Consolidated A/C Colour 106
AUDITORS REPORT THE BOARD OF DIRECTORS OF KPIT CUMMINS INFOSYSTEMS LIMITED We have audited the attached consolidated balance sheet of KPIT CUMMINS INFOSYSTEMS LIMITED ( the Company ), and its SUBSIDIARIES (the Company and its subsidiaries constitute the Group ), as at 31 st March 2006 and also the consolidated profit and loss account and the consolidated cash flow statement for the year ended on that date both annexed thereto. 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. 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 the 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. 1. We report that the consolidated financial statements have been prepared by the Company s management in accordance with the requirements of Accounting Standards (AS) 21 Consolidated Financial Statements issued by the Institute of Chartered Accountants of India. 2. Without qualifying our opinion, we draw attention to note no. 5.1.e of the Schedule XIV to the consolidated financial statements. As mentioned in the said note, during the year the Company has acquired SolvCentral.Com Inc. (SolvCentral), a company based in USA. The Company s management has consolidated the accounts of SolvCentral with effect from 1 st January 2006 based on the un-audited financial statements of SolvCentral as on 31 st December 2005 which represent a net worth of Rs. 294.94 lakhs. 3. In our opinion and to the best of our information and according the explanations given to us and read with para 2 above, the consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: a. in case of the consolidated balance sheet, of the state of affairs of the Group as at 31 st March 2006; b. in case of the consolidated profit and loss account, of the profits of the Group for the year ended on that date; and c. in case of the consolidated cash flow statement, of the cash flows of the Group for the year ended on that date. For DELOITTE HASKINS & SELLS Chartered Accountants Hemant M. Joshi Partner Pune Membership No: 38019 April 27, 2006 107
Consolidated Balance Sheet as at Sources of Funds March 31, 2006 March 31, 2005 Schedule Rupees Rupees Rupees Rupees Shareholders Funds Share capital I 72,798,430 70,448,180 Application money 25,537,101 44,621,932 Reserves and surplus II 1,319,036,744 946,232,600 1,417,372,275 1,061,302,712 Loan Funds Secured loans III 835,815,645 360,227,775 Unsecured loans IV 39,287,595 9,404,483 Minority Interest 4,389,755 Deferred Tax Liability 7,745,738 5,531,715 Application of Funds Total 2,304,611,008 1,436,466,685 Fixed Assets V Gross block 863,012,352 613,617,995 Less: accumulated depreciation 190,233,292 109,347,146 Net block 672,779,060 504,270,849 Capital work in progress 280,597,655 953,376,715 33,265,589 537,536,438 Investments VI 111,000 111,000 Current Assets, Loans and Advances Sundry debtors VII 867,744,669 500,527,629 Cash & bank balances VIII 411,345,375 546,203,028 Loans & advances IX 442,221,892 126,512,658 1,721,311,936 1,173,243,315 Less: Current Liabilities X 370,361,641 274,424,068 and Provisions Net Current Assets 1,350,950,295 898,819,247 Miscellaneous Expenditure (to the extent not written off or adjusted) Preliminary expenses (Refer Note 1.4 of Schedule XVI) 172,998 Total 2,304,611,008 1,436,466,685 Notes to Accounts XVI The Schedules and Notes to Accounts form an integral part of the Financial Statements For Deloitte Haskins & Sells For and on behalf of Board of Directors Chartered Accountants Hemant M. Joshi Anil Patwardhan S.B. (Ravi) Pandit Partner Vice President - Finance Chairman & Group CEO Kishor Patil CEO & Managing Director Puneet Bansal Girish Wardadkar Company Secretary President & Executive Director Pune Pune April 27, 2006 April 27,2006 108
Consolidated Profit and Loss Account for year ended Schedule March 31, 2006 March 31, 2005 Rupees Rupees Income Overseas sales ( includes foreign exchange gain of Rs 46,162,905 ( PY 16,860,876) 3,134,949,331 2,491,409,875 Domestic sales 47,195,926 33,121,703 3,182,145,257 2,524,531,578 Software development expenses XI 2,061,133,866 1,664,549,441 Gross Profit 1,121,011,391 859,982,137 Selling and marketing expenses XII 99,871,416 101,574,272 General and administration expenses XIII 559,242,823 426,033,961 Operating Profit before Interest and Depreciation 461,897,152 332,373,904 Interest XIV 19,176,907 9,430,367 Depreciation 84,200,100 32,066,662 Operating Profit after Interest, Depreciation and before Tax 358,520,145 290,876,875 Other income XV 128,321 2,858,996 Profit before Tax and before Extra-ordinary item 358,648,466 293,735,871 Provision for taxation - current year 26,479,942 13,800,221 Provision for fringe benefit tax-current year 4,683,617 Provision for taxation - prior years (396,793) Provision for taxation - deferred tax 2,214,023 (897,417) Profit after Tax and before Extra-ordinary item 325,667,677 280,833,067 Extraordinary item - prior period expenses/(gain) (3,121,688) Profit after Tax 325,667,677 283,954,755 Profit before Minority Interest 325,667,677 283,954,755 Less : Minority Interest (25,992) Profit for the period 325,641,685 283,954,755 Amount available for Appropriation 325,641,685 283,954,755 Dividend Final (proposed) 25,479,451 24,656,863 Dividend tax 3,579,863 3,458,125 Amount transferred to Profit and Loss account 296,582,371 255,839,767 325,641,685 283,954,755 Earnings Per Share (equity shares, par value Rs. 5/- each) Basic 22.71 22.14 Diluted 18.28 17.09 Number of shares used in computing earnings per share Basic (weighted average) 14,337,644 12,823,128 Diluted (weighted average) 17,809,473 16,614,818 Notes to Accounts XVI The Schedules and Notes to Accounts form an integral part of the Financial Statements For Deloitte Haskins & Sells For and on behalf of Board of Directors Chartered Accountants Hemant M. Joshi Anil Patwardhan S.B. (Ravi) Pandit Partner Vice President - Finance Chairman & Group CEO Kishor Patil CEO & Managing Director Puneet Bansal Girish Wardadkar Company Secretary President & Executive Director Pune Pune April 27, 2006 April 27,2006 109
