REPORT OF THE DIRECTORS FOR THE FINANCIAL YEAR ENDED 31ST MARCH, 2003 Your Directors submit their Report for the Financial Year ended 31st March, 2003. FINANCIAL RESULTS (Rs. in lakhs) Year ended March 31, 2003 2002 Total Revenue 4896.99 2114.99 Total Expenditure 5392.64 3522.11 Operating profit (PBIDT) (495.65) (1407.12) Depreciation 300.33 205.31 Profit / (Loss) before tax (795.99) (1612.43) Provision for tax Profit / (Loss) after tax (795.99) (1612.43) Profit / (Loss) brought forward (1616.31) (3.88) Balance carried to Balance Sheet (2412.30) (1616.31) BUSINESS REVIEW Cost pressures arising from depressed economic conditions in the US and Western Europe resulted in corporations shrinking their IT spends. With a view to maximising utilisation of IT assets, corporate IT outlays in the US and UK were largely directed towards integrating existing business systems as opposed to developing bespoke solutions. Consequently companies in the US and UK demanded IT Services (ITS) primarily related to solutions enabling (a) data driven decisions (b) enterprise wide information and knowledge sharing and (c) improved customer communication. In line with market dynamics, your Company focused on these segments ensuring a fit between its competence inventory and market requirements through re-training and recruitment, where necessary. For the year under review, revenues grew 132 % over the previous year. Investments in business development in the US and European markets, made over a period of time, have now begun to yield results. Your Company added significant new names to its customer base, thereby acquiring business depth and diversifying market risk. This, together with the substantial improvement in resource utilization led to reduction in losses by 51% over the previous year. Margins of Indian IT companies continue to be under severe pressure due to lower billing rates and the higher costs of delivery processes and project management skills. The aggressive pricing by global IT outsourcing firms, replicating the offshore services model of Indian IT companies, is creating further pressure on margins. Continuous improvement in resource utilisation is therefore vital for profitability. Your Company has put in place dedicated delivery and account management teams to address key accounts towards improving customer satisfaction and retention. The skill base stands strengthened through selective recruitment of specialists from the industry. Increased emphasis is being placed on the reuse of technology and business knowledge components in order to augment productivity. Your Company s quality processes were re-certified in April 2003 for ISO 9001 under the 2000 standard. The economic slowdown in the US and Europe continues to drive ITS outsourcing, for which India has emerged as a preferred destination. Certain states in the US have mooted proposals to ban outsourcing to India. Your Company believes that such proposals are a reaction to the global economic slowdown and are not indicative of a long term trend. Some states have already reviewed the ban, auguring well for the growth of the ITS outsourcing business. Your Company supports the recommendation of the National Association of Software and Services Companies (NASSCOM) for the issue of a new type of temporary visa to software professionals going abroad on short-term assignments. The recommendation, if accepted, would ease certain constraints faced by Indian companies in rendering IT services. The long-term future of Indian ITS sector remains bright. Comparative cost advantage, availability of well trained professionals, high quality support services and appreciably lower defects create an attractive value proposition. However, the year ahead is likely to remain challenging as the competitive environment intensifies. Your Company continues to reinforce its skills in relationship building, its delivery processes and its knowledge capital to aggressively compete in this arena. STRATEGIC INVESTMENTS Comparative cost advantage has also led many IT enabled services (ITES) to be outsourced to India. ITES represents a significant growth opportunity for Indian IT companies. Your Company proposes to exploit the ITES opportunity and progressively acquire a significant presence in this sector. In line with this strategic objective, your Company is in the concluding stages of negotiations with ClientLogic Operating Corporation, USA, (CL), a leading global customer relationship management services provider, for setting up a joint venture in India. Accordingly, CLI3L e-services Limited (CLI3L), was incorporated in Bangalore, India on 29th January, 2003 to provide India based call / contact centre and back office services. Your Company and CL have respectively subscribed to 24,999 and 25,001 equity shares of Rs 10/- each for cash at par in CLI3L. Upon signing of the Shareholders Agreement, your Company proposes to make an initial investment of Rs 15 crores in CLI3L within an overall limit equivalent to US$ 5 million ( approx. 