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iFlexAR01_POL 09/07/2001 7:55 PM Page 1

Introduction 3

Highlights of 2000-2001 4

Stretch, Aim, Strike 7

Robust, Resilient, Responsive 11

Bringing the world closer 15

Reaching out 19

In perfect harmony 23

Global presence 26

Key management Personnel 28

Management Discussion 30

Key Indicators 2000-2001 36

Directors’ Report 40

Financials

Indian GAAP 45

US GAAP 69

i-flex solutions bv 99


Flexibility is at the core of i-flex solutions. It is a mantra

that pervades everything that i-flex does.

It is no coincidence that ‘flex’ is found in the name of

the company and in its flagship brand ‘FLEXCUBE’.

It is all about stretching limits to deliver value. To be

agile and to adapt to the ever-changing environment. To

be robust, resilient and to bounce back in the face of

competition. To strike swiftly and accurately with

innovations and new technology. And to be flexible and

open to new challenges all the time.

i - f l e x a n n u a l r e p o r t 2 0 0 0 - 0 1 3


Growing development facilities, new

business alliances, a broader product range,

increased market penetration, greater global

reach and new lines of business were the

highlights of the year.

April 2000: Won accolades from the Government of

Karnataka for outstanding export performance.

May 2000: Announced formation of DotEx

International Limited, a broker-neutral Internet

trading platform, in association with the National

Stock Exchange of India (NSE.IT).

June 2000: Signed a multi-million dollar deal with

Shinsei Bank, Japan, marking i-flex’s successful entry

into the demanding Japanese market.

July 2000: Set up a joint venture with the HDFC

Group to form Flexcel International (P) Limited –

a company dedicated to deploying FLEXCUBE on

an Application Service Provider (ASP) model.

October 2000: Signed an agreement with Andersen

Consulting (now Accenture) to implement

FLEXCUBE in the West African market.

December 2000: FLEXCUBE added one new financial

institution, every two weeks. It also crossed the

50 sales mark (across 27 countries) within three years

of its launch.

January 2001: Established a new financial software

development facility at Pune for credit cards, payment

systems and internet /e-commerce security.

January 2001: Strategic alliance with Intel announced

to jointly address the financial services market.

Highlights of2000-

March 2001: FLEXCUBE bagged Banking Software

2000 Award from the Chartered Institute of

Marketing of Nigeria (CIMN).

i-flex opened its Asia-Pacific headquarters in

Singapore and announced a multi-million dollar

order from DBS Bank, Singapore, for the deployment

of FLEXCUBE across 10 locations.

Deepak Ghaisas became the first Indian ever to win

the CFO Asia ‘Achievements in Best Practices’ Award

instituted by CFO Asia Magazine.

International Banking Systems, UK, ranks

FLEXCUBE among the top two selling wholesale

back-office banking systems for the second year in

succession in its Sales League Table for 2000. And

the Retail Banking Systems Sales League Table ranks

FLEXCUBE among the top three solutions for 2000.

Pramod Mahajan, Minister of Information Technology, Government of Indiagiving away the Award for Excellence in Software Exports to Deepak Ghaisas,CEO-India Operations, i-flex solutions ltd.

Track record – 5 years A l l f i gu res i n Rs m i l l i on . e xcep t EPS & Book Va lue

1996-97 1997-98 1998-99 1999-2000 2000-01

Total Revenues 545.26 825.86 1,444.31 2,062.69 3,211.21

Earnings before tax 201.31 312.67 511.11 721.00 1,128.21

Tax 7.80 4.75 6.77 28.27 28.00

Earnings after tax 193.51 307.92 504.33 692.73 1,100.21

EPS 11.63 18.51 30.31 41.63 66.13

Book Value 23.69 48.36 77.99 127.46 190.83

Notes:

1) The company issued bonus shares in the ratio of 1:1 in 2000-01 for the second consecutive year

2) All EPS and Book Values are computed based on the current equity capital base of 16,638,200 shares

EVA 122.47 173.87 264.03 328.33 548.39


Clarity of vision depends on focus. Since inception,

i-flex has focused exclusively on the global financial

services industry, with a comprehensive suite of

products and services. This unremitting focus enables

i-flex to deliver value to its customers through a

unique blend of technology expertise and domain

knowledge in financial services.

It is this track record of delivering value that has led

over 280 financial institutions across 74 countries to

choose i-flex as their IT partner.

i-flex is making progress towards its goal of becoming

the preferred software solutions partner to the global

financial services industry.

There are numerous expressions of i-flex’s breadth

and depth of experience – evident in its qualified

professionals, its knowledge management capabilities,

and its comprehensive range of products and services.

StretchAimStrike



Reservoir of talenti-flex’s team of 1,590 professionals (March 31, 2001)

has a rich blend of technology and domain knowledge.

Drawn from technical and financial backgrounds,

they speak one language – that of our customers.

Intensive, ongoing training keeps our professionals

abreast of the latest developments and trends in

both business and technology. Notably, i-flexers

spent more than 23,000 person hours in training in

2000-01. An investment which yielded rich results

in the quality of solutions delivered to our customers.

Knowledge is powerAt i-flex, our depth of experience is exemplified

in our knowledge management techniques which

create, disseminate, renew and apply our knowledge

of the financial services industry toward

organizational growth.

We are addressing the challenges of building a

globally connected, learning organization through

the design and implementation of our knowledge

management infrastructure – ‘i-Clear’ (i-flex

Corporate Learning Repository). The i-Clear

Knowledge Management Portal is being deployed

enterprise-wide in a phased manner starting this year,

and will enable i-flexers to share information and

collaborate seamlessly across groups and offices.

Thought LeadershipOur extensive experience in the financial services

industry is regularly shared with our customers as

well as international audiences at large. We organize

user meets to encourage customers to share ideas and

learn from industry experts, both at a regional and

global level.

This year, we organized two user meets in Malta and

Cyprus for our European customers.

We brought more than 60 eminent bankers and

technology partners from Africa together at the first

ever Africa Banker’s Strategic Leadership Meet in

the beautiful surroundings of the Indian Ocean island

of Seychelles in February 2001.

At a global level, we organize a bi-annual

international user meet for all our customers and

partners. The fourth such meet is scheduled to take

place at Singapore in October 2001.

i-flex’s managers were invited to share their

knowledge and wealth of experience at various

industry events in Argentina, Dubai, Hong Kong,

Jamaica, Malaysia and Thailand.

As part of our training commitment to our partners,

we launched our ‘FLEXCUBE Center of Learning’

program in November 2000. 13 partners from three

organizations were trained at this six-week program

and were certified for FLEXCUBE Implementation.

New Business VenturesAt i-flex we are constantly looking for opportunities

to leverage our existing assets to deliver value-

added solutions appropriate to the changing

business environment.

Packaged Solutions

Outsourced SoftwareDevelopment Services

Consulting ande-business integration

FinancialServices

One such example is a new venture – DotEx

International Ltd. – to create a neutral financial

portal for trading securities (www.dotexplaza.com).

This portal, launched in November 2000, is powered

by i-flex technology and developed as part of a

joint venture agreement with the IT division

of the National Stock Exchange, India. DotEx

provides advisory services to investors and a

ready-to-use infrastructure for brokers and the

investing community.

Preparing for the futureIn line with our strategy of building new capabilities

and businesses to keep pace with market trends and

capture emerging opportunities, we began new

initiatives in the Application Service Provider (ASP)

space. In the year under review, i-flex entered into

a joint initiative with the HDFC Group to offer

FLEXCUBE on an ASP model.

We also opened a new development center in Pune

to offer Integration Services, Security and Payment

Systems. Work is underway to develop a solution

that allows different payment schemes like credit

cards, debit cards, e-cash, e-checks either on-line or

off-line on PCs, mobile phones and PDAs.

i-flex won the first ‘Frost & Sullivan Market

Engineering Award for Technology Leadership 2001’

for its Application Service Provider model. The criteria

for the award include significance of technology,

number of competitors having similar technology,

value-added technology and services to customers,

adoption rate by participants and customers, new

product innovation and time-to-market.

i-flex Business Model

ASP

Vertical Business Portals

i-flexe-commerce

i-flexServices

i-flexProduct Suite

i-flex Consulting

i-flex Services

Universal Banking Solution FLEXCUBEInformation Center

The future of information management

FLEXCUBE@

EXTENDYour Enterprise

2000 PROFESSIONALS IN 2001 • 6 DEVELOPMENT CENTERS

Joint Ventures

• Flexcel International (P) Ltd.

• DotEx International Ltd.

• Times Online Money Ltd.

Alliance & BusinessPartners

Over 30 Business Partners

Alliances with Accenture, Oracle, Intel,Microsoft, Compaq, Sun, HP, IBM

12 Support Centers

Global Sales TeamMicroBanker

www.dotexplaza.com

CustomersServiced

280 +across

74 Countries

Centers of Excellence

BusinessIntelligence CRM Brokerage

e-CommerceJava Centerfor Financial

ServicesPayments



In business today, you can’t afford to take your

eye off the ball.

Financial institutions are faced with fierce competition,

mounting customer expectations and evolving

technology. And speed is the key differentiator.

i-flex has designed its suite of software solutions

keeping this perspective in mind.

RobustResilientResponsive



FLEXCUBE Information CenterTimely information is the key to quick decision

making. FLEXCUBE Information Center, i-flex’s

Business Intelligence Platform, dramatically

reduces the time to render a data warehouse

operational and useful.

The key to quick implementation of FLEXCUBE

Information Center is its Business Solution Pack

(BSP) launched in 2000-01. Each BSP is a subject-

specific, business-focused, pre-configured, ready-to-

use component that can be rapidly fine-tuned to

address specific customer needs. Today, we already

have over a dozen BSPs addressing a variety of

domains like Customer Relationship Management,

Asset Liability Management and Product Profitability.

FLEXCUBEFLEXCUBE, i-flex’s flagship solution has the power

and technology to give financial institutions an

unfair advantage. What sets it apart from its

competition is the parameterized design and flexible

architecture which enables the creation of new

financial products without the need for extensive

programming efforts, resulting in dramatic reduction

in time-to-market, and significant savings in cost.

Other features like on-line, real-time transaction

processing for high volumes, and support of a wide

range of delivery channels add up to make it a

powerful weapon in the armory of financial

institutions looking for a competitive advantage.

In 2000-01, FLEXCUBE was the choice of

34 financial institutions, taking the total customer

tally to 73 across 31 countries.

CreditCards

CorporateCreditRisk

RetailCreditRisk

InvestmentPortfolio

CustomerRelationshipManagement

CustomerProfitability

ProductProfitability

CapacityManagement

AssetLiability

Management

EnterpriseFinancialReporting

Insurance

FundsTransferPricing

StockExchange

e-commerce

CentralBank

Reporting

Treasury

offered by i-flex

Range of BSPs

“In today’s world, time-to-market is critical. Too

often, the information technology infrastructure

acts as the brake rather than the accelerator in

the business’ drive to meet rapidly evolving

market requirements. Our solutions are engineered

to make IT a key enabler of business strategy

for financial institutions.”R Ravisankar

CEO - International Operations and Technology

“The i-flex team today completed the

implementation of the system. We went through

a demonstration of the system. An impressive

piece of work and clearly a unique analytical tool.

I would consider it to be one of the most significant

projects to be executed quickly and flawlessly.”

A US customer


The FLEXCUBE advertising campaign was

selected for inclusion in the 30th Creativity Annual

from over 7,000 entries across 30 countries.

*The Carnegie Mellon University Software Engineering Institute’s Capability MaturityModel assists organizations in maturing their people, processes and technology assets toimprove long-term business performance. Level 5, is the highest rating for an organizationwhere continuous process improvement is a way of life.

We have also developed streamlined methodologies,

FLEXCUBE Harmony and FLEXCUBE Symphony,

that ensure quick deployment of our Business

Intelligence and Customer Relationship

Management (CRM) solutions respectively.

Strong process orientationIf there is one single factor that underscores our

ability to quickly deploy solutions then it is our

process maturity.

From inception, i-flex has built its organizational

processes and focused on process maturity as a key

area. It is not surprising that i-flex was the first

software company in the financial services space to

achieve SEI CMM* Level 4 as early as 1995. Today,

i-flex has achieved SEI CMM Level 5, and now

provides assessment and process consulting services

to other IT organizations around the world.

FLEXCUBE. An integrated, financial solution that perfectlycomplements your urge to be ahead of everyone else. With better,more creative and flexible offerings for your customers.

It has been rated among the top two back-office banking softwareproducts in the world for two years in succession - 1999 and 2000,by International Banking Systems, UK. And naturally, it has won thetrust of more than 70 financial institutions in 33 countries acrossthe world in just 39 months.

FLEXCUBE, from i-flex solutions, integrates the key functions of

your bank: retail, corporate and investment. And its contemporaryarchitecture enables a host of innovative solutions. Like BusinessIntelligence, Internet Banking and even high performance on-linetrading. Empowering you toconfidently face the challenges ofthe Internet economy.

With FLEXCUBE you can countyour fish before you catch them.

www.iflexsolutions.com





Go ahead. Get FLEXCUBE. Andget cracking.






Go ahead. Get FLEXCUBE andslice through the competition.


The unfair advantage





The Internet has permanently transformed the

dynamics of business. It has destroyed distance,

created new opportunities and business models, and

profoundly changed the competitive landscape.

By 2002, the number of Internet users worldwide is

projected to exceed 380 million. The challenge facing

financial institutions today is to harness the power

and reach of the internet to enhance the customer

experience and achieve competitive advantage.

Bringingthe worldcloser



FLEXCUBE @FLEXCUBE @, our Internet Platform for e-finance,

is an innovative solution that offers a combination

of rich, comprehensive functionality on the latest

technology. FLEXCUBE @ has the power to quickly

internet-enable legacy systems to provide financial

transaction services over the web. By enabling access

to financial services through Personal Digital

Assistants (PDA’s), mobile telephones and Web TVs,

FLEXCUBE @ helps to bring a financial institution

closer to its customers through its ubiquitous and

instant access.

In the year under review, a new enhanced version

of FLEXCUBE @ was developed on the Java platform.

