Auditors Report on Condensed Financial Statements

Transcription

1 Auditors Report on Condensed Financial Statements TO THE BOARD OF DIRECTORS OF TATA CONSULTANCY SERVICES LIMITED 1 We have audited the attached condensed balance sheet of TATA CONSULTANCY SERVICES LIMITED as at June 30, 2005, and also the condensed profit and loss account and the condensed cash flow statement for the three-month period June 30, 2005 annexed thereto. These condensed financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these condensed financial statements based on our audit. 2 We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management. We believe that our audit provides a reasonable basis for our opinion. 3 In our opinion and to the best of our information and according to the explanations given to us, the said accounts give a true and fair view in conformity with the accounting principles generally accepted in India: a. in the case of the condensed balance sheet, of the state of affairs of the Company as at June 30, 2005; b. in the case of the condensed profit and loss account, of the profit for the three-month period on that date; and c. in the case of the condensed cash flow statement, of the cash flows for the three-month period on that date. For S. B. BILLIMORIA & CO. Chartered Accountants Mumbai, July 15, 2005 N VENKATRAM Partner Membership No

2 CONDENSED BALANCE SHEET AS AT JUNE 30,2005 Schedule SOURCES OF FUNDS: 1 SHAREHOLDERS' FUNDS (a) Share Capital A (b) Reserves and Surplus B LOAN FUNDS (a) Secured Loans C (b) Unsecured Loans D DEFERRED TAX LIABILITY (NET) E TOTAL FUNDS EMPLOYED APPLICATION OF FUNDS: 5 FIXED ASSETS F (a) Gross Block (b) Less :- Accumulated Depreciation (c) Net Block (d) Capital Work-in-Progress INVESTMENTS G 1, CURRENT ASSETS, LOANS AND ADVANCES (a) Unbilled Revenues (b) Sundry Debtors H (c) Cash and Bank Balances I (d) Loans and Advances J CURRENT LIABILITIES AND PROVISIONS (a) Current Liabilities K (b) Provisions L NET CURRENT ASSETS [ (7) less (8) ] TOTAL ASSETS (NET) NOTES TO ACCOUNTS Q As per our Report attached For S.B. BILLIMORIA & CO. Chartered Accountants For and on behalf of TATA CONSULTANCY SERVICES LIMITED N. Venkatram S. Ramadorai Partner CEO and Managing Director Mumbai, July 15, 2005 S. Mahalingam Chief Financial Officer S.H.Rajadhyaksha Company Secretary

3 CONDENSED PROFIT AND LOSS ACCOUNT INCOME: Schedule June 30, 2005 June 30, 2004 (unaudited) (Refer note 2b) 1 Information technology and consultancy services M Software licences Other income N EXPENDITURE 4 Employee costs O Operation and other expenses P PROFIT BEFORE INTEREST AND DEPRECIATION Interest Depreciation F PROFIT / (LOSS) BEFORE TAXES (5.27) 8 PROVISION FOR TAXES (a) Current tax (116.27) - (b) Deferred tax (c) Fringe benefit tax (9.00) - NET PROFIT FOR THE PERIOD (5.27) 9 Balance brought forward from previous year AMOUNT AVAILABLE FOR APPROPRIATION (4.63) 10 APPROPRIATIONS (a) Tax on dividend (b) Balance carried to balance sheet (4.64) (4.63) 11 Earnings per share - Basic and diluted ( Rs.) (0.12) Weighted average number of shares 48,01,14,809 45,55,00, NOTES TO ACCOUNTS Q As per our report attached to the Balance Sheet For S.B. BILLIMORIA & CO. Chartered Accountants For and on behalf of TATA CONSULTANCY SERVICES LIMITED S. Ramadorai CEO and Managing Director N. Venkatram Partner Ratan N. Tata S. Mahalingam Chief Financial Officer Mumbai, July 15, 2005 S.H.Rajadhyaksha Company Secretary

4 Paste spl Statement of Condensed Cash Flows June 30,2005 June 30,2004 (unaudited) (Refer note 2b) 1 Net cash from / (used in) operating activities (0.02) 2 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (149.70) - Proceeds from sale of fixed assets Purchase of long-term investments - (2.57) (Purchase) / sale of other investments (net) (280.82) 5.43 Dividends received Interest received Net cash (used in)/ from investing activities (425.28) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings repaid (net) (46.73) - Dividend, including unclaimed (0.15) (4.93) Interest paid (0.52) (0.11) Net cash used in financing activities (47.40) (5.04) Net increase/(decrease) in cash and cash equivalents (2.20) Cash and cash equivalents at beginning of the period Exchange difference on cash and cash equivalents (4.71) - Cash and cash equivalents at end of the period As per our Report attached to the Balance Sheet For S. B. BILLIMORIA & CO. Chartered Accountants For and on behalf of TATA CONSULTANCY SERVICES LIMITED N. Venkatram S. Ramadorai Partner CEO and Managing Director Mumbai, July 15, 2005 S. Mahalingam Chief Financial Officer S.H.Rajadhyaksha Company Secretary

