Exhibit 99.5
HQ/FIN/CORP.FIN/2002
29 July 2002
Sir,
Sub: Audited Financial Results under US GAAP for the year ended 31st
March, 2002.
Please find sent herewith the audited financial results under US GAAP for the
year ended 31st March 2002.
Yours faithfully,
For VIDESH SANCHAR NIGAM LIMITED
By: /s/ ARUN GUPTA
----------------------------
ARUN GUPTA
Executive Director (Finance)
To:
1. Ms. Caroline Yap, Managing Director, International Client Services, New
York Stock Exchange. No. :+l 2126565071
2. Shri R.N. Aditya, for Indian Stock Exchanges and others requirements, Fax
2354.
VIDESH SANCHAR NIGAM LIMITED
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF VIDESH SANCHAR NIGAM LIMITED (PREPARED IN ACCORDANCE
WITH US GAAP)
PAGE
----
Report of independent auditors........................................... F-2
Balance sheets as of March 31, 2001 and 2002............................. F-3
Statements of income for the years ended
March 31, 2000, 2001 and 2002......................................... F-4
Statements of shareholders' equity for the years ended
March 31, 2000, 2001 and 2002......................................... F-5
Statements of cash flows for the years ended
March 31, 2000, 2001 and 2002......................................... F-6
Notes to financial statements............................................ F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Videsh Sanchar Nigam Limited:
We have audited the accompanying balance sheets of Videsh Sanchar Nigam
Limited (the "Company") as of March 31, 2001 and 2002, and the related
statements of income, cash flows and shareholders' equity for each of the years
in the three year period ended March 31, 2002. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Videsh Sanchar Nigam Limited as of March 31,
2001 and 2002, and the results of its operations and cash flows for each of the
years in the three year period ended March 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
As described in Note 2(a) to the financial statements, these financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America, which differ in certain material
respects from accounting principles generally accepted in India, which form the
basis of the Company's general purpose financial statements.
M/s. Deloitte Haskins & Sells
Mumbai, India
May 28, 2002
F-2
VIDESH SANCHAR NIGAM LIMITED
BALANCE SHEETS
AS OF MARCH 31, 2001 AND 2002
AS OF MARCH 31,
------------ -------- --------
2001 2002 2002
------------ -------- --------
(IN MILLIONS, EXCEPT PAR VALUE AND NUMBER
OF SHARES)
ASSETS:
Cash and cash equivalents Rs.2,200 Rs.7,881 US$161
Short term investments 46,050 17,469 358
Trade and other receivables, net of
allowances of Rs.979 million and Rs.1,654
million (US$34 million), respectively 19,745 16,217 332
Investments 4,247 3,985 82
Property, plant and equipment 18,077 18,058 370
Capital work-in-progress 2,328 2,943 60
Other assets 7,778 8,293 170
------------ --------- --------
TOTAL ASSETS Rs.100,425 Rs.74,846 US$1,533
------------ --------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES
Short-term borrowings Rs.- Rs.5,751 US$118
Trade payables 11,309 5,728 117
Accrued expenses and other liabilities 10,731 10,325 212
------------ --------- --------
TOTAL LIABILITIES 22,040 21,804 447
------------ --------- --------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 21) ___ ___ ___
------------ --------- --------
SHAREHOLDERS' EQUITY:
Equity shares: par value - Rs. 10 each;
authorized: 300,000,000 shares at March 31, 2001
and 2002; issued and outstanding:
285,000,000 shares at March 31, 2001 and 2002 2,850 2,850 58
Additional paid in capital 14,481 15,377 315
Retained earnings 60,642 34,554 708
Accumulated comprehensive income 412 261 5
------------ --------- --------
TOTAL SHAREHOLDERS' EQUITY 78,385 53,042 1,086
------------ --------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY Rs.100,425 Rs.74,846 US$1,533
------------ --------- --------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
VIDESH SANCHAR NIGAM LIMITED
STATEMENTS OF INCOME
FOR EACH OF THE YEARS
ENDED MARCH 31, 2000, 2001 AND 2002
YEARS ENDED MARCH 31,
------------- -------- --------- ---------
2000 2001 2002 2002
------------- -------- --------- ---------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
OPERATING REVENUE:
Traffic revenues Rs.69,640 Rs.71,916 Rs.65,050 US$1,332
Income from satellite consortia 737 1,160 __ __
------------- -------- --------- ---------
TOTAL OPERATING REVENUE 70,377 73,076 65,050 1,332
------------- -------- --------- ---------
COST OF REVENUE:
Network and transmission costs 45,621 45,150 39,577 811
License fee paid to DoT 4,712 5,022 5,393 110
--------------- -------- --------- ---------
TOTAL COST OF REVENUE 50,333 50,172 44,970 921
--------------- -------- --------- ---------
GROSS MARGIN 20,044 22,904 20,080 411
--------------- -------- --------- ---------
OTHER OPERATING COSTS
Depreciation and amortization 1,534 1,729 1,898 39
Other operating costs 2,622 3,023 4,803 98
--------------- -------- --------- ---------
TOTAL OTHER OPERATING COSTS 4,156 4,752 6,701 137
--------------- -------- --------- ---------
OPERATING PROFIT 15,888 18,152 13,379 274
--------------- -------- --------- ---------
OTHER INCOME (EXPENSE), NET:
Non-operating income 1,821 3,058 1,371 28
Interest income 1,683 3,964 4,607 95
Interest cost (7) (1) (227) (5)
Permanent impairment in the
value of investment (54) __ __ __
--------------- -------- --------- ---------
TOTAL OTHER INCOME(EXPENSE), NET 3,443 7,021 5,751 118
INCOME BEFORE INCOME TAX 19,331 25,173 19,130 392
Income tax expense (6,156) (9,646) (5,959) (122)
Dividend tax (84) (105) (3,634) (75)
--------------- -------- --------- ---------
NET INCOME Rs.13,091 Rs.15,422 Rs.9,537 US$195
--------------- -------- --------- ---------
PER SHARE INFORMATION:
Earnings per equity share -
basic and diluted Rs.45.93 Rs.54.11 Rs.33.46 US$0.69
Weighted number of
equity shares outstanding 285,000,000 285,000,000 285,000,000 285,000,000
Earnings per ADS - basic and
diluted (where each ADS
represents two equity shares) Rs.91.86 Rs.108.22 Rs.66.92 US$1.38
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
VIDESH SANCHAR NIGAM LIMITED
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE YEARS ENDED MARCH 31, 2000, 2001 AND 2002
------------- -------- ---------- --------- ------------- ------------ -------------
ACCUMULATED
EQUITY ADDITIONAL OTHER TOTAL
NUMBER OF SHARE PAID IN RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
EQUITY SHARES CAPITAL CAPITAL EARNINGS INCOME EQUITY INCOME
------------- -------- ----------- --------- ------------- ------------ -------------
(IN MILLIONS, EXCEPT NUMBER OF EQUITY SHARES)
BALANCE AT APRIL 1, 1999 95,000,000 Rs.950 Rs.14,481 Rs.35,549 __ Rs.50,980
Net income 13,091 13,091 Rs.13,091
Dividends (760) (760) -------------
COMPREHENSIVE INCOME 13,091
BALANCE AT MARCH 31, 2000 95,000,000 950 14,481 47,880 __ 63,311
Issue of stock dividends 190,000,000 1,900 (1,900) __
Net income 15,422 15,422 15,422
Dividends (760) (760)
Unrealized gain on available
for sale securities, net __ 412 412 412
------------- -------- ----------- --------- ------------- ------------ -------------
COMPREHENSIVE INCOME 15,834
------------- -------- ----------- --------- ------------- ------------ -------------
BALANCE AT MARCH 31, 2001 285,000,000 2,850 14,481 60,642 412 78,385
Stock based compensation
expense (See Note 18) 896 896
Net income 9,537 9,537 9,537
Dividends (35,625) (35,625)
Unrealized loss on available
for sale securities, net (151) (151) (151)
------------- -------- ----------- --------- ------------- ------------ -------------
COMPREHENSIVE INCOME Rs.9,386
------------- -------- ----------- --------- ------------- ------------ -------------
COMPREHENSIVE INCOME US$192
------------- -------- ----------- --------- ------------- ------------ -------------
BALANCE AT MARCH 31, 2002 285,000,000 Rs.2,850 Rs.15,377 Rs.34,554 Rs.261 Rs.53,042
------------- -------- ----------- --------- ------------- ------------ -------------
BALANCE AT MARCH 31, 2002 285,000,000 US$58 US$315 US$708 US$5 US$1,086
------------- -------- ----------- --------- ------------- ------------ -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
VIDESH SANCHAR NIGAM LIMITED
STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS
ENDED MARCH 31, 2000, 2001 AND 2002
YEARS ENDED MARCH 31,
------------ --------- -------- -------
2000 2001 2002 2002
------------ --------- -------- -------
