proportion of services and
product revenues;
. seasonal changes that affect purchasing patterns among our consumers of
computer peripherals, personal computers, consumer care and other
products;
. the effect of seasonal hiring patterns and the time we require to train
and productively utilize our new employees; and
. currency exchange fluctuations.
Approximately 58% of our total operating expenses in our Global IT Services
business, particularly personnel and facilities, are fixed in advance of any
particular quarter. As a result, unanticipated variations in the number and
timing of our projects or employee utilization rates may cause significant
variations in operating results in any particular quarter. We believe that
period-to-period comparisons of our results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Thus, it is possible that in the future some of our quarterly results of
operations may be below the expectations of public market analysts and
investors, and the market price of our equity shares and ADSs could decline.
If we do not continue to improve our administrative, operational and financial
personnel and systems to manage our growth, the value of our shareholders'
investment may be harmed.
We have experienced significant growth in our Global IT Services business.
We expect our growth to place significant demands on our management and other
resources. This will require us to continue to develop and improve our
operational, financial and other internal controls, both in India and elsewhere.
Our continued growth will increase the challenges involved in:
. recruiting and retaining sufficiently skilled technical, marketing and
management personnel;
. providing adequate training and supervision to maintain our high quality
standards; and
. preserving our culture, values and entrepreneurial environment.
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<PAGE>
If we are unable to manage our growth effectively, the quality of our
services and products may decline, and our ability to attract clients and
skilled personnel may be negatively affected. These factors in turn could
negatively affect the growth of our Global IT Services business and harm the
value of our shareholders' investment.
Intense competition in the market for IT services could affect our cost
advantages, which could decrease our revenues.
The market for IT services is highly competitive. Our competitors include
software companies, IT companies, large international accounting firms and their
consulting affiliates, systems consulting and integration firms, other
technology companies and client in-house information services departments, both
international and domestic. Many of our competitors have significantly greater
financial, technical and marketing resources and generate greater revenue than
we do. We cannot be reasonably certain that we will be able to compete
successfully against such competitors, or that we will not lose clients to such
competitors. Additionally, we believe that our ability to compete also depends
in part on factors outside our control, such as our ability to attract, motivate
and retain skilled employees, the price at which our competitors offer
comparable services, and the extent of our competitors' responsiveness to their
clients' needs.
Wages in India have historically been lower than wages in the United States and
Europe, which has been one of our competitive advantages. Wage increases in
India may prevent us from sustaining this competitive advantage and may reduce
our profit margins.
Our wage costs in India have historically been significantly lower than
wage costs in the United States and Europe for comparably skilled professionals,
which has been one of our competitive advantages. However, wage increases in
India may prevent us from sustaining this competitive advantage and may
negatively affect our profit margins. We may need to increase the levels of our
employee compensation more rapidly than in the past to remain competitive.
Unless we are able to continue to increase the efficiency and productivity of
our employees, wage increases in the long term may reduce our profit margins.
Our success depends in large part upon our management team and other highly
skilled professionals. If we fail to retain and attract these personnel, our
business may be unable to grow and our revenues could decline, which may
decrease the value of our shareholders' investment.
We are highly dependent on the senior members of our management team,
including the continued efforts of our Chairman and Managing Director. Our
ability to execute project engagements and to obtain new clients depends in
large part on our ability to attract, train, motivate and retain highly skilled
professionals, especially project managers, software engineers and other senior
technical personnel. If we cannot hire and retain additional qualified
personnel, our ability to bid on and obtain new projects, and to continue to
expand our business will be impaired and our revenues could decline. We believe
that there is significant competition for professionals with the skills
necessary to perform the services we offer. We may not be able to hire and
retain enough skilled and experienced employees to replace those who leave.
Additionally, we may not be able to redeploy and retrain our employees to keep
pace with continuing changes in technology, evolving standards and changing
client preferences.
Our Global IT Services revenues depend to a large extent on a small number of
clients, and our revenues could decline if we lose a major client.
While we currently derive, and believe we will continue to derive, a
significant portion of our Global IT Services revenues from a limited number of
corporate clients we continue to reduce our dependence on any revenues from
service rendered to any one client. The loss of a major client or a significant
reduction in the
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<PAGE>
service performed for a major client could result in a reduction of our
revenues. For the fiscal years ended March 31, 1999, March 31, 2000, and the
three months ended September 30, 2000, General Electric, our largest client
accounted for 19%, 15% and 10% of our Global IT Services revenues, and for the
same periods, our ten largest clients accounted for 55%, 53% and 47% of our
Global IT Services revenues. The volume of work we perform for specific clients
may vary from year to year, particularly since we typically are not the only
outside service provider for our clients. Thus, a major client in one year may
not provide the same level of revenues in a subsequent year. In the current
fiscal we anticipate a significant reduction in the services performed for at
least one of our five largest clients.