25 crores ) approved by the Members. During the year under review your Company received the approval of the Reserve Bank of India to invest a further US$ 2.5 million in the equity share capital of ITC Infotech (USA), Inc. (I2A), a wholly owned subsidiary of your Company. Accordingly, your Company invested US$ 1.8 million in the equity share capital of I2A by subscribing to 18000 Common Shares-without par value for cash at US$ 100 each of I2A till date. WHOLLY OWNED SUBSIDIARIES i) ITC INFOTECH LTD, UK During the year under review, despite the business sentiment remaining sluggish, ITC Infotech Ltd, UK, a wholly owned subsidiary of your Company, registered a turnover of GBP 5.23 million (Previous year- GBP 3.34 million) and a net profit of GBP 0.42 million (Previous year-net profit GBP 0.26 million). The Company declared a dividend of 49p per share for the financial year ended 31st March, 2003. ii) ITC INFOTECH (USA), INC. During the year under review, ITC Infotech (USA), Inc., a wholly owned subsidiary of your Company, registered a turnover of US$ 2.75 million (Previous year- US $ 2.07 million) and a net loss of US $ 0.36 million (Previous year - net loss US $ 1.89 million). TALENT MANAGEMENT A competent talent pool is the key source of competitive advantage in the IT business. Your Company continues to reinforce its comprehensive human resource management systems and processes, with particular focus on training and development. Competency mapping and capability building for knowledge leadership remain the focus areas of your Company. OTHER INFORMATION The particulars of Conservation of Energy, Technology absorption, Foreign Exchange earnings and outgo in terms of section 217(1)(e) are given in Annexures A and B. The particulars of employees in terms of Section 217 (2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 as amended, is given in Annexure C. The Directors Responsibility Statement as required in terms of Section 217(2AA) is given in Annexure D. DIRECTORS In accordance with the provisions of Section 256 of the Companies Act, 1956 and Article 143 of the Articles of Association of your Company, Mr. Anand Nayak and Mr. Biswa Behari Chatterjee will retire by rotation at the ensuing Annual General Meeting, and being eligible, offer themselves for re-election. AUDIT COMMITTEE The Audit Committee of your Company comprises Mr. B. B. Chatterjee ( of the Committee), Mr. A. Nayak and Mr. K. Vaidyanath, all Directors of your Company. The Managing Director, the Head of Finance, the Statutory Auditors and the Internal Auditors are Permanent Invitees to the Committee. The Company Secretary serves as the Secretary of the Committee. AUDITORS The Auditors, Messrs. Price Waterhouse retire at the ensuing Annual General Meeting and, being eligible, offer themselves for re-appointment. ACKNOWLEDGMENTS Your Directors place on record their appreciation of the vital contribution made by the employees at all levels, who have demonstrated competence, hard work, co-operation and support throughout the year. Dated : 7th May, 2003 Virginia House 37, J. L. Nehru Road Anup Singh Kolkata - 700 071, India 161
ANNEXURE A TO THE REPORT OF DIRECTORS FOR THE FINANCIAL YEAR ENDED 31ST MARCH, 2003 INFORMATION AS PER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1998 A. CONSERVATION OF ENERGY Since the Company is engaged in software development, it is not a major consumer of energy. B. TECHNOLOGY ABSORPTION I. RESEARCH AND DEVELOPMENT (R&D) : Not Applicable 1. Specific areas in which R&D carried out by the Company 2. Benefits derived as a result of the above R&D 3. Future plan of action 4. Expenditure on R&D for (a) Capital (b) Recurring (c) Total (d) Total R&D expenditure as a percentage of Total Turnover II. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION 1. Efforts in brief made towards technology absorption, adaptation and innovation The Company operates in various state-of-the-art technology areas and has developed the necessary related skills. The Technology Change Management Group of the Company continuously scans the market for new technologies, designs, systems and processes and institutes appropriate systems to ensure effective absorption and deployment of such technologies within the organisation. 