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME Rs.13,091 Rs.15,422 Rs.9,537 US$195
Adjustment To Reconcile Net Income To Net
Cash Provided By Operating Activities:
Depreciation and amortization 1,534 1,729 1,898 39
Stock based compensation __ __ 896 18
Impairment of property, plant
and equipment 356 __ 30 1
Allowance for doubtful debts 62 112 675 14
Deferred tax charge / (benefit) (219) 1,759 (702) (14)
Unrealized exchange gain (1,004) (526) (206) (4)
Permanent impairment in the value of investment 54 __ __ __
(Profit)/loss on sale of fixed assets (86) 5 2 __
Net Change In:
Trade and other receivables (4,756) 5,865 3,067 63
Other assets (2,742) (1,400) (515) (11)
Trade payables 1,331 (2,225) (5,611) (115)
Accrued expenses and other liabilities 326 2,380 414 8
------------ --------- -------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,947 23,121 9,485 194
------------ --------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (956) (2,957) (1,894) 39
Expenditure on capital work-in-progress (2,665) (1,281) (615) 12
(Increase)/decrease in investments (871) 92 (7) __
(Increase)/decrease in short-term investments, net 494 (37,272) 28,581 585
Sale of property, plant and equipment 100 2 3 __
NET CASH USED (PROVIDED BY) INVESTING
ACTIVITIES ------------ --------- -------- -------
(3,898) (41,416) 26,068 534
------------ --------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings __ __ 28,205 578
Repayment of short-term borrowings __ __ (22,454) (460)
Dividends paid (760) (760) (35,625) (730)
Bank overdraft 20 (46) __ __
------------ --------- -------- -------
NET CASH USED BY FINANCING ACTIVITIES (740) (806) (29,874) (612)
------------ --------- -------- -------
Unrealized exchange gain on cash and cash equivalents 879 455 2 __
------------ --------- -------- -------
NET CHANGE IN CASH FLOWS 4,188 (18,646) 5,681 116
------------ --------- -------- -------
Cash and cash equivalents, beginning of year Rs.16,658 Rs.20,846 Rs.2,200 US$45
------------ --------- -------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR Rs.20,846 Rs.2,200 Rs.7,881 US$161
------------ --------- -------- -------
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid Rs.7 Rs.1 Rs.227 US$5
Income taxes paid Rs.9,316 Rs.9,597 Rs.10,594 US$217
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
VIDESH SANCHAR NIGAM LIMITED
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND
A. THE COMPANY
Videsh Sanchar Nigam Limited ("VSNL" or "the Company") is incorporated in
India as a limited liability company under the Indian Companies Act, 1956,
with its registered office at Videsh Sanchar Bhavan, M.G. Road, Mumbai
400001, India. The Company is listed on major stock exchanges in India and
on the New York Stock Exchange. During the year, Government of India
("GoI") disinvested a portion of its holding to Panatone Finvest Limited
("Panatone"), a subsidiary of Tata Sons Limited ("Tata Sons"), the parent
company of the selected strategic partner, the Tata Group (See Note 1(b)
below).
The Tata Group operates in a variety of industries and has significant
telecommunications operations in India. The Tata Group includes amongst
other companies Panatone, Tata Sons, The Tata Power Company Limited ("Tata
Power"), The Tata Iron and Steel Company Limited ("Tata Steel") and Tata
Industries Limited ("Tata Industries").
As part of the disinvestment process, a shareholders' agreement was entered
into by GoI and Panatone and its shareholders on February 13, 2002.
Pursuant to this agreement, Panatone and GoI have the right to appoint
directors of the Company. As of March 31, 2002 the board of directors
consisted of four members, of which three were nominated by Panatone and
one by GoI.
Following disinvestment by GoI and the Tender Offer (See Note 1(b) below),
the major shareholders of the Company are Panatone/Tata Sons, who own 45%
and GoI, who own 26.12%.
The Company is provider of international telecommunications services in
India, directly and indirectly linking the domestic Indian
telecommunications network to 237 territories worldwide. VSNL operates from
its corporate office at Mumbai and through its other offices at Mumbai, New
Delhi, Kolkata, Chennai, Arvi, Bangalore, Bhubhaneshwar, Dehradun,
Ernakulam, Gandhinagar, Goa, Guhawati, Hyderabad, Indore, Jalandhar, Kanpur
and Pune.
VSNL offers basic and specialized services. Basic services include
telephony, telex and telegraph. Specialized services include gateway packet
data transmission, electronic data interchange, e-mail, Internet,
international maritime satellite mobile services, leased channels,
transmission of signals for international television broadcasts and video
conferencing.
B. DISINVESTMENT
The Company was a public sector undertaking ("PSU") with GoI holding
approximately 52.97% in the paid-up equity capital in the Company. As part
of the its disinvestment program, on February 01, 2001, GoI announced its
intention to disinvest 25% of its shareholding of the Company to a
strategic partner with the intention to transfer management control to the
strategic partner through the competitive bidding route. As per the
announcement made on February 05, 2002 by GoI, Panatone was selected by GoI
as the strategic partner for the sale of 71,250,000 equity shares
representing 25% of the voting capital of the Company at a price of Rs.202
per share ("GoI Shares"). The aggregate purchase price was Rs.14,393
million in cash.
F-7
The Share Purchase Agreement ("SPA") giving effect to the above arrangement
was entered into between GoI and Panatone on February 06, 2002. Panatone's
shareholders who are Tata Sons, Tata Power, Tata Steel and Tata Industries,
are also signatories to the SPA though they did not directly purchase any
of GoI's shareholding in the Company. The Company is also a party to the
SPA. In connection with the purchase of GoI Shares, Panatone was required
by Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997 and subsequent amendments thereto,
to launch a tender offer to acquire an additional 20% of the equity shares
from other shareholders of the Company. On February 12, 2002, Panatone made
a public announcement disclosing the proposed purchase of the GoI Shares
and the proposed tender offer. Payment of consideration for the GoI Shares
and the transfer of such GoI Shares in favor of Panatone as well as the
appointment of representatives of Panatone on the board of directors of the
Company occurred on February 13, 2002.
As part of the tender offer, Panatone offered to purchase upto 57,000,000
equity shares (including equity shares underlying the American Depository
Shares), representing 20% of the paid-up and voting equity share capital of
the Company at a price of Rs.202 (US$4.15) per share payable in cash. The
current shareholding of Tata Sons and Tata Power in Panatone is 59.955% and
40%, respectively, with Tata Steel and Tata Industries holding the
remainder equally. At the close of the tender offer on May 09, 2002,
approximately 87,600,000 million equity shares were tendered for sale. As
per the terms of the tender offer, Panatone will accept upto 57,000,000
equity shares on a pro rata basis. Upon acceptance of shares under the
tender offer by Panatone, it will hold 45% in the paid-up equity capital of
the Company.
Under the terms of the SPA and the shareholders' agreement, Panatone is
required to take measures to separate out surplus land at Pune, Kolkata,
New Delhi and Chennai, as identified in the SPA (the "Surplus Land"), from
the Company and also to subject the use of the Surplus Land to special
conditions as stated in the SPA. Panatone is required to facilitate the
transfer of the Surplus Land to a new realty undertaking in the Company.
Panatone, with GoI, will cause the demerger of the realty undertaking in to
a separate company ("the Resulting Company"). On the issue of new shares of
the Resulting Company, Panatone is required to transfer to GoI, without
consideration, a minimum of 25% of the Resulting Company's issued shares,
or such higher number of shares of the Resulting Company, which may be on
account of any further sale of equity shares by GoI to Panatone prior to
the demerger. If for any reason, the Company cannot transfer the Surplus
Land into the Resulting Company, then at any time when the Company sells,
transfers or develops the land, Panatone shall compensate GoI with an
amount equivalent of 25% of the benefit accruing to the Company subject to
local tax laws prevailing in India.
