Auditors Report on Condensed Consolidated Financial Statements

Transcription

1 Auditors Report on Condensed Consolidated Financial Statements TO THE BOARD OF DIRECTORS OF TATA CONSULTANCY SERVICES LIMITED 1. We have audited the attached condensed consolidated balance sheet of Tata Consultancy Services Limited (the Company), and its subsidiaries (collectively referred as the TCS Group ) as at June 30, 2005 and also the condensed consolidated profit and loss account and the condensed consolidated cash flow statement for the three-month period ended on that date annexed thereto. These condensed financial statements are the responsibility of the Company s management and have been prepared by the management on the basis of separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these condensed financial statements based on our audit. 2. We conducted our audit in accordance with the 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We did not audit the financial statements of a subsidiary, whose financial statements reflect total assets of Rs crores as at June 30, 2005, total revenues of Rs crores and net cash inflows amounting to Rs. 16 crores for the three-month period then ended. These condensed financial statements and other financial information have been audited by other auditors whose report has been furnished to us, and our opinion is based solely on the report of other auditors. 4. The financial statements of certain subsidiaries, whose financial statements reflect total assets of Rs crores as at June 30, 2005, total revenues of Rs crores and net cash outflows amounting to Rs crores for the three-month period then ended have not been audited. 5. We report that the condensed consolidated financial statements have been prepared by the Company s management in accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements and Accounting Standard (AS) 23, Accounting for Investments in Associates in Consolidated Financial Statements issued by the Institute of Chartered Accountants of India. 6. Subject to the matter referred to in paragraph 4 above, based on our audit and on consideration of reports of other auditors on separate financial statements and on the other financial information of the components, and to the best of our information and according to the explanations given to us, we are of the opinion that the attached condensed consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: (i) (ii) (iii) in the case of the condensed consolidated balance sheet, of the state of affairs of the TCS Group as at June 30, 2005; in the case of condensed consolidated profit and loss account, of the profit for the three-month period ended on that date; and in the case of condensed consolidated cash flow statement, of the cash flows for the threemonth period ended on that date. For S. B. BILLIMORIA & CO. Chartered Accountants Mumbai, July 15, 2005 N VENKATRAM Partner Membership No

2 CONDENSED CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 2005 Schedule SOURCES OF FUNDS: 1 SHAREHOLDERS' FUNDS (a) Share Capital A (b) Reserves and Surplus B MINORITY INTEREST LOAN FUNDS (a) Secured Loans C (b) Unsecured Loans D DEFERRED TAX LIABILITY (NET) E TOTAL FUNDS EMPLOYED APPLICATION OF FUNDS: 6 FIXED ASSETS F (a) Gross Block (b) Less :- Accumulated Depreciation (207.88) (155.93) (c) Net Block (d) Capital work-in-progress GOODWILL ( ON CONSOLIDATION ) INVESTMENTS G CURRENT ASSETS, LOANS AND ADVANCES (a) Inventories H (b) Unbilled Revenues (c) Sundry Debtors I (d) Cash and Bank Balances J (e) Loans and Advances K CURRENT LIABILITIES AND PROVISIONS (a) Current Liabilities L (b) Provisions M NET CURRENT ASSETS [ (9) less (10) ] TOTAL ASSETS (NET) NOTES TO ACCOUNTS R 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 S. Mahalingam Chief Financial Officer Mumbai, July 15, 2005 S.H.Rajadhyaksha Company Secretary