2. Benefit derived as a result of the above efforts Expansion of business in various new technology areas and productivity improvements through the use of contemporary software tools. Kolkata, 7th May, 2003 Anup Singh ANNEXURE B TO THE REPORT OF DIRECTORS FOR THE FINANCIAL YEAR ENDED 31ST MARCH, 2003 INFORMATION AS PER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1998 FOREIGN EXCHANGE EARNINGS AND OUTGO (a) Activities related to exports; initiatives taken to increase exports, development of new export markets for products and services; and export plans The Company has exported software and professional services to various countries. The Company aims to maximise its exports by maintaining constant contact with prospective customers, focussed business development and participation in international exhibitions to promote its services. (b) Total foreign exchange used and earned The foreign exchange earnings (FOB - realisation basis) of the Company during the year were Rs. 2275.01 lakhs (previous year Rs. 1226.62) lakhs while the outgoings were Rs. 950.29 lakhs (previous year Rs. 441.77 lakhs). Kolkata, 7th May, 2003 Anup Singh ANNEXURE C TO THE REPORT OF DIRECTORS FOR THE FINANCIAL YEAR ENDED 31ST MARCH, 2003 Particulars of Employees under Section 217 (2A) of the Companies Act, 1956 and forming part of the Directors Report Name Age Designation/ Gross Remu- Net Remu- Qualifications Experience Date of Previous Employment/ Nature of Duties neration neration (Years) Joining Position Held 1 2 3 4 5 6 7 8 9 Employed throughout the year and in receipt of remuneration aggregating Rs. 24,00,000/- or more Babu V. V. R. 48 Sr. V.P., Operations 26,36,450 12,43,234 B.Sc.,M.Sc. (Tech.), 26 1st Oct. 2000 ITC Ltd. M.Phil Divisional Head, India Operations (ISD) Employed for a part of the year and in receipt of remuneration aggregating Rs. 2,00,000/- or more per month Murugesh K. R. 39 V.P., Finance 3,50,622 2,04,317 B.Com. (Hons.), 18 1st Oct. 2000 ITC Ltd. A.C.A. Divisional Head, Finance (ISD) Notes : 1. Gross remuneration comprises salary, allowances, medical reimbursements, leave travel assistance, Company s contribution to provident, pension and gratuity funds, monetary value of other perquisites on the basis of the Income Tax Act and Rules and leave encashment. 2. Net remuneration comprises cash income less income tax and surcharge deducted at source and the manager's own contribution to provident fund. 3. All appointments are/were contractual, other terms and conditions are as per Company's Rules. 4. None of the aforesaid employees is a relative of any Director of the Company. Anup Singh Kolkata, 7th May, 2003 162
ANNEXURE D TO THE REPORT OF DIRECTORS FOR THE FINANCIAL YEAR ENDED 31ST MARCH, 2003 INFORMATION AS REQUIRED IN TERMS OF SECTION 217(2AA) OF THE COMPANIES ACT, 1956 DIRECTORS RESPONSIBILITY STATEMENT The Board of Directors states : l That in the preparation of the Annual Accounts for the year ended 31st March, 2003, the applicable accounting standards have been followed and there are no material departures. l That the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year ended 31st March, 2003 and of the Loss of the Company for that period ; l That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities ; l That the Directors have prepared the Annual Accounts for the year ended 31st March, 2003 on a going concern basis. Anup Singh Kolkata, 7th May, 2003 REPORT OF THE AUDITORS TO THE MEMBERS OF ITC INFOTECH INDIA LIMITED 1. We have audited the attached Balance Sheet of ITC INFOTECH INDIA LIMITED ( the Company ), as at 31st March, 2003 and the Profit and Loss Account for the year ended on that date annexed thereto both of which we have signed under reference to this report. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these 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 management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Manufacturing and Other Companies (Auditor s Report) Order, 1988 issued by the Central Government of India in terms of section 227 (4A) of The Companies Act, 1956 (the Act ) and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that : i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; ii) In our opinion proper books of account as required by law have been kept by the Company, so far as appears from our examination of those books; iii) The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account; iv) In our opinion, the Balance Sheet and Profit and Loss Account dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Act; v) On the basis of written representations