The software is now available for both UNIX and

Windows 2000 servers. Further enhancements in

areas such as call center interface, content

management and credit cards are underway.

i-flex also launched FLEXCUBE @ Broker, which

caters to customer requirements of high-performance

on-line trading. This supports the trading of equities

and stock index options, through multiple channels

including the Internet, Call Center and WAP-

enabled devices.

e-commerce Center of Excellencei-flex offers end-to-end services and products to suit

the e-business needs of its customers through its

e-commerce Center of Excellence. More than 200

talented professionals bring to the table a wealth of

experience, having implemented projects for a wide

range of needs within the finance sector.

Services offered by this Center include:

• Strategic Consulting

• n-tier Web Applications Development

• Portal Development

A sample of work in the e-commerce arena, is the

design and development of an integrated ‘currency

shop’ for a leading US based financial services

provider. This e-marketplace for foreign exchange

was built to cut down transaction time drastically

on foreign exchange payments.

“We chose FLEXCUBE as it offered a rich set of features

and a flexible platform to build new product capabilities

for our customers. It supports customer service through

branches and remote channels. As a partner, i-flex

solutions has helped us customize FLEXCUBE for the

Japanese business environment and roll it out rapidly.”A leading Japanese financial institution customer

i-flex development center, Mumbai


In the news

“i-flex solutions is one of the few Indian software houses

to succeed in product development.”

The Economist Intelligence Unit

“We want to transform ourselves from an Indian

company that exports to the world, into a global company

that manufactures in India.”

Rajesh Hukku in BusinessWeek International

“The highly competitive software market makes effective

financial management for companies extremely critical.

We believe the financial practices adopted by i-flex can

serve as an effective model for other companies on the

fast-growth track.”Deepak Ghaisas, CEO - India Operations


Being global in today’s business environment requires

the ability to implement global best practices and

success transfer, while remaining sensitive to the

unique local requirements of each market. This

philosophy, combined with a strategic emphasis on

partnerships and alliances, has been the key success

factor in i-flex’s rapid global expansion.

Reachingout



Strong technology alliancesIn line with our strategy of joining hands with

partners to deliver complete solutions to our

customers, we have forged alliances with technology

leaders like Accenture, Compaq, Hewlett Packard,

IBM, Intel, Microsoft, Oracle and Sun Microsystems.

We have also appointed more than 30 regional

distributors to front-end our marketing efforts and

provide responsive implementation and support

services to our customers.

Examples of our partnering initiatives include

the following:

June 2000: Present at Compaq’s Partner Vision 2000

in San Francisco.

July 2000: Exhibited solutions at Microsoft Fusion

in Atlanta.

July 2000: Attended the Hyperion International

Sales Meet at Miami.

August 2000: Present at ‘Solutions’ – IBM’s premier

and largest developer conference in Las Vegas.

October 2000: i-flex showcased FLEXCUBE

Information Center at the eXCHANGE event hosted

by Intel at Fort Mason, San Francisco.

October 2000: Participated in Hewlett Packard’s

financial services summit in New York.

November 2000: Participated in the ASPAC

e-solutions forum at Mumbai.

November 2000: Attended Hewlett Packard’s

Financial Services Industry Kickoff Meet in

Seoul, Korea.

December 2000: Attended the IBM Partner World

Developer Meet at Goa.

December 2000: Participated at the Oracle Executive

Partner Forum in Macau.

December 2000: Attended Hewlett Packard’s

Financial Services meet for the EMEA region

in Monaco.

March 2001: IBM Global Services in India and i-flex

formed a marketing alliance for FLEXCUBE to

provide consulting, customization, integration

and implementation services to the financial

services Industry.

The i-flex booth at Sibos 2000, San Francisco, USA


Sales support around the worldTo support a global customer base, i-flex has

established 12 support centers from Jamaica to

Philippines provide responsive support services.

i-flex further demonstrates its global approach

through its growing direct presence, which now

extends to the USA, South America, Europe, Africa,

Asia and Australia. In the year under review,

i-flex’s reach expanded to include Buenos Aires,

Los Angeles, Singapore and Pune.

Local language softwareThe multilingual deployment of FLEXCUBE

reinforces i-flex’s commitment to translate its

competence to meet the local requirements of each

market. This year, i-flex deployed a Japanese version

of FLEXCUBE. We have also completed the

evaluation of language support for French,

Spanish and Portuguese versions.

i-flex development center, Mumbai

“Until now, financial institutions in emerging markets

had a difficult choice – low cost local solutions which

couldn’t meet the demands of globalization, or packages

developed in the West with huge implementation costs.

At i-flex, we focused on building the best of both

worlds. Powerful, proven cost-effective solutions to

meet the requirements of advanced markets. And

tailored to meet the needs of emerging markets.”

Rajesh HukkuChairman, i-flex solutions ltd.

Japanese screen shot of FLEXCUBE



People working together in teams create success.

And a skilled and motivated team is at the heart of

i-flex’s success and rapid growth. Our young workforce

bears testimony to this even as they work in perfect

harmony within the company and with the

environment around them.

A high-energy work environment, continuous training,

responsive management team, and an open and

non-hierarchical culture have contributed to the

creation of a highly motivated team, constantly striving

to achieve ambitious goals. In an industry where

mobility is high, i-flex stands apart, with a strong and

committed core team providing the continuity that

is essential for rapid and sustained growth.

In perfectharmony



Communicating effectivelyi-flex lays considerable emphasis on its internal

communication program. An annual Open House

is held company-wide to facilitate communication

between the management and employees. A mix of

business and pleasure, this program helps

management get a pulse of the organization while

employees get a clear understanding of the charter

for the year.

The i-flex Intranet is another effective tool for

employee communication. The Intranet facilitates

two-way communication and comprises a news

section, bulletin board, chat room and other sections

dedicated to groups within the company. The

company’s policies and programs are also clearly

outlined on the Intranet.

A third informal communication tool is Softrek –

an e-mag for i-flexers that covers events within the

company as well as articles from employees in a

lighter vein. This bi-monthly publication has gained

wide acceptance and is much looked forward to

particularly by i-flexers stationed overseas.

Improving the quality of lifeAt i-flex we believe in improving the quality of life

for our employees and their families. To encourage

cross-department interaction and help employees

socialize informally, a focused cultural organization

called iCE (i-flex Cultural Ensemble) was set up.

Interestingly, iCE has gained popularity and spawned

into several sub groups overseas such as NiCE (New

York Cultural Ensemble).

iCE organizes fun events for employees as well as

encourages special hobbies and talents. Musical

evenings, quiz competitions and mountain climbing

are some activities organized for i-flexers by iCE.

In the year under review, we organized ‘Mind

your Child’ seminars in Bangalore and Mumbai

where child psychologists enlightened i-flexers on

better parenting.

Our corporate health program encourages i-flexers

to adopt a healthy routine extending from a

wholesome diet to regular exercising to remain fit,

both physically and mentally.i-flexers exhibit their talent at an open house

i-flexers e-magazine


Corporate social responsibilityi-flex takes its role as a responsible corporate citizen

seriously. Our community initiatives are centered

around improving the quality of life for

underprivileged children because we believe they

hold great promise for the future of the country.

A 50-seater school bus worth Rs 0.3 million was

donated to the Blind School in Mumbai. We

also adopted an orphanage of 60 street children

and spend time with the children as well as sponsor

their education.

We also contributed generously to the earthquake

relief in Gujarat. Within a week of the calamity we

had donated Rs 2.5 million towards a 100 bed

hospital in Bhuj. Over 10,000 people are expected

to benefit from this endeavor. Medicine, clothes and

other utility items were also contributed.

In the area of education, i-flex has conceived and

funded a Business Intelligence course at the Indian

Institute of Information Technology – an educational

institution dedicated to furthering the cause of IT

learning in Bangalore. i-flex instituted a chair at

IIIT-B and contributed Rs 2.5 million for the purpose.

i-flex also contributed Rs 0.45 million towards the

South Indian Education Society for the setting up

of computer centers.

The atrium at i-flex Center, Bangalore



BahrainGhanaHungaryIndiaJamaicaKenyaMalaysiaNigeriaPhilippinesSingaporeSouth AfricaZambia

Support CentersAsia PacificMalaysiaPhilippinesSouth Korea

Latin AmericaArgentinaBrazilPeru

EuropeAustriaIcelandIrelandItalyNetherlandsPolandPortugalRussiaSpainSwedenUnited Kingdom

Middle East, Africa & IndiaGhanaJordanKenyaKuwaitMoroccoNepalNigeriaOmanSri LankaTunisiaUAEZimbabwe

AmsterdamBangaloreBuenos AiresJohannesburgLondonLos AngelesMiamiMumbaiNew JerseyPuneSingapore

Distributors

i-flex presence

GlobalPresence


Customer Serviced inAlbaniaArgentinaAustraliaAustriaBahrainBelgiumBenin RepublicBhutanBotswanaBrazilCanadaChileChina

ColumbiaCyprusCzech RepublicEgyptEthiopiaFinlandGermanyGhanaGreeceHong KongHungaryIcelandIndia

IndonesiaIrelandIsraelJamaicaJapanJordanKenyaKuwaitLebanonLuxembourgMadagascarMalawiMalaysia

MaltaMauritiusMexicoNepalNetherlandsNigeriaOmanPakistanPhilippinesPolandPuerto RicoRepublic of KoreaRussia

RwandaSamoaSaudi ArabiaSeychellesSingaporeSloveniaSouth AfricaSpainSri LankaSwitzerlandTaiwanTanzaniaThailand

TurkeyUAEUgandaUKUSAVanuatuVenezuelaZambiaZimbabwe



Executive Management Office

Rajesh Hukku Chairman and Managing Director

R. Ravisankar CEO, International Operations and Technology

Deepak Ghaisas CEO, India Operations

V. Shankar Chief of Staff

Business Heads

Atul Gupta ASP Business Group

Joseph John Banking Products Division

Nandkumar Kulkarni Pune Development Center

N.R.K. Raman IT Solutions Division and Centers of Excellence

R. Vidyasagar Human Resources

S. Hariharan Infrastructure, Support and Services Group

Vijay Sharma i-flex Consulting

Vivek Govilkar Process, Quality and Training Group

Marketing

Makarand Padalkar Product Marketing

V. Senthil Kumar Corporate Marketing and Communications

Regional Sales

Anand PhanseSajal Mukherjee North America

David Maxwell CEO, i-flex solutions bvEurope

Dilip Kulkarni India, Africa and the Middle East

Kishore Kapoor Asia Pacific

Rohan Joshi Latin America and Caribbean

Key ManagementPersonnel

Corporate Information

DirectorsAjay Relan

Dipak Rastogi

Marc P. Weill

Rajesh Hukku (Chairman and Managing Director)

Robert Druskin

S. Venkatachalam

William Comfort, Jr

Y. M. Kale

Company SecretaryDeepak GhaisasRajesh Hukku

Solicitors

Ramesh P. Makhija & Co

Auditors

Arthur Andersen & Associates

Bankers

Bank of India

Citibank N.A.

HDFC Bank

Vijaya Bank

Registrars and Transfer AgentsAllied Computer Technics Pvt. Ltd.

F - 18, 3rd Floor, Block - A

Local Shopping Complex

Ring Road, Naraina

New Delhi 110 028.

Registered Office10 - 11, SDF 1, SEEPZ

Andheri (E), Mumbai 400 096.

Branch Offices• i-flex Center, 399, Subhash Road

Vile Parle (E), Mumbai 400 057.

• i-flex Center, 146, Infantry Road

Bangalore 560 001.

• Shankar Narayan Building, 4th floor

26, M G Road, Bangalore 560 001.

• Raheja Towers, 9th Floor

26-27, M G Road, Bangalore 560 001.

• Pride Silicon Plaza,

Senapati Bapat Road, Pune 411 053.

R. Ravisankar

Deepak Ghaisas


Corporate profilei-flex solutions ltd. is a leading provider of solutions

and services to the global financial services industry.

The company maintains a balanced portfolio of

products and services, offering a wide range of

integrated software solutions for retail, corporate,

Internet and investment banking, as well as on-line

brokerage and mutual funds.

i-flex is a global player with over 280 financial

institutions as its customers across a wide geographical

spread of 74 countries spanning the Americas, Europe,

Middle East, Africa and Asia. i-flex’s flagship product

FLEXCUBE is ranked among the top two selling

whole sale back-office banking systems in the world

(International Banking Systems (IBS) Sales League

table – 1999 and 2000). And when IBS compiled its

first retail banking systems sales chart for 2000,

FLEXCUBE also figured among the top three solution

providers – making FLEXCUBE the only solution to

figure among the top five in both the Corporate and

Retail segments.

In the year under review, we opened a development

center in Pune to address the payment systems and

securities market

Industry reviewThis fiscal was another year of growth for the Indian

software industry. Total software exports grew at 65%

to USD 6.2 billion in 2000-01, up from USD 4 billion

in the corresponding period of the previous year.

Globally, the financial services industry emerged

largely unscathed from the Y2K scare, and began to

focus on investment in information technology as a

key strategy to gain competitive advantage in a very

challenging market environment.

Business modelRight from inception, i-flex has adopted a balanced

Product-Services Revenue Model resulting in minimal

Management discussionAnalysis of financial conditionResults of operations


million this year, as against Rs 2,062.69 million for

the past year – an increase of 56%. The Company’s

Earnings Before Taxes for this year stood at Rs 1,128.21

million as compared to Rs 721.00 million of the

previous year translating to a similar increase of 56%.

The Company’s operating margin was 66% and

the earnings before tax margin was 35%. Cost of

revenues comprises salaries and employee benefit costs

of technical and functional professionals, project-

related travel costs, application software costs and

vendor fees.

Operating revenuesThe Company’s operating revenues are derived from

banking software products, IT solutions and consulting

services. In the year under review, significant sales of

the FLEXCUBE suite of products as well as revenues

from software development projects fueled the growth

of the Company.

The Company’s commitment to delivering quality

solutions has contributed to customer confidence

resulting in repeat orders from customers. The

Company also explored new market opportunities in

the advanced markets of USA, Europe and Japan

which further consolidated the Company’s operations

in the developed economies. 70% of the Company’s

operating revenues this year came from these markets.

Exports contributed 95% of the operating revenues

this year. The Company has also seen increased

revenue realization from the Indian market, which

contributed 5% of the operating revenues this year

as against 2% of the past year.

Product revenuesProduct revenues comprise license fees, charges for

enhancements and customization, implementation

fees and product maintenance charges. Product license

fees are recognized on delivery and subsequent

milestone schedules as per the terms of the contract.

business risk, greater flexibility and wide scope for

leveraging emerging business opportunities.