Restrictions on immigration may affect our ability to compete for and provide
services to clients in the United States, which could hamper our growth and
cause our revenues to decline.
If U.S. immigration laws change and make it more difficult for us to obtain
H-1B and L-1 visas for our employees, our ability to compete for and provide
services to clients in the United States could be impaired. This in turn could
hamper our growth and cause our revenues to decline. Our employees who work
onsite at client facilities or at our facilities in the United States on
temporary and extended assignments typically must obtain visas. As of October
31, 2000, the majority of our personnel in the United States held H-1B visas
(624 persons) or L-1 visas (289 persons). An H-1B visa is a temporary work
visa, which allows the employee to remain in the U.S. while he or she remains an
employee of the sponsoring firm, and the L-1 visa is an intra-company transfer
visa, which only allows the employee to remain in the United States temporarily.
Although there is no limit to new L-1 petitions, there is a limit to the
aggregate number of new H-1B petitions that the U.S. Immigration and
Naturalization Service may approve in any government fiscal year. We may not be
able to obtain the H-1B visas necessary to bring critical Indian professionals
to the United States on an extended basis during years in which this limit is
reached. This limit was reached in March 2000 for the U.S. Government's fiscal
year ended September 30, 2000. While we anticipated that this limit would be
reached before the end of the U.S. Government's fiscal year, and made efforts to
plan accordingly, we cannot assure you that we will continue to be able to
obtain a sufficient number of H-1B visas.
Our costs could increase if the Government of India reduces or withholds tax
benefits and other incentives it provides to us.
Currently, we benefit from certain tax incentives under Indian tax laws.
As a result of these incentives, our operations have been subject to relatively
insignificant Indian tax liabilities. These tax incentives currently include a
10-year tax holiday from payment of Indian corporate income taxes for our Global
IT Services business operated from specially designated "Software Technology
Parks" in India and an income tax deduction of 100% for profits derived from
exporting information technology services. As a result, a substantial portion
of our pre-tax income has not been subject to significant tax in recent years.
For the years ended March 31, 1999 and March 31, 2000 and the six months ended
September 30, 2000, we realized tax benefits of Rs. 547 million, Rs. 1,104
million and Rs. 944 million from such tax incentives. We are currently also
eligible for exemptions from other taxes, including customs duties. The
recently enacted Finance Act, 2000 phases out the ten year tax holiday over a
ten year period from the financial year 1999-2000 to financial year 2008-2009.
Our current tax holidays expire in stages by 2009. The Finance Act, 2000 also
phases out the income tax deduction for profits derived from exporting
technology services over the next five years. When our tax holiday and income
tax deduction exemptions expire or terminate, our costs will increase.
Additionally, the Government of India could enact similar laws in the future,
which could further impair our other tax incentives.
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<PAGE>
Increases in Indian dividend taxes could negatively affect our tax liability.
The Finance Act, 2000 increases the tax on dividends declared, distributed
or paid by us from 11% to 22%, including a 10% surcharge. We cannot assure you
that in the future the Government of India will not further increase the
surcharges and dividend taxes it imposes. Any future increase in the dividend
tax or surcharge could negatively affect our tax liability.
We focus on high-growth industries, such as networking and communications. Any
decrease in demand for technology in such industries may significantly decrease
the demand for our services, which may impair our growth and cause our revenues
to decline.
Approximately 49% of our Global IT Services business is derived from
clients in high growth industries who use our IT services for networking and
communications equipment. Any significant decrease in the growth of these
industries will decrease the demand for our services and could reduce our
revenue.
Our failure to complete fixed-price, fixed-time frame contracts on budget and on
time may negatively affect our profitability, which could decrease the value of
our shareholders' investment.
We offer a portion of our services on a fixed-price, fixed-time frame
basis, rather than on a time-and-materials basis. Although we use specified
software engineering processes and our past project experience to reduce the
risks associated with estimating, planning and performing fixed-price, fixed-
time frame projects, we bear the risk of cost overruns, completion delays and
wage inflation in connection with these projects. If we fail to accurately
estimate the resources and time required for a project, future rates of wage
inflation and currency exchange rates, or if we fail to complete our contractual
obligations within the contracted time frame, our profitability may suffer.