received from the directors as on 31st March, 2003, and taken on record by the Board of Directors of the Company, we report that none of the directors as on 31st March, 2003 is disqualified from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Act; vi) In our opinion and to the best of our information and according to the explanations given to us, the said accounts together with the notes thereto, give the information required by the Act in the manner so required, and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March 2003; and (b) in the case of the Profit and Loss Account, of the loss for the year ended on that date. Place : Kolkata Date : 7th May, 2003 S. Gopalakrishnan Partner For and on behalf of Price Waterhouse Chartered Accountants ANNEXURE REFERRED TO IN THE AUDITOR S REPORT TO THE MEMBERS OF ITC INFOTECH INDIA LIMITED As required by the Manufacturing and Other Companies (Auditor s Report) Order, 1988 and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we further report that : A. 1. The Company has maintained proper records to show full particulars including quantitative details and situation of its fixed assets. The fixed assets of the Company have been physically verified by the management as per the phased programme and no material discrepancies were noted on such physical verification. 2. The fixed assets of the Company have not been revalued during the year. 3. The Company has not taken any loans, secured or unsecured from companies, firms or other parties listed in the register maintained under Section 301 of the Act. In terms of sub-section (6) of Section 370 of the Act, provisions of Section 370 are not applicable to a company. 4. The Company has not granted any loans, secured or unsecured to companies, firms or other parties listed in the register maintained under Section 301 of the Act. In terms of sub-section (6) of Section 370 of the Act, provisions of Section 370 are not applicable to a company. 5. The parties to whom the loans or advances in the nature of loans have been given are repaying the principal amounts as stipulated and are also regular in payments of interest, where applicable. 6. In our opinion, the Company has an adequate internal control procedure commensurate with the size and the nature of its business, for the purchase of computer hardware and software, consumables, plant and machinery, equipment and other assets and for sale of traded software. 7. There were no transactions of purchase of goods and materials and sale of goods, materials and services made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Act aggregating during the year to Rs 50,000 or more in respect of each party. 8. The Company has not accepted any deposits from the public. 163
9. In our opinion, the Company s internal audit system is commensurate with the size and nature of its business. 10. The Company has regularly deposited, during the year, the Provident Fund dues with the appropriate authorities in India. According to the information and explanations given to us, Employees State Insurance Scheme is not applicable to the Company. 11. At the last day of the financial year there was no amount outstanding in respect of undisputed Income Tax, Wealth Tax, Customs Duty, Excise Duty and Sales Tax which were due for more than six months from the date they became payable. 12. During the course of our examination of the books of account carried out in accordance with the generally accepted auditing practices in India, we have not come across any personal expenses which have been charged to Profit and Loss Account, other than those payable under contractual obligations or normally accepted business practice. B. 1. The nature of the services rendered is such that it does not involve consumption of materials and stores. 2. In our opinion, the Company has a reasonable system of allocating man-hours utilized to the relative jobs, commensurate with the size and nature of its business. 