In the year under review, the Company has further

consolidated its offerings and has to its credit a

well-known suite of banking software products under

the umbrella brand FLEXCUBE. Complementing the

product portfolio are world-class software development

and consulting services. The Company’s product

revenues contributed to 54% of the operating revenues

in the current year; the remaining being from the

services business.

The Company is truly a global player by expanding

its customer base to 281 financial institution customers

across 74 countries (March 31, 2001). The Company’s

de-risking revenue model continues to deliver

consistent results through changing global economic

conditions. The Company is not overly dependent

on any one country or geographical region and has a

diversified revenues stream from a widespread

geographic base. The share of revenues from the

developed markets amounted to 70% compared to

58% of the previous year.

Financial resultsWhile preparing the financial statements of the

Company, the requirements of the Companies Act,

1956 and Generally Accepted Accounting Principles

(GAAP) in India and USA have been complied with.

Results from operationsThe Company achieved total revenues of Rs 3,211.21

2000-01 1999-00

Operating revenues


Services46%

Products54%

Products49%

Services51%


The Company derives 60% of the operating revenues

from offshore activities i.e. work performed at the

Company’s facilities in India.

Other incomeThe Company’s other income was Rs 125.33 million

this year as compared to Rs 87.62 million of the past

year, a rise of 43%. This increase is primarily due to

a rise of 76% in the interest received from bank deposits

placed by the company. The investment philosophy

of the Company is to ensure maximum safety of its

funds with reasonable returns. The Company’s return

on the average deployable funds was 7.60% this year

as compared to 5.01% of the past year.

Expenses The Company’s expenses increased to Rs 2,083.00

million in the current year 2000-01 from Rs 1,341.69

million in the previous year. This year’s expenses

include two extraordinary items. The Company has

written off Rs 50.00 million being 50% of its

investment in a dotcom company as a matter of

conservative accounting practice, since market

valuations of companies in this space have come down

in the recent past. Also, the company has made a

provision during the year for leave encashment of

Rs 33.31 million on account of the unavailed leave

balances standing to the credit of the employees.

Expenses primarily constituted employee costs,

traveling costs, infrastructure costs, selling and

administrative expenses. Total expenses amounted to

65% of the operating revenues this year as well as in

the past year.

Employee costs amounted to 23% and 22% of the

total revenue for the years ended March 31, 2001 and

March 31, 2000 respectively. The employee strength

stood at 1,590 as at March 31, 2001.

The Company’s endeavor to deepen and broaden

market reach has pushed up travel cost in the year

Product maintenance revenues are spread over the

period of the maintenance contract.

The Company’s products comprise the FLEXCUBE

suite of products, which address the needs of corporate,

retail and investment banking as well as treasury

operations and Business Intelligence. This year,

product revenues constituted 54% of the operating

revenues.

FLEXCUBE was chosen by several leading financial

institutions around the world including Citibank,

DBS Bank, Rabobank and Shinsei Bank.

The Company’s process and quality management

software Promotr and its corporate banking package

MicroBanker together contributed 4% of product

revenues in 2000-01.

IT solutions and consulting services revenuesIT solutions and consulting services comprise offshore

and onsite software development as well as business

and technology consulting services for the financial

services industry.

Our services portfolio includes solutions for business

intelligence, customer relationship management,

brokerage, securities, payment systems, e-commerce,

internet services and IT and Business consulting.

Revenues of the Services Division contributed 46%

of the operating revenues this year.

Product revenue

Promotr 1% MicroBanker3%

FLEXCUBE 96%

2000-01 1999-00

Promotr 1%MicroBanker

26%

FLEXCUBE 73%


Share capitalThe Company issued 1:1 bonus shares in October

2000 thereby increasing the paid-up Equity Share

Capital of the Company to Rs 166.38 million. The

Company’s authorized capital has been enhanced to

Rs 500.00 million.

Reserves and surplusThe Company’s Reserves and Surplus stood at

Rs 3,008.71 million as against Rs 2,037.53 million in

March 2000, an increase of 48%. The Company’s

book value is Rs 190.83 as on March 31, 2001 as

compared to Rs 127.46 of the past year. The earnings

per share is Rs 66.13 this year as compared to Rs 41.63

of the past year. (The values are computed using the

current equity base).

BorrowingsThe Company continued to be a zero-debt Company

with no borrowings and all its investments have been

funded with internal accruals.

Fixed assetsThe Company invested Rs 119.22 million this year

in its fixed assets in the new development facility at

Bangalore and existing offices in Mumbai and

Bangalore. With this addition, the Company’s fixed

assets (gross block) increased to Rs 590.07 million.

The depreciation for the year amounted to Rs 145.25

million as compared to Rs 122.33 million in the

previous year. Depreciation cost amounted to 5%

and 6% of total revenues for the year 2000-01 and

1999-00.

The Company depreciates assets over their useful life.

The depreciation rates are hence higher than the

rates prescribed by the Companies Act, 1956 taking

into account the nature of assets and high rate of

obsolescence of technology.

under review. Traveling costs amounted to 19% and

17% of the total revenue as on March 31, 2001 and

March 31, 2000 respectively.

With the increase in the number of people, the

company needed additional facilities. Accordingly

the rent for office premises increased by 11% due to

additional office premises leased during the year and

increased rentals of other previous leases. Rent for

offices premises amounted to 2% and 3% of the

total revenue for the year ended March 31, 2001 and

March 31, 2000.

The Company has video-conferencing facilities at all

its four offices based in Bangalore and Mumbai and

has 20 mbps bandwidth available across all the

locations. Communication expenses were very well

controlled and decreased by 19% during this year, and

amounted to 2% of total revenue as on March 31,

2001 as against 3% of the previous year.

Provision for taxationDue to the changes in the tax laws and the decisions

of the Supreme Court of India in other cases, the

interest earned by the Company, in spite of enjoying

a tax holiday under section 10A/B, is taxable. The

Provision for Taxation this year is Rs 28.00 million

resulting in an effective tax rate of 2.48% as against

the marginal tax rate of 39.55%.

Shareholders funds

Share capital4%

Sharepremium

12%

Reserves & Surplus 84%

March 2000

Share capital5%

Share premium5%

Reserves & Surplus 90%

March 2001



Sundry debtorsSundry debtors represent 39% and 32% of the

operating revenues for the years 2000-01 and

1999-00 respectively. The increase is primarily due

to enhanced operating revenues in the last quarter of

the financial year. The Company periodically reviews

its accounts receivables outstanding as well as the

aging, quality of the account receivable, the customer

relationship, and history of the client.

Provision for doubtful debts as of March 31, 2001 has

been made to the extent of Rs 4.23 million. 62% of

the sundry debtors are aged between 0 to 60 days.

Cash and bank balancesCash and bank balances increased by 70% this year

and stood at Rs 1,472.95 million as compared to

Rs 865.80 million of the past year. The Company has

money in both its rupee and EEFC accounts. The

company also has rupee term bank deposits, which are

interest bearing. The Company has Rs 776.46 million

as cash and cash equivalents and Rs 696.49 million in

deposits this year. Due to the Reserve Bank of India

directive issued in July 2000, the funds held in EEFC

accounts cannot be invested in term deposits or earn

any other income. The Company converts these

amounts into Rupees as and when required.

Loans and advancesLoans and Advances increased owing to the rise of

21% in security deposits given to landlords of the

Company’s new facilities at Bangalore and Pune.

Economic value addedThe Company computed its economic value

added, considering a weighted average cost of capital

of 20.84% this year as against 21.32% of the past

year. The Company’s EVA stood at Rs 548.39 million

this year as compared to Rs 328.33 million in the

previous year.

InvestmentsDotEx International Ltd., the joint venture of the

company with NSE.IT, a subsidiary of the National

Stock Exchange of India, was formed in the year 2000

to offer a comprehensive range of products and services

to both market participants and investors. The

Company’s 49% investment in DotEx amounted to

Rs 24.50 million as on March 31, 2001.

The other joint venture, floated with the HDFC

Group, provides IT solutions to small and medium

institutions under the Application Service Provider

(ASP) model. This joint venture will become

functional in the financial year 2001-02. The

Company will make its investments in 2001-02.

Another joint venture between Citibank, Bennett

Coleman and Company Limited (The Times Group)

and i-flex, a vertical B2C and B2B financial

infomediary portal – timesofmoney.com has an i-flex

holding of 15%. The Company’s investment in

Times Online Money Limited was Rs 100.00 million

as on March 31, 2001. The portal became operational

in February 2001.

During 2000-01, the Company invested Rs 20.00

million in KEONICS Mahiti Bonds. KEONICS

(Karnataka State Electronics Development

Corporation Ltd.) was incorporated for the

development of electronics infrastructure in the state

of Karnataka. Mahiti Bonds have an attractive rate

of interest of 12.75% payable annually.

Current assetsThe company’s growth has been financed from internal

accruals and cash generated from operations. The

current assets have shown a significant increase of

59%. Current assets primarily comprise sundry debtors,

cash and bank balances, other current assets, and

loans and advances.


US-GAAP financialsThe Company has consolidated its subsidiary’s final

accounts as per US-GAAP accounting guidelines.

The material differences are on account of the

consolidation of subsidiary accounts, accounting for

investment in DotEx International Limited and

provision for deferred taxes.

Europe subsidiaryIn an effort to capitalize on expanding market

opportunities in Europe, the Company set-up a

wholly-owned subsidiary in Netherlands, i-flex

solutions bv. The subsidiary was formed to enhance

the marketing efforts in Europe and market

FLEXCUBE, the Company’s flagship product. We are

pleased to report that 18 new customers were added

in Europe within a period of 10 months from the

establishment of the subsidiary. The final accounts of

the subsidiary and the Directors’ report are enclosed

in this annual report.

2 0 0 1 2000

Net profit as per Indian GAAP 1,100,215 692,732

Adjustments:

Adjustment of license fees pertaining to previous year – 90,396)

Provision for leave encashment on account of change

in accounting policy – 12,502)

Loss of subsidiary (14,581) –)

Depreciation 17,987) 17,824)

Other expenses (4,054) 4,814)

Reversal of excess provision for contingencies (10,500) (35,500))

Taxation 17,208) 10,422)

Share of (loss) of equitee investee (14,840) –

Deferred revenue in respect of warranties (5,892) –)

Net profit as per US GAAP 1,085,543 793,190

Reconciliation of net income ( In rupees ’000)



2,062.69

1,444.31

545.26

Total revenues

Reve

nue

in R

s. M

illion

825.86

3,211.21

KeyIndicators2000-Operating revenue

46%

Services Revenue

54%

Products Revenue

Regionwise revenue

23% 19%

35%

22%

1%

Europe US ASPACMiddle East, India and Africa Latin America and Carribean

0

500

1000

1500

2000

2500

3000

3500

1996-97 1997-98 1998-99 1999-00 2000-01


Earnings before tax

721.00

511.11

312.67

201.31

Prof

it in

Rs

Milli

on

Earnings per share

1128.21

66.13

41.63

30.31

18.51

11.63

Rs

Adjusted for bonus 2000


0

10

20

30

40

50

60

70

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1996-97 1997-98 1998-99 1999-00 2000-01

1996-97 1997-98 1998-99 1999-00 2000-01


Economic value added

1996-97 1997-98 1998-99 1999-00

Rs M

illion

Book value

Rs

328.33

264.03

173.87

122.47

548.39

2000-01

190.83

127.46

77.99

48.36

23.69

Adjusted for bonus 2000

0

20

40

60

80

100

120

140

160

180

200

0

50

100

150

200

250

300

350

400

450

500

550

1996-97 1997-98 1998-99 1999-00 2000-01

0

10

20

30

40

50

60

70

80

... across a wide geographical base

Customer serviced...

37

51

55

66

74

281

238

206

163

125


0

50

100

150

200

250

300

1996-97 1997-98 1998-99 1999-00 2000-01

1996-97 1997-98 1998-99 1999-00 2000-01


Dear Members,

Your Directors take great pleasure in bringing you theAnnual Report of your Company with audited annualaccounts for the Financial Year 2000-2001.

OverviewYour Company is pleased to report healthy growthboth in revenues and profits in the year under review.Our dual strategy of deepening our penetration intoexisting markets, while expanding the span of ourmarketing efforts to cover new markets has contributedsubstantially to the Company’s growth. Total revenuesgrew to Rs 3,211.21 million during the year fromRs 2,062.69 million last year, translating to a growthof 56%. Earnings before Taxes reflected the samegrowth rate and stood at Rs 1,128.21 million, up fromRs 721.00 million in 1999-00. The Company’s Profitafter Tax increased to Rs 1,100.22 million fromRs 692.73 million – a growth of 59%.

In the following paragraphs, we would like to highlightthe Company’s accounting policies followed duringthe year. The relevant notes are enclosed in theattached financial statements.

• Diminution in value of Investment: The Companyhas provided for a onetime write off of Rs 83 millionwhich includes limiting our exposure in dotcoms asa prudent practice as well as towards certain otherexpenses like provision for leave encashment.

• Financial Leases: The Company has revised theaccounting treatment of finance leases incompliance with the recent Accounting Standardissued by the Institute of Chartered Accountantsof India. This has resulted in a reduction in netprofit by Rs 1.36 million and increase in fixed assetsand current liabilities by Rs 11.23 million andRs 12.59 million respectively.

• In the audited accounts under US-GAAP, thefinal accounts of your Company’s subsidiary,i-flex solutions bv, Netherlands have beenconsolidated.

Directors’Report

Financial year 2000-01


the internet. It was commercially launched onNovember 29, 2000. DotExplaza(www.dotexplaza.com) enables market intermediariessuch as brokers, depository participants and banksoffer internet stock trading facilities to their customers.The portal provides choice, convenience andtransparency to the trading community. DotEx as aneutral aggregator acts as the common e-infrastructureand helps maintaining existing business relationshipsamong the market participants. Your company’sinvestments in the joint venture amounted toRs 24.50 million as on March 31, 2001.

For the first time in India, banks have the option ofadopting the latest technologies and leveraging thepower of the Internet without having to make largeinvestments in technology. ‘Flexcel InternationalLimited’ – a joint venture between your Companyand HDFC Group, will provide this opportunity byoffering FLEXCUBE on a ‘pay-for-use’ ApplicationService Provider (ASP) platform. Your Company’sinvestments in the joint venture will be made in thefinancial year 2001-02. This new venture is part ofyour Company’s strategy to secure a dominant positionin the emerging ASP arena.