Disruptions in telecommunications could harm our service model, which could
result in a reduction of our revenues.
A significant element of our business strategy is to continue to leverage
and expand our software development centers in Bangalore, Chennai, Gurgaon,
Hyderabad and Pune, India, as well as overseas. We believe that the use of a
strategically located network of software development centers will provide us
with cost advantages, the ability to attract highly skilled personnel in various
regions of the country and the world, the ability to service clients on a
regional and global basis, and the ability to provide services to our clients 24
hours a day, seven days a week. Part of our service model is to maintain active
voice and data communications between our main offices in Bangalore, our
clients' offices, and our other software development and support facilities.
Although we maintain redundant facilities and satellite communications links,
any significant loss in our ability to transmit voice and data through satellite
and telephone communications would result in a reduction of our revenues.
Our international operations subject us to risks inherent in doing business on
an international level that could harm our operating results.
While to date most of our software development facilities are located in
India and in the United States, we intend to establish new development
facilities, including potentially in Southeast Asia and Europe. We have not yet
made substantial contractual commitments to establish any new facilities and we
cannot assure you that we will not significantly alter or reduce our proposed
expansion plans. Because of our limited experience with facilities outside of
India, we are subject to additional risks including, among other things,
difficulties in regulating our business globally, export requirements and
restrictions, and multiple and possibly overlapping tax structures. Any of
these events could harm our future performance.
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We may engage in future acquisitions, investments, strategic partnerships or
other ventures that may harm our performance, dilute our shareholders and cause
us to incur debt or assume contingent liabilities.
We may acquire or make investments in complementary businesses,
technologies, services or products, or enter into strategic partnerships with
parties who can provide access to those assets. We may not identify suitable
acquisition, investment or strategic partnership candidates, or if we do
identify suitable candidates, we may not complete those transactions on terms
commercially acceptable to us or at all. If we acquire another company, we could
have difficulty in assimilating that company's personnel, operations, technology
and software. In addition, the key personnel of the acquired company may decide
not to work for us. If we make other types of acquisitions, we could have
difficulty in integrating the acquired products, services or technologies into
our operations. These difficulties could disrupt our ongoing business, distract
our management and employees and increase our expenses. As of the date of this
report, we have no agreement to enter into any material investment or
acquisition transaction.
We may be liable to our clients for damages caused by system failures, which
could damage our reputation and cause us to lose customers.
Many of our contracts involve projects that are critical to the operations
of our clients' businesses, and provide benefits which may be difficult to
quantify. Any failure in a client's system could result in a claim for
substantial damages against us, regardless of our responsibility for such
failure. Although we attempt to limit our contractual liability for damages
resulting from negligent acts, errors, mistakes or omissions in rendering our
services, we cannot be assured that the limitations on liability we provide for
in our service contracts will be enforceable in all cases, or that it will
otherwise protect us from liability for damages.
Risks Related to Investments in Indian Companies
We are incorporated in India, and substantially all of our assets and our
employees are located in India. Consequently, our financial performance and the
market price of our ADSs will be affected by political, social and economic
developments affecting India, Government of India policies, including taxation
and foreign investment policies, government currency exchange control, as well
as changes in exchange rates and interest rates.
Regional conflicts in South Asia could adversely affect the Indian economy,
disrupt our operations and cause our business to suffer.
South Asia has from time to time experienced instances of civil unrest and
hostilities among neighboring countries, including between India and Pakistan.
In recent years there have been military confrontations between India and
Pakistan that have occurred in the region of Kashmir. Events of this nature in
the future could influence the Indian economy and could have a material adverse
effect on the market for securities of Indian companies, including our ADSs, and
on the market for our services.
Political instability or changes in the government in India could delay the
liberalization of the Indian economy and adversely affect economic conditions in
India generally, which could impact our financial results and prospects.
Since 1991, successive Indian governments have pursued policies of economic
liberalization, including significantly relaxing restrictions on the private
sector. Nevertheless, the role of the Indian central and state governments in
the Indian economy as producers, consumers and regulators has remained
significant. The Government of India has changed five times since 1996. The
current Government of India,
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<PAGE>
formed in October, 1999, has announced policies and taken initiatives that
support the continued economic liberalization policies that have been pursued by
previous governments. We cannot assure you that these liberalization policies
will continue in the future. The rate of economic liberalization could change,
and specific laws and policies affecting technology companies, foreign
investment, currency exchange and other matters affecting investment in our
securities could change as well. A significant change in India's economic
liberalization and deregulation policies could adversely affect business and
economic conditions in India generally and our business in particular.