Consolidated Cash Flow Statement for the year ended Particulars March 31, 2006 March 31, 2005 Rupees Rupees A] Cash Flow from Operating Activities Net profit / ( loss) before tax and extraordinary items 358,648,466 293,735,871 Adjustments for (Profit)/ loss on sale of fixed assets (71,762) (2,065,782) Depreciation 84,200,100 32,066,662 Interest and financial charges 19,176,907 9,430,367 Interest income (13,714,465) (3,011,207) Provision for doubtful debts 2,543,964 (845,682) Dividend Received (1,800) (793,215) Minority Interest (25,992) Cash Flow before Working Capital changes 450,755,418 328,517,015 Adjustments for (Increase) / decrease in receivables (369,761,005) (127,440,432) (Increase) / decrease in other advances (315,709,233) (68,227,375) Increase/ (decrease) in accounts payable. 95,937,573 140,758,420 Cash Inflow / (Outflow) from Operations (138,777,247) 273,607,628 Direct taxes and extra-ordinary items Provision for tax (32,980,789) (12,902,804) Deferred tax 2,214,023 (976,725) Preliminary expenses (to the extent not written off or adjusted) (172,998) (Expenses) /gain relating to earlier year 3,121,688 Net Cash Inflow / (Outflow) from Operations (169,717,011) 262,849,787 B] Cash Flow from Investing Activity Purchase of fixed assets (499,995,255) (419,713,750) Sale of fixed assets 615,794 18,466,700 Interest received 13,714,465 3,011,207 Dividend received 1,800 793,215 Minority Interest 4,389,755 Net Cash used in Investing Activity (481,273,441) (397,442,628) 110
Consolidated Cash Flow Statement for the year ended Particulars March 31, 2006 March 31, 2005 Rupees Rupees C] Cash Flow from Financing Activity Repayment of term loan (73,755,982) (53,787,296) Issue of shares including stock option 59,157,064 428,515,323 Availment of loan 478,365,282 46,280,000 Increase /(decrease) in working capital loan 104,481,069 106,888,802 Increase /(decrease) in finance lease obligation (3,619,388) 4,175,336 Dividend and corporate dividend tax (29,059,314) (28,114,988) Interest and finance charges (19,176,907) (9,430,367) Interest on Team Loan capitalised (589,153) Net Cash used in Financing Activity 515,802,671 494,526,809 D] Exchange Gain / (Loss) 330,128 (134,942) Net Increase / (Decrease ) in Cash and Cash Equivalents (A + B+ C+D) (134,857,653) 359,799,024 Cash & cash equivalents at close of the year 411,345,375 546,203,028 Cash & cash equivalents at beginning of the year 546,203,028 186,404,004 Cash Surplus / (Deficit) for the year (134,857,653) 359,799,024 Note: 0 Cash and cash equivalents include: Cash on hand 137,421 102,540 Funds in transit / cheques on hand 4,982,403 Balance with scheduled banks On current 93,109,467 77,163,486 On deposit account 283,721,457 317,855,520 Balance with non scheduled banks On current accounts 34,377,030 146,099,079 On deposit 411,345,375 546,203,028 For Deloitte Haskins & Sells For and on behalf of Board of Directors Chartered Accountants Hemant M. Joshi Anil Patwardhan S.B. (Ravi) Pandit Partner Vice President - Finance Chairman & Group CEO Kishor Patil CEO & Managing Director Puneet Bansal Girish Wardadkar Company Secretary President & Executive Director Pune Pune April 27, 2006 April 27,2006 111
Schedules to the Consolidated Balance Sheet as at March 31, 2006 March 31, 2005 Rupees Rupees Rupees Rupees Schedule - I Share Capital Authorised 24,000,000 equity shares ( previous year 24,000,000 of Rs.5 each ) of Rs.5 each 120,000,000 120,000,000 Issued, Subscribed and Paid up 72,798,430 70,448,180 14,559,686 equity shares (previous year 14,089,636 of Rs. 5 each) of Rs.5 each fully paid up [of the above shares 2,779,784 equity shares of Rs. 5 each post-split (Previous Year 2,324,602 shares of Rs.5 each) are allotted as fully paid-up pursuant to contracts without payments being received in cash Total 72,798,430 70,448,180 Schedule - II Reserves and Surplus Capital Reserve As per last balance sheet 509,000 509,000 Additions during the year 509,000 509,000 General Reserve As per last Balance Sheet 74,507,006 51,807,006 Add: Transferred from profit and loss account 27,500,000 102,007,006 22,700,000 74,507,006 Securities Premium As per last balance sheet 501,555,786 110,102,575 Additions during the year 75,891,646 577,447,432 391,453,212 501,555,787 Profit & Loss Account As per last balance sheet 361,209,717 128,069,950 Add: Surplus/(deficit) for the year 296,582,371 255,839,767 Less: Transfer to general reserve 27,500,000 630,292,088 22,700,000 361,209,717 Cumulative Translation Adjustments 8,781,218 8,451,090 Total 1,319,036,744 946,232,600 Schedule - III 112
Schedules to the Consolidated Balance Sheet as at Secured Loans March 31, 2006 March 31, 2005 Rupees Rupees Rupees Rupees Term Loan From bank 527,764,304 156,657,504 [The amount repayable within one year Rs. 124,622,153 ( Previous year Rs 57,780,352) Secured by first charge by way of mortgage of immovable fixed assets excluding assets charged exclusively to the lender of working capital loan] Working Capital Loan Cash credit (inclusive of bills discounted) 308,051,341 203,570,271 [Secured by hypothecation of current assets, book debts and equitable mortgage over immovable fixed assets rank pari passu ] Total 835,815,645 360,227,775 Schedule - IV Unsecured Loans Term Loan From banks 33,502,500 Finance Lease Obligation 5,785,095 9,404,483 [Secured by hypothecation of assets taken on lease] Total 39,287,595 9,404,483 113