A detailed analysis of the financial statements isincluded in the Management Discussion Report.

Subsidiary & representative officesDuring the year, your company has set up a whollyowned subsidiary, ‘i-flex solutions bv’ in theNetherlands to address the European market.

In addition, your Company’s aggressive sales andmarketing initiatives in the US, Latin America,and ASPAC regions were strengthened by setting upRepresentative Offices in New Jersey, Singaporeand Argentina. This increase in the network willempower the Company to access new internationalmarkets and broaden its customer base.

Joint venturesAs you are aware, your Company has entered intojoint ventures with NSE.IT and the HDFC Group.The joint venture between i-flex solutions and NSE.IT,the wholly owned subsidiary of the National StockExchange ‘DotEx International Limited’ – wasincorporated on June 21, 2000 with a main objectiveof setting up a virtual mall enabling brokers and theclients to transact in the securities market through

*Includes tax on proposed dividend

Year Ended Year Ended 31.03.2001 31.03.2000

Total Income 3,211,210 2,062,692

Gross Profit for the year 1,273,466 843,334

Less: Depreciation 145,251 122,333

Profit Before Taxes 1,128,215 721,001

Less: Provision for Tax 28,000 28,269

Net Profit After Tax 1,100,215 692,732

Add: Balance brought forward 65,529 98,171

Available for appropriations 1,165,744 790,903

Transfer to general reserve 1,000,000 700,000

Proposed Dividend 45,839 25,374

Balance carried forward 119,905 65,529

* *


F inanc ia l resu l ts ( In rupees ’000)

November 1997, was ranked among the top twoselling wholesale back-office banking systems byInternational Banking Systems (IBS), UK.

• In the Retail back-office systems ranking publishedby the IBS for the first time this year, FLEXCUBEranks among the top three solutions worldwide.We are proud to report that FLEXCUBE is theonly solution that finds a place in the top 5 rankingin the lists of the top-selling Retail as well asCorporate Banking Solutions.

• The Company’s Chief Executive Officer (IndiaOperations) and Chief Financial Officer, DeepakGhaisas was awarded the CFO Asia Achievementin Best Practices Award in the category ‘ManagingBusiness in a Small and Medium Enterprise’. Thiswas the first time the prestigious magazineinstituted such awards for Asia and Mr. Ghaisaswas the first Indian to win this award.

• i-flex won the first ‘Frost & Sullivan MarketEngineering Award for Technology Leadership2001’. The measurement criteria for the awardinclude significance of technology, number ofcompetitors having similar technology, value-added technology and services to the customers,adoption rate by participants/customers, newproduct innovation and time to market. YourCompany has excelled in more than one area toqualify for this award.

• The Government of India has recognized yourCompany for Excellence in Exports in theComputer Software category. This is a well-deserved recognition of the leadership role playedby your Company in the Indian software industry’sthrust to move up the value chain.

• Your Company continues to rank among the top20 Software producers and exporters in Indiaaccording to the ranking compiled by the NationalAssociation of Software and Service Companies(NASSCOM).

Your Company’s joint venture with the Times Group– timesofmoney.com became operational onMay 31, 2000. During the year, the investment ofyour company in the joint venture amounted toRs 100.00 million.

Overall the Company has invested Rs 124.50 millionduring the year. The additional investments arecommitted in DotEx and Flexcel in the year 2001-02.

Corporate social responsibilityYour Company places a great deal of emphasis onCorporate Social Responsibility and in the year underreview undertook several initiatives to respond andcontribute to social causes. Employees were encouragedto voluntarily undertake programs towards educationof street children under the banner – ‘i-flex forchildren’. i-flex also donated a bus to the School forthe Blind in Mumbai. Your Company extended ahelping hand to victims of national calamities byspontaneously contributing towards relief efforts inthe wake of the devastating earthquake that shookthe state of Gujarat in Western India in January 2001.A total amount of Rs 2.5 million, comprisingemployee and corporate donations, was raised anddonated to the cause.

Arts and eventsIn an endeavor to preserve the heritage and therichness of the Indian classical arts, your Companysponsored a Sangeet Samaroh (a musical festival)which showcased some of the best exponents of Indianclassical music in Mumbai.

The Company will endeavor to continue this effortto contribute in these areas in the coming years.

Awards, honors and recognitionYour Directors are happy to report some of the awardsreceived by your Company for its performance.

• For the second year in succession, FLEXCUBE,the Company’s flagship product, launched in


(Chairman of the Committee), Mr. S. Venkatachalamand Mr. Ajay Relan.

The committee reviews the reports of the internalauditors and statutory auditors along with thecomments and action taken reports of the management.The audit committee also invites senior executives,as it considers appropriate, to be present at themeetings of the committee.

DirectorsMr. Robert Druskin and Mr. Y. M. Kale, whose termsas Additional Director get concluded at this AnnualGeneral Meeting, being eligible, offer themselves forappointment as Directors.

Mr. Marc P. Weill and Mr. Dipak Rastogi retire byrotation at the ensuing Annual General Meeting and,being eligible, offer themselves for reappointment.

Directors’ responsibility statementAs required under Section 217 of the Companies Act,the Directors hereby confirm that:

i) In preparation of the annual accounts, theapplicable accounting standards had beenfollowed along with proper explanation relatingto material departures;

ii) The Directors had selected such accountingpolicies and applied them consistently and madejudgments and estimates that are reasonable andprudent so as to give a true and fair view of thestate of affairs of the Company at the end of thefinancial year and of the profit of the Companyfor that period;

iii) The Directors had taken proper and sufficientcare for the maintenance of adequate accountingrecords in accordance with the provisions of thisAct for safeguarding the assets of the Companyand for preventing and detecting fraud andother irregularities;

iv) The Directors had prepared the annual accountson a going concern basis.

• The Company has also been recognized as one ofthe Top 10 exporters from the state of Karnatakaand was presented an award for being the secondlargest exporter in the MNC category.

Increase in share capitalFor the second consecutive year, in October 2000,your Company declared a Bonus Share issue in theratio of 1:1. Out of the authorized share capital ofRs 500.00 million the share capital of the Companyas on date is Rs 166.38 million.

DividendYour Directors are pleased to recommend a Dividendof Rs 2.50 per share. The dividend, if approved at theforthcoming Annual General Meeting, will be paidout of the profits of the Company to all thoseshareholders whose names appear on the Register ofMembers as on the date of the Annual General Meeting.

Due to the 1:1 Bonus issue made in October 2000,the total amount of dividend is Rs 41.60 million asagainst Rs 20.80 million for the previous year.Dividend (including dividend tax), as a percentageof Net Profit, is 4.17 % as compared to 3.66 % in theprevious year. Under the current provisions of theIndian Income Tax Act, 1961, the receipt of dividendis tax-free in the hands of the shareholders.

Audit CommitteeTerm of referenceThe Audit committee monitors and provides effectivesupervision of the management’s financial reportingprocess with a view to ensure accurate, timely andrelevant disclosures coupled with transparency,integrity and usability of financial reporting. Theresponsibilities of the Audit committee includeoverseeing the audit and risk management processtowards reviewing the internal control system and itsadequacy. It also discusses the scope and depth ofInternal and statutory audit.

CompositionThe Audit Committee was constituted by the Boardof Directors at its Meeting held on February 26, 2001and comprises three Directors: Mr. Rajesh Hukku



ProspectsYour Company has a sharp strategic focus on thecurrent and emerging IT requirements of the globalfinancial services industry. The financial servicesindustry is an integral and essential part of anyeconomy. The developments in the global economicenvironment over the last few years – deregulation,consolidation, globalization, and the rapidproliferation of the internet – have created anintensively competitive climate in which financialinstitutions are increasingly relying on informationtechnology as the key to competitive advantage.We are, therefore, confident that the global demandfor your Company’s products and services willcontinue to be strong, and remain very optimisticabout your Company’s future prospects.

Employee particularsInformation pursuant to Section 217(2A) of theCompanies Act, 1956, read with the Companies(Particulars of Employees) Rules, 1975 and underSection 217 (1)(e) of the said Act, read with theCompanies (Disclosure of Particulars in the Reportof Board of Directors) Rules, 1988 to the extentapplicable are set out in the Annexure hereto.

AcknowledgmentsYour directors take this opportunity to thank theCompany’s customers for their continued supportduring the year. Your directors place on record theirgratitude for the excellent contribution made by allemployees at all levels by way of competence,hard work, cooperation and support in achievingconsistent growth.

for and on behalf of the Board,for i-flex solutions limited,

Rajesh HukkuChairman

AuditorsThe Auditors, Arthur Andersen & Associates,Chartered Accountants, retire at the ensuing AnnualGeneral Meeting and have confirmed their eligibilityand willingness to accept office, if reappointed.

As recommended by the Audit Committee, the Boardat its meeting held on June 25, 2001 proposed theirappointment for the fiscal year 2001-02. You arerequested to consider their appointment.

Conservation of energy, technologyabsorption and foreign exchange earningand outgoThe particulars as prescribed under subsection (1)(e)of Section 217 of the Companies Act, 1956 read withCompanies (Disclosure of particulars in the Reportof Board of Directors) Rules, 1988, the relevant datapertaining to conservation of energy, technologyabsorption on foreign exchange earnings and outgoare furnished hereunder:

(A) Conservation of Energy:The operations of the Company are not energy-intensive. However measures have been taken toreduce energy consumption by using energy efficientcomputers and by the purchase of energy efficientequipments with the latest technologies. Theexpense on power in relation to income is nominaland under control.

(B) Technology Absorption:Since businesses and technologies are changingconstantly, continuous investment in research anddevelopment activities is of paramount importance.Your company continued its focus on qualityupgradation of software development process andsoftware products enhancements.

(C) Foreign Exchange Earnings and Outgo:(Rs in Millions)

Foreign Exchange Earnings 2,991.73Foreign Exchange Outgo 574.96(including capital goods & other expenditure)

FinancialsFinancial statements for the year

ended March 31, 2001 prepared in

accordance with Indian Generally

Accepted Accounting Principles

(Indian GAAP)

i-flex solutions ltd.

We have examined the accompanying balance

sheet of i-flex solutions limited (‘the Company’)

as at March 31, 2001 and the related statement

of profit and loss and cash flows for the year then

ended. We have obtained all the information

and explanations which, to the best of our

knowledge and belief, were necessary for the

purposes of our examination.

In our opinion, the financial statements referred

to above give a true and fair view of the state of

affairs of i-flex solutions limited as at March 31,

2001 and of its profit and cash flows for the year

then ended. The balance sheet and the related

statement of profit and loss are in agreement

with the books of account, comply with the

accounting standards referred to in Section

211(3C) of the Companies Act, 1956 (‘the Act’)

and are presented in the manner required by the

Act. Further, in our opinion, the Company has

maintained proper books of account as required

by law insofar as appears from our examination

of those books.

On the basis of information and explanations given

to us, and representations obtained by the

Company, none of the Directors of the Company

are disqualified from being appointed as Directors

as on March 31, 2001 in terms of section

274(1)(g) of the Act.

Subramanian Suresh

Partner

We have also examined the matters specified in

paragraphs 4 and 5 of the Manufacturing and

Other Companies (Auditor’s Report) Order,

1988 for the year ended March 31, 2001 as they

relate to the Company. Our report thereon is

annexed.


Chartered Accountants

To the members ofi-flex solutions limited

Chennai

June 26, 2001


1. The Company has maintained proper records

showing full particulars, including quantitative

details and situation of its fixed assets. A major

portion of the fixed assets has been physically

verified by the management during the year and

no material discrepancies were noted on the

fixed assets verified during the year. In our

opinion, the frequency of physical verification

is reasonable.

2. The fixed assets of the Company have not

been revalued during the year.

3. Due to the nature of its business, clauses (iii)

to (vi) and (xii) of the Manufacturing and Other

Companies (Auditor’s Report) Order, 1988,

relating to physical verification and valuation of

stock, are not applicable to the Company.

4. The Company has not taken/granted any

loans, secured or unsecured from/to companies,

firms or other parties listed in the register

maintained under Section 301 of the Companies

Act, 1956 and/or companies under the same

management as defined under Section 370(1B)

of the Companies Act, 1956.

5. The parties to whom loans or advances in the

nature of loans have been given by the Company

are repaying the principal amounts as stipulated

and are also regular in the payment of interest

where applicable.

6. The internal control procedures of the

Company relating to the purchase of equipment,

components and other assets are adequate and

commensurate with its size and nature of its

business. Due to the nature of its business, the

Company does not purchase any stores, raw

materials and plant and machinery and there are

no sale of goods.

7. In our opinion, and according to the

information and explanations given to us, there

are no transactions of sale of services made in

pursuance of contracts or arrangements entered

in the register maintained under Section 301 of

the Companies Act, 1956, and aggregating

during the year to Rs 50,000 or more in respect of

each party. Due to the nature of its business, the

Company does not purchase or sell any goods or

materials other than software products.

8. The Company has not accepted any deposits

from the public to which the provisions of

Section 58A of the Companies Act, 1956 and

the rules framed thereunder apply.

9. The Company’s activities do not generate any

by-products or scrap.

10. In our opinion, the Company has an internal

audit system, which is commensurate with its size

and the nature of its business.

11. The Central Government has not prescribed

the maintenance of cost records by the Company

under Section 209(1)(d) of the Companies

Act, 1956.

12. The Company has been regular in depositing

Provident Fund and Employees’ State Insurance

dues with the appropriate authorities.

i-flex solutions limitedAnnexure to auditors’ reportMarch 31, 2001

13. According to the records of the Company,

and as per the information and explanations

given to us, there were no amounts outstanding

as at March 31, 2001 in respect of undisputed

income-tax, wealth-tax, sales-tax, customs duty

and excise duty which were outstanding for a

period of more than six months from the date

they became payable.

14. On the basis of our examination of the books

of account, and according to the information and

explanations given to us, no personal expenses

have been charged to the statement of profit and

loss, for the year ended March 31, 2001.

15. The Company is not an industrial

undertaking within the meaning of the Sick

Industrial Companies (Special Provisions)

Act, 1985.