Indian law limits our ability to raise capital outside India and may limit the
ability of others to acquire us, which could prevent us from operating our
business or entering into a transaction that is in the best interests of our
shareholders.
Indian law constrains our ability to raise capital outside India through
the issuance of equity or convertible debt securities. Generally, any foreign
investment in, or an acquisition of, an Indian company requires approval from
relevant government authorities in India including the Reserve Bank of India.
However, the Government of India currently does not require prior approvals for
IT companies, subject to certain exceptions. Under any such exception, if the
Government of India does not approve the investment or implements a limit on the
foreign equity ownership of IT companies, our ability to seek and obtain
additional equity investment by foreign investors will be constrained. In
addition, these restrictions, if applied to us, may prevent us from entering
into a transaction, such as an acquisition by a non-Indian company, which would
otherwise be beneficial for our company and the holders of our equity shares and
ADSs.
Indian law imposes foreign investment restrictions that limit a holder's ability
to convert equity shares into ADSs, which may cause our equity shares to trade
at a discount or premium to the market price of our ADSs.
Under current Indian laws and regulations, our depositary cannot accept
deposits of outstanding equity shares and issue ADRs evidencing ADSs
representing such equity shares. If our ADS holders elect to surrender their
ADSs and receive equity shares, they will be prohibited from re-depositing those
outstanding equity shares with our depositary. Additionally, investors who
exchange ADSs for the underlying equity shares and are not holders of record
will be required to declare to us details of the holder of record, and the
holder of record will be required to disclose the details of the beneficial
owner. Any investor who fails to comply may be liable for a fine of up to Rs.
1,000 for each day such failure continues. Such restrictions on foreign
ownership of the underlying equity shares may cause our equity shares to trade
at a discount or premium to the ADSs.
Except in limited circumstances, the Reserve Bank of India must approve the
sale of equity shares underlying ADSs by a non-resident of India to a resident
of India. Since currency exchange controls are in effect in India, the Reserve
Bank of India will approve the price at which equity shares are transferred
based on a specified formula, and a higher price per share may not be permitted.
Additionally, except in certain limited circumstances, if an investor seeks to
convert the rupee proceeds from a sale of equity shares in India into foreign
currency and then repatriate that foreign currency from India he or she will
have to obtain an additional Reserve Bank of India approval for each
transaction. We cannot assure our ADS holders that any required approval from
the Reserve Bank of India or any other government agency can be obtained on any
terms or at all.
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<PAGE>
Our ability to acquire companies organized outside India depends on the approval
of the Government of India. Our failure to obtain approval from the Government
of India for acquisitions of companies organized outside India may restrict our
international growth, which could negatively affect our revenues.
The Ministry of Finance of the Government of India and/or the Reserve Bank
of India must approve our acquisition of any company organized outside of India.
The Government of India has recently issued a policy statement permitting
acquisitions of companies organized outside India with a transaction value:
. if in cash, up to 50% of the proceeds from an ADS offering; and
. if in stock, the greater of $100 million or ten times the acquiring
company's previous fiscal year's export earnings.
We cannot assure you any required approval from the Reserve Bank of India
and/or the Ministry of Finance or any other government agency can be obtained.
Our failure to obtain approval from the Government of India for acquisitions of
companies organized outside India may restrict our international growth, which
could negatively affect our revenues.
The laws of India do not protect intellectual property rights to the same extent
as those of the United States, and we may be unsuccessful in protecting our
intellectual property rights. Unauthorized use of our intellectual property may
result in development of technology, products or services which compete with our
products.
Our intellectual property rights are important to our business. We rely on
a combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect our intellectual property.
However, the laws of India do not protect proprietary rights to the same extent
as laws in the United States. Therefore, our efforts to protect our
intellectual property may not be adequate. Our competitors may independently
develop similar technology or duplicate our products or services. Unauthorized
parties may infringe upon or misappropriate our products, services or
proprietary information.