Schedules to the Consolidated Balance Sheet as at Schedule - V Fixed Assets Rupees Gross Block Depreciation Net Block 114 Particulars As on Adjustment on Additions Deductions/ As on Up to For the Deductions/ Up to As on As on April 1, 2005 account of FE Discarded March 31, 2006 April 1, 2005 Year Discarded March 31, 2006 March 31, 2006 March 31, 2005 transiation For the year Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Intangible Assets Goodwill 49,028,627 (1,055,610) 60,470,835 108,443,852 108,443,852 49,028,627 ( Refer note 1.1.b.ii of Schedule XVI) Project Development Expenses 21,603,981 21,603,981 2,400,444 2,400,444 19,203,537 ( Refer note 5.1.d of Schedule XVI) Tangible Assets Land (Leasehold) 33,879,494 33,879,494 417,852 415,008 832,860 33,046,634 33,461,642 Building 128,919,084 9,683,233 138,602,317 1,783,612 9,965,038 11,748,650 126,853,667 127,135,472 Plant and Machinery 135,160,506 (53,612,209) 31,487,539 (289,140) 112,746,696 22,118,407 14,254,534 (297,851) 36,075,090 76,671,606 113,042,099 Computers 116,634,658 53,715,358 57,916,321 (522,020) 227,744,317 51,597,277 22,023,458 (424,469) 73,196,266 154,548,051 65,037,381 Software Package 17,252,179 38,230,281 55,482,460 11,209,697 11,124,043 22,333,740 33,148,720 6,042,482 Furniture and Fittings 127,483,963 5,007 25,776,107 (83,301) 153,181,776 17,009,597 20,515,141 (83,300) 37,441,438 115,740,338 110,474,366 Vehicles - Owned 532,898 532,898 481,285 50,625 531,910 988 51,613 Vehicles - Lease / HP 15,247,302 (4,452,741) 10,794,561 6,218,637 3,451,809 (3,997,552) 5,672,894 5,121,667 9,028,665 TOTAL 624,138,711 (947,454) 245,168,297 (5,347,202) 863,012,352 110,836,364 84,200,100 (4,803,172) 190,233,292 672,779,060 513,302,347 Capital Work in Progress 280,597,655 33,265,589 [Including Capital Advances of Rs 191,974,881 (Previous Year Rs 2,128,204)] G R A N D T O T A L 624,138,711 (947,454) 245,168,297 (5,347,202) 863,012,352 110,836,364 84,200,100 (4,803,172) 190,233,292 953,376,715 546,567,936 Previous Year 218,531,598 412,326,337 (17,239,940) 613,617,995 78,153,744 32,066,663 (839,021) 109,347,146 537,536,439 167,319,153 Note :- Opening gross block and accumulated depreciation upto 01-04-2005 includes assets of Solvcentral.com Inc and KPIT Cummins Global Business Solutions Limited.
Schedules to the Consolidated Balance Sheet as at March 31, 2006 March 31, 2005 Rupees Rupees Rupees Rupees Schedule - VI Investments (at cost) Non Trade (Unquoted) Janata Sahakari Bank Ltd. 1,000 1,000 10 (Previous Year 10) equity shares of Rs.100 each Saraswat Co-op. Bank Ltd. 1,000 (Previous Year 1,000) equity shares of Rs. 10 each 10,000 10,000 Cosmos Co-op. Bank Ltd. 5000 (Previous Year 5000) equity shares of Rs.20 each 100,000 111,000 100,000 111,000 Total 111,000 111,000 Schedule - VII Sundry Debtors Unsecured Outstanding for a period exceeding Six Months Considered Good 6,356,134 Considered doubtful 5,249,787 2,377,741 11,605,921 2,377,741 Other Debts Considered Good 861,388,535 500,527,629 Considered doubtful 328,082 861,388,535 500,855,711 Less : Provision for doubtful debts 5,249,787 867,744,669 2,705,823 500,527,629 Total 867,744,669 500,527,629 115
Schedules to the Consolidated Balance Sheet as at March 31, 2006 March 31, 2005 Rupees Rupees Rupees Rupees Schedule - VIII Cash and Bank Balances Cash on Hand 137,421 102,540 Funds in Transit 4,982,403 Balance with Scheduled Banks On current accounts 93,109,467 77,163,486 On deposit account 283,721,457 376,830,924 317,855,520 395,019,006 Balance with Non Scheduled Banks On current account maximum balance during the year Rs.126,562,749/- (previous year Rs. 46,162,901) 34,377,030 146,099,079 On deposit account [maximum balance during the year Rs. Nil (previous year Rs. 5,677,185)] 34,377,030 146,099,079 Total 411,345,375 546,203,028 Schedule - IX Loans and Advances [Unsecured, considered good] Advances recoverable in cash or in kind or for value to be received 75,724,936 43,663,265 Advance tax and tax deducted at source 38,143,819 32,301,593 Prepaid Expenses 23,918,415 137,787,170 18,804,074 94,768,932 Advances for Investments 269,359,046 Deposits 33,228,944 31,218,992 Interest Accrued but not due 1,846,732 524,734 Total 442,221,892 126,512,658 116
Schedules to the Consolidated Balance Sheet as at March 31, 2006 March 31, 2005 Rupees Rupees Rupees Rupees Schedule - X Current Liabilities and Provisions Current Liabilities Sundry Creditors For goods and services 170,053,053 160,591,747 For accrued salaries and benefits 90,195,504 260,248,557 33,372,110 193,963,857 Other liabilities 28,250,061 10,586,765 Unclaimed dividend 647,912 28,897,973 472,873 11,059,638 Provisions For taxation 30,917,954 32,647,256 For fringe benefit tax 4,683,617 For dividend 25,479,451 24,656,863 For dividend tax 3,579,863 3,458,125 For staff benefits 16,554,226 8,638,329 81,215,111 69,400,573 Total 370,361,641 274,424,068 117
Schedules to the Consolidated Profit and Loss Account for year ended March 31, 2006 March 31, 2005 Rupees Rupees Schedule - XI Software Development Expenses Salaries and bonus 758,136,807 526,352,134 Consultancy charges 771,068,420 954,048,110 Travel and overseas expenses 217,870,192 145,625,858 Cost of service delivery 314,058,447 38,523,338 Total 2,061,133,866 1,664,549,441 Schedule - XII Selling and Marketing Expenses Marketing services expenses 59,789,641 46,733,410 Marketing travel expenses 40,081,775 54,840,862 Total 99,871,416 101,574,272 Schedule - XIII General and Administration Expenses Salaries and bonus 279,106,715 208,094,783 Staff welfare 4,327,441 9,106,632 Foreign travel expenses 1,062,931 5,843,682 Travelling and conveyance 13,802,027 4,523,142 Recruitment and training expenses 41,282,659 34,236,555 Rent, rates and taxes 44,858,645 45,542,721 Communication expenses 38,209,256 30,872,685 Professional and legal expenses 32,613,875 20,514,558 Printing and stationery 5,526,339 5,414,222 Repairs to building 19,406 Repairs to plant and machinery 8,180,839 1,460,835 Repairs to others 8,180,831 8,455,103 Power and fuel 20,721,251 11,397,175 Insurance charges 17,171,357 15,253,459 Auditors Remuneration Audit fees 2,078,503 1,254,379 Certification charges 517,940 1,595,750 Out-of-pocket expenses 600,151 42,353 Bad debts written off 2,321,074 1,371,520 Provision for bad and doubtful debts 2,543,964 (2,217,202) Other miscellaneous expenses 27,601,232 19,269,959 Preliminary expenses 21,,624 Foreign exchange (gain)/loss 8,514,169 3,982,244 Total 559,242,823 426,033,961 118