3. In our opinion, there is a reasonable system of authorisation at proper levels and an adequate system of internal control commensurate with the size of the Company and the nature of its business for allocation of labour to jobs. The other clauses of the MAOCARO namely 4A (iii), (iv), (v), (vi), (xii), (xiv), (xvi), (xx), 4C and 4D are not applicable to the Company since in our opinion there is no matter which arises to be reported as per the aforesaid order. Place : Kolkata Date : 7th May, 2003 S. Gopalakrishnan Partner For and on behalf of Price Waterhouse Chartered Accountants BALANCE SHEET AS AT 31ST MARCH, 2003 Schedule I. SOURCES OF FUNDS : 1. Shareholders Funds Capital 1 102,000,000 102,000,000 2. Loan Funds Unsecured Loans 2 652,000,000 423,000,000 Total 754,000,000 525,000,000 II. APPLICATION OF FUNDS : 1. Fixed Assets 3 (a) Gross Block 161,729,948 106,000,261 (b) Less : Depreciation 57,290,967 27,606,307 (c) Net Block 104,438,981 78,393,954 (d) Capital Work-in-Progress 24,281,654 104,438,981 102,675,608 2. Investments 4 268,078,327 181,417,837 3. Current Assets, Loans and Advances (a) Sundry Debtors 5 132,173,503 46,853,113 (b) Cash and Bank Balances 6 30,319,329 39,339,378 (c) Other Current Assets 7 15,425,773 4,880,091 (d) Loans and Advances 8 67,422,265 35,969,181 245,340,870 127,041,763 Less : Current Liabilities and Provisions (a) Liabilities 9 91,853,518 41,025,545 (b) Provisions 10 13,234,145 6,740,968 105,087,663 47,766,513 Net Current Assets 140,253,207 79,275,250 4. Profit and Loss Account 241,229,485 161,631,305 Total 754,000,000 525,000,000 Notes to the Accounts 15 Significant Accounting Policies 16 The Schedules referred to above form an integral part of the Balance Sheet. This is the Balance Sheet referred to in our report of even date. S. Gopalakrishnan, Partner For and on behalf of Price Waterhouse Chartered Accountants S. Verma Managing Director Place : Kolkata B. B. Chatterjee Director Date : 7th May, 2003 S. V. Shah Company Secretary 164
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2003 Schedule For the year ended For the year ended I. INCOME Sales and Services 11 454,147,754 208,908,980 Other Income 12 35,551,672 2,590,463 489,699,426 211,499,443 II. EXPENDITURE Software for Resale 24,186,215 5,692,465 Personnel Expenses 13 231,761,851 172,762,766 Operating and Administration Expenses 14 283,315,892 173,700,829 Depreciation 30,033,648 20,531,033 Preliminary Expenditure Written Off 55,907 569,297,606 372,743,000 III. PROFIT / (LOSS) BEFORE TAXATION (79,598,180) (161,243,557) Provision for Taxation IV. PROFIT / (LOSS) AFTER TAXATION (79,598,180) (161,243,557) Add : Profit / (Loss) Brought Forward (161,631,305) (387,748) V. BALANCE CARRIED TO BALANCE SHEET (241,229,485) (161,631,305) Notes to the Accounts 15 Significant Accounting Policies 16 The Schedules referred to above form an integral part of the Profit and Loss Account. This is the Profit and Loss Account referred to in our report of even date. S. Gopalakrishnan, Partner For and on behalf of Price Waterhouse Chartered Accountants S. Verma Managing Director Place : Kolkata B. B. Chatterjee Director Date : 7th May, 2003 S. V. Shah Company Secretary SCHEDULES TO THE ACCOUNTS 1. SHARE CAPITAL 2. UNSECURED LOANS Authorised : Other Loans 2,60,00,000 Equity Shares of Rs. 10 each Interest-free Loan from the (2002 1,50,00,000) 260,000,000 150,000,000 Holding Company, ITC Limited 652,000,000 423,000,000 Issued and Subscribed : 1,02,00,000 Equity Shares of Rs. 10 each, fully 652,000,000 423,000,000 paid-up ; (2002 1,02,00,000) (All Equity Shares are held by the Holding Company, ITC Limited) 102,000,000 102,000,000 102,000,000 102,000,000 3. FIXED ASSETS GROSS BLOCK DEPRECIATION NET BLOCK Additions With- For the Up to Description 1st April, drawals 31st March, 1st April, year Withdrawals 31st March, 31st March, 31st March, 2002 2003 2002 2003 2003 2002 Leasehold Improvements 8,145,529 3,257,990 11,403,519 615,980 1,868,365 2,484,345 8,919,174 7,529,549 Plant & Machinery 82,512,701 48,900,931 537,560 130,876,072 23,376,256 24,926,508 348,988 47,953,776 82,922,296 59,136,445 Furniture and Fixtures 15,342,031 4,108,326 19,450,357 3,614,071 3,238,775 6,852,846 12,597,511 11,727,960 106,000,261 56,267,247 537,560 161,729,948 27,606,307 30,033,648 348,988 57,290,967 104,438,981 78,393,954 Capital Work-in-Progress 24,281,654 18,992,265 43,273,919 24,281,654 Total 130,281,915 75,259,512 43,811,479 161,729,948 27,606,307 30,033,648 348,988 57,290,967 104,438,981 102,675,608 Previous Year 54,850,929 105,933,598 30,502,612 130,281,915 7,148,313 20,531,033 73,039 27,606,307 102,675,608 4. INVESTMENTS Long Term Other than Trade Unquoted (at Cost) Subsidiary Companies : ITC Infotech Limited, U.K. 68,685,837 68,685,837 685,815 (2002 685,815) Shares of GBP 1 each fully paid up ITC Infotech (USA), Inc. 199,142,500 112,732,000 40,000 (2002 22,000) Common Shares without par value (18,000 Subscribed during the year) Others : CLI3L e-services Limited 249,990 24,999 (2002 - NIl) Equity Shares of Rs. 10 each. fully paid up (Subscribed during the year) 268,078,327 181,417,837 5. SUNDRY DEBTORS Over Six Months Old Good and Unsecured 1,213,328 726,892 Doubtful and Unsecured 107,608 107,608 Other Debts Good and Unsecured 130,960,175 46,126,221 (Includes Dues from the Holding Company Rs. Nil; 2002 Rs. 14,724,248) (Also Includes Dues from Subsidiaries Rs. 12,553,995; 2002 Rs. Nil) (Also includes Unbilled Revenue Rs. 18,044,479; 2002 - Rs. 1,198,000) 132,281,111 46,960,721 Less : Provision for Doubtful Debts 107,608 107,608 132,173,503 46,853,113 165