In respect of service activities—

16. Due to the nature of services rendered by the

Company, the clause in respect of recording

receipts, issues and consumption of materials and

stores and allocating materials consumed to

relative jobs are not applicable.

17. The Company has a reasonable system of

allocating manhours utilized to relative jobs

commensurate with the size and nature of its

business. There is a reasonable system of

authorization at proper levels and an adequate

system of internal controls commensurate with

the size of the Company and the nature of its

business on allocation of labour to jobs.


Chartered Accountants

Subramanian Suresh

Partner

Chennai

June 26, 2001


Balance sheetas at March 31, 2001

Sources of funds

Application of funds

Share capitalReserves and surplus

CostLess: Accumulated depreciation

Capital advances

Sundry debtorsCash and bank balancesOther current assetsLoans and advances

Current liabilitiesProvisions

Investments

Shareholders’ funds

Fixed assets

Current assets, loans and advances

Less: Current liabilities and provisions

Net book value

Net current assets

Note

34

2(a) & 5

2(b) & 6

7

8

2001

166,3823,008,710

590,067369,352

103

151,803

1,190,4901,472,949

6,739742,076

563,94445,839

609,783

3,175,092

3,175,092

220,715

3,412,254

220,818

2,802,471

2000

83,1912,037,525

477,902229,881

1,079

57,391

629,257865,795

3,337649,232

297,52235,874

333,396

2,120,716

2,120,716

248,021

2,147,621

249,100

1,814,225

(All amounts in thousands of Indian rupees)

The accompanying notes 1 to 18 are an integral part of the financial statements

Arthur Andersen & AssociatesChartered Accountants

Subramanian SureshPartner

ChennaiJune 26, 2001

LondonJune 25, 2001

Deepak GhaisasCompany Secretary

Ajay RelanDirector

S VenkatachalamDirector

Rajesh HukkuChairman &Managing Director


2001

3,085,884125,326

147,964723,014

1,066,766145,251

28,000

65,529

1,000,00041,596

4,243

66.13

16,638,200

3,211,210

2,082,995

1,128,215

1,100,215

1,165,744

119,905

2000

1,975,06987,623

121,981448,887648,490122,333

28,269

98,171

700,00020,798

4,576

42.22

16,407,533

2,062,692

1,341,691

721,001

692,732

790,903

65,529

Revenues

Expenditure

SalesOther income

Professional feesEmployee costsOther expensesDepreciation

Provision for taxation

Profit and loss account, beginning of the year

Transfer to general reserveProposed dividendCorporate dividend tax

Earnings per share (equity shares, par value Rs 10/- each)Basic and Diluted (in Rs)Number of shares used in computing earnings per shareBasic and Diluted

Profit before tax

Net profit for the year

Profit available for appropriation

Balance carried to balance sheet

Note

2(c) & 910

1112

2(a) & 5

2(h)

2(i)

Statement of profit and lossfor the year ended March 31, 2001

The accompanying notes 1 to 18 are an integral part of the financial statements




LondonJune 25, 2001


Ajay RelanDirector




Statement of cash flowsfor the year ended March 31, 2001

Cash flows from operating activitiesNet income before tax

DepreciationLoss on retirement/sale of fixed assets, netProvision for diminution in the value of investmentInterest incomeDividend incomeReversal of provision for contingenciesEffect of exchange difference on cashand bank balances

Finance charge on leased assets

Increase in sundry debtorsIncrease in loans and advancesIncrease in current liabilities

Additions to fixed assets including capitalwork in progress

Sale proceeds from fixed assetsPurchase of investmentsInterest receivedDividend receivedIncome tax paid

Proceeds from issue of share capitalLoan to ESPS TrustDividend paidCorporate dividend taxPayment of lease obligations

Effect of exchange difference on cash and bank balances

Cash and cash equivalents at beginning of the year

Adjustments to reconcile profit before tax tocash provided by operating activities:

Changes in assets and liabilities

Cash flows from investing activities

Cash flows from financing activities

Net cash from operating activities

Net increase in cash and cash equivalents during the year

Net cash used in investing activities

Net cash used in financing activities

Cash and cash equivalents at end of the year

2001)

)

))

)

)

)))

1,128,215

6,591

865,795

114,857

(398,987)

(210,343)

(33,179)

1,243,072

844,085

607,154

1,472,949

2000)

)))

)

)

))))

)

)

122,333451

1,987(37,495)

(4,470)(35,500)

(36,593)–

(272,197)(33,300)57,219

(168,205)15

–34,825

4,470(30,437)

155,700(154,950)

(10,183)(1,120)

–

2001)

)))

)

)

)

))

))

145,2511,087

50,828(63,013)

(4,553)(10,500)

(6,591)2,348

(561,233)(91,584)253,830

(95,634)87

(145,239)59,611

4,553(33,721)

–4,461

(20,798)(4,576)

(12,266)

2000)

)

))

)

)

)))

721,001

36,593

515,651

10,713

(248,278)

(159,332)

(10,553)

731,714

483,436

350,144

865,795




LondonJune 25, 2001


Ajay RelanDirector




1. Background

2. Summary of significant accounting policies

i-flex solutions limited (‘i-flex’ or ‘the

Company’), formerly Citicorp Information

Technology Industries Limited, a closely held

public limited company, was incorporated in

India with limited liability on September 27,

1989. The Company’s principal shareholder is

Citicorp Overseas Software Limited (‘COSL’)

with shareholding of 48 per cent. COSL is a 100

per cent subsidiary of Citicorp Technology

Holdings Inc., a part of Citigroup USA.

The Company is principally engaged in the

business of providing information technology

solutions to the financial services industry

world-wide. i-flex has a suite of banking

products, which caters to the needs of corporate,

retail and investment banking as well as treasury

operations and datawarehousing. The Company

also provides consulting services and develops

bespoke software for its customers from the

financial services industry. The Company

derives a substantial portion of its revenues from

the overseas markets.

The financial statements are prepared under the

historical cost convention, on the accrual basis of

accounting, in accordance with the accounting

standards referred to in section 211(3C) of the

Companies Act, 1956 (‘the Act’). The

significant accounting policies are as follows:

(a) Fixed assets and depreciation

Fixed assets including assets under finance lease

arrangements are stated at cost less accumulated

depreciation. The Company capitalizes all direct

costs relating to the acquisition and installation

of fixed assets. Depreciation is provided pro-rata

to the period of use, on the written down value

method, at the rates specified in Schedule XIV to

the Act or based on the estimated useful life of

assets, whichever is higher. Assets under finance

leases are amortized over the useful life or lease

term, as appropriate. The rates at which fixed

assets are depreciated are as follows:

Improvement to leasehold premises 35

Buildings 15

Computer equipment 60

Leased vehicles 20-25

Electrical and office equipment 35

Furniture and fixtures 35

Hitherto, the Company followed the Guidance

Note on ‘Accounting for leases’ and recognized

lease payment as an expense on a straight line

basis over the lease term. During the current

year, the Company has revised this accounting

policy and leases have been accounted as per the

new accounting standard 19 “Leases” issued by

the Institute of Chartered Accountants of India.

As a result of this change, all finance leases have

been recognized as assets and liabilities.

Consequent to the change in accounting policy,

net profit for the year is lower by Rs 1,357 and

fixed assets and current liabilities are higher by

Rs 11,233 and Rs 12,590 respectively.

%

(All amounts in thousands of Indian rupees,unless otherwise stated)

i-flex solutions limitedNotes to the financial statementsfor the year ended March 31, 2001


(b) Investments

(c) Revenue recognition

(d) Foreign currency transactions

Long term investments are stated at cost less

provision for diminution on account of other

than temporary decline in the value of the

investments. Current investments are stated at

lower of cost and fair market value.

License fees, on delivery and subsequent

Product maintenance revenues, over the

Product management services, as the

Foreign currency transactions during the year are

recorded at the exchange rates prevailing on the

date of the transaction. Foreign currency

denominated assets and liabilities are translated

into rupees at the rates of exchange prevailing at

the date of the balance sheet. All exchange

differences are dealt with in the statement of

profit and loss, except for those relating to the

acquisition of fixed assets, which are adjusted in

the cost of the fixed assets.

Software revenues are recognized as follows:

(i) Product licenses and related revenues:

milestone schedules as per the terms of

the contract.

period of the maintenance contract.

services are rendered, on a time and

material basis.

(ii) Development services, as the services are

rendered, on a time and material basis.

�

�

�

(e) Retirement benefits

(f) Vacation pay

(g) Operating leases

Retirement benefits to employees comprise

payments to gratuity, superannuation and

provident funds as per the approved schemes of

the Company.

The Company has schemes of retirement benefits

of provident funds, superannuation fund and

gratuity fund in respect of which the Company’s

contribution to the funds are charged to the

statement of profit and loss. The gratuity funds

and superannuation fund benefits of the

Company are administered by a trust formed for

this purpose through the Group schemes of the

Life Insurance Corporation of India (‘LIC’).

In respect of gratuity, the adequacy of the

accumulated funds available with the LIC has

been confirmed on the basis of an independent

actuarial valuation made at year-end.

Accrual for vacation pay is determined at current

employee compensation rates for the entire

unavailed leave balance standing to the credit of

the employees at year-end.

Leases of assets under which all the risks and

rewards of ownership are effectively retained by

the lessor are classified as operating leases. Lease

payments under operating leases are recognized

as an expense on a straight-line basis over the

lease term.

(h) Income tax

(i) Earnings per share

Provision for income tax is made on the

assessable income at the tax rate applicable to

the relevant assessment year. Deferred tax

liability arising out of timing differences has not

been considered.

The earnings considered in ascertaining the

Company’s earnings per share comprises of the

net profit after tax. The number of shares used in

computing basic earnings per share is the

weighted average number of shares outstanding

during the year. The number of shares used in

computing diluted earnings per share comprises

of the weighted average shares considered for

deriving basic earnings per share, and also the

weighted average number of shares, if any, which

would have been issued on the conversion of all

dilutive potential equity shares. The number of

shares and potentially dilutive equity shares are

adjusted for the bonus shares.


2001)

)

)

)))

))

)

))

500,000

166,382

1,720,0001,000,000

251,996–

(83,191)

119,905

2,720,000

168,805

3,008,710

2000)

)

)

)))

))

)

))

100,000

83,191

1,020,000700,000

138,757153,970(40,731)

65,529

1,720,000

251,996

2,037,525

Authorized50,000,000 (2000 – 10,000,000) equity shares of Rs 10/- each

Issued, subscribed and paid-up16,638,200 (2000 – 8,319,100) equity shares of Rs 10/- each, fullypaid-up

Of the above, 8,319,100 (2000 – 4,073,050) equity shares of Rs 10/-each have been issued as fully paid up bonus shares by capitalizing theshare premium account.

Balance, beginning of yearTransferred from profit and loss account

Balance, beginning of yearReceived during the yearCapitalized towards issue of bonus shares

Profit and loss account

Share Capital

Reserves and Surplus

General reserve

Share premium

Balance, end of year

Balance, end of year

3.

4.

As a

t

31.0

3.00

63,4

60

7,11

6

246,

562

91,1

55

69,6

09 –

477,

902

312,

446

Add

itio

ns

duri

ng th

e

year

1,22

7 –

75,0

32

10,5

70

9,77

5

22,6

17

119,

221

167,

234

Sale

/del

etio

ns

duri

ng th

e

year – –

2,50

7

191

1,07

8

3,28

0

7,05

6

1,77

8

As a

t

31.0

3.01

64,6

87

7,11

6

319,

087

101,

534

78,3

06

19,3

37

590,

067

477,

902

As a

t

31.0

3.00

19,4

39

1,72

2

140,

700

36,8

92

31,1

28 –

229,

881

108,

856

Fixe

dAs

sets

Des

crip

tion

Impr

ovem

ent t

o

leas

ehol

d pr

emis

es

Bui

ldin

gs *

Com

pute

r equ

ipm

ent

Elec

tric

al a

nd

offic

e eq

uipm

ents

Furn

itur

e an

dfix

ture

s

Leas

ed v

ehic

les

Tota

l

Prev

ious

yea

r

Gro

ss B

lock

For t

he

year

15,5

91 809

81,6

92

20,9

19

14,8

55

11,3

85

145,

251

122,

333

As a

t

31.0

3.01

35,0

30

2,53

1

220,

648

57,7

48

45,2

91

8,10

4

369,

352

229,

881

Cap

ital

adv

ance

s

As a

t

31.0

3.01

29,6

57

4,58

5

98,4

39

43,7

86

33,0

15

11,2

33

220,

715

103

220,

818

On

sale

s/de

leti

ons

for t

he y

ear – –

1,74

4 63 692

3,28

1

5,78

0

1,30

8

Dep

reci

atio

nW

ritt

enD

own

Val

ue

*In

clud

es10

shar

esof

Rs 5

0/- e

ach

inTa

kshi

laB

uild

ing

No.

9,C

o-op

. Hou

sing

Soci

ety

Ltd.

5.

As a

t

31.0

3.00

44,0

21

5,39

4

105,

862

54,2

63

38,4

81 –

248,

021

1,07

9

249,

100


Investments


Long term investments (unquoted)

(i) Trade investmentsTimes Online Money Limited3,333,333 (2000 – Nil) equity shares of Rs 10/- each, fully paid-upLess: Provision for diminution in value of investment

DotEx International Limited2,450,000 (2000 – Nil) equity shares of Rs 10/- each, fully paid-up

i-flex solutions bv, a wholly owned subsidiary company incorporatedin the Netherlands 185 (2000 – Nil) equity shares of Euro 100/- each,fully paid-up

(ii) Non-Trade investmentsEastern Software Systems Limited357,711 (2000 – 357,711) equity shares of Rs 10/- each, fully paid-up

Current investments (non-trade, quoted)

Unit Trust of India – 1964 Scheme3,311,258 units (and 278 fractions)(2000 – 3,311,258 units and 278 fractions)Less: Excess of cost over market value

Aggregate cost of quoted investmentsAggregate market value of quoted investmentsAggregate amount of unquoted investments

Sundry debtors (unsecured)Debts outstanding for a period exceeding six months:– Considered good– Considered doubtful

Other debts (considered good)

Less: Provision for doubtful debts

Sundry debtors include an amount of Rs 68,655 (2000 – Nil) due from i-flex solutions bv, a wholly owned

12.75% KEONICS Mahiti Bonds Series-1400 (2000 – Nil) Bonds of Rs 50,000/- each

subsidiary

Cash and bank balancesCash in handCheques in handBalances with scheduled banks:– Current accounts– Deposit accounts

6.