F-8
C. MONOPOLY STATUS
The Company had an exclusive license to provide international long distance
("ILD") services upto March 2004. However, GoI decided to terminate the
company's monopoly two years ahead of schedule and accordingly opened up
this service to private operators from April 01, 2002. GoI has agreed to
compensate the Company for this early termination with the following
package (See Note 17):
1. A license to operate national long distance ("NLD") services.
2. Re-imbursement by GoI of entry fees and revenue sharing fees, net of taxes,
that the Company may have to pay with respect to the NLD license, for five
years with effect from April 01, 2001.
3. Exemption from the performance bank guarantee of Rs.4 billion with respect
to the NLD license, as long as the Company remains a PSU.
4. A category `A' Internet Service Provider ("ISP") license, which will allow
the Company to expand internet access services to the entire country.
On February 13, 2002, the Company ceased to be a PSU. Subsequent to the
Company ceasing to be a PSU, GoI requested the Company to provide a
performance bank guarantee of Rs. 4 billion. Currently, the Company is in
the process of negotiating with GoI and is not in a position to predict the
outcome of such negotiations at this stage.
The Company has accepted GoI's decision to terminate the Company's monopoly
before the year 2004. The shareholders of the Company have approved the
compensation package at the meeting held in May 2001.
D. REVENUE SHARING ARRANGEMENT
The Company operates its business pursuant to a license from Department of
Telecommunications ("DoT"), GoI. In pursuance of the New Telecom Policy
1999, GoI decided to corporatise the service provision functions of the
DoT. Accordingly, GoI transferred the business of providing telecom
services in the country to a newly formed company, Bharat Sanchar Nigam
Limited ("BSNL") with effect from October 1, 2000. Further, the existing
contracts, agreements and MoUs, excepting licence fees payable for the
usage of circuits, including the revenue sharing agreement entered into by
DoT for the supply of services were transferred and assigned to BSNL with
effect from October 1, 2000.
The Company's license is periodically renewed by DoT subject to certain
conditions, and is currently valid up to March 31, 2004. With the opening
of the telecommunications sector to private operators, the Company is
negotiating for a fresh license agreement with DoT. The Company derives
substantially all its revenue from payments from foreign telecommunication
administrations and private carriers for the delivery of international
calls to India and from payments from BSNL for the delivery of
international calls abroad. Consequently, the Company and BSNL share
revenues received by each entity from international calls pursuant to a
revenue sharing arrangement between them.
F-9
Under the revenue sharing arrangement, the Company pays to BSNL, a charge
per minute equal to the weighted average incoming settlement rate, minus
Rs.10.00 on all incoming international calls and BSNL pays to the Company,
a charge per minute equal to the weighted average outgoing settlement rate
plus Rs. 10.00 on all outgoing international calls. The weighted average
incoming settlement rate and weighted average outgoing settlement rate for
any financial year is the average of the various settlement rates in effect
as of the beginning of the financial year between the Company and the
foreign administrations and carriers (converted to Indian rupees at the
exchange rate prevailing as of the beginning of the financial year),
weighted to reflect the volume of total incoming traffic and the outgoing
traffic respectively, of the immediately preceding financial year.
With effect from April 1, 1999, the revenue sharing arrangement provides
for a comparison of the combined international traffic revenue per call
minute of the Company and DoT/BSNL (net of payments by the Company to
foreign administrations and carriers and by the Company and DoT/BSNL to
each other in respect of incoming and outgoing calls) for each fiscal year,
compared to the corresponding amount in the base fiscal year ended March
31, 1997. Increases or decreases are shared between the Company and
DoT/BSNL according to the following percentages:
INCREASE/DECREASE
------------------------------------------------------
DOT'S SHARE
YEARS ENDED COMPANY'S (BSNL SINCE
MARCH 31 SHARE OCTOBER 01, 2000)
------------------------------------------------------
2000 15% 85%
2001 20% 80%
2002 25% 75%
In computing the international traffic revenue of DoT/BSNL for purposes of
calculating the combined international traffic revenue per call minute of
the Company and DoT/BSNL, the tariff charged by DoT/BSNL to subscribers for
outgoing international calls is assumed to remain constant at Rs.62.35 per
minute, which was the weighted average tariff rate for the year ended March
31, 1997. It is therefore intended that the Company's average gross profit
per call minute under the current revenue sharing arrangement will not be
affected directly by any decrease or increase in the actual tariffs charged
by DoT/BSNL from its subscribers for outgoing international calls.
For the years ended March 31, 2000, 2001 and 2002, the net retention per
call minute was Rs.9.43, Rs.9.39 and Rs.8.39 respectively.
The arrangement was effective from April 1, 1997 and was valid until March
31, 2002. Currently, the Company is in the process of negotiating terms
with various telecommunication operators including BSNL and the Company is
not in a position to predict the outcome of such negotiations at this
stage.
F-10
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND CONSOLIDATION
The Company does not have any subsidiaries. Entities where the Company
controls between 20% to 50% of the voting stock of the investee company are
considered affiliates and are accounted for using the equity method.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP").
US GAAP differs in certain material respects from accounting principles
generally accepted in India and the requirements of India's Companies Act,
1956, which form the basis of the statutory general purpose financial
statements of the Company in India. Principal differences insofar as they
relate to the Company include valuation of investments, accounting for
property, plant and equipment and depreciation thereon, deferred income
taxes, retirement benefits, stock based compensation, investment in
affiliates and the presentation and format of the financial statements and
related notes.
B. USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent liabilities
at the date of these financial statements and the reported amounts of
revenues and expenses for the years presented. Actual results could differ
from these estimates. Material estimates included in these financial
statements that are susceptible to change include traffic revenue,
allowances for trade and other receivables and valuation of unlisted
investments.
C. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments, which are
readily convertible into cash and have original maturities of three months
or less on the date of purchase, to be cash equivalents. The carrying value
of cash equivalents approximates fair value.
D. TRADE AND OTHER RECEIVABLES
Trade and other receivables are stated at their expected realizable values,
net of allowance for doubtful debts. Amounts payable to, and receivable
from, the same administration and the BSNL are shown on a net basis, where
a legal right of set-off exists. These payables and receivables are
intended to be settled on a net basis.
E. INVESTMENTS
The Company accounts for its investments in securities of telecommunication
satellite companies for which readily determinable fair values are
available in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. SFAS No.115 requires that investments that are not classified
as held to maturity or trading are classified as available for sale and
recorded at fair value. Unrealized gains and losses on such securities, net
of applicable taxes, are reported in other comprehensive income, a separate
component of shareholders' equity.
F-11
Investments in telecommunication satellite corporations which are not
freely transferable and for which fair values are not readily obtainable
are accounted for in accordance with APB Opinion No. 18, THE EQUITY METHOD
OF ACCOUNTING FOR INVESTMENTS IN COMMON STOCK. These investments are
reflected at cost less permanent impairment, if any. Declines in the value
of investments that are other than temporary are reflected in earnings as
realized losses, based on management's best estimate of the value of the
investment.
F. PROPERTY, PLANT AND EQUIPMENT
Property plant and equipment are stated at cost, net of accumulated
depreciation. All costs relating to the acquisition and installation of
property, plant and equipment are capitalized.
Depreciation is charged on property, plant and equipment on a straight-line
basis from the time they are available for use, so as to make an economic
allocation of the cost at which the assets are acquired less their
estimated residual values, over their remaining estimated economic lives.
Depreciation on freehold land is not provided. The estimated useful lives
of various assets are shown below:
------------------------------------------------
YEARS
------------------------------------------------
Buildings 61
Plant and machinery:
Earth stations 12
Cables 10-25
Exchanges 12
Other network equipment 8
Office equipment 20
Computers 6
Furniture, fittings and
vehicles 10-15
Land acquired on lease is amortized over the period of the lease.
FINANCIAL STATEMENTS IN ACCORDANCE WITH US GAAP [Graphic Omitted]
- --------------------------------------------------------------------------------
Assets gifted by unrelated parties have been accounted for in accordance
with SFAS No. 116, ACCOUNTING FOR CONTRIBUTIONS RECEIVED AND CONTRIBUTIONS
MADE at fair value and recognized as revenue and an asset in the period
received. Such assets are depreciated over their remaining useful economic
lives.