6. CASH AND BANK BALANCES Cash on Hand 162,283 128,339 Remittance in Transit 10,062,509 11,227,406 Balances with Scheduled Banks on Current Accounts 20,094,537 27,983,633 30,319,329 39,339,378 7. OTHER CURRENT ASSETS Good and Unsecured Deposits with Government, Public Bodies and Others 8,736,536 4,879,110 Interest accrued on Loans, Advances etc. 981 981 Dividend Receivable 6,688,256 15,425,773 4,880,091 8. LOANS AND ADVANCES Good and Unsecured Loan to Employees 24,936,982 24,491,137 Advances Recoverable in cash or in kind or for value to be received 37,757,320 2,129,952 Advance Tax (Net of Provision for Income Tax) 4,727,963 9,348,092 67,422,265 35,969,181 9. LIABILITIES Sundry Creditors Dues to small scale industrial undertakings Dues to other than small scale industrial undertakings 86,634,668 37,216,560 (Includes Dues to Subsidiary Companies Rs. Nil; 2002-6,209,618) Other Liabilities 5,218,850 3,808,985 91,853,518 41,025,545 10. PROVISIONS Provision for Pension 10,104,540 3,394,441 Provision for Leave Encashment 3,129,605 3,346,527 13,234,145 6,740,968 For the year ended For the year ended 11. SALES AND SERVICES Exports 287,371,735 69,297,315 Domestic 142,284,403 133,882,533 Traded Software 24,491,616 5,729,132 454,147,754 208,908,980 12. OTHER INCOME Interest on Deposits Gross 64,226 (Tax Deducted at Source Rs. Nil; 2002 Rs. 11,400) Other Interest - Gross 1,279,841 621,794 (Tax Deducted at Source Rs. Nil ; 2002 Rs. Nil) Exchange Gain 1,017,057 1,426,623 Dividend from Subsidiary Company 25,018,240 Liabilities no longer required Written Back 1,271,242 147,534 Miscellaneous Income 6,965,292 330,286 35,551,672 2,590,463 13. PERSONNEL EXPENSES Salaries and Bonus 193,281,323 146,426,363 Contribution to Provident and Other Funds 36,538,354 25,024,065 Staff Welfare Expenses 10,629,349 9,469,247 240,449,026 180,919,675 Less: Transferred to Fixed Assets/ Capital Work-in-Progress 8,687,175 8,156,909 231,761,851 172,762,766 14. OPERATING AND ADMINISTRATION EXPENSES Rent 11,868,082 8,981,107 Rates and Taxes 2,892,107 270,268 Insurance 3,292,055 693,961 Travelling and Conveyance 131,699,626 59,126,525 Communication 15,002,366 15,395,550 Power and Fuel 9,015,115 7,242,154 Outsourcing Charges 14,847,339 11,630,121 (including Payment to Subsidiary Companies Rs. 8,923,264; 2002 Rs. 7,449,197) Software and Related Expenses 13,968,964 16,881,334 Business Development Expenses 46,307,450 20,382,827 (including Payment to Subsidiary Company Rs. 41,316,250; 2002 Rs. 9,740,250) For the year ended For the year ended Repairs and Maintenance Buildings 3,243,390 3,329,746 Machinery 3,741,808 3,474,495 Others 2,797,449 2,620,877 Legal, Professional & Consultancy Expenses 16,120,112 5,337,216 Provision for Doubtful Debts 107,608 Fixed Assets written off 188,572 172,650 Loss on Sale of Fixed Assets 60,418 Auditors Remuneration 975,203 732,985 Training and Development 4,025,266 6,286,861 Miscellaneous Expenses 9,489,060 18,716,973 289,473,963 181,443,676 Less: Transferred to Fixed Assets/ Capital Work-in-Progress 6,158,071 7,742,847 283,315,892 173,700,829 15. NOTES TO THE ACCOUNTS 1. Nature of Operations ITC Infotech India Limited ( the Company ) is a wholly owned subsidiary of ITC Limited ( the Holding Company ) providing information technology solutions and software development services. 2. Commitments and Contingencies (i) Estimated amount of contracts remaining to be executed on capital account, net of advance is Rs. 26,777,500 (2002 Rs. 4,357,870). (ii) Proposed investment in wholly owned subsidiaries outside India is Rs. 33,239,500 (2002 Rs. 125,000,000). 3. The Company has adopted Accounting Standard 22, Accounting for Taxes on Income issued by the Institute of Chartered Accountants of India with effect from 1st April, 2001. As a matter of prudence the Company has not recognized the deferred tax assets in respect of accumulated losses and unabsorbed depreciation as at 31st March, 2003 amounting to Rs. 104,061,000 (2002 Rs. 73,700,000). 4. No provision for the diminution in the value of the investment in ITC Infotech (USA), Inc., is considered necessary, as in the opinion of management such diminution is of temporary nature due to the continued downturn in the global IT market. 