Schedules to the Consolidated Profit and Loss Account for year ended March 31, 2006 March 31, 2005 Rupees Rupees Schedule - XIV Interest, net Financial charges 30,968,721 10,855,076 Lease charges 1,922,651 1,586,498 32,891,372 12,441,574 Less : Interest income 13,714,465 3,011,207 Total 19,176,907 9,430,367 Schedule - XV Other Income Dividend on investments 1,800 793,215 Miscellaneous income 54,759 Profit on sale of assets 71,762 2,065,781 Total 128,321 2,858,996 119
Schedule XVI - Notes to Consolidated Accounts (All amounts in Rupees except otherwise stated) 1. Significant Accounting Policies 1.1 Principles of consolidation The consolidated financial statements relate to KPIT Cummins Infosystems Limited (the Company) and its subsidiaries, which constitutes the Group. a. Basis of Accounting i. The financial statements of the subsidiary companies used in the consolidation are drawn upto the same reporting date as of the Company, i.e. year ended March 31, 2006. ii. The financial statements of the Group have been prepared in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India, and the other generally accepted accounting principles. b. Basis of Consolidation: The consolidated financial statements have been prepared on the following basis: i. The financial statements of the Company and its subsidiaries have been combined on a line-by-line basis by adding together like items of assets, liabilities, income and expenses. The intra-group balances and intra-group transactions and unrealized profits or losses have been fully eliminated. ii. iii. The excess of cost to Company of its investments in the Subsidiaries over its share of equity of the subsidiary companies, at the dates on which the investment in the subsidiaries are made, is recognized as goodwill being an asset in the consolidated financial statements. Alternatively, where the share of equity in the subsidiary companies on the date of investment is in excess of cost of investment of the Company, it is recognized as Capital Reserve and shown under the head Reserves and Surplus in the consolidated financial statements. Minority interest in the net assets of the consolidated subsidiaries consists of the amount of equity attributable to the minority shareholders at the dates on which investments are made by the Company in the subsidiary companies and further movements in their share in the equity, subsequent to the dates of investments as stated above. c. Following subsidiaries are considered in the consolidated financial statements: % voting power held Sr Subsidiary Country As at March 31, 2006 As at March 31, 2005 1. KPIT Infosystems Ltd. United Kingdom 100.00 100.00 2. KPIT Infosystems Inc United States of America 100.00 100.00 3. KPIT Systems LLC Middle East Joint Venture Company, Joint Venture however 100% Company, however Management and 100% Management and Control is with the Control is with Company the Company 4. Panex Consulting Inc. United States of America 100.00 100.00 5. SolvCentral.com Inc. United States of America 90.00 (Subsidiary of KPIT Infosystems Inc.) 6. KPIT Infosystems Germany 60.00 GmbH (JV of KPIT Infosystems Ltd., UK) 7. KPIT Cummins Global India 100.00 Business Solutions Limited 120
Schedule XVI - Notes to Consolidated Accounts 1.2 Depreciation Depreciation on fixed asset of the parent is provided using the straight-line method based on useful life of assets. Depreciation is charged on all assets purchased and sold during the year on a proportionate basis. The rates of depreciation are above minimum rates prescribed under Schedule XIV of the Companies Act, 1956 whereas the following table indicates the depreciation rates & method followed in respective subsidiaries. Class of Asset KPIT Cummins KPIT KPIT Panex Solv KPIT Infosystems Infosystems nfosystems Consulting Central.com Systems Ltd.- India UK US Inc. ME Leasehold land Amortized over the period of Lease Leasehold 1.63% SLM 10% SLM buildings 7.50% SLM Computers and 25.00% SLM 33.33% SLM 20% SLM 20% SLM 33.33% SLM 20% - SLM Peripherals Office 4.75% SLM 33.33% 20% SLM 14.29% SLM 10.00% SLM 20% - SLM Equipment 10.00% SLM SLM Electrical 33.33% SLM systems 10.00% SLM Furniture & 6.33% SLM 15% - RBM 40% SLM 10.00% SLM 20% - SLM fittings 12.50% SLM 14.28% SLM Vehicles on Amortized lease over the period of Lease Vehicles Owned 9.50% SLM SLM Straight line method, RBM Reducing balance method 1.3 Foreign currency transactions The translation of the accounts of foreign subsidiaries to Indian Rupees for the purpose of consolidation is performed as follows:! All incomes and expense items are converted at the average rate of exchange applicable for the year.! All assets and liabilities are translated at the closing rate as on the Balance Sheet date, except for fixed assets, which are converted at the exchange rate prevailing at the time of acquisition of these assets.! The share capital is carried forward at the rate of exchange prevailing on the date of transaction. In respect of subsidiaries, which are classified as Non-Integral Foreign Operation in terms of AS-11, exchange gains/ losses are transferred to Cumulative Translation Adjustments account and the said account is being treated as Reserve and Surplus Other subsidiaries, being Integral Foreign Operations in terms of AS-11, exchange gains / losses are recognized in the Profit & Loss account. 121