5 SCHEDULE 'A' SHARE CAPITAL Authorised 60,00,00,000 equity shares of Re.1 each (March 31, 2005 : 60,00,00,000 equity shares of Re.1 each) Issued, Subscribed and Paid up 48,01,14,809 equity shares of Re.1 each (March 31, 2005 : 48,01,14,809 equity shares of Re.1 each) SCHEDULE 'B' RESERVES AND SURPLUS (a) Securities Premium Account (i) Opening balance (ii) Premium on issue of equity shares (iii) Share issue expenses - (53.57) (b) General Reserve (i) Opening balance (ii) Bonus shares issued - (9.11) (iii) Transferred from profit and loss account (c) Balance in profit and loss account (d) Loss on cash flow hedges (0.79)

6 SCHEDULE 'C' LOANS - SECURED From Banks (i) Shipment Loans (ii) Overdrafts Note: Shipment loans were secured by pari-passu hypothecation of foreign book debts. Bank overdrafts are secured against domestic book debts SCHEDULE 'D' LOANS - UNSECURED From others (includes Rs Crores repayable within one year)

7 SCHEDULE 'E' DEFERRED TAX LIABILITY, ( Net) (a) (b) Deferred Tax Liabilities (i) Foreign branch profit tax (ii) Difference in depreciation for accounting and tax purposes (iii) Others Less: Deferred Tax Assets (i) Retirement benefits (ii) Others

8 SCHEDULE 'F' FIXED ASSETS Description Gross Block as at April 1, 2005 Additions Deletions Gross Block as at Jun 30, 2005 Accumulated Depreciation for Depreciation as at the period April 1, 2005 Deletions Accumulated Depreciation as at Jun 30, 2005 Net book value as at June 30, 2005 Net book value as at March 31,2005 FREEHOLD LANDS LEASEHOLD LANDS (0.67) (0.41) - (1.08) FREEHOLD BUILDINGS (23.97) (5.58) - (29.55) LEASEHOLD BUILDINGS (0.97) (0.25) - (1.22) LEASEHOLD IMPROVEMENTS (2.02) (2.89) - (4.91) COMPUTER EQUIPMENT (0.05) (59.36) (24.06) 0.01 (83.41) MOTOR CARS (0.07) (8.33) (2.15) 0.02 (10.46) OFFICE EQUIPMENT (0.01) (16.47) (3.31) 0.01 (19.77) ELECTRICAL INSTALLATIONS (13.29) (2.80) - (16.09) FURNITURE AND FIXTURES (7.85) (5.16) - (13.01) Total (0.13) (132.93) (46.61) 0.04 (179.50) Capital Work- in- Progress (including Capital Advances Rs crores ) Grand Total Previous year (5.55) (0.95) (133.22) 1.24 (132.93) Notes: 1 Additions include Rs crores obtained on transfer of the TCS Division (Refer Note 2 ). 2 Freehold buildings include Rs.2.67 crores (March 31, 2005 Rs.2.67 crores) being investments in Co-operative Housing Societies.

9 SCHEDULE 'G' INVESTMENTS Description (i) Subsidiary Companies (a) Fully Paid Equity Shares ( Quoted) CMC Limited (b) Fully paid Equity Shares ( unquoted) TCS Iberoamerica S.A AP Online Limited - - Tata Consultancy Services Belgium S.A Tata Consultancy Services Netherlands B.V Tata Consultancy Services Sverige AB Tata Consultancy Services Deutschland GmbH Tata Consultancy Services France S.A Tata America International Corporation Tata Consultancy Services Asia Pacific Pte. Limited Airline Financial Support Services (India) Limited Aviation Software Development Consultancy India Limited TCS Business Transformation Solutions Limited WTI Advanced Technology Limited (ii) Fully Paid Equity Shares ( Unquoted) Conscripti (Pty) Limited Yodlee, Inc. - - Philippine Dealing System Holdings Corporation Fully Paid Preference Shares ( Unquoted) eaf Pte Limited (iii) Investments in Mutual Funds (Unquoted) (a) Liquid Dividend Plan ( including dividend reinvested ) (b) Growth Fund - Liquid (c) Growth Fund - Floater Less: Provision for diminution in value of investments (6.27) (6.27) Notes : (1) Market value of quoted investment Book value of quoted investment Book value of unquoted investments (net of provision) (2) Investments, other than in mutual funds are long-term.