Property, plant and equipment includes intangible assets in the nature of
indefeasible rights of use ("IRU's") for international telecommunication
circuits in submarine cables, which the Company acquires from time to time.
These rights extend over specific time periods. The amounts paid according
to the terms of these transactions are recorded as additions to property,
plant and equipment, respectively, and amortized over the contracted period
of use. The Company's current amortization policy complies with SFAS No.
142 GOODWILL AND OTHER INTANGIBLE ASSETS which is applicable from fiscal
years beginning after December 15, 2002.
The Company has not during the year traded in IRU's or bandwidth or entered
into any swap or other similar agreements relating to IRU's or bandwidth.
F-12
G. IMPAIRMENT OF LONG LIVED ASSETS
The Company evaluates the carrying value of its property and equipment
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the
asset. Measurement of an impairment loss is based on fair value of the
asset computed using discounted cash flows as if the asset is expected to
be held and used. Measurement of an impairment loss for an asset held for
sale would be based on fair market value less estimated costs to sell.
H. OPERATING LEASES
Costs in respect of operating leases are expensed on a straight-line basis
over the lease term.
I. RETIREMENT BENEFITS
GRATUITY
In accordance with Indian law, the Company provides for gratuity, a defined
benefit retirement plan covering all eligible employees. The plan provides
for lump sum payments to vested employees at retirement, death while in
employment or on termination of employment in an amount equivalent to 15
days salary payable for each completed year of service or part thereof in
excess of six months subject to a maximum of Rs.350,000. Vesting occurs
upon completion of five years of service. The Company makes annual
contributions to a fund administered by trustees based on an external
actuarial valuation carried out annually The Company accounts for its
liability for future gratuity benefits in accordance with SFAS No. 87,
EMPLOYERS' ACCOUNTING FOR PENSIONS.
LEAVE ENCASHMENT
Leave encashment, a defined benefit plan, comprises of encashment of
vacation entitlement carried forward by employees. These balances are
encashable during the tenure of employment, on the employee leaving the
Company or on retirement. The Company makes a provision towards leave
encashment liability based on the total unavailed leave credited to each
employee's account and his respective salary as at the end of each
reporting date.
PROVIDENT FUND
In addition to the above benefits, all employees receive benefits from a
provident fund, a defined contribution plan. The employee and employer each
make monthly contributions to the plan equal to 12% of the employee's
salary (basic and dearness allowance).The contributions are made to the
provident fund trust established by the Company. The Company is obligated
to make good any shortfall in the statutorily assured rate of return on the
assets of the trust, which was 9.5% as of March 31, 2001 and 2002.
Currently, the Company has no further obligation under the provided fund
beyond its contribution, which is expensed when incurred.
F-13
J. REVENUE RECOGNITION
Revenues for long distance telephone services are recognized at the end of
each month based upon minutes of incoming or outgoing traffic completed in
such month. Revenues from leased circuits are recognized based upon
contracted fees schedules. Revenues from Internet services are recognized
based on usage by subscribers. The majority of revenues are derived from
payments by the BSNL for completing outgoing calls made from India and from
payments by foreign administrations for incoming calls that originate
outside India.
Income from Intelsat, Ltd. is accounted as dividend income and included as
part of non-operating income.
K. OPERATING COSTS
The principal components of the Company's operating costs are network and
transmission costs, license fees paid to the DoT and other operating costs.
Network and transmission costs include payments to BSNL for incoming
traffic and to foreign administrations and carriers for outgoing traffic,
as well as the cost of leasing transmission facilities, including lines
from BSNL and satellite circuits from satellite companies. As discussed in
note 1(b), the Company must pay a proportion of the amounts received from
BNSL to transit and destination foreign administrations. Similarly, a
proportion of the payments from the foreign administrations is paid to BSNL
for completing calls within India.
Under the revenue sharing agreement with DoT/BSNL which was valid upto
March 31, 2002, the Company paid to DoT a license fee of Rs.0.25 million
per annum on average circuits commissioned.
Other operating costs include general and administrative expenses other
than network and transmission costs and license fees
L. FOREIGN CURRENCY TRANSACTIONS
The Company's functional currency is the Indian rupee. Foreign currency
transactions are recorded at the exchange rates prevailing on the first
working day of the month in which the transaction falls. In the case of
traffic revenue and the charges for use of transmission facilities, foreign
currency transactions are recorded at the exchange rate prevailing on the
last day of the prior month. Foreign currency denominated monetary assets
and liabilities are converted into Indian rupees using exchange rates
prevailing on the balance sheet dates. Gains and losses arising on
conversion of foreign currency denominated monetary assets and liabilities
and on settlement of foreign currency transactions are included in the
determination of net income.
M. EMPLOYEE STOCK PURCHASE SCHEME
The Company has elected to use the intrinsic value method specified under
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES to account for
the compensation cost of stock purchase rights granted to employees of the
Company. Pro forma disclosures required by SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION have been provided in Note 18.
F-14
N. INCOME TAX
Income tax comprises the current tax provision and the net change in the
deferred tax asset or liability in the year. Temporary differences are
identified and the provision is made using the asset and liability method
for all such differences. Deferred tax benefits are recognized on assets to
the extent that it is more likely than not that future taxable profits will
be available against which the asset can be utilized. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are expected
to be received or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the income statement
in the period of enactment of the change.
O. DIVIDENDS
Any dividends declared by the Company are based on the profit available for
distribution as reported in the statutory financial statements of the
Company prepared in accordance with Indian GAAP. Accordingly, in certain
years, the net income reported in these financial statements may not be
fully distributable. As of March 31, 2001 and 2002, the amounts available
for distribution are Rs. 16,147 million and Rs.8,338 million, respectively.
Dividends declared for the years ended March 31, 2000, 2001 and 2002 were
Rs.8, Rs.50 and Rs.87.50 per equity share, respectively. The Company paid
dividends of Rs.760 million, Rs.760 million and Rs.35,625 million
(including Rs. 21,375 million as special dividend) during the years ended
Match 31, 2000, 2001 and 2002, respectively.
P. EARNINGS PER SHARE
The Company reports basic and diluted earnings per equity share in
accordance with SFAS No. 128, EARNINGS PER SHARE. Basic earnings per equity
share has been computed by dividing net income by the weighted average
number of equity shares outstanding for the period. For the purposes of
earnings per share, stock dividends declared by the Company have been given
retroactive effect for all the years presented.
Q. COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with SFAS No. 130,
REPORTING COMPREHENSIVE INCOME. Accounting principles generally require
that recognized revenues, expenses, gains and losses be included in net
income. Unrealized gains and losses on available for sale securities along
with net income are components of comprehensive income.
R. SEGMENT INFORMATION
The Company identifies basic telephony, Internet and leased line services
as its operating segments. Segment-wise information has been provided in
Note 23.
F-15
S. NEW ACCOUNTING PRONOUNCEMENTS
SFAS NO. 144
In October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, which supercedes SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. SFAS No. 144 applies to all long-lived assets,
including discontinued operations, and consequently amends APB opinion No.
30, REPORTING THE RESULTS OF OPERATIONS-REPORTING THE EFFECTS OF DISPOSAL
OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY
OCCURRING EVENTS AND TRANSACTIONS. SFAS No. 144 develops one accounting
model for long-lived assets that are to be disposed of by sale, as well as
addresses the principal implementation issues. SFAS No. 144 requires that
long-lived assets that are to be disposed of by sale be measured at the
lower of book value or fair value less cost to sell. Additionally, SFAS No.
144 expands the scope of discontinued operations to include all components
of an entity with operations that (1) can be distinguished from the rest of
the entity and (2) will be eliminated from the ongoing operations of the
entity in a disposal transaction. SFAS No.144 also amends ACCOUNTING
RESEARCH BULLETIN (ARB) NO. 51, CONSOLIDATED FINANCIAL STATEMENTS TO
ELIMINATE THE EXCEPTION TO CONSOLIDATION FOR A SUBSIDIARY for which control
is likely to be temporary. SFAS No. 144 will be applicable to the Company
from the fiscal year beginning April 01, 2002.
SFAS NO. 145
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS
NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS. Among other things, this statement rescinds FASB Statement No.
4, REPORTING GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT which required
all gains and losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related income tax
effect. As a result, the criteria in APB Opinion No. 30, REPORTING THE
RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A
BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND
TRANSACTIONS, will now be used to classify those gains and losses. SFAS No.