3 CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT INCOME Schedule June 30, 2005 June 30, 2004 (unaudited) (Refer note 2b) 1 Information technology and consultancy services N Sale of equipment and software licences Other income O EXPENDITURE 4 Employee costs P Operation and Other expenses Q PROFIT BEFORE INTEREST, DEPRECIATION AND TAXES Interest Depreciation F PROFIT BEFORE TAXES PROVISION FOR TAXES (a) Current tax (154.40) (3.68) (b) Deferred tax (c) Fringe benefit tax (9.93) - NET PROFIT FOR THE PERIOD BEFORE MINORITY INTEREST AND SHARE OF PROFIT OF ASSOCIATE Minority interest (9.51) (9.16) 10 Share of profit of associate NET PROFIT FOR THE PERIOD Balance brought forward from previous year AMOUNT AVAILABLE FOR APPROPRIATIONS APPROPRIATIONS (a) Tax on dividend (b) Balance carried to balance sheet Earnings per share Basic and diluted Weighted average number of shares 48,01,14,809 45,55,00, NOTES TO ACCOUNTS R 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 S. Mahalingam Chief Financial Officer Mumbai, July 15, 2005 S.H.Rajadhyaksha Company Secretary

4 10,000, STATEMENT OF CONDENSED CONSOLIDATED CASH FLOWS June 30,2005 June 30,2004 (unaudited) (Refer note 2b) 1. Net cash from/(used in) operating activities (1.48) 2. CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (159.25) (2.52) Proceeds from sale of fixed assets Purchase of trade and other investments (net) (279.68) 5.43 Dividend received Investment in associate - (1.84) Interest received Acquisition of subsidiary (net of cash acquired) (21.51) - Net cash used in investing activities (441.37) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings repaid (net) (49.96) 0.11 Dividend, including unclaimed (4.21) (4.93) Interest paid (1.59) (3.03) Net cash used in financing activities (55.76) (7.85) Net increase/(decrease) in cash and cash equivalents (8.07) Cash and cash equivalents at the beginning of the period Exchange difference on cash and cash equivalents (7.70) - Cash and cash equivalents at the end of the period

5 SCHEDULE 'A' SHARE CAPITAL Authorised 60,00,00,000 equity shares of Re.1 each (March 31,2005 : 6,00,00,000 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) Capital reserve (on consolidation) (b) Capital redemption reserve (c) Securities Premium Account (i) Premium on issue of equity shares (ii) Share issue expenses - (53.57) (d) General Reserve (i) Opening Balance (ii) Bonus shares issued - (9.11) (iii) Transferred from profit and loss account (e) Foreign currency translation reserve (6.93) (1.66) (f) Balance in profit and loss account (g) Loss on cash flow hedges (0.79)

6 SCHEDULE 'C' LOANS - SECURED From Banks (i) Shipment Loans (ii) Overdrafts From Others (i) Obligations under finance lease Notes: (1) Shipment loans were secured by pari-passu hypothecation of foreign book debts. (2) Bank overdrafts are secured by domestic book debts, hypothecation of inventories and other current assets. (3) Obligations under finance lease are secured against fixed assets obtained under finance lease agreement. SCHEDULE 'D' LOANS - UNSECURED From Banks (i) Short-term loans from banks From Others (i) Commercial Papers (ii) From Others Note: (1) Loans repayable within one year Rs crores (March 31, 2005 Rs crores)

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

8 SCHEDULE 'F' FIXED ASSETS Description Gross Block as at April 1, 2005 Additions Deletions Exchange Difference Gross Block as at June 30, 2005 Accumulated Depreciation as at April 1, 2005 Depreciation for the period Deletions Exchange Difference Accumulated Depreciation as at June 30, 2005 Net book value as at June 30, 2005 Net book value as at March 31, 2005 FREEHOLD LANDS (0.12) LEASEHOLD LANDS (0.88) (0.47) - - (1.35) FREEHOLD BUILDINGS (0.94) (24.67) (5.75) (30.39) LEASEHOLD BUILDINGS (0.01) (3.10) (0.98) - (0.01) (4.09) LEASEHOLD IMPROVEMENTS (0.02) (2.18) (2.90) - - (5.08) COMPUTER EQUIPMENT (0.24) (0.08) (72.05) (27.41) (99.33) MOTOR CARS (0.08) (0.03) (8.69) (2.24) (10.89) OFFICE EQUIPMENT (1.90) (0.11) (20.12) (4.27) (23.50) ELECTRICAL INSTALLATIONS (13.93) (3.00) - - (16.93) FURNITURE AND FIXTURES (0.02) (0.03) (10.31) (6.02) (16.32) Total (3.30) (0.28) (155.93) (53.04) (207.88) Capital Work-in-Progress (including Capital Advance Rs crores, March 31, 2005 Rs crores) Grand Total Previous year (63.70) (0.49) (0.95) (158.82) (155.93) Notes: (1) Additions include fixed assets of Rs crores obtained on transfer of the TCS Division (Refer Note 2). (2) Freehold buildings include Rs crores (March 31, 2005 Rs.2.67 crores) being investments in Co-operative Housing Societies. (3) Net book value of computer equipment of Rs crores (March 31, 2005 Rs crores) is under finance lease.