5. The Company s significant leasing arrangements are in respect of operating leases for premises (residential, office etc). These leasing arrangements, which are not non-cancellable, range between 11 months and 9 years generally, and are usually renewable by mutual consent on mutually agreeable terms. The aggregate lease rentals payable are charged as Rent under Schedule 14 to the Accounts. 6. Quantitative details The Company is engaged in the development and trading of software. The purchase, production and sale of such software cannot be expressed in any generic unit. Hence, it is not possible to give the quantitative details of sales and the information as required under Paragraphs 3 and 4C of Part II of Schedule VI of the Companies Act, 1956. For the year ended For the year ended 31st March, 2003 31st March, 2001 7. Auditors Remuneration (including service tax, where applicable) Statutory Audit 525,000 525,000 Other services 318,750 170,500 Out of pocket expenses 131,453 37,485 975,203 732,985 8. C.I.F. Value of Imports Purchase of Software 435,783 4,974,360 9. Expenditure in Foreign Currency (On Payment Basis) Travel 61,631,366 18,891,415 Professional and Consultancy Fees 3,647,380 14,239,136 Marketing Fees 29,301,000 4,860,250 Others 13,765 1,212,228 Total 94,593,511 39,203,029 10. Earnings in Foreign Exchange (F.O.B. Realization Basis) Sale of Services including reimbursement of expenses 202,660,996 122,662,127 Other Income 6,510,400 Dividend 18,329,983 227,501,379 122,662,127 11. Previous year s figures have been regrouped / rearranged wherever necessary. 166
16.SIGNIFICANT ACCOUNTING POLICIES IT IS CORPORATE POLICY Convention To prepare financial statements in accordance with applicable Accounting Standards in India. A summary of important accounting policies, which have been applied consistently, is set out below. The financial statements have also been prepared in accordance with relevant presentational requirements of the Companies Act, 1956. Basis of Accounting To prepare financial statements in accordance with the historical cost convention. Revenue Recognition To recognize revenues from services performed on a time and material basis, as and when the services are performed. To recognize revenues from services performed on time bound fixedprice engagements using the percentage of completion method of accounting, if work completed can be reasonably estimated. The cumulative impact of any revision in estimates of the percentage of work completed is reflected in the period in which the change becomes known. Provisions for estimated losses on such engagements are made during the period in which a loss becomes probable and can be reasonably estimated. To recognize revenue from trading in software packages / licenses upon delivery to customer. To treat amounts received or billed in advance of services performed as unearned revenue. Unbilled revenue, included in debtors, represents amounts recognized based on services performed in advance of billing in accordance with contract terms. Fixed Assets To state fixed assets at actual cost less accumulated depreciation. The actual cost capitalized includes material cost, freight, installation cost, duties and taxes, finance charges and other incidental expenses incurred during the construction / installation stage. To capitalize software where it is expected to provide future enduring economic benefits. Capitalization costs include license fees and costs of implementation / system integration services. The costs are capitalized in the year in which the relevant software is implemented for use. Capital Work-in-Progress To treat cost of assets not put to use before the year-end as capital work-in-progress. Depreciation To calculate depreciation on fixed assets on the straight-line method over their estimated useful lives at the rates, which are not less than those prescribed under Schedule XIV of the Companies Act, 1956. The cost of and the accumulated depreciation for fixed assets sold, retired or otherwise disposed off are removed from the stated values and the resulting gains and / or losses are included in the Profit and Loss Account. The estimated useful lives of fixed assets are as follows : Buildings 25 years P&M - Computers / Computer Accessories 3 years Other Equipments 5 years Furniture & Fixtures 5 years Motor Vehicles 5 years Leasehold improvements Shorter of lease period or estimated useful lives Capitalised software costs are amortised over a period of five years. Investments To state long-term investments at cost. Where applicable, provision is made where there is a permanent diminution in the value of long-term investments. Proposed dividend To provide for Dividends as proposed