145 will be applicable to the Company from the fiscal year beginning April
01, 2002.
T. CONVENIENCE TRANSLATION
The accompanying financial statements have been expressed in Indian rupees
("Rs."), the Company's functional currency. For the convenience of the
reader, the financial statements as at and for the year ended March 31,
2002 have been translated into US dollars at US$1.00 = Rs.48.83 based on
the noon buying rate for cable transfers on March 29, 2002 as certified for
customs purposes by the Federal Reserve Bank of New York. Such convenience
translation should not be construed as a representation that the Indian
rupee amounts referred to in these financial statements have been, or could
be converted into US dollars at this or at any other rate of exchange, or
at all.
F-16
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include the following:
AS OF MARCH 31,
---- ---- ----
2001 2002 2002
---- ---- ----
(IN MILLIONS)
Cash in hand Rs.15 Rs.4 US$-
Bank balances:
Current accounts 485 1,707 35
Time deposits 1,700 6,170 126
-------- -------- ------
TOTAL RS.2,200 RS.7,881 US$161
-------- -------- ------
Time deposits are interest-bearing deposits with original maturities
ranging from 9 days to 90 days. Interest rates on such time deposits during
the year ended March 31, 2002, ranged from approximately 6.00% to 9.75% on
Indian rupee deposits.
4. SHORT-TERM INVESTMENTS
Short-term investments include the following:
AS OF MARCH 31,
---- ---- ----
2001 2002 2002
---- ---- ----
(IN MILLIONS)
Restricted cash
balances: Rs.7,730 Rs.7,108 US$146
Time deposits with
maturity
exceeding 38,320 10,361 212
90 days ----------- --------- ------
TOTAL RS.46,050 RS.17,469 US$358
----------- --------- ------
Restricted cash balances include Rs.7,730 million and Rs.7,099 million as
of March 31, 2001 and 2002, respectively, comprising of time deposits, the
use of which is restricted to the import of capital equipment.
Interest rates on deposits placed out of restricted cash balances during
the year ended March 31, 2002, ranged from approximately 7.50% to 11.25%.
Interest rates on time deposits with maturity exceeding 90 days during the
year ended March 31, 2002, ranged from approximately 7.50% to 9.25%.
Time deposits with maturity exceeding 90 days include Rs.5,730 million
pledged against short-term borrowings of the Company.
F-17
5. TRADE AND OTHER RECEIVABLES
Trade and other receivables include the following:
AS OF MARCH 31,
---- ---- ----
2001 2002 2002
---- ---- ----
(IN MILLIONS)
Trade accounts
receivables:
Amount due from
foreign
administrations Rs.17,347 Rs.14,380 US$294
Domestic trade debtors 792 528 11
--------- --------- ------
Total trade account
receivables 18,139 14,908 305
Interest receivable on
bank deposits 1,231 700 15
Other sundry deposits 56 63 1
Other receivables 319 546 11
--------- --------- ------
TOTAL RS.19,745 RS.16,217 US$332
--------- --------- ------
Trade accounts receivables are net of an allowance for doubtful debts of
Rs. 979 million and Rs.1,654 million for the years ended March 31, 2001 and
2002, respectively.
Amounts due from BSNL for traffic settlement are netted against amounts due
to BSNL for traffic settlement and are reported in trade payables. The
Company has legal right of setoff.
6. INVESTMENTS
The portfolio of investments as of March 31,2001 and 2002 is as follows:
-----------------------------------------------------------
AS OF MARCH 31, 2001 AS OF MARCH 31, 2002
-----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED CARRYING AMORTIZED UNREALIZED CARRYING
COST GAIN VALUE COST GAINS VALUE
-----------------------------------------------------------
(IN MILLIONS)
Investment carried at
fair value:
Satellite companies RS.562 RS.681 Rs.1,243 RS.562 RS.412 Rs.974
------ ------ ------ ------
Investment carried at
cost:
Telecommunications
companies 8,474 8,481
Less: Permanent
Impairment (5,470) (5,470)
------- --------
TOTAL RS.4,247 RS.3,985
-------- --------
TOTAL US$82
------
F-18
INTELSAT, LTD.
Intelsat, Ltd. was originally formed as an Inter Government Organisation
("IGO") in 1964 and owns and operates satellite communication systems. It
offers Internet, broadcast, telephony and corporate network solutions to
customers in over 200 countries through its network of 20 geostationary
satellites. Currently, it has a few next-generation satellites under
construction. Intelsat was converted into a private company incorporated in
Bermuda effective July 18, 2001. Consequently, the Company now holds
27,045,940 shares of US$1 each representing 5.4% of the paid up capital of
lntelsat, Ltd.
Till the date of corporatization, the Company's ownership share in this
organization was adjusted annually to conform to the respective percentage
of total use of the system or based on the accession or cessation of any
party as per the terms of Intelsat Agreement. Accordingly, on the basis of
share redeterminations, as of March 2001, the Company's investment was at
approximately 5.4%, of the total shareholding of Intelsat. Net capital
contributions were billed by Intelsat to the Company from time to time in
proportion to the ownership share determined.
Post corporatization, the investment in Intelsat, Ltd. has been accounted
for in accordance with APB Opinion No. 18, THE EQUITY METHOD OF ACCOUNTING
FOR INVESTMENTS IN COMMON STOCK at cost since the fair value of equity
shares is not readily obtainable.
On March 08, 2002, Intelsat, Ltd. announced its intention to conduct an
initial public offering of its ordinary shares in an amount of
approximately US$500 million. In addition, it is anticipated that Intelsat,
Ltd.'s existing shareholders will be offered the opportunity to sell
ordinary shares in the offering.
NEW SKIES SATELLITE NV ("NSS")
During 1998-99, Intelsat as part of its restructuring process incorporated
NSS as a corporation with limited liability under the laws of Netherlands
and transferred certain assets and liabilities to NSS accounted for at
historic book values. In return, NSS issued 10,000,000 shares of common
stock of Dutch Guilder 1 to Intelsat. Intelsat distributed 9,000,000 shares
of NSS in the year 1998-99, and 1,000,000 shares of NSS in 1999-2000 in
proportion to the investment shares of its members at the time of
distribution. Consequently, the Company acquired 301,215 shares in 1998-99
and 43,000 shares in 1999-2000 which were recorded as a reduction in the
investment in Intelsat and a new investment in NSS at face values.
NSS announced a 10:1 stock split prior to its initial public offering
("IPO") in October 2000 and redesignated its shares from Guilders to Euros.
Thus, the Company's total holding in NSS as of March 31, 2002 stands at
3,442,150 ordinary shares of 0.05 Euros each. The market value per share as
of March 28, 2002 was US$5.8 per share.
INTERNATIONAL MOBILE SATELLITE ORGANISATION ("INMARSAT")
Inmansat was an IGO with membership from 88 countries providing satellite
mobile communications in air, on land and at sea. Inmarsat was converted
into a national law company incorporated in the United Kingdom effective
April 15, 1999. The Company's investment in the holding company, Inmarsat
Ventures Plc is 202,219 shares representing approximately 2.0% of the paid
up capital. Further, there had been a 10:1 stock split in March 2001.
Consequently, the Company now holds 2,022,190 shares of 10 pence each in
Inmarsat Ventures Plc.
F-19
During the year, Inmarsat announced its intention to conduct an initial
public offering of its ordinary shares In addition, it is anticipated that
Inmarsat's existing shareholders will be offered the opportunity to sell
ordinary shares in the offering.
ICO GLOBAL COMMUNICATIONS HOLDINGS LTD.
("ICO")
ICO, a company registered in Bermuda, was incorporated in January 1995 to
provide global mobile personal communication services. ICO was listed on
the NASDAQ in July 1998. The Company had invested a sum of Rs.5,471 million
(US$150 million) in ICO.
ICO filed a voluntary petition for re-organization under Chapter 11 of the
United States Bankruptcy Code on August 27, 1999 in the United States
Bankruptcy Court in the district of Delaware as the additional financial
resources required to complete the system and begin commercial operations
could not be raised as per schedule.