10 SCHEDULE 'H' SUNDRY DEBTORS (a) (b) Over six months (unsecured) (i) Considered good (ii) Considered doubtful Others (unsecured) (i) Considered good (ii) Considered doubtful Less: Provision for doubtful debts (37.73) (30.47) SCHEDULE 'I' CASH AND BANK BALANCES (a) Cash in hand (b) Remittances in transit (c) Bank Balances (i) with Scheduled Banks (1) In current accounts (2) deposit accounts (under lien to customs authority) (ii) with foreign banks - in current accounts TATA CONSULTANCY SERVICES LIMITED

11 SCHEDULE 'J' LOANS AND ADVANCES (Unsecured) ( a ) Considered good (i) Employee loans (ii) Loans to subsidiary companies (iii) Advances recoverable in cash or kind or for value to be received (iv) Advance tax (including refunds receivable) ( b ) Considered doubtful (i) Employee loans (ii) Advances recoverable in cash or kind or for value to be received Less: Provision for doubtful advances (2.69) (2.69) Notes : (1) Loans and advances in the nature of loans to subsidiary companies : TCS Iberoamerica SA Tata Consultancy Services De Espana, SA Tata Consultancy Services Sverige AB (2) Advances recoverable in cash or kind or for value to be received includes foreign exchange forward contracts (3) Notional amount of outstanding foreign exchange forward contracts to which the Company is committed SCHEDULE 'K' CURRENT LIABILITIES (a) Sundry Creditors (b) Subsidiary companies (c) Advances from customers (d) Advance billing and deferred revenues (e) Unclaimed dividend (f) Equity share application monies refundable (g) Other liabilities (h) Interest accrued but not due

12 SCHEDULE 'L' PROVISIONS (a) Current income taxes (b) Fringe benefit tax (c) Contingencies (d) Employee retirement benefits (e) Proposed dividend (f) Tax on dividend SCHEDULE 'M' June 30, 2005 June 30, 2004 (unaudited) (Refer note 2b) INFORMATION TECHNOLOGY AND CONSULTANCY SERVICES (a) Services rendered (b) Sale of equipment (c) Other revenues (d) Exchange loss (27.50)

13 June 30, 2005 June 30, 2004 (unaudited) SCHEDULE 'N' (Refer note 2b) OTHER INCOME (a) Interest (includes Rs crores from a foreign subsidiary company) (b) Dividend from a subsidiary company (c) Dividends from mutual funds (d) Rent (e) Exchange gain ( net ) (f) Miscellaneous income June 30, 2005 June 30, 2004 (unaudited) SCHEDULE 'O' (Refer note 2b) EMPLOYEE COSTS (a) Salaries and incentives (b) Contributions to: (i) Provident Fund (ii) Superannuation Scheme (iii) Gratuity (c) Staff welfare expenses

14 June 30, 2005 June 30, 2004 (unaudited) SCHEDULE 'P' (Refer note 2b) OPERATION AND OTHER EXPENSES (a) Overseas business expenses (b) Services rendered by business associates and others (c) Software expenses (d) Product expenses (e) Communication (f) Travel expense (g) Rent (h) Legal and professional (i) Repairs and maintenance (j) Electricity (k) Recruitment and training expenses (l) Commission and brokerage (m) Motor car expenses (n) Provision for doubtful debts (o) Printing and stationery (p) Insurance (q) Rates and taxes (r) Entertainment (s) Loss on sale of fixed assets (net) (t) Other expenses Note : (i) Overseas business expenses include : Travel expense Employee allowances (ii) Repairs and maintenance includes: Buildings Office and computer equipment