by the Directors in the books of accounts, pending approval at the Annual General Meeting. Research and Development To charge of all revenue expenditure incurred on research and development in the year it is incurred. Assets purchased for research and development activities are included in fixed assets. Foreign Currency Translation To account for transactions in foreign currency at the exchange rate prevailing on the date of transactions. Gains / losses arising out of fluctuations in the exchange rates are recognized in the Profit and Loss Account in the period in which they arise except in respect of Fixed Assets where exchange variance is adjusted in the carrying amount of the respective Fixed Assets. To account for differences between the forward exchange rates and the exchange rates at the date of transactions, as income or expense over the life of the contracts, except in respect of liabilities incurred for acquiring Fixed Assets, in which case such differences are adjusted in the carrying amount of the respective Fixed Assets. To account for profit / loss arising on cancellation or renewal of forward exchange contracts as income / expense for the period, except in case of forward exchange contracts relating to liabilities incurred for acquiring Fixed Assets, in which case such profit / loss are adjusted in the carrying amount of the respective Fixed Assets. To account for gains / losses on foreign exchange rate fluctuations relating to current assets and liabilities at the Balance Sheet date. Employee Benefits To make regular monthly contributions to various Provident Funds, Pension Funds and Gratuity Funds which are charged to revenue. To administer through duly constituted and approved independent trusts, various Funds in respect of Employee Benefit Schemes. To provide for leave encashment based on actuarial valuation made by independent actuaries as at the Balance Sheet date. Claims To disclose claims against the Company not acknowledged as debts after a careful evaluation of the facts and legal aspects of the matter involved. S. Gopalakrishnan, Partner For and on behalf of Price Waterhouse Chartered Accountants S. Verma Managing Director Kolkata B. B. Chatterjee Director 7th May, 2003 S. V. Shah Company Secretary BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE (As per Schedule VI, Part IV of the Companies Act, 1956) I. Registration Details IV. Performance of Company (Amount in Rs. Thousands) Registration No. 7 7 3 4 1 State Code 2 1 Turnover (Including other Income) Total Expenditure Balance Sheet Date 3 1 0 3 0 3 4 8 9 6 9 9 5 6 9 2 9 7 II. Date Month Year 3 Profit/Loss Before Tax 3 Profit / Loss After Tax Capital raised during the year (Amount in Rs. Thousands) + 7 9 5 9 8 + 7 9 5 9 8 Public Issue Rights Issue N I L N I L (Please tick appropriate box + for Profit, for Loss) Bonus Issue Private Placement N I L N I L Earnings per Share in Rs. Dividend Rate (%) III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands) N I L N I L Total Liabilities Total Assets 7 5 4 0 0 0 7 5 4 0 0 0 V. Generic Names of Principal Products / Services of Company (as per Sources of Funds monetary terms) Paid-up Capital Reserves & Surplus 1 0 2 0 0 0 N I L Item Code No. (ITC Code) * N. A. Secured Loans Unsecured Loans N I L 6 5 2 0 0 0 Product Description C O M P U T E R S O F T W A R E Application of Funds Net Fixed Assets Investments S E R V I C E S 1 0 4 4 3 9 2 6 8 0 7 8 Net Current Assets Misc. Expenditure *No item code has been assigned to Computer Software Services under the Indian 1 4 0 2 5 3 N I L Trade Classification. Accumulated Losses 2 4 1 2 3 0 167
STATEMENT REGARDING SUBSIDIARY COMPANIES PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956 Sl. Name of the Subsidiary Number of Extent of Profits / (Losses) so far it concerns the Profits / (Losses) so far it concerns the No. Company Shares held Holding members of the Holding Company members of the Holding Company by the and not dealt with in the Books of and dealt with in the Books of Company Account of the Holding Company Account of the Holding Company For the Financial For the Previous For the Financial For the Previous Year of the Financial Year(s) Year of the Financial Year(s) Subsidiary since it became Subsidiary since it became a Subsidiary a Subsidiary 1. ITC INFOTECH LIMITED, U.K. 6,85,815 100% GBP 80,948 GBP 259,812 336,049 NIL 2. ITC INFOTECH (USA), INC. 40,000 100% US$ (356,284) US$ (1887073) NIL NIL Both the subsidiaries have financial years ended on 31.03.2003. Kolkata, 7th May, 2003 S. Verma Managing Director B. B. Chatterjee Director S. V. Shah Company Secretary 168