Schedule XVI - Notes to Consolidated Accounts 1.4 Preliminary Expenses Preliminary expenses of Rs. 1.95 lacs incurred by the Company are amortized over 36 months. The amount amortized in the period is Rs. 0.22 lacs. 2. As per Accounting Standard Interpretation 15 issued by the Institute of Chartered Accountants of India, notes which are necessary for presenting true and fair view of the consolidated financial statements are disclosed, applying test of materiality. 3. Disclosures as required by Schedule VI of the Companies Act, 1956 3.1 Sundry debtors also include amount due from Companies in which a company has common director in both the Companies. Name of the Company Balance Due as on Balance Due as on March 31, 2006 March 31, 2005 Cummins Group 430,840,992 187,391,547 Total 430,840,992 187,391,547 3.2 Employee Costs: The total employee cost as required to be disclosed under Schedule VI to the Companies Act, 1956 is as follows: Employee Costs FY 2005-06 FY 2004-05 Salary and Bonus - As shown under software development expenses 733,061,432 513,447,432 - As shown under general and administrative expenses 273,084,778 198,650,510 Sub-total 1,006,146,210 712,097,942 Contribution to provident and other funds - As shown under software development expenses 25,075,375 12,904,702 - As shown under general and administrative expenses 6,021,938 9,444,273 Sub-total 31,097,313 22,348,975 Total 1,037,243,523 734,446,917 122
Schedule XVI - Notes to Consolidated Accounts 3.3 Earnings per share: Particulars FY 2005-06 FY 2004-05 Basic Profit after tax and prior period expenses Rs. 325,641,685 283,954,755 Weighted average number of equity shares No. of Shares of Rs. 5 each 14,337,644 12,823,128 Earnings Per Share basic Rs. 22.71 22.14 Diluted Weighted average number of equity shares No. of shares 17,809,473 16,614,818 Earnings per share diluted Rs. 18.28 17.09 Nominal value of per share Rs. 5/- 5/- Earnings per share before Prior Period items Basic Rs. 22.71 21.90 Diluted Rs. 18.28 17.90 4 Disclosures as required by Accounting Standards issued by the Institute of Chartered Accountants of India 4.1 Segment Information: The Company s operations predominantly relate to providing technology services globally. The revenues shown have been classified into regions to comprise the primary basis of the segment information. Segment wise revenue and net results for the year ended on March 31, 2006 are as follows: FY 2005-06 FY 2004-05 1] Segment revenue - USA 2,103,497,428 1,557,432,715 - UK & Europe 909,346,192 897,397,509 - Rest of the World 169,301,637 69,701,354 Total 3,182,145,257 2,524,531,578 Less: Inter segment revenue Net Revenue 3,182,145,257 2,524,531,578 2] Segment Results - USA 728,018,205 485,125,027 - UK & Europe 369,584,407 366,839,428 - Rest of the World 23,408,779 8,017,682 Total 1,121,011,391 859,982,137 3] Less: - Interest 19,176,907 9,430,367 - Other unallocable expenditure net of unallocable income * 743,186,018 553,693,636 Total Profit before Tax (after prior year expenses) 358,648,466 296,858,134 * The expenses on common facilities in India inclusive of expenses of common staff used interchangeably for all geographies is shown as unallocable expenditure and the same has not been apportioned across the geographies. 123
Schedule XVI - Notes to Consolidated Accounts 4.1. a Segment Capital Employed The fixed assets used in the Company s business or the liabilities contracted have not been identified to any of the reportable geographies as the fixed assets and supprt services are common for all reportable segments. Accordingly, no disclosure related to total segment assets and liabilities has been made. 4.2 Disclosure of transactions with Related Parties (AS 18) during the Financial Year 2005-2006 Name of the Description of Relationship Nature of transaction Amount of Related Party transactions (Rs.) Sachin Tikekar Key Management Personnel Salary 7,265,721 (6,534,229) Sachin Tikekar Key Management Personnel Reimbursement of Expenses 2,787,872 (927,742) Nitin Tarte Key Management Personnel Salary 5,671,900 (14,508,290) Nitin Tarte Key Management Personnel Earn out Commission 11,970,065 (8,347,925) Nitin Tarte Key Management Personnel Advances 268,874 (762,238) Nitin Tarte Key Management Personnel Reimbursement of Expenses 2,008,844 (329,638) Probodh Key Management Personnel Amount received from 9,150,100 Chiplunkar Mr. Chiplunkar towards Exercise of Equity Options Note : Amount in bracket represents Previous Years figure. 5. Other Disclosures and Explanatory Notes 5.1 During the year under consideration, the Company entered into agreements to acquire the following entities: 5.1. a Pivolis: The Company has entered into an agreement on 8 th November 2005 for acquiring Pivolis, a France based company, wherein the Company agreed to acquire 70% equity shares of Pivolis. The said proposal was approved by the shareholders on 20 th December 2005. So far, the Company has paid 875,000 Euro and allotted 148,830 shares towards cash and stock consideration respectively for acquiring 70,000 shares representing 70% of issued and paid up capital of Pivolis. The Company has an option of acquiring balance 30% of Pivolis capital within two years for consideration not exceeding EUR 2.52 Million in aggregate. Since the actual credit of shares issued by the Company to Pivolis has not happened by March 31, 2006, the effective date of merger is April 1, 2006. As such, the financial statement of this entity would get consolidated to the Companies account w.e.f. financial year 2006-07. 5.1. b CG Smith Software Private Limited: The Company has entered into a definitive agreement on 24 th February 2006 to acquire 100% equity of Bangalore based CG Smith Software Private Limited for a consideration of Rs. 38 crores. Out of the said consideration, the Company has paid Rs. 17.50 crores during the financial year. As on 31 st March 2006, 480,000 shares of CG Smith have been transferred to the Company, out of the total 960,000 issued shares. Another Rs. 17.50 crores has been remitted on 5 th April 2006. Accordingly, balance 480,000 shares have been transferred to the Company on the said date. The balance Rs. 3 crores out of the total agreed consideration of Rs. 38 crores would be remitted by 4 th October 2006, subject to fulfillment of certain conditions. 124