15 SCHEDULE Q NOTES TO ACCOUNTS 1) Significant accounting policies a) Basis of Preparation These condensed financial statements have been prepared in accordance with Accounting Standard 25 Interim Financial Reporting (AS - 25) issued by the Institute of Chartered Accountants of India. These condensed financial statements should be read in conjunction with annual financial statements of the Company for the year and as at March 31, In the opinion of the management, all adjustments which are necessary for a fair presentation have been included. The accounting policies followed in preparation of the condensed financial statements are consistent with those followed in the preparation of the annual financial statements. The results of interim periods are not necessarily indicative of the results that may be expected for any interim period or for the full year. b) Use of estimates The preparation of financial statements requires the management to make estimates and assumptions that affect the reported balances of assets and liabilities and disclosures relating to the contingent liabilities as at the date of the financial statements and reported amounts of income and expenses during the period. Example of such estimates include provisions for doubtful debts and advances, employee retirement benefit obligations, provision for income taxes, accounting for costs expected to be incurred to complete software development and the useful lives of fixed assets. c) Taxation Income tax expense is recognised in the each interim period based on the management s estimate of the weighted average annual income tax rate expected for the full financial year. d) Derivative instruments and hedge accounting The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions. The Company designates these as cash flow hedge. The use of foreign currency forward contracts is governed by the Company s policies approved by the board of directors, which provide written principles on the use of such financial derivatives consistent with the Company s risk management strategy. The Company does not use derivative financial instruments for speculative purposes. Foreign currency forward contract derivative instruments are initially measured at fair value, and are remeasured at subsequent reporting dates. Changes in the fair value of these derivatives that are designated and effective as hedges of future cash flows are recognised directly in shareholders funds and the ineffective portion is recognised immediately in profit or loss account. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in profit or loss account as they arise. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time for forecast transactions, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in shareholders funds is transferred to profit or loss account for the period.

16 2) Transfer of the TCS division of Tata Sons Limited ( the TCS Division ). (a) In accordance with the terms of the Scheme of Arrangement as sanctioned by High Court of the Judicature at Bombay, the TCS Division has been transferred ( the Transfer ) to and vested in the Company as going concern with effect from April 1, 2004, which was the Appointed Date under the Scheme. The Scheme was effective on August 9, 2004 upon the execution of the underwriting agreement for Initial Public Offer. Accordingly, the assets and liabilities of the TCS Division as at August 9, 2004 has been transferred to the Company for a cash consideration of Rs.2300 crores. Transfer consideration paid for fixed assets and investment in subsidiaries, associates and joint venture has been allocated on the basis of their fair values as determined by independent valuers. (b) As the Scheme to transfer the TCS Division became effective on August 9, 2004, the results of the Company for the period April 1, 2004 to June 30, 2004 do not include the results of the TCS Division. Consequently, the results for the quarter June 30, 2005 are not comparable with the corresponding figures for the previous period. 3) Provision for contingencies. (Rs. in Crores) Provident fund Other Claims Total Balance as at April 1, Provision made during the period Balance as at June 30, (i) Provident Fund On November 24, 1998 the Regional Provident Fund Commissioner of Mumbai (RPFC) issued an order stating that the erstwhile TCS Division was rendering expert services in accordance with a notification issued by Central Government of India under the Provident Funds Act, 1952 (the PF Act), in which the RPFC sought to cover the erstwhile TCS Division under the PF Act and claimed administrative charges. The erstwhile TCS Division filed a legal case against the order in the High Court of Mumbai. Pending resolution of the matter, a provision of Rs crores has been made based on the management s estimate of the claim for administrative charges. Interest and penalty, if any, has not been determined. The management intends to continue legal action against the claim and to defend its position. (ii) Others Includes claims made for reimbursement of cost of investment made in an overseas entity.

17 4) Segment Reporting The primary reporting segments of the Company are Americas, Europe, India and Others. Revenue and expense directly attributable to segments are reported under each reportable segment. Expenses incurred in India on behalf of other segments and not directly identifiable to the reportable segments have been allocated to each segment on the basis of associated revenues of each segment. All other expenses which are not attributable or allocable to segments have been disclosed as unallocable expenses. Assets and liabilities that are directly attributable to segments are disclosed under each reportable segment. All other assets and liabilities are disclosed as unallocable. Fixed assets have not been allocated between segments as these are used interchangeably between segments. The Company did not have any operating segment in the quarter June 30, Quarter June 30, 2005 Particulars Geographic Segment (Rupees in crores) Americas Europe India Others Total Revenues Identified operating Expenses Allocated expenses Segment results Unallocable expenses Operating income Other income Profit before taxes Taxes Net profit Segment assets Unallocable assets Total Assets Segment liabilities Unallocable liabilities Total Liabilities

18 5) Contingent Liabilities As at June 30, 2005 As at March 31, 2005 (Rs.in Crores) (Rs. In crores) Claims against the Company not acknowledged as debt (see note below) Guarantees given by the Company on behalf of subsidiaries Claims against the Company not acknowledged as debt includes: a) Rs crores in respect of claims made by lessors for properties leased under tenancy agreements. These claims are being contested in the courts by the Company. As at June 30, 2005, an amount of Rs.9.54 crores has been accrued under other liabilities. b) Rs crores in respect of a claim for damages made by a customer. No provision has been made in these financial statements as management considers the probability of the claim succeeding to be remote. c) Rs crores in respect of a claim for compensation made by an overseas party. No provision has been made in these financial statements as management considers the probability of the claim succeeding to be remote.