9 Curre um ncy Face Value SCHEDULE 'G' LONG-TERM INVESTMENTS (at cost) (i) Fully Paid Equity Shares (Quoted) Niku Corporation (ii) Fully Paid Equity Shares (Unquoted) (a) Associate Conscripti (Pty) Limited (20% voting interest) (b) Others Philippine Dealing System Holdings Corporation (iii) Fully Paid Preference Shares (Unquoted) eaf Pte Ltd OTHER INVESTMENTS (at cost) (i) Investment in Mutual Funds (Unquoted) Less: Provision for diminution in value of investments (7.53) (6.30) Note: (1) Market value of quoted investment Book value of quoted investment Book value of unquoted investments (net of provisions) Particulars of investment in associate company Cost of acquisition Dividends received in prior periods (6.51) (6.51) Share of post acquisition reserves and surplus * Carrying value * includes exchange translation loss of Rs 0.06 crores ( March 31, crores)

10 SCHEDULE 'H' INVENTORIES (i) Equipment for resale (ii) Components and spares for maintenance and resale (iii) Education and training material (iv) Work-in-progress SCHEDULE 'I' SUNDRY DEBTORS (a) Over six months (unsecured) (i) Considered good (ii) Considered doubtful (b) Others (unsecured) (i) Considered good (ii) Considered doubtful Less: Provision for doubtful debts (68.42) (59.58) (c) Future finance lease receivables Less: Unearned finance income (3.56) (3.74) SCHEDULE 'J' CASH AND BANK BALANCES (a) Cash in hand (b) Remittances in transit (c) Bank Balances (i) with Scheduled Banks (1) In current account (2) In cash credit account (3) In deposit account (ii) with foreign banks (1) In current account (2) In deposit account

11 SCHEDULE 'K' LOANS AND ADVANCES (Unsecured) (a) Considered good (i) Employee loans (ii) Loans to Directors / Officers (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 (2.74) (2.74) Notes : (1) Advances recoverable in cash or kind or for value to be received includes foreign exchange forward contracts (2) Notional amount of outstanding foreign exchange forward contracts to which the Company is committed SCHEDULE 'L' CURRENT LIABILITIES (a) Sundry Creditors (b) Advances from customers (c) Advance billings and deferred revenues (d) Unclaimed dividend (e) Equity share application monies refundable (f) Other liabilities

12 SCHEDULE 'M' PROVISIONS (a) Current income taxes (b) Fringe benefit tax (c) Contingencies (d) Employee retirement benefits (e) Proposed Dividend (f) Tax on Dividend SCHEDULE 'N' INFORMATION TECHNOLOGY AND CONSULTANCY SERVICES June 30, 2005 June 30, 2004 (unaudited) (Refer note 2b) (a) Services rendered (b) Other revenues (includes finance lease income Rs crores, June 30, 2004 Rs crores) (c) Exchange (loss)/gain (27.51)