The misappropriation or duplication of our intellectual property could
disrupt our ongoing business, distract our management and employees, reduce our
revenues and increase our expenses. We may need to litigate to enforce our
intellectual property rights or to determine the validity and scope of the
proprietary rights of others. Any such litigation could be time-consuming and
costly. As the number of patents, copyrights and other intellectual property
rights in our industry increases, and as the coverage of these rights increases,
we believe that companies in our industry will face more frequent patent
infringement claims. Defending against these claims, even if not meritorious,
could be expensive and divert our attention and resources from operating our
company. Although there are no pending or threatened intellectual property
lawsuits against us, if we become liable to third parties for infringing their
intellectual property rights, we could be required to pay a substantial damage
award and forced to develop non- infringing technology, obtain a license or
cease selling the applications or products that contain the infringing
technology. We may be unable to develop non-infringing technology or to obtain a
license on commercially reasonable terms, or at all.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Quantitative and Qualitative Disclosures About Market
Risk."
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
On October 19, 2000, we completed our U.S. initial public offering, or US
IPO of 3,162,500 American Depositary Shares representing 3,162,500 equity
shares, par value Rs. 2 per share (including the exercise of the underwriters'
over allotment option consisting of 412,500 American Depositary Shares
representing 412,500 equity shares)at a public offering price of $41.375 per
American Depositary Share pursuant to a registration statement, filed on Form F-
1 (File No. 333-46278) filed with the Securities Exchange Commission (the
"Registration Statement"). All of the shares registered were sold. The managing
underwriters were Morgan Stanley Dean Witter, Credit Suisse First Boston, and
Banc of America Securities. Aggregate gross proceeds to (prior to deduction of
underwriting discounts and commissions and expenses of the offering) were $130.8
million. There were no selling stockholders in the US IPO. We paid underwriting
discounts and commissions of $5.9 million and other expenses are estimated to be
$1.5 million in connection with the US IPO. The total expenses to us are
estimated to be $7.4 million and the net proceeds to us are $123.5 million. From
the date of receipt, net proceeds from the offering have been invested in highly
liquid money market instruments. No part of the net proceeds were used for any
of the uses of proceeds stated in the Form F-1 Registration Statement and the
funds are reserved for general corporate purposes. None of the net proceeds from
the initial public offering were paid, directly or indirectly, to any of our
directors, officers or general partners or any of their associates, or to any
persons owning ten percent or more of any class of our equity securities, or any
affiliates.
Item 3. Default upon senior securities
None
Item 4. Submission of matters to a vote of security holders
a. During the quarterly period ending September 30, 2000, we held our
Annual General Meeting, or AGM on July 27, 2000.
b. The following directors retired by rotation at the AGM held on July 27,
2000 and, being eligible for re-election, offered themselves for re-election to
the post of Director.
Name of the Director who retired by rotation and being eligible offered
themselves for re-election:
1. Mr. Hamir K. Vissanji - Elected Unanimously
2. Mr. N. Vaghul - Elected Unanimously
3. Mr. B.C. Prabhakar - Elected Unanimously
The following are the other directors whose term of office as a director
continues after the meeting:
1. Azim H. Premji
2. P.S. Pai
3. Vivek Paul
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4. Arun K. Thiagarajan
5. Jagdish N. Sheth
6. Ashok Ganguly
7. Nachiket Mor
c. The following is a brief description of the matters voted upon at the
AGM held on July 27, 2000 along with votes cast for, against or withheld, as
well as the number of abstentions and broker non-votes as to each matter. The
matters to be voted upon were notified to the shareholders on record.
<TABLE>
<CAPTION>
ORDINARY BUSINESS
-------------------------------------------------------------------------------------------------------
Brief description of the matter put to Votes for * Votes Against/ Abstentions/
vote Withheld * Broker Non-Votes *
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To receive, consider and adopt the 134 0 0
Balance Sheet as at March 31, 2000 and
the Profit and Loss Account for the
Year ended on that date and the Report
of Directors and Auditors thereon
2. To declare final dividend on equity 134 0 0
shares and dividend on cumulative
preference shares
3. To appoint Mr. Hamir K Vissanji as 134 0 0
Director to fill the vacancy left by
his retirement by rotation.
4. To Mr. N Vaghul as Director to fill 134 0 0
the vacancy left by his retirement by
rotation.
5. To appoint Mr. B C Prabhakar as 134 0 0
Director to fill the vacancy left by
his retirement by rotation.