7.

(a)

(b)

(a)

(b)

2001)

)

)

)

)

))

))

)))

)))

))

)

))

)))

24,500

739

9,875

20,000

50,00046,689

105,114

58,1794,233

1,132,311

(4,233)

23963,362

712,863696,485

50,000

46,689

62,412

105,114

1,194,723

151,803

1,190,490

1,472,949

50,000

(2,484)

)

100,000

(50,000)

50,000

(3,311)

)

)

2000)

)

)

)

)

))

))

)))

)))

))

)

))

)))

–

–

–

9,875

–

50,00047,516

9,875

66,7204,984

562,537

(4,984)

301–

54,896810,598

9,875

634,241

47,516

71,704

57,391

629,257

865,795

Other current assetsInterest accrued but not due on bank deposits and investments

Loans and advances (unsecured, considered good unless otherwise stated)

Advances recoverable in cash or inkind or for value to be received:Loan to ESPS TrustLoans to employees (secured)Loan to i-flex solutions bv, a wholly owned subsidiaryOther advancesPrepaid expensesAdvance tax, net of provision for Taxation of Rs 86,061 (2000 – 58,061)Deposits

Current liabilities

Accounts payableAccrued expensesDeferred revenuesFinance lease obligationsAdvances from customersUnclaimed dividendsOther current liabilities

Amounts due to Small Scale Industrial Undertakings Nil (2000 – Nil)

ProvisionsContingencies (see note below)Proposed dividendCorporate dividend tax

The Company had retained a provision of Rs 10,500 for warranties given by the Company on the products soldand to meet any possible disruption in client support and services due to roll over into Year 2001, being the firstyear of the century. However, the clients of the Company had a smooth roll over in the Year 2001 and hence,the Company did not incur any expenditure for the same. Accordingly, Rs 10,500 has been released to ‘Otherincome’ as in the opinion of the Company, this provision is no longer required.

Product licenses and related activitiesIT solutions and consulting servicesNet exchange gain arising on sales

Net exchange gain other than on salesInterest on bank deposits and bonds (tax deductedat source Rs 10,337 (2000 – 3,139))Reversal of excess provision for contingencies (refer note 8(b))DividendInterest earned on loans to employeesMiscellaneous income

Current liabilities and provisions

Sales

Other income

(c)

(d)

(a)

(b)

8.

9.

10.

6,739

300,19824,239

3,00421,00390,20116,845

286,586

28,197375,525109,356

12,5907,7951,351

29,130

–41,596

4,243

1,653,3321,385,223

47,329

46,205

60,01710,500

4,5532,9961,055

742,076

563,944

45,839

3,085,884

125,326

3,337

304,65928,806

–23,52743,57011,124

237,546

14,922214,052

46,401–

2,9121,083

18,152

10,50020,798

4,576

972,340998,900

3,829

9,483

34,12635,500

4,4703,369

675

649,232

297,522

35,874

1,975,069

87,623

2001 2000


Employee costs

Other expenses

Commitments

Salaries and bonusStaff welfare expensesContribution to provident and other funds

Traveling (net of recoveries)RentRates and taxesCommunication expensesProvision for diminution in the value of investmentsAdvertisingApplication softwareRepairs and maintenance:– Leasehold premises– Plant and machinery– OthersPowerProvision for doubtful debtsInsuranceFinance charge on leased assetsLoss on disposal of fixed assets, netMiscellaneous expenses

Capital commitments

As at March 31, 2001, the Company had contracts remaining to be executed on capital account and not providedfor (net of advances) of approximately Rs 17,052 (2000 – 19,568)

Lease commitments

(i) Finance leasesThe Company leases vehicles and computer equipment under finance leases of upto five years. Future minimumlease payments under finance leases as of March 31, 2001 are as follows:

March 3120022003200420052006Total minimum payments

11.

12.

13.

(a)

(b)

659,11238,37725,525

614,40368,38367,64154,12250,82843,79026,411

3,52624,983

1,80024,105

(751)3,4162,3481,160

80,601

Principal4,2164,1322,4841,561

197

))))

)))))))

))))

)))))

723,014

1,066,766

12,590

Interest1,6981,014

490176

143,392

395,27640,66912,942

343,35161,41530,07566,946

1,98714,31041,783

1,3019,211

81018,098

2,8332,472

–451

53,447

Total5,9145,1462,9741,737

211

448,887

648,490

15,982

2001) 2000

(ii) Operating leasesThe Company has taken certain office premises and residential premises for employees under non-cancellableleases, which expire at various dates through to 2010. Gross rental expense for the years ended March 31, 2001and March 31, 2000 was Rs 65,039 and Rs 42,771 respectively.

The minimum rental payments to be made in future in respect of these leases are as follows:

March 3120022003200420052006Thereafter till 2010

Business segments are defined as components of an enterprise about which separate financial informationis available. This information is reviewed and evaluated regularly by the management, in deciding how toallocate resources and in assessing the performance.

The Company is organized geographically and by business segment. For the management purpose theCompany is primarily organized on a worldwide basis into two business segments:

a) Products licenses and related activities, andb) IT solutions and consulting services

The segments are the basis on which the company reports its primary segment information to the management.The Product licenses segment has banking products like the FLEXCUBE suite of products and MicroBankerwhich cater to the needs of corporate, retail and investment banking as well as treasury operations and datawarehousing requirements. The related activities include enhancements, implementation and maintenanceactivities.

IT solutions and consulting services comprise of bespoke software development, provision of computer softwaresolutions and related consulting services arising from such activities. This segment is further sub-divided in thefollowing sub segments i.e. Business Intelligence, Customer Relationship Management, Brokerage,e-commerce, Internet Services and IT and Business Consulting.

Segment information14.

Amount67,90661,22348,54644,51339,869

109,732


Geographical segments:

The following table shows the distribution of the Company’s consolidated sales by geographical market:

Regions

United States of AmericaMiddle East and AfricaAsia PacificEuropeLatin America and Caribbean

The company does not track its assets and liabilities by geographical area

Segment revenue and expense:Revenue is generated through licensing of software products as well as by providing software solutions to thecustomers including consultancy. The revenues and expenses which are not directly attributable to a businesssegment are shown as corporate unallocated expenses and income.

Segment assets and liabilities:Segment assets include all operating assets used by a segment and consist principally of debtors, deposits for premisesand fixed assets, net of allowances and provisions, which are reported as direct offsets in the balance sheet. Whilemost such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointlyby two or more segments is allocated to the segments on a reasonable basis. Assets that cannot be allocated betweenthe segments are shown as part of corporate assets. The Company does not track segment liabilities bybusiness segments.

March 31, 2001

1,052,575723,078654,171569,355

39,3763,038,555

%

35232219

1100

March 31, 2000

453,385571,660275,974571,660

98,5621,971,240

%

23291429

5100

Year ended March 31, 2001

Particulars

Total revenueExchange difference gain on salesSegmental operating expenses

Interest income and other incomeIncome taxNet profitOther informationSegment assetsDepreciationCapital expenditure by segment

Segmental operating income


Particulars

Total revenueExchange difference gain on salesSegmental operating expenses

Interest income and other incomeIncome taxNet profitOther informationSegment assetsDepreciationCapital expenditure by segment


Product licensesand related

activities

1,653,33225,753

721,812

777,19445,76835,239

957,273

Product licensesand related

activities

972,3401,889

488,139

376,93645,95043,418

486,090

IT solutionsand consulting

services

1,385,22321,576

846,026

835,95585,23263,295

560,773

IT solutionsand consulting

services

998,9001,940

572,305

604,09864,234

101,747

428,535

Unallocatedand

others

––

515,157

2,171,72614,25120,687

)))

)))

)))

(515,157)

Unallocatedand

others

––

281,247

1,473,07912,14922,069

)))

)))

)))

(281,247)

Total

3,038,55547,329

2,082,995

125,32628,000

3,784,875145,251119,221

1,002,889

1,100,215

Total

1,971,2403,829

1,341,691

87,62328,269

2,454,113122,333167,234

633,378

692,732

Related party transactions

The Company has entered into transactions with various Citibank branches, Citicorp Information Technology,Inc. (‘CITI’), e-Serve International Limited (‘e-Serve’) over which Citigroup and its affiliates have significantownership interest, controlling interest or exercise significant influence. The Company has also entered intocertain transactions with its investee companies Times Online Money Limited and DotEx International Limitedand with its subsidiary company, i-flex solutions bv (i-flex bv).

The related party transactions can be categorized as follows:

Banking product revenuesThe Company supplied banking products and earned revenues from the following related parties during theyears ended March 31, 2001 and 2000:

Citibank branchesi-flex bvCITIe-Serve

IT solutions and consulting services revenuesThe Company has provided IT solutions and consulting services and earned revenues from the following relatedparties during the years ended March 31, 2001 and 2000:

Citibank branchesCITIi-flex bvTimes Online Money LimitedDotEx International Limitede-Serve

Lease paymentsThe Company has leased vehicles and computer equipment under capital leases from e-Serve. The lease rentals(principal and interest) paid to e-Serve on this account during the years ended March 31, 2001 and 2000aggregated to Rs 5,775 and Rs 5,241 respectively.

Amounts due from related partiesAmounts receivable from related parties as at March 31, 2001 and 2000 on account of sales of banking productsand consulting services referred to above are as follows:

Citibank branchesCITIi-flex bvDotEx International LimitedTimes Online Money Limitede-Serve

Amounts due to related partiesThe amount due to e-Serve towards lease obligations repayable (principal and interest) as at March 31, 2001and 2000 aggregate to Rs 15,981 and Rs 14,379 respectively.

15.

269,36297,76415,152

155

443,316692,434

21,12010,000

8,96042

294,427262,694

68,6555,3922,500

42

2001

2001

2001

382,433

1,175,872

633,710

2000

2000

2000

9,134––

183

528,551284,213

––––

171,114104,372

––––

9,317

812,764

275,486


Employee stock purchase scheme (‘ESPS’)

On March 29, 1998 the Company adopted the scheme to provide equity based incentives to key employees ofthe Company (‘1998 Scheme’), subsequently on April 1, 1999 and on April 1, 2000 the Company adoptedanother Stock based scheme (‘1999 Scheme’ and ‘2000 Scheme’). These schemes which have similar terms, areadministered through a Trust (‘the Trust’). The Trust purchases shares of the Company using the proceeds ofloans obtained from the Company. Such shares are offered by the Trust to employees at an exercise price, whichapproximates the fair value on the date of the grant. The employees can purchase the shares in a phased mannerover a period of five years based on continued employment, until which, the Trust holds the shares for thebenefit of the employee. The employee will be entitled to receive dividends, bonus, etc. that may be declared bythe Company from time to time for the entire portion of shares held by the Trust on behalf of the employees.

On the acceptance of the offer, the selected employee shall undertake to pay within ten years from the date ofacceptance of the offer the cost of the shares incurred by the Trustees including repayment of the loan relatablethereto. In case the employee resigns from employment, the rights relating to shares, which are eligible forexercise, may be purchased by payment of the exercise price whereas, the balance shares shall be forfeited infavor of the Trust. The Trustees have the right of recourse against the employee for any amounts that mayremain unpaid on the shares accepted by the employee. The shares that an employee is eligible to exerciseduring the initial five-year period merely go to determine the amount and scheduling of the loan to be repaid onexercise by the employee. Accordingly, the scheme eliminates any price risk that the Company could bear anddoes not contain any option features.

The Securities and Exchange Board of India (‘SEBI’) has recently issued the Employee Stock Option Schemeand Stock Purchase Guidelines, 1999 (‘SEBI guidelines’), which are applicable stock option schemes for theemployees of all listed Companies. In accordance with these guidelines, the excess of market price of theunderlying equity shares on the date of grant of the stock options over the exercise price of the options is to berecognized in the books of account and amortized over the vesting period. These guidelines are presently notapplicable to the Company, as its shares are not listed on any stock exchange.

However, even if the principles outlined in SEBI guidelines were adopted by the Company in respect of stockpurchase scheme granted to its employees, no compensation cost would need to be recorded as the scheme termsare fixed and the exercise price equals the market price of the underlying stock on the grant date.

16.

Supplementary profit and loss data

Prior period comparatives

Managerial remunerationSalaries and incentivesContribution to provident and other fundsPerquisites

Payments to auditorsAudit feesTax AuditSpecial reportsReimbursement of out-of-pocket expenses

Earnings in foreign currencyProduct licenses and related revenuesIT Solutions and consulting servicesReimbursement of traveling expensesForeign exchange gain

Expenditure in foreign currencyTraveling expensesProfessional feesSoftwareRates and taxesAdvertisingRepresentative office expensesSeminar expensesStaff training expensesOthers

Value of imports on CIF basis – capital goods

Prior year amounts have been reclassified, where necessary to conform with the current year’s presentation.

17.

18.

(a)

(b)

(c)

(d)

(e)

186124

22

1,100450

1,619165

1,546,5001,351,691

191,75093,534

344,23475,681

9,37724,77011,95015,56414,285

1,68611,054

66,357

332

3,334

3,183,475

508,601

168112

21

800367

1,00012

927,447998,900108,507

13,312

267,00160,155

4,4105,8623,9423,4027,082

9889,303

60,115

301

2,179

2,048,166

362,145

2001 2000


I

II

III

IV

V

Registration detailsRegistration number

Balance Sheet date

Capital raised during the year (amount in Rs thousands)

Position of mobilization and deployment of funds (amount in Rs thousands)

Sources of funds


Performance of company (amount in Rs thousands)

(Please tick appropriate box + for profit, – for loss)

Generic names of three principal products/services of company(as per monetary terms)Item Code number(ITC code)

Productdescription

Balance sheet abstract and company’s general business profile

5

8

8

2

61

0

1

2

6

7

2

8

2

11

3

2

3

3

3

4

0

6

2

1

8

6

N

PUBLIC ISSUE

BONUS ISSUE

TOTAL LIABILITIES

NET FIXED ASSETS

PAID-UP CAPITAL

NET CURRENT ASSETS

SECURED LOANS

ACCUMULATED LOSSES

TURNOVER

PROFIT/LOSS BEFORE TAX

EARNINGS PER SHARE IN Rs

6

N

1

8

8

3

4

N

N

2

2

.