Schedule XVI - Notes to Consolidated Accounts The effective date of merger is 1 st April 2006. As such, the results of this entity would get consolidated from FY 2006-07 onwards. 5.1. c KPIT Infosystems GmbH: The share holders of KPIT Infosystems Limited, UK and Mr. Sanjay Mandal a consultant from Germany entered into an agreement dated December 21, 2005 to form a new establishment in Germany, KPIT Infosystems GmbH. The Company would contribute towards 60% of the share capital, while Mr. Mandal would contribute towards 40% of the share capital. The Company has an option of acquiring balance 40% of the equity capital for consideration not exceeding Euro 5.25 million on achieving certain performance conditions in future. The Company intends to establish a significant presence in the European market for IT services with a focus on the Germany and Austrian market through this Joint Venture Company. The company has paid Rs. 1,633,695 (EUR 30,000) for acquiring one equity share representing 60% of issued and paid up capital of KPIT Infosystems GmbH. Mr. Sanjay Mandal has contributed Rs. 1,089,130 (Euro 20,000) for acquiring one equity share representing 40% of issued and paid up capital of KPIT Infosystems GmbH. The results of the JV have been consolidated w.e.f. 1 st January 2006. The JV has incurred a loss of Rs. 1,643,043 (Euro 31,148) during the FY 2005-06. 5.1. d KPIT Cummins Global Business Solutions Limited The Company has set up a 100% subsidiary on 18 th July 2005 based in Pune. The Company has invested Rs. 300 lacs towards share capital for the new Company. The new Company has commenced its business operations from 1 st December 2005. The Company has classified the expenditure on project amounting to Rs. 216.04 Lacs as an intangible asset and has amortized the same to the extent of Rs. 24 lacs till 31st March 2006 as per the accounting policy of the Company. During four months ended on 31 st March 2006, the Company has incurred losses before tax of Rs. 75.01 lacs which are expected to be wiped out by next financial year. The results for this subsidiary have been consolidated w.e.f. July 18, 2005. 5.1. e SolvCentral.Com As per the acquisition agreement between KPIT India, SolvCentral.com Inc, USA, Mr. Probodh Chiplunkar of SolvCentral.com and the Company dated December 6, 2005 the company acquired 90% stake in the equity capital of Solvcentral.com, Inc, USA. The Company has paid USD 2 million for acquiring 540 equity shares representing 90% of issued and paid up capital of Solvcentral.com, Inc, USA. The Company has the option of acquiring balance 10% of equity capital for a consideration not exceeding USD 2.8 million over a 3 year period, dependent on satisfaction of identified revenue targets by SolvCentral.com as per acquisition agreement dated 6 th December, 2005. The results for this subsidiary have been consolidated w.e.f. 1 st January 2006 based on the unaudited financial statements as on December 31, 2005. The networth of SolvCentral, based on the accounts as on December 31, 2005 was Rs. 294.94 lacs. The profits for the period January to March 2006 are USD 224,712. 5.2 During the year under consideration, the Company has decided to liquidate one of the subsidiaries, namely, KPIT Systems L.L.C., UAE, as the future business prospects for Middle East are not very alluring. 5.3 The previous year s figures have been regrouped, wherever necessary, to conform to the current year s classification. Signatories to schedule I to XVI For and on behalf of the Board of Directors Anil Patwardhan Vice President Finance S.B. (Ravi) Pandit Group CEO & Chairman Kishor Patil CEO & Managing Director Pune Puneet Bansal Girish Wardadkar April 27,2006 Company Secretary President & Executive Director 125
Statement pursuant to Section 212 of the Companies Act, 1956 1 Name of the KPIT Infosystems KPIT Infosystems KPIT Systems LLC, Panex Consulting KPIT Cummins KPIT Infosystems Subsidiary Company Limited,UK Inc., USA UAE Inc (Panex), USA Global Business Gmbh, Germany Solutions Limited 2 Financial Year Ended on Ended on Ended on Ended on Ended on Ended on of the Subsidiary March 31, December 31, December 31, December 31, March 31, March 31, Company 2006 2005 2005 2005 2006 2006 3 Holding Company s 100% 100% 49% 100% 99.99% 60% Interest (through KPIT Infosystems Ltd.,UK) 4 Number of Shares 841,000 Ordinary 10,292 Ordinary 147 Ordinary 100 Ordinary 2,999,940 equity 1 Share of Nominal held by KPIT shares of 1 Stock at par shares of AED shares of USD shares of Rs 10 Value Euro 30,000 Cummins Infosystems GBP each 1000/- each 100/- each each equivalent to 60% Limited in the of the subscribed Subsidiary Company capital (held through KPIT Infosystems Ltd., UK) 5 The net aggregate of Profit/(loss) for the current financial year of Subsidiary Company, so far it concerns to the members of the Company: Dealt with Nil Nil Nil Nil Nil Nil in accounts of Holding Company Not dealt with in the GBP 5,438 USD 929,317 AED 62,993 USD 293,071 Rs.(7,500,733) EUR (31,148) accounts of Holding (PY GBP (PY USD 250,777) (PY AED 12,390) (PY USD 338,090) Company 262,958) 6 The net aggregate of profit/(loss) for the previous financial years of the Subsidiary Company, so far it concerns to the members of the Holding Company: Note: Dealt with in the Nil Nil Nil Nil Nil Nil accounts of Holding Company Not dealt with in the GBP 278,337 USD 334,208 AED NIL USD 1,285,145 Rs.(7,500,733) EUR (31,148) accounts of Holding (PY GBP (PY USD 1,263,525) (PY AED 20,200) (PY USD 992,074) Company 283,775) 1. No material changes have occurred in any of the subsidiary s fixed assets and the Company s investments in the subsidiaries at the end of the respective financial years of the subsidiaries & the end of the financial year of the Company i.e. March 31, 2006. For and on behalf of the Board of Directors Kishor Patil CEO & Managing Director S.B. (Ravi) Pandit Chairman & Group CEO Pune, April 27,2006 126
UK KPIT A/C Colour 127