In May 2000, the court confirmed the plans of re-organization of ICO, which
became effective on May 17, 2000. By virtue of the re-organization, the
Company received 180,053 shares of class A common stock of US$ 0.01,
amounting to Rs.0.06 million and 975,398 warrants, with an option to
purchase shares of class A common stock exercisable in New ICO by May 15,
2006. The Company recognized a charge of Rs.5,416 million and Rs.54 million
as permanent impairment in the years ended March 31, 1999 and 2000,
respectively.
TELSTRA VISHESH COMMUNICATIONS LIMITED ("TVCL")
TVCL is a joint venture between the Company, Telstra-Australia and
Infrastructure Leasing & Financial Services Ltd. ("ILFS"), initially formed
with an investment equity in the ratio of 40:40:20. Currently, the Company
holds Rs.92 million out of the total paid up capital of Rs.314 million.
TVCL has invested in a hybrid VSAT project and has diversified into
consulting, facility management services and turnkey VSAT projects for
large organizations. The shares of TVCL are recorded at face value and
consequently the Company has applied the provision for diminution in value
of investments and written off these investments to their current fair
value in the year ended March 31, 2000.
As per the proposed restructuring plan undertaken by TVCL, Essel Shyam
Communications Ltd. ("ESCL"), a company incorporated in India, has been
identified as the strategic partner. Further, Telstra-Australia will exit
the joint venture and the shareholders of TVCL comprising the remaining
joint venture partners, namely the Company and IL&FS and the Employee
Welfare Trust will get 15% in the aggregate of the equity share capital of
ESCL in exchange for their holding in TVCL. In addition, ESCL will pay a
cash compensation of Rs.20 million to the Company and IL&FS in the
aggregate.
UNITED TELECOM LIMITED ("UTL")
UTL is a joint venture between the Company, Mahanagar Telephone Nigam
Limited ("MTNL"), Telecommunications Consultants India Limited ("TCIL") and
Nepal Ventures Private Limited ("NVPL"), with an investment equity in the
ratio of 26.6:26.8:26.6:20. MTNL and TCIL are companies incorporated in
India and NVPL is a company incorporated in Nepal. Currently, the Company
holds 266,000 equity shares of Nepal Rupees ("NR.") 100 each out of the
total paid up capital of NR.100 million. UTL has been formed for bidding
for license to operate and invest in basic telephony services in Nepal
based on Wireless-in-Local Loop technology. As of date, UTL is yet to
commence commercial operations. The equity shares of UTL are recorded at
cost.
F-20
On May 15, 2002, UTL had further called up equity capital from all the
joint venture partners totaling to NR.1,300 million payable as per the
following schedule:
----------------------------------------------------------------------
PARTICULARS OF EQUITY CAPITAL PAYABLE ON OR BEFORE
EQUITY CALLS CALLED
(IN MILLIONS)
----------------------------------------------------------------------
2nd call NR.200 May 25, 2002
3rd call 500 July 15, 2002
4th call 300 September 15, 2002
5th call 300 December 15, 2002
The Company on May 25, 2002 paid up the 2nd call of NR.53 million.
Subsequent to the payment of this call, the Company now holds 2,266,000
equity shares at NR. 80 million.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment by asset category is as follows:
AS OF MARCH 31,
2001 2002 2002
---- ---- ----
(IN MILLIONS)
Land Rs.754 Rs.773 US$16
Buildings 2,062 2,210 45
Plant and machinery 23,349 25,117 515
Computers 574 587 12
Motor vehicles 16 16 -----
Furniture and fixtures 366 184 4
Property, plant and
equipment, at cost 27,121 28,887 592
Less: Accumulated
depreciation (9,044) (10,829) (222)
------- -------- -------
PROPERTY, PLANT AND
EQUIPMENT, NET RS.18,077 RS.18,058 US$370
--------- --------- -------
Depreciation expense for the years ended March 31, 2000, 2001 and 2002 was
Rs.1,534 million, Rs.1,729 million and Rs.1,898 million, respectively.
During the year 1998-99 the Company had spent Rs.496 million towards
gateway equipment for Iridium India Telecom Limited ("IITL"), Pune, which
was capitalized and was being depreciated. IITL stopped operational
activities in April 2000 and since then these assets have not been used by
IITL. An impairment charge has been recognized of Rs.356 million, Rs.Nil
million and Rs.30 million for the years ended March 31, 2000, 2001 and 2002
to reflect their estimated realizable value.
Property, plant and equipment include Rs.1,672 million and Rs.2,262 million
for indefeasible rights of use as of March 31, 2001 and 2002, respectively.
F-21
8. CAPITAL WORK-IN-PROGRESS
Capital work-in-progress includes the following:
AS OF MARCH 31,
2001 2002 2002
---- ---- ----
(IN MILLIONS)
Buildings Rs.382 Rs.315 US$6
Plant and Machinery 1,912 2,583 53
Other assets 34 45 1
-------- -------- ------
TOTAL RS.2,328 RS.2,943 US$60
-------- -------- -------
9. OTHER ASSETS
Other assets includes the following:
AS OF MARCH 31,
2001 2002 2002
---- ---- ----
(IN MILLIONS)
Advance tax (net) Rs.7,463 Rs.7,752 US$159
Advance paid for
capital goods 63 6 --
Prepaid expenses 235 530 11
Inventories 17 5 --
TOTAL RS.7,778 RS.8,293 US$170
-------- -------- ------
10. SHORT-TERM BORROWING
During the last quarter of fiscal 2002, the Company availed short-term
borrowings of Rs.28,205 million against pledge of fixed deposits placed
with banks. These borrowings were for a maximum duration of six months.
Interest rates on these borrowings ranged from approximately 8.25% to
9.00%. As of March 31, 2002, short-term borrowings of Rs.5,751 million were
outstanding.
11. TRADE PAYABLES
Trade payables include the following:
AS OF MARCH 31,
2001 2002 2002
---- ---- ----
(IN MILLIONS)
Accounts payable-trade:
Amounts due to foreign
administrations Rs.2,585 Rs.1,420 US$29
Amounts due to BSNL net
of amounts due from
BSNL for traffic settlement 8,724 4,308 88
--------- -------- -------
TOTAL RS.11,309 RS.5,728 US$117
--------- -------- -------
F-22
12. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities include the following:
AS OF MARCH 31,
2001 2002 2002
---- ---- ----
(IN MILLIONS)
Unearned income Rs.2,235 Rs.1,762 US$36
Deferred taxation 3,183 2,363 48
Interest acrued but not due -- 11 --
Sundry creditors 4,051 4,616 95
Other payables and accrued
expenses 1,262 1,573 33
----- ----- --
TOTAL RS.10,731 RS.10,325 US$212
--------- ---------- ------
13. INCOME TAX
The income tax expense comprises the following:
YEARS ENDED MARCH 31,
2000 2001 2002 2002
---- ---- ---- ----
(IN MILLIONS)
Current income tax
expense Rs.6,375 Rs.7,887 Rs.6,661 US$136
Deferred income tax
expense (benefit) (219) 1,759 (702) (14)
INCOME TAX EXPENSE Rs.6,156 Rs.9,646 Rs.5,959 US$122
F-23
The following is the reconciliation of estimated income taxes at the Indian
statutory income tax rate to income tax expense as reported:
YEARS ENDED MARCH 31,
2000 2001 2002 2002
---- ---- ---- ----
(IN MILLIONS)
Net income before taxes Rs.19,331 Rs.25,173 Rs.19,130 US$392
Effective statutory income
tax rate 38.50% 39.55% 35.70% 35.70%
Expected income tax
expense 7,442 9,956 6,829 140
Adjustments to reconcile
expected income tax to
actual tax expense:
Permanent differences:
Income exempt under tax
holiday (899) (1,209) (957) (20)
Provision for
diminution
in value of 21 153 24 --
investment not
allowed for tax
Stock based compensation -- -- 320 7
cost
Exchange gain on GDR
deposits treated as
capital
receipt for income (94) (60) 59 1
tax purposes
Other, net (451) 775 (110) (2)
Effect of change in
statutory tax rate 137 31 (206) (4)
INCOME TAX EXPENSE RS.6,156 RS.9,646 RS.5,959 US$122
-------- -------- -------- ------
The tax effects of significant temporary differences are as follows:
AS OF MARCH 31,
2001 2002 2002
---- ---- ----
(IN MILLIONS)