13 SCHEDULE 'O' June 30, 2005 June 30, 2004 (unaudited) (Refer note 2b) OTHER INCOME (a) Interest (Tax deducted at source Rs crores, June 30, 2004 Rs crores) (b) Dividend income (c) Profit on sale of fixed assets (net) (d) Profit on redemption of mutual funds (e) Rent (f) Exchange gain (net) (g) Miscellaneous income SCHEDULE 'P' EMPLOYEE COSTS June 30, 2005 June 30, 2004 (unaudited) (Refer note 2b) (a) Salaries and incentives (b) Contribution to - (i) Provident Fund (ii) Superannuation Scheme (iii) Employees State Insurance Scheme (iv) Gratuity (c) Staff welfare expenses

14 SCHEDULE Q' June 30, 2005 June 30, 2004 (unaudited) (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 expenses (g) Rent (h) Legal and professional (i) Repairs and maintenance (j) Electricity (k) Recruitment and training (l) Diminution in value of long-term investments (m) Commission and brokerage (n) Motor car expenses (o) Provision for doubtful debts (p) Printing and stationery (q) Insurance (r) Rates and taxes (s) Entertainment (t) Other expenses (u) Exchange Loss

15 SCHEDULE R - SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS 1. Significant Accounting Policies a) Basis of Preparation The condensed consolidated financial statements of Tata Consultancy Services Limited, its subsidiaries and associate 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 consolidated financial statements should be read in conjunction with annual consolidated financial statements of the Company for the year ended 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 these financial statements are consistent with those followed in the preparation of annual consolidated 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. In addition to the subsidiaries and associate included in the consolidated financial statements as at March 31, 2005, Swedish Indian IT Resources AB a wholly owned subsidiary acquired on April 1, 2005 has been consolidated in the financial statements for the quarter ended and as at June 30, 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 each interim period based on the management s best estimate of the weighted average annual income tax rate expected for the full financial year. d) Derivative financial 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 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 have been transferred to the Company for a cash consideration of Rs crores. Transfer consideration paid for fixed assets and investments in subsidiaries, joint venture and associate has been allocated on the basis of their fair values 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, its subsidiaries, associate and joint venture. The consolidated profit and loss account for the quarter ended June 30, 2004, includes the results of the Company and CMC Limited. Consequently, the results for the quarter ended June 30, 2005 are not comparable with the corresponding figures for the previous period. 3. Provision for contingencies () Provident Fund Other Claims Total Balance as at April 1, Provision made during the period Balance as at March 31, a) Provident Fund On November 24, 1998 the Regional Provident Fund Commissioner of Mumbai (RPFC) issued an order stating that 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, have not been determined. The management intends to continue legal action against the claim and to defend its position. b) Others Includes claims made for reimbursement of cost of investment made in an overseas entity. 4. Segment Reporting The Company has identified geographic segments as its primary segment and industry segments as its secondary segment. Geographic 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 each reportable segment 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.

17 Quarter ended June 30, 2005 Particulars Geographic Segment () Americas Europe India Others Total Revenue Identified operating expenses Allocated expenses Segment result Unallocable expenses Operating income Other income Profit before taxes Taxes (132.34) Net profit before minority interest and share of profit of associate Minority interest (9.51) Share of profit of associate 0.20 Net profit Segment assets Unallocable assets Total Assets Segment liabilities Unallocable liabilities Total Liabilities Quarter ended June 30, 2004 Particulars Geographic Segment () Americas Europe India Others Total Revenue Identified operating expenses Allocated expenses Segment result Unallocable expenses Operating income Other income 1.56 Profit before taxes and exceptional items Income taxes (2.74) Net Profit before minority Interest and share of profit of associate Minority Interest (9.16) Share of profit of associate 0.17 Net profit 4.49

18 5. Contingent Liabilities Particulars As at June 30, 2005 (Rupees in As at March 31, 2005 (Rupees in Crores) Crores) (A) Claims against the Company not acknowledged as debts (B) Unexpired letters of credit (C) Others Note: Claims against the Company not acknowledged as debt includes mainly the following: 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. The management does not expect these claims to succeed. 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.