6. To appoint N. M. Raiji & Co., 134 0 0
Chartered Accountants, as auditors to
hold office from the conclusion of
this meeting until the conclusion of
the next Annual General Meeting and to
fix their remuneration
7. To appoint KPMG, India as auditors 134 0 0
to hold office for the purpose of
Conducting audit under the United
States Generally Accepted Accounting
Principles (USGAAP) module and fix
their remuneration
</TABLE>
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<TABLE>
<CAPTION>
SPECIAL BUSINESS
-------------------------------------------------------------------------------------------------------
Brief description of the matter put to vote Votes For * Votes Against/ Abstentions/
Withheld * Broker Non-Votes *
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8. To amend the definition of the term 134 0 0
"Exercise Price" and "Fair Market
Value" application Wipro Employee
Stock Option Plan 1999 as under:
a. The Exercise Price of an 134 0 0
option shall be as decided by
the Administrator from time to
time.
b. Fair Market Value means the 134 0 0
market price as defined by
Securities and Exchange Board of
India from time to time.
9. The above amendments were suggested 134 0 0
to bring the definition of term
Exercise Price and Fair Market Value
in line with the Securities and
Exchange Board of India guidelines
10. To approve by way of a Special 134 0 0
resolution in terms of Section
293(1)(a) of the Companies Act, and
authorize The Board to dispose of, on
a going concern basis, the Company's
Peripherals Systems Division
comprising of Its assets, liabilities,
plant, machinery, furniture & fixtures
Including the factory situated at 312,
Hebbal Industrial Area Mysore together
with the land to the new company at a
Consideration to be decided by the
Board. As a part of strategic
planning process conducted by the
Company during the year, the Company
had identified services as the driving
consideration for evaluating business
synergy. As the Peripherals Systems
Division have a low or non material
impact on services business and
therefore needs to be divested.
</TABLE>
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<PAGE>
* Under the Indian Companies Act, voting is by show of hands unless a poll
is demanded by a member or members present in person, or by proxy holding at
least one-tenth of the total shares entitled to vote on the resolution or by
those holding paid-up capital of at least Rs. 50,000. Under our Articles a
member present by proxy shall be entitled to vote only on a poll but not on a
show of hands, unless such member is a body corporate present by a
representative in which case such proxy shall have a vote on the show of hand as
if he were a member.
Under the Indian Companies Act and as per the Articles of the Company, on
a show of hands every member present in person shall have one vote and upon a
poll the voting rights of every member whether present in person or by proxy,
shall be in proportion to his share of the paid-up capital of the Company.
The votes represent the number of votes in a show of hands. No poll was
demanded during the AGM.
Item 5. Other Information
None.
Item 6. Exhibits and Reports
Wipro has not filed any report on Form 8K in the quarter ended September
30, 2000.
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
----------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Articles of Association. Incorporated by reference from Exhibit 3.1 of the Company's F-1 filed on September 26, 2000
3.2 Memorandum of Association. Incorporated by reference from Exhibit 3.2 of the Company's F-1 filed September 26, 2000
3.3 Certificate of Incorporation. Incorporated by reference from Exhibit 3.3 of the Company's F-1 filed September 26, 2000
10.1 Memorandum of Understanding, dated June 30, 2000 between Wipro Limited and the Promoters of
Wipro ePeripherals Limited
10.2 Business Sale and Purchase Agreement, dated August 30, 2000 by and among Wipro Limited, Wipro
ePeripherals Limited and certain Promoters of Wipro ePeripherals Limited
10.3 Facilities Services Agreement, dated August 30, 2000 between Wipro Limited and Wipro
ePeripherals Limited
10.4 Participation and Management Agreement, dated August 30, 2000 by and among Wipro Limited, Wipro
ePeripherals Limited and certain Promoters of Wipro ePeripherals Limited
10.5 Employees Transfer Agreement, dated August 30, 2000 by and among Wipro Limited, Wipro
ePeripherals Limited and certain Promoters of Wipro ePeripherals Limited
10.6 Trademark License Agreement, dated August 30, 2000 by and among Wipro Limited, Wipro
ePeripherals Limited, Wipro Trademarks Holding Limited and certain Promoters of Wipro
ePeripherals Limited
10.7 Intellectual Property Assignment Agreement, dated August 30, 2000 by and among Wipro Limited,
Wipro ePeripherals Limited, Wipro Trademarks Holding Limited and certain Promoters of Wipro
ePeripherals Limited
19.1 Wipro Quarterly report to the shareholders for the quarter ended September 30, 2000.
27.1 Financial Data Schedule.
</TABLE>
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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: November 14, 2000 WIPRO LIMITED
By: /s/ Suresh C. Senapaty
------------------------------------
Suresh C. Senapaty
Executive Vice President, Finance
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