KPIT Infosystems Limited, UK Company Number 3264570 Directors Kishor Patil Esq (Chairman) S. B. (Ravi) Pandit Esq R Gupta Esq D Koshal Esq Secretary D Koshal Esq Registered Office Gautum House 1-3 Shenley Avenues Ruislip Manor Middlesex HA4 6BP Bankers HSBC Bank Plc. 27-32 Poultry London EC2P2BX 128
Directors Report Your Directors are pleased to present herewith, the Fourth report of the Directors on the operations of the Company together with the accounts for the period ended March 31, 2006. Financial Results Year Year Year Year 2005-06 2005-06 2004-05 2004-05 (000) Rupees (000) Rupees Total Revenues 12,201 952,215 11,723 958,628 Net Profit /(Loss) for the period 5 424 263 21,538 Operations The Company closed the financial year with revenue of GBP 12.20 Million as compared to GBP 11.72 Million in previous year registering a growth of 4% over the previous year. We have opened a new branch office in Germany during the FY 2005-06, hence, there is a significant increase in operating expenses, resulting in net profit declining to GBP 0.005 Million as compared to profit of GBP 0.26 Million in the previous year. For and on behalf of the Board of Directors Kishor Patil Chairman S.B. (Ravi) Pandit Director Pune April 27, 2006. 129
PREAMBLE: KPIT INFOSYSTEMS LIMITED is a wholly owned subsidiary of KPIT Cummins Infosystems Limited. This Audit Report is issued as per the requirements of Section 212 of the Companies Act, 1956 and other provisions of the Companies Act, 1956 to the extent applicable to KPIT INFOSYSTEMS LIMITED. AUDITORS REPORT TO THE MEMBERS OF KPIT INFOSYSTEMS LIMITED (Incorporated in Middlesex, United Kingdom) We have audited the attached Balance Sheet of KPIT INFOSYSTEMS LIMITED as at 31st March 2006 and also the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended as on that date both annexed thereto. 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. 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 misstatements. 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. 1) As required by the Companies (Auditor s Report) Order, 2003, issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 & 5 of the said Order, to the extent applicable to the Company. 2) Further to our comments in the Annexure referred to in paragraph 1 above, we report that: (a) we have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit; (b) in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books; (c) the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account; (d) in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred in Section 211 (3C) of the Companies Act, 1956, in so far as they apply to the Company; (e) In our opinion and to the best of our information and according to explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March 2006; (ii) in the case of the Profit and Loss Account, of the profit of the Company for the year ended 31st March 2006; and (iii) in the case of the Cash Flow Statement, of the cash flows for the year ended as on that date. For DELOITTE HASKINS & SELLS Chartered Accountants Hemant M. Joshi Partner Pune, April 27, 2006 Membership No : 38019 130
ANNEXURE TO THE AUDITORS REPORT (Referred to in paragraph 1 of our report of even date) (i) The nature of the Company s business / activities during the year is such that clauses (ii), (iii), (v), (vi), (viii), (xiii), (xiv), (xviii), and (xx) are not applicable to the Company. (ii) In respect of its fixed assets: (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. (b) The fixed assets were physically verified during the year by the management in accordance with a program of verification, which in our opinion provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanations given to us no discrepancies were noticed on such verification. (c) The Company has not disposed off any of its fixed assets during the year hence the question of effect of disposal of substantial part of the fixed assets of the Company on the going concern status of the Company does not arise. (iii) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of fixed assets and for the sale of services. The activities of the company do not involve purchase of inventory and sale of goods. We have not observed any continuing failure to correct major weaknesses in the internal control system. (iv) In our opinion, the internal audit functions carried out during the year by a firm of Chartered Accountants appointed by the management have been commensurate with the size of the Company and the nature of its business. (v) In respect of Statutory dues (a) According to the information and explanations given to us, the Company has been regular in depositing undisputed Employee taxes, Employer and Employee NIC, and VAT dues with the appropriate authorities during the year. (b) According to the information and explanations given to us, there are no undisputed amounts payable in respect of Employee taxes, Employer and Employee NIC, and VAT dues outstanding, at the year-end for a period of more than six months from the date they became payable. (c) According to the information and explanations given to us, there are no disputed amounts pending with the relevant Appellate Authorities. (vi) The accumulated losses of the Company have not exceeded fifty per cent of its net worth as at the end of the year. The Company has not incurred cash losses in the current and in the immediately preceding financial year. (vii) To the best of our knowledge and belief and according to the information and explanations given to us, the Company has neither taken any loans from a financial institution and a bank nor issued any debentures. (viii) To the best of our knowledge and belief and according to the information and explanations given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (ix) To the best of our knowledge and belief and according to the information and explanations given to us, the Company has not given any guarantees for loans taken by others from banks and financial institutions. (x) To the best of our knowledge and belief and according to the information and explanations given to us, the Company has not availed of any term loans during the year. (xi) To the best of our knowledge and belief and according to the information and explanations given to us, the Company has not raised any funds on a short term basis. (xii) According to the information and explanations given to us, the Company has not issued debentures during the year. (xiii) To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the Company was noticed or reported during the year. For DELOITTE HASKINS & SELLS Chartered Accountants Hemant M. Joshi Partner Pune, April 27, 2006 Membership No : 38019 131