.

6

I

9

7

1

8

7

I

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013 3DATE MONTH YEAR

1 1

RIGHTS ISSUE

PRIVATE PLACEMENT

N

N

I

I

L

L

8

0

7

0

3

3

4

8

TOTAL ASSETS

RESERVES AND SURPLUS

UNSECURED LOANS

8

7

N

7

1

I

5

0

51 1INVESTMENTS

MISCELLANEOUS EXPENDITURE

8

N

0

I

3

L

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11

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2

TOTAL EXPENDITURE

PROFIT/LOSS AFTER TAX

9

2

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5

9

1

5

5

STATE CODE

2 0 0 1

Name of the Subsidiary

The Financial Year of the Subsidiary Company ended on

Holding Company

Holding Company’s interest

Shares held by the Holding Company in the Subsidiary

Net aggregate amount of Profits / (Losses) of the Subsidiary so far as itconcerns the Members of the Holding Company and is not dealt within the Accounts of the Holding Company

a. for the financial year ended on March 31, 2001

b. for the previous financial years of the Subsidiary since it became aSubsidiary

Net aggregate amount of Profits / (Losses) of the Subsidiary so far as itconcerns the Members of the Holding Company dealt with orprovided for in the Accounts of the Holding Company

a. for the financial year ended on March 31, 2001

b. for the previous financial years of the Subsidiary since it became aSubsidiary

i-flex solutions bv

March 31, 2001

i-flex solutions ltd.

100%

185 equity shares of Euro 100 each,fully paid-up

(Rs 14,581)

N.A.

N.A.

N.A.

)

)

)

)

))

)

)

)

Statement pursuant to Section 212 of the Companies Act, 1956relating to Subsidiary Companies

LondonJune 25, 2001


Ajay RelanDirector




FinancialsFinancial statements for the year

ended March 31, 2001 prepared

in accordance with United States

Generally Accepted Accounting

Principles (US GAAP)

i-flex solutions ltd.Subsidiary

&

Report of independentpublic accountants

To the Board of Directors of

i-flex solutions limited

We have audited the accompanying consolidated

balance sheets of i-flex solutions limited, a

company incorporated in India, and its subsidiary

(“the Group”) as of March 31, 2001 and 2000,

and related consolidated statements of income,

shareholders’ equity and cash flows for the years

then ended. These financial statements are the

responsibility of the Group’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, the consolidated financial

statements referred to above present fairly, in all

material respects, the financial position of the

Group as of March 31, 2001 and 2000, and the

results of its operations and its cash flows for the

years then ended in conformity with accounting

principles generally accepted in the United

States of America.

Arthur Andersen & AssociatesChennai

June 26, 2001


Consolidated balance sheetsas at March 31, 2001 and 2000

Assets

Liabilities and stockholders’ equity

Cash and cash equivalentsTrade receivables, net of provision of Rs 4,233 (US$ 91) in 2001and Rs 4,984 in 2000, respectively

Trade receivable from related partiesEmployee receivablesPrepaid expensesDeferred income taxes, netMarketable securities, available for saleAdvance tax, net of provisionsOther assets

Property and equipment, netOther investmentsInvestment in equity investeeDeferred income taxes, netRental depositsEmployee receivablesOther assets

Deferred revenuesAccrued employee costsAccrued referral feesAccrued rates and taxesAccounts payableAdvance from customersOther current liabilitiesCurrent portion of capital lease obligations

Capital lease obligations

Common stock, Rs 10/- par value;50,000,000 equity shares authorised,16,638,200 shares outstanding as of March 31, 2001and 2000, respectively

Additional paid-in capitalAccumulated other comprehensive incomeLoan to ESPS trustRetained earnings

Current assets

Current liabilities

Stockholders’ equity

Total current assets

Total current liabilities

Total stockholders’ equity

Total assets

Total liabilities and stockholders’ equity

Total liabilities

2001)

)

)))))))))

)))))))

)

)))))))))))

))

))

)

1,475,741

619,227565,054

7,94846,05325,49746,68916,84517,140

207,92879,875

9,6606

282,18228,64648,552

109,35691,27750,617

112,48828,197

7,795167,820

4,216

8,374

166,382168,805

(3,283)(300,198)

2,865,197

2,820,194

571,766

2,896,903

3,477,043

3,477,043

580,140

2001)

)

)))))))))

)))))))

)

)))))))))))

))

))

)

31,648

13,27912,118

170988547

1,001361368

4,4591,713

207–

6,052614

1,041

2,3451,9581,0862,412

604167

3,59990

180

3,5683,620

(70)(6,438)61,445

60,480

12,261

62,125

74,566

74,566

12,441

2000)

)

)))))))))

)))))))

)

)))))))))))

))

))

)

865,795

353,771275,486

6,06139,267

1,05947,51611,12412,990

233,1709,875

–2,817

234,11830,06814,281

46,39544,83679,28043,56814,921

2,91865,603

3,291

8,090

166,382168,805

(2,484)(304,659)

1,800,452

1,613,069

300,812

1,828,496

2,137,398

2,137,398

308,902

The accompanying notes are an integral part of these financial statements.

Thousands of Indian rupeesThousands ofUS Dollars (Translated)



LondonJune 25, 2001


Ajay RelanDirector



Consolidated income statementsfor the years ended March 31, 2001 and 2000

2001)

)

)

)

))

)

)

)

)

)

))

1,057,101

875,388127,390

(50,000)(14,840)113,995

10,949

70.8668.08

3,107,216

2,050,115

1,047,337

1,096,492

1,085,543

2000)

)

)

)

))

)

)))

)

)

)

))

666,356

535,686104,509

––

52, 123

17,847

52.6650.27

2,065,465

1,399,109

758,914

811,037

793,190

Revenues

ncome from operations

Income before provision for income taxes

Net Income

I

Gross profit

(including net foreign exchange gain uponrealization of trade receivables of Rs 47,329(US$ 1,015) in 2001 and Rs 3,829 in 2000 respectively

Share of associate company lossInterest and other income, net

Provision for income tax

Basic earnings per share (in US $, Rs)Diluted earnings per share (in US $, Rs)

Cost of revenues (excluding depreciation and amortization)

Selling, marketing, general and administrative expensesDepreciation and amortization

Impairment loss on other investment

2001)

)

)

)

))

)

)

)

)

)

))

22,670

18,7742,732

(1,072)(318)

2,445

235

1.521.46

66,636

43,966

22,460

23,515

23,280




LondonJune 25, 2001


Ajay RelanDirector





Consolidated statement of cash flowsfor the years ended March 31, 2001 and 2000


Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Supplementary information

Net income

Adjustments to reconcile net income to net cash provided byoperating activities

Change in assets and liabilities

Depreciation and amortizationLoss on retirement/sale of property and equipment, netProvision for dimunition in the value of investmentsDeferred tax benefitShare of associate company’s lossProvision for taxation

Trade receivablesOther assetsCurrent liabilities

Purchase of property and equipmentSale of property and equipmentPurchase of investments

Increase in stockholders’ equityIncrease in additional paid in capitalLoan to ESPS TrustCapital lease paymentDividend paidDividend tax paid

Effect of exchange rate on cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash paid for taxAssets under capital leases

Net cash provided by operating activities

Net increase in cash and cash equivalents during the year

Net cash (used in) investing activities

Net cash (used in) financing activities

Cash and cash equivalents at the end of the year

2001)

)

)))

)))

))

)

)))

)))

))

1,085,543

127,390853

50,000(21,627)14,84010,949

(555,024)(99,092)270,029

(97,086)87

(144,500)

––

4,461(4,912)

(20,798)(4,576)

(6,591)

865,795

20,9756,121

1,267,948

(241,499)

(25,825)

883,861

616,537

1,475,741

2001)

)

)))

)))

))

)

)))

)))

))

23,280

2,73219

1,072(464)318235

(11,903)(2,125)5,791

(2,082)2

(3,099)

––

96(105)(446)

(98)

(142)

18,567

450131

27,192

(5,179)

(553)

18,955

13,223

31,648

2000)

)

)))

)))

))

))

))

)))

))

793,190

104,509131

–(1,084)

–17,847

(362,593)(50,324)42,901

(167,365)15

–

1,730153,970

(154,950)(3,219)

(10,183)(1,120)

(13,311)

515,651

25,9267,523

914,593

(167,350)

(13,772)

544,577

363,455

865,795


Shar

es –

346,

000 – – – – – – – – – –

16,2

92,2

00

16,6

38,2

00

16,6

38,2

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16,6

38,2

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3,46

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162,

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166,

382

166,

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152,

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16,5

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168,

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168,

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17)

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inco

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793,

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791,

203

1,08

4,71

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(Tra

nsla

ted)


1. Background

i-flex solutions limited (‘i-flex’ or ‘the

Company’), formerly Citicorp Information

Technology Industries Limited, a closely held

public limited company, was incorporated in

India with limited liability on September 27,

1989. The Company’s principal shareholder is

Citicorp Overseas Software Limited (‘COSL’)

with shareholding of 48 per cent. COSL is a

100 per cent subsidiary of Citicorp

Technology Holdings, Inc., which is a part of

Citigroup, USA.

The Company had a controlling/significant

interest in the following entities during the year

ended March 31, 2001:

i-flex solutions bv (‘i-flex bv’), a 100 per cent

owned subsidiary company incorporated in

May, 2000 under the laws of The Netherlands;

and

DotEx International Limited (‘DotEx’),

a 49 percent owned equity investee company

incorporated in June, 2000 under the

Indian laws;

The accompanying consolidated financial

statements are prepared in conformity with US

generally accepted accounting principles to

reflect the financial position and the results of

operations of the Company along with i-flex bv

(hereinafter collectively referred to as

‘the Group’).

�

�

The Group is principally engaged in the business

of providing information technology solutions to

the financial services industry worldwide. i-flex

has a suite of banking products, which cater

to the needs of corporate, retail and investment

banking as well as treasury operations and

datawarehousing. The Group also provides

software development services and develops

bespoke software for its customers from the

Financial Services industry. The Group derives

a substantial portion of its revenues from the

overseas markets.

On October 31, 2000, the Group issued bonus

shares to existing shareholders in the ratio of 1:1.

The stockholders equity accounts reflect the

equity capitalization of the Group after giving

retrospective effect to this bonus issue for all the

periods presented.

The consolidated financial statements present the

accounts of the Group, as described in Note 1.

DotEx is accounted for using the equity method

since the Group exerts significant influence on

the operations of DotEx. All material

transactions and balances between the entities

included in the consolidated financial statements

have been eliminated.

2. Summary of significant accounting policies

2.1 Principles of consolidation

Notes to the financial statementsfor the years ended March 31, 2001 and 2000

(All amounts in thousands of Indian rupees,unless otherwise stated)

2.2 Basis of presentation

2.3 Use of estimates

These financial statements are prepared under

the historical cost convention on the accrual

basis of accounting in accordance with the

accounting and reporting requirements of the

generally accepted accounting principles in the

United States of America (‘US GAAP’). The

significant accounting policies adopted by the

Group, in respect of the financial statements are

set out below.

These financial statements are stated in thousands

of Indian rupees (‘Rs’). For the convenience of

readers, the financial statements for the year ended

March 31, 2001 have been translated into

thousands of United States

Dollars (‘US$’) using the telex transfer average

rate as prescribed by Citibank NA as at March 31,

2001 which was 1 US$ = Rs 46.63. The

convenience translation should not be construed

as a representation that the Rs amounts or the

US$ amounts referred to in these financial

statements have been, could have been, or could

in the future be, converted into US$ or Rs, as the

case may be, at this or at any other rate of

exchange, or at all.

The preparation of financial statements in

conformity with generally accepted accounting

principles requires management to make

estimates and assumptions that affect the

reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at

the date of the financial statements and the

results of operations during the reporting periods.

Although these estimates are based upon

management’s best knowledge of current events

and actions, actual results could differ from those

estimates.

2.4 Foreign currency

2.5 Revenue recognition

The functional currency of each entity in the

Group is its respective local currency. Monetary

assets and liabilities in foreign currencies are

remeasured into functional currency at the rates

of exchange prevailing at the balance sheet date.

Transactions in foreign currencies are remeasured

into functional currency at the rates of exchange

prevailing at the date of the transaction. All

foreign exchange gains and losses are recorded in

‘Interest and other income, net’ in the

accompanying consolidated income statements

except exchange differences arising upon

realization of trade receivables which are

included in revenues. The results of such entities

are translated into Indian rupees, the reporting

currency, at the average rates of exchange during

the period and the balance sheet is translated at

the rate in effect at the balance sheet date.

Translation adjustments are included as a

separate component of stockholders’ equity in

the accompanying consolidated statements.

The Company derives revenues from:

The licensing of banking software products,

along with the provision of related

implementation services and post contract

support, and;

Providing software development and other

consulting services to certain customers which

comprise primarily large financial services

companies.

�

�


License fees

The Group’s licensing arrangements do not

provide for significant modification or

customization of software. The Group’s standard

end user license agreement for the Group’s

products provides for an initial fee to use the

product up to a specified limit in perpetuity. In

accordance with the American Institute of

Certified Public Accountants Statement of

Position 97-2, “Software Revenue Recognition”

(“SOP 97-2”), software license fee revenues are

recognized when persuasive evidence of an

arrangement exists, delivery has occurred, the

license fee is fixed and determinable and the

collection of the fee is probable. Fees from

licenses sold are recognized only when the above

criteria have been met. The Group allocates a

portion of its software revenues to post-contract

support activities provided free of charge to the

customer for a specified period as included under

the licensing arrangement. Amounts allocated

are based upon standard prices charged for those

services or products.

If a licensing arrangement provides a customer a

right to a significant incremental discount on a

future purchase of any other software product or

a service, a proportionate amount of that

discount is applied to each element covered by

the arrangement based on each element’s fair

value. Licensing arrangements which allow a

customer to purchase additional copies of

products already licensed and delivered to the

customer do not result in the provision of a

significant discount to the customer. Revenues

are recognized as each additional copy is

purchased by the customer based on the price per

copy stated in the agreement.

Implementation / Enhancement services

Post contract support / Annual maintenance

contracts

Software development and consulting services

These services essentially comprise, inter alia,

functional enhancements, interface building,

implementation planning, data conversion,

training and product walkthrough and are

provided to customers who enter into licensing

arrangements with the Group. Such services are

not essential to the functionality of the software

and are billed and negotiated separately.