TAX EFFECT OF :
DEDUCTIBLE TEMPORARY
DIFFERENCES:
Allowance for trade
receivables Rs.387 Rs.608 US$12
Other -- 126 3
-------- -------- ------
DEFERRED TAX ASSET RS.387 RS.734 US$15
-------- -------- ------
TAXABLE TEMPORARY
DIFFERENCES:
Property, plant and
equipment Rs.3,204 Rs.2,946 US$60
Unrealized gain on
securities available for
Sale 269 151 3
Other 97 -- --
-------- -------- ------
DEFERRED TAX RS.3,570 RS.3,097 US$63
LIABILITY -------- -------- ------
NET DEFERRED TAX
LIABILITY RS.3,183 RS.2,363 US$48
-------- -------- ------
F-24
14. REVENUES
Revenues comprise the following:
YEARS ENDED MARCH 31,
2000 2001 2002 2002
---- ---- ---- ----
(IN MILLIONS)
Revenues for foreign
administrations for
incoming traffic:
Telephone Rs.45,161 Rs.46,674 Rs.41,503 US$850
Telex 128 112 70 1
Revenues from BSNL
for outgoing traffic:
Telephone 18,375 18,345 16,153 331
Telex 175 112 88 2
Leased circuits 2,986 3,140 3,584 73
Telegraph, television
others 2,815 3,533 3,652 75
--------- --------- --------- ---------
Total RS.69,640 RS.71,916 RS.65,050 US$1,332
--------- --------- --------- ---------
15. NETWORK AND TRANSMISSION COSTS
Network and transmission costs comprise the following:
YEARS ENDED MARCH 31,
2000 2001 2002 2002
---- ---- ---- ----
(IN MILLIONS)
Payment for traffic
costs to:
BSNL
Foreign Rs.29,254 Rs.27,341 Rs.23,050 US$472
administrations 13,374 13,866 10,721 220
Rent of land lines 579 1,037 2,914 60
Other transmission
facilities 2,414 2,906 2,892 59
----- ----- ----- --
TOTAL RS.45,621 RS.45,150 RS.39,577 US$811
--------- --------- --------- ------
F-25
16. OTHER OPERATING COSTS
Other operating costs comprise the following:
YEARS ENDED MARCH 31,
2000 2001 2002 2002
---- ---- ---- ----
(IN MILLIONS)
Staff costs:
Salaries and wages Rs.866 Rs.1,400 Rs.2,134 US$43
Social security 90 132 391 8
contributions
Energy costs 235 271 286 6
Advertising 113 116 35 1
Repairs, maintenance,
marketing and other
costs 1,318 1,104 1,957 40
----- ----- ----- --
TOTAL RS.2,622 RS.3,023 RS.4,803 US$98
-------- -------- -------- -----
On August 1, 2001, the Company announced a Voluntary Retirement Scheme
("VRS") with the primary objective of improving the average mix of its
employees and also to improve the overall skill level. The original period
of the scheme was from September 01, 2001 to September 30, 2001. The scheme
was later extended upto October 31, 2001. Employees who were at least 50
years of age and had rendered a minimum of 10 years service in the Company
were eligible to opt for voluntary retirement. Apart from normal retirement
benefits, employees who opted for voluntary retirement were entitled to an
ex-gratia payment of 60 days salary (basic and dearness allowance) for each
completed year of service or payment of salary for the remaining period of
service left before retirement, whichever was lower. At the close of the
scheme, 81 employees had opted for voluntary retirement. Staff costs
include an amount of Rs.36 million on account of this scheme.
17. NON-OPERATING INCOME
Non-operating income comprises the following:
YEARS ENDED MARCH 31,
2000 2001 2002 2002
---- ---- ---- ----
(IN MILLIONS)
Foreign exchange gains,
net Rs. 1,449 Rs. 2,878 Rs. 939 US$19
Profit (loss) on sale of 86 (5) (2) --
fixed assets
Reimbursement by GoI of
entry fees
(See Note 1(c)) -- -- 279 6
Miscellaneous income 286 185 155 3
Total Rs. 1,821 Rs. 3,058 Rs. 1,371 US$28
18. EMPLOYEE STOCK PURCHASE SCHEME ("ESPS")
As part of the process of disinvestment, GoI on various dates transferred
5,661,546 equity shares to employees of the Company at a price
significantly lower than the fair value on the date of transfer. The
transfer of such equity shares has been accounted for as a charge to
compensation cost of Rs.896 million and an accretion to additional paid in
capital in the year ended March 31, 2002.
F-26
In addition to the equity shares already transferred, GoI is yet to
transfer 346,860 equity shares to employees which has been approved by the
board of directors of the Company.
Had compensation cost for the Company's ESPS been determined based on the
fair value at the grant dates, consistent with the method prescribed by
SFAS No. 123, the Company's net income and earnings per share would have
been as per the PRO FORMA amounts indicated below:
YEARS ENDED MARCH 31, 2002
----------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
NET INCOME:
As reported Rs. 9,537 US$195
PRO FORMA Rs. 9,776 US$200
BASIC AND DILUTED EARNINGS PER SHARE
As reported Rs. 33.46 US$0.69
PRO FORMA 34.30 US$0.70
The fair value of options used to compute pro forma net income and basic
earnings per equity share have been estimated on the dates of grant using
the Black-Scholes option pricing model with the following assumptions:
YEARS ENDED MARCH 31, 2002
-----------------------------------------
Dividend yield 1%
Expected volatility 88%
Risk-free interest rate 9%
Lock-in period 1 year
F-27
19. RETIREMENT BENEFITS
GRATUITY
The following table sets out the funded status of the gratuity plan and
the amounts recognized in the Company's financial statements as of March
31, 2001 and 2002.
AS OF MARCH 31,
---------- ------------ -----------
2001 2002 2002
---------- ------------ -----------
(IN MILLIONS)
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation,
beginning of the year Rs. 153 Rs. 232 US$5
Service cost 8 16 __
Interest cost 16 23 __
Actuarial loss 65 39 1
Benefits paid (10) (22) __
---------- ------------ ----------
PROJECTED BENEFIT OBLIGATION, END OF 232 288 6
THE YEAR ---------- ------------ ----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets, beginning 95 127 3
of the year
Actual return on plan assets 10 11 __
Employer contributions 32 __ __
Benefits paid (10) (22) __
---------- ------------ ----------
FAIR VALUE OF PLAN ASSETS, END
OF THE YEAR 127 116 3
---------- ------------ ----------
Excess of obligation over plan assets (105) (172) (3)
Unrecognized actuarial loss 68 102 2
Unrecognized transitional obligation 13 9 __
---------- ------------ ----------
ACCRUED BENEFIT Rs. (24) Rs. (62) US$(1)
---------- ------------ ----------
Net gratuity cost for the years ended March 31, 2000, 2001 and 2002
comprises the following components:
YEARS ENDED MARCH 31,
-----------------------------------------------------
2000 2001 2002 2002
---------- ----------- ------------- -------------
(IN MILLIONS)
Service cost Rs. 8 Rs. 8 Rs. 16 US$-
Interest cost 16 16 23 1
Net transitional liability -- -- 13 --
recognized
Net actuarial loss -- -- 105 2
recognized
Amortization of
unrecognized
transitional obligation 5 5 -- --
Actual investment return (7) (10) (11) --
---------- ----------- ------------- -------------
---------- ----------- ------------- -------------
NET GRATUITY COST Rs. 22 Rs. 19 Rs. 146 US$3
---------- ----------- ------------- -------------
F-28
The assumptions used in accounting for the gratuity plan for the years
ended March 31, 2000, 2001 and 2002 are set out below:
YEARS ENDED MARCH 31,
---------- ------------ -----------
2001 2002 2002
---------- ------------ -----------
(IN MILLIONS)
Discount rate 10.5 10.5 10.0
Rate of increase in compensation
levels of covered employees 6.0 6.0 6.0
Rate of return on plan assets 9.5 9.5 9.5
LEAVE ENCASHMENT
The Company provided Rs.26 million, Rs.28 million and Rs.120 million for
leave encashment for the years ended March 31, 2000, 2001 and 2002,
respectively.
PROVIDENT FUND
The Company contributed Rs.45 million, Rs.75 million and Rs.69 million to
the provident fund for the years ended March 31, 2000, 2001 and 2002,
respectively.
20. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, cash equivalents, short-term investments,
accounts receivable and accounts payable approximate their fair values due
to the short maturity of these instruments.
21. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies are as follows:
CAPITAL COMMITMENTS
Capital commitments represent expenditure, principally relating to the
construction of new buildings, submarine cables and expansion of
transmission equipment, which had been committed under contractual
arrangements and unpaid amounts on investments, with the majority of
payments due within a one year period. The amount of these commitments
totalled Rs.2,118 million as of March 31, 2002.
CONTINGENCIES
INCOME TAX MATTERS
For the fiscal years 1987-88, 1993-94 and 1995-96 to 1998-99, the income
tax authorities have raised demands aggregating Rs.16,306 million,
including interest of Rs.6,393 million on the disallowance of license fee
paid by the Company to DoT and other claims against which amounts
aggregating to Rs.10,635 million have been paid or adjusted. The claim for
license fee for fiscal year 1994-95 has been allowed by the Income Tax
Appellate Tribunal. The Company has been advised by counsel that the
demands are not likely to be sustained and hence no provision is
considered necessary.
F-29
OTHER CONTINGENCIES
The Company is involved in lawsuits, claims, investigations and
proceedings, which arise in the normal course of business. There are no
such matters pending that the Company expects to be material in relation
to the business.
22. RELATED PARTY TRANSACTIONS
The Company's principal related parties consist of its major shareholders,
government departments, government owned or controlled companies and
affiliates of the Company. The company routinely enters into transactions
with its related parties, such as providing telecommunication services,
paying license fees and subletting premises. Transactions other than with
DoT and BSNL are at arm's length in accordance with law. Transactions with
the DoT and BSNL are subject to the revenue sharing agreement discussed in
Note 1d. The Company's significant related party balances and transactions
with DoT are detailed in the Statement of Income and in Notes 5, 11, 14
and 15. In addition to the same, following are the significant related
party transactions.
OUTSTANDING OUTSTANDING
NAME OF NATURE OF DESCRIPTION OF THE AMOUNT OF BALANCES DEBT/
THE PARTY RELATIONSHIP TRANSACTION RECEIPTS/PAYMENTS (CREDIT)
------------------------------------------------------------------------------------------------------------------------------
GoI and
its
departments Principal owner Rendering of services Rs. 386 US$8
Royalty payments 6,414 131
Dividend payments 18,870 386
Compensation
received from GoI (279) (6)
------------------------------------
Rs.25,391 US$520 Rs.290 US$6
TVCL Joint venture partner Purchase of VSAT terminals 26 1 (12) --
UTL Joint venture partner Investment in equity share capital 16 -- --
Employee Trusts controlled by
Trusts the management Loans made 75 2 100 2
Payment towards gratuity 32 1 -- --
Other related party transactions and balances are immaterial individually
and in the aggregate.
The Company grants loans to employees for acquiring assets such as
computers and vehicles and for purchase of equity shares of the Company.
The annual rate of interest at which the loans have been made to employees
are at 4%. The loans are secured by assets acquired by the employees. As
of March 31, 2001 and 2002, amounts receivable from employees aggregated
to Rs.75 million and Rs.301 million, respectively, are included in trade
and other receivables. Interest free short term advances made to employees
aggregated to Rs.67 million and Rs.8 million as of March 31, 2001 and
2002, respectively.
The Company also grants interest subsidy in excess of 4% of the interest
rate for loans taken by the employees for purchase of property. The cost
of interest subsidy of Rs.7 million, Rs.9 million and Rs.11 million for
the years ended March 31, 2000, 2001 and 2002, respectively, is included
in staff costs.
23. SEGMENT INFORMATION
The Company has three operating segments, comprising telephony, Internet
and leased line services. Operating segments other than the telephony
segment do not meet the quantitative thresholds specified by SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, and
do not qualify as reportable segments. Information about these segments
has been aggregated and reported in the "All other" category.
F-30
The Company's chief operating decision maker utilizes revenue information
in assessing performance and making overall operating decisions and
resource allocation. Communication services are provided utilizing the
Company's assets, which generally do not make a distinction between the
types of services. As a result, the Company cannot, and does not, allocate
expenses relating to assets or asset costs by segment.
Summarized segment information for the years ended March 31, 2000, 2001
and 2002 is as follows:
YEARS ENDED MARCH 31,
----------------------------------------------------------------
2000 2001 2002
---- ---- ----
BASIC BASIC BASIC
TELEPHONY ALL OTHER TELEPHONY ALL OTHER TELEPHONY ALL OTHER
(IN MILLIONS)
Traffic revenue Rs.63,535 Rs.6,105 Rs.65,019 Rs.6,897 Rs.57,656 Rs.7,394
Income from
satellite
consortia -- 737 -- 1,160 -- --
-------- ---------- --------- ---------- ---------- ----------
OPERATING
REVENUE 63,535 6,842 65,019 8,057 57,656 7,394
Network and
transmission
costs 43,004 2,617 41,861 3,289 33,858 5,719
License fee 4,712 -- 5,022 -- 5,393 --
--------- ---------- --------- ---------- ---------- ----------
SEGMENT
OPERATING
PROFIT 15,819 4,225 18,136 4,768 18,405 1,675
--------- ---------- --------- ---------- ---------- ----------
TOTAL SEGMENT OPERATING 20,044 22,904 20,080
PROFIT
Less: Unallocable 4,156 4,752 6,701
operating costs ---------- ---------- ----------
OPERATING PROFIT, AS RS.15,888 RS.18,152 RS.13,379
REPORTED ---------- ---------- ---------
Unallocable operating costs include staff cost, energy cost, depreciation
and other general administrative overheads, which are not allocated
segment-wise.
The company renders international telephony and value added services and
derives its revenue from the administrations in the following geographical
locations:
YEARS ENDED MARCH 31,
2000 2001 2002 2002 2002
---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PERCENTAGES)
India Rs.18,550 Rs.18,346 Rs.23,527 US$482 36.2%
United States of 18,459 23,297 19,436 398 29.8
America
United Arab 6,589 7,222 6,720 138 10.3
Emirates
Saudi Arabia 3,179 4,185 3,802 78 5.8
United Kingdom 5,204 2,930 2,092 43 3.2
Canada 1,199 702 1,961 40 3.0
Rest of the world 16,460 15,234 7,512 154 11.7
--------- --------- --------- -------- -----
TOTAL RS.69,640 RS.71,916 RS.65,050 US$1,332 100.0%
--------- --------- --------- -------- ------
F-31
Revenues from major customers are as follows:
YEARS ENDED MARCH 31,
2000 2001 2002 2002 2002
---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PERCENTAGES)
BSNL Rs.18,550 Rs.18,346 Rs.23,527 US$482 36.2%
MCI WorldCom 11,071 10,916 9,513 195 14.6
Concert AT&T 5,157 9,639 6,987 143 10.7
United Arab 6,589 7,222 6,720 138 10.3
Emirates
Others 28,273 25,793 18,303 374 28.2
--------- --------- --------- -------- -------
TOTAL RS.69,640 RS.71,916 RS.65,050 US$1,332 100.0%
--------- --------- --------- -------- -------
Concentrations of credit risk exist when changes in economic, industry or
geographic factors similarly affect groups of counter parties whose
aggregate credit exposure is material in relation to the Company's total
credit exposure.
The balances due from major customers are as follows:
YEARS ENDED MARCH 31,
---------------------
2001 2002 2002 2002
---- ---- ---- ----
(IN MILLIONS, EXCEPT PERCENTAGES)
MCI WorldCom Rs.4,066 Rs.5,612 US$115 37.7%
Concert AT&T 2,585 1,668 34 11.2
United Arab Emirates 2,419 2,366 48 15.8
Saudi Arabia 2,057 1,659 34 11.1
Others 7,012 3,603 74 24.2
--------- --------- ------ ------
TOTAL RS.18,139 RS.14,908 US$305 100.0%
--------- --------- ------ ------
All revenues earned by the Company are from its operations in India.
Substantially, all of the Company's fixed assets are located in India.
24. SUBSEQUENT EVENTS
On May 28, 2002, the board of directors of the Company declared a dividend
of Rs. 12.50 per equity share aggregating to Rs.3,563 million which is
subject to approval by the shareholders at the ensuing annual general
meeting. The board of directors of the Company also approved an investment
of Rs.12,000 million in Tata Teleservices Ltd., a company incorporated in
the state of Andhra Pradesh, India, that provides basic telephony services
in India.
F-32