Balance Sheet as at (Pursuant to section 212 of the Companies Act, 1956) Sources of Funds March 31, 2006 March 31, 2005 Schedule GBP Rupees GBP Rupees Share holders Funds Share capital I 841,000 54,969,879 841,000 54,969,879 Reserves and surplus II 574,779 3,120,747 Total 841,000 55,544,658 841,000 58,090,626 Application of Funds Fixed Assets III Gross block 48,164 3,416,936 49,350 3,486,503 Less : Accumulated depreciation 39,531 2,795,279 39,750 2,786,941 Net block 8,633 621,657 9,600 699,562 Investments IV 20,972 1,643,132 Current Assets, Loans and Advances Sundry debtors V 3,117,560 242,857,903 2,037,220 168,172,498 Cash & bank balances VI 338,329 26,355,819 792,177 65,394,215 Loans & advances VII 100,663 7,841,606 85,328 7,043,807 3,556,552 277,055,328 2,914,725 240,610,520 Less : Current Liabilities and Provisions VIII 3,023,494 235,678,296 2,367,100 195,546,589 Net Current Assets 533,058 41,377,032 547,625 45,063,931 Profit and Loss Account IX 278,337 11,902,837 283,775 12,327,133 Total 841,000 55,544,658 841,000 58,090,626 Notes to Accounts XV The Schedules and Notes to Accounts form an integral part of the Financial Statements As per our report of even date. For Deloitte Haskins and Sells Chartered Accountants For and on behalf of the Board of Directors Hemant M. Joshi Kishor Patil S.B.(Ravi) Pandit Partner Chairman Director Pune Pune April 27, 2006 April 27, 2006 132
Profit and Loss Account for year ended (Pursuant to section 212 of the Companies Act, 1956) March 31, 2006 March 31, 2005 Schedule GBP Rupees GBP Rupees Income Overseas sales and commission income 12,201,370 952,215,284 11,722,752 958,628,026 12,201,370 952,215,284 11,722,752 958,628,026 Software development expenses X 10,956,393 855,055,220 10,535,858 861,569,823 Gross Profit 1,244,977 97,160,064 1,186,894 97,058,203 Selling and marketing expenses XI 334,670 26,118,213 254,053 20,775,167 General and administration expenses XII 896,566 69,969,528 659,742 53,950,549 Operating Profit before Interest and Depreciation and Tax 13,741 1,072,323 273,099 22,332,487 Interest XIII 3,344 261,005 5,593 457,430 Depreciation III 3,298 257,397 4,548 337,555 Operating Profit after Interest, Depreciation and before Tax 7,099 553,921 262,958 21,537,502 Other income XIV 100 7,804 Profit before Tax and before Extra-ordinary item 7,199 561,727 262,958 21,537,502 Provision for taxation 1,761 137,431 Profit after Tax and before Extra-ordinary item 5,438 424,296 262,958 21,537,502 Extraordinary Item - prior period expenses Profit after Tax 5,438 424,296 262,958 21,537,502 Amount available for Appropriation 5,438 424,296 262,958 21,537,502 Amount transferred - profit and loss account 5,438 424,296 262,958 21,537,502 5,438 424,296 262,958 21,537,502 Notes to Accounts XV The Schedules and Notes to Accounts form an integral part of the Financial Statements As per our report of even date. For Deloitte Haskins and Sells Chartered Accountants For and on behalf of the Board of Directors Hemant M. Joshi Kishor Patil S.B.(Ravi) Pandit Partner Chairman Director Pune Pune April 27, 2006 April 27, 2006 133
Cash Flow Statement for the year ended (Pursuant to section 212 of the Companies Act, 1956) March 31, 2006 March 31, 2005 Particulars GBP Rupees GBP Rupees A] Cash Flow from Operating Activities Net profit / ( loss) before tax and extraordinary items 7,199 561,727 262,958 21,537,502 Adjustments for: (Profit)/ loss on sale of fixed assets Depreciation 3,298 257,397 4,548 337,555 Interest and financial charges 12,611 984,230 11,494 939,945 Cash Flow before Working Capital changes 23,108 1,803,354 278,999 22,815,002 Adjustments for: (Increase) / decrease in receivables (1,080,340) (74,685,405) (248,312) (24,469,522) (Increase) / decrease in other advances (15,336) (797,800) (40,728) (3,461,001) Increase/ (decrease) in accounts payable 656,394 40,131,707 745,847 65,666,139 Cash Inflow / (Outflow) from Operations (416,174) (33,548,144) 735,807 60,550,618 Provision for taxation (1,761) (137,431) Net Cash Inflow / (Outflow) from Operations (417,935) (33,685,575) 735,807 60,550,618 B] Cash Flow from Investing Activity Purchase of fixed assets (2,330) (179,491) (1,149) (95,022) Sale of fixed assets Increase in investments (20,972) (1,643,132) Net Cash used in Investing Activity (23,302) (1,822,623) (1,149) (95,022) C] Cash Flow from Financing Activity Interest and finance charges (12,611) (984,230) (11,494) (939,945) Net Cash used in Financing Activity (12,611) (984,230) (11,494) (939,945) D] Exchange Gain / (Loss) (2,545,968) 334,714 Net Increase / (Decrease ) in Cash and Cash Equivalents (A + B+ C+D) (453,848) (39,038,396) 723,164 59,850,365 Cash & cash equivalents at close of the year 338,329 26,355,819 792,177 65,394,215 Cash & cash equivalents at beginning of the year 792,177 65,394,215 69,013 5,543,850 Cash Surplus / (Deficit) for the year (453,848) (39,038,396) 723,164 59,850,365 Note: Cash and cash equivalents include: Balance with non scheduled banks On current accounts 335,771 26,156,567 792,177 65,394,215 On deposit account 2,558 199,252 As per our report of even date. For Deloitte Haskins and Sells Chartered Accountants 338,329 26,355,819 792,177 65,394,215 For and on behalf of the Board of Directors Hemant M. Joshi Kishor Patil S.B.(Ravi) Pandit Partner Chairman Director Pune Pune April 27, 2006 April 27, 2006 134