Revenue for implementation / enhancement

services is recognized upon the completion of

these services and customers acceptance thereof

for fixed price contracts and as the services are

provided for Time and Material contracts.

Support agreements which are for a period of 12

months, requires the Group to provide technical

support, maintenance, query solving and

upgrades to the customers. Revenues from post-

contract support are recognized rateably over the

term of the contract on a straight-line basis.

The Group provides software development

services, which comprise resource augmentation

support and onsite and/or offshore development

activities. Revenue for Time and Material

contracts are recognized as the services provided.

Fixed price contract revenue is recognized using

the percentage of completion method.

If software product components are used in a

software development and consulting services

agreement where the services are determined to

be essential to the functionality of the licensed

software and payment of the license fees is

dependant on the performance of the services,

both the license and consulting fees are

recognized under the percentage of completion

method of contract accounting.

Deferred revenue represents amounts billed in

excess of revenue earned. The related services

are expected to be performed within the next

operating cycle.

Cost of revenues comprises of salaries and

employee benefits, project related travel costs,

application software costs and professional fees.

Research and development costs are expensed as

incurred. Software product development costs

are expensed as incurred until technological

feasibility is established. Software product

development costs incurred subsequent to the

achievement of technological feasibility are not

material and are expensed as incurred.

Cash and cash equivalents include all highly

liquid investments with an original maturity of

ninety-one days or less.

Property and equipment including assets under

capital lease agreements are stated at cost, less

accumulated depreciation and amortization.

Depreciation is computed using the written-

down value method and is charged to income

over the estimated useful lives of the assets.

Assets under capital leases are amortized over

the shorter of the useful life or lease term.

2.6 Cost of revenues

2.7 Research and development expenses

for software products

2.8 Cash and cash equivalents

2.9 Property and equipment

The Group purchases certain application

software for internal use. It is estimated that such

software has a relatively short useful life, usually

less than one year. The Group, therefore, charges

to income the cost of acquiring such software,

entirely at the time of acquisition.

Costs of normal repairs and maintenance are

charged to income as incurred. Major

replacements or betterment of property and

equipment are capitalized. When assets are sold

or otherwise disposed off, the cost and related

accumulated depreciation are removed from

the accounts and any resulting gain or loss is

included in the statement of operations.

Advances paid towards the acquisition of

property and equipment outstanding at each

balance sheet date and the cost of property and

equipment not put to use before such date are

disclosed under ‘Capital work-in-progress’.

The Group reviews long-lived assets for

impairment, whenever an event or changes in

circumstances indicate that the carrying amount

of such assets may not be recoverable. The

carrying values of long-lived assets are assessed

for recoverability by reference to the estimated

future undiscounted cash flows associated with

them. Where this assessment indicates a deficit,

the assets are written down to market value. For

assets which do not have a readily determinable

market value, the assets are written down to their

estimated market value calculated by reference to

the estimated future discounted cash flows.

Assets to be disposed are reported at the lower of

the written down value or the fair value, less the

cost to sell.

2.10 Impairment of long lived assets


2.11 Marketable securities

2.12 Other investments

2.13 Income taxes

Investments in marketable securities are

classified as available for sale and are accounted

for at fair value, which is determined by reference

to prevailing market prices. Changes in fair value

are excluded from net income and reported, net

of taxes as a separate component of stockholders’

equity. Declines in fair value below original cost

are recorded in the income statement when they

are considered to be other than temporary.

Investments where the Group controls between

20 percent and 50 percent of the voting interest

are accounted for using the equity method.

Investments in unquoted equity securities, where

the Group controls less than 20 percent voting

interest are accounted for at cost. Declines in fair

value below original cost are recorded in the

income statement when they are considered to

be other than temporary.

The current charge for income taxes is calculated

in accordance with the relevant tax regulations

applicable to the Group. Deferred income taxes

are recognized for the future tax consequences

attributable to temporary differences between the

financial statement carrying amounts of existing

assets and liabilities and their respective

tax bases. The effect on deferred tax assets and

liabilities of a change in tax rates is recognized in

income in the period that includes the

enactment date. Deferred tax assets are

recognized in full, subject to a valuation

allowance to reduce the amount recognized to

that which is more likely than not to be realized.

2.14 Retirement benefits

2.15 Operating leases

2.16 Earnings per share

Contributions to defined contribution plans are

charged to income in the period in which they

accrue. Current service costs for defined benefit

plans are also accrued in the period to which

they relate. Prior service costs, if any, resulting

from amendments to the plans are recognized

and amortized over the remaining period of

service of such employees.

Leases of assets under which all the risks and

rewards of ownership are effectively retained by

the lessor are classified as operating leases. Lease

payments under an operating lease are recognized

as an expense on a straight-line basis over the

lease term.

Basic earnings per share is computed by dividing

the net income by the weighted average number

of common shares outstanding during the period.

Diluted earnings per share is computed using the

weighted average of common and dilutive

common equivalent shares outstanding during

the period, using the treasury stock method for

shares which have been granted to employees

pursuant to the i-flex Employees Stock Purchase

scheme (‘the Scheme’) adopted by the Group,

except where the result would be anti-dilutive.

2.17 Recent accounting pronouncement

3. Cash and cash equivalents

In June 1998, the Financial Accounting

Standards Board issued Statements of Financial

Accounting Standards (‘SFAS’) No. 133,

‘Accounting for Derivative Instruments and

Hedging Activities’. SFAS No. 133 establishes

accounting and reporting standards requiring

that every derivative instrument (including

certain derivative instruments embedded in other

contracts) be recorded on the balance sheet

either as an asset or as a liability and be measured

at its fair value. SFAS No. 133 also requires that

changes in a derivative's fair value be recognized

in the current period unless specific hedge

accounting criteria are met and that a Group

must formally document, designate and assess the

effectiveness of transactions that receive hedge

accounting.

SFAS No. 133 is effective from financial year

beginning after June 15, 2000 and cannot be

applied retroactively. The Group is currently

evaluating this statement, but does not expect

that it will have a material impact on the

Companies financial position or results of

operations.

Cash and cash equivalents consist of physical

cash and cheques in hand and balances available

in current accounts and time deposits with

banks. Time deposits are interest-bearing deposits

for periods ranging from 30 to 91 days. The

details of cash and cash equivalents are as follows:

Cash in hand

Cheques on hand

Bank balances

– Current accounts

– Time deposits

Cash balances of the Group as at March 31, 2001

are subject to local exchange control restrictions

and can be remitted overseas only with prior

approval from the relevant regulatory authorities.

2001

5

1,359

15,348

14,936

31,648

2001

239

63,362

715,655

696,485

1,475,741

2000

301

–

54,896

810,598

865,795

Thousands ofUS Dollars

Thousands of Indian rupees


4. Property and equipment, net

5. Financial instruments and concentration of

credit risk

Property and equipment consist of the following:

Property and equipment above include the

following assets held under capital leases:

Vehicles

Less: Accumulated

amortization

SFAS 107 requires the Group to disclose the fair

value of all financial instruments in the financial

statements. However, this does not change any

requirements for recognition, measurement, or

classification of the financial instruments in the

financial statements.

The fair values of the Group’s current assets and

current liabilities approximate their carrying

values because of their short maturity. Such

financial instruments are classified as current and

are expected to be liquidated within the next

twelve months.

Improvement to leasehold premisesBuildingComputer equipmentElectrical and office equipmentFurniture and fixturesVehicles on leaseCapital advances

Less: Accumulated depreciation andamortizationProperty and equipment, net

720

377

4-5

2001)

))))))))

)

1,387153

6,8572,1871,686

4152

(8,228)

12,687

4,459

2001)

))))))))

)

64,6877,116

319,729101,999

78,63919,337

103

(383,682)

591,610

207,928

2000)

))))))))

)

63,4607,116

246,56491,15069,60917,110

1,079

(262,918)

496,088

233,170

Estimated usefullives (years)



2001)

)

)

415

(174)

241

2000)

)

)

17,110

(7,513)

9,597

2001)

)

)

19,337

(8,104)

11,233



Long term employee receivables are loans given

to employees to acquire assets such as property

and cars. Such loans are repayable over fixed

periods ranging from three to ten years. The

Group recovers interest on such loans at rates,

which closely approximate the market rates.

Hence, the fair value of the long-term employee

receivables closely approximates the carrying

value in the financial statements at Rs 33,219.

Long term rental deposits comprise of interest

free deposits maintained for office and residential

premises taken on lease. Such deposits are

repayable on termination of such lease

agreements. The fair value of the long-term

rental deposits carried in the financial statements

at Rs 282,182, determined using market rates of

interest is approximately Rs 160,932.

The Group derives 34 and 21 per cent of its

revenues from the customers based in the United

States of America and the Asia Pacific region

respectively. Consequently 32 percent and 26 per

cent of the Group’s accounts receivable at

March 31, 2001 are concentrated in United

States of America and the Asia Pacific region,

respectively.

The fair value of the available for sale securities

are as follows:

Unit Trust of India

–1964 Scheme–Cost

Less: Excess of cost

over market value

6. Marketable securities, available for sale

The Company, holds 3,311,258 units (and 278

fractions) of Rs 10 each of Unit Trust of India

1964 Scheme.

Other investments comprises of:

Times Online

Money Limited

(TOML)

Less: Other than

temporary diminution

in value

Eastern Software

Systems Limited (ESSL)

12.75% KEONICS

Mahiti Bonds Series–1

The Group’s ownership interest in TOML and

ESSL is 15.38% and 6.65% respectively. Both

companies are unlisted companies. The Group

does not exert significant influence on the

operations of TOML and ESSL by way of

representation on the board of directors,

participation in policy-making processes,

material intercompany transactions, interchange

of managerial personnel or technological

dependency. Accordingly these investments are

valued at cost less any decline in fair value below

original cost when considered to be other than

temporary.

Equity securities

Debt securities

7. Other investments

2001)

)

)

1,072

(71)

1,001

2000)

)

)

50,000

(2,484)

47,516

2001)

)

)

50,000

(3,311)

46,689



2001)

)

)

)

)

)

2,144

(1,072)

212

429

1,072

1,713

2000

–

–

–

9,875

–

9,875

2001)

)

)

)

)

)

100,000

(50,000)

9,875

20,000

50,000

79,875




The analysis of the carrying amount of

investments and the earnings of the investee

included in net income is as follows:

Share of net assets

Carrying value

Share of (loss)

of equity investee

(Loss) included in net income

The summarized financial statements of DotEx as

of March 31, 2001 are as follows:

Current assets

Fixed assets, (net)

Total assets

Current liabilities


Total liabilities and


Revenues

Loss from operations

Loss before provision

for income taxes

Net Loss

Balance sheet

Income statement

Due to significant fall in the valuation of

Internet companies during the year, the

enterprise value of TOML also has declined

significantly. Management is of the view that

the fair value of its investments in TOML has

declined as a result. Further due to the global

uncertain economic environment in which start-

up Internet companies operate, there is an

uncertainty about the future profitability of

TOML. Accordingly, management has provided

Rs 50,000 as it believes that the diminution in

the value of its investments in TOML is other

than temporary.

Investments in Debt securities 12.75%

KEONICS Mahiti Bonds Series–1 allotted on

February 1, 2001 are redeemable at par at the end

of seven years from the date of allotment and

have put and call option at the end of five years

from the date of allotment.

The Group has a 49 per cent interest in DotEx

which has been accounted for under the equity

method.

Original Cost

Less: i-flex’s share

of loss in DotEx

8. Investment in equity investee

2000

–

–

–

–

2001)

)

)

15,096

15,096

(14,840)

(14,840)


2000

–

–

–

–

–

–

–

–

–

–

2001)

)

)

)

)

)

)

)

19,477

33,968

22,636

30,809

1,254

(30,286)

(30,286)

(30,286)

53,445

53,445


2001)

)

)

525

(318)

207

2000

–

–

–

2001)

)

)

24,500

(14,840)

9,660

Thousands of Indian rupeesThousands ofUS Dollars

9. Other current liabilities

10. Employee benefit plans

10.1 Provident fund

10.2 Gratuity

Other liabilities primarily comprise of:

Communication

expenses

Traveling expenses

Other liabilities

The Group has employee benefit plans in the

form of certain statutory and welfare schemes

covering substantially all of its employees.

In accordance with Indian law, all employees of

the Group, are entitled to receive benefits under

the Provident Fund, a defined contribution plan

in which both the employee and the Group,

contribute monthly at a determined rate

(currently 12 per cent of the employees’ salary).

These contributions are made to the

Government Provident Fund and the Group has

no further obligation under the Provident Fund,

beyond its monthly contributions. The Group

contributed Rs 14,847 and Rs 8,281 during the

years ended March 31, 2001 and 2000

respectively.

In accordance with Indian law, the Group

provides for gratuity, a defined benefit retirement

plan (‘the Gratuity Plan’) covering all its

employees. The Gratuity Plan provides a lump

sum payment to vested employees at retirement

or on termination of employment of an amount

based on the respective employees’ salary and the

years of employment with the Group. The Group

provides for the gratuity benefit through

actuarially determined contributions pursuant to

a fund administered and managed by the Life

Insurance Corporation of India (‘LIC’). The

adequacy of the accumulated funds available

with the LIC has been confirmed on the basis of

an independent actuarial valuation made at

year-end. The Group contributed Rs 5,075 and

Rs 1,366 during the years ended March 31, 2001

and 2000, respectively, which represents the

current service cost for these years. The

weighted average discount rate and rate of

increase in future compensation used at each

balance sheet date in determining the actuarial

present value of the gratuity benefit is 11 per

cent and 10 per cent respectively.

The superannuation plan is a defined

contribution pension plan for a certain category

of employees of the Group. The Group

contributes to employees’ superannuation fund at

5 to 10 per cent of the employee’s base

compensation. The fund is administered by a

trust formed for this purpose through the Group

Scheme of the LIC. The contributions made are

recorded in the income statement on an accrual

basis. The amount contributed to the

superannuation fund amounted to Rs 5,537 and

Rs 2,667 during the years ended March 31, 2001

and 2000, respectively. The Group has no further

obligations under the plan beyond its

contribution.

10.3 Superannuation

2001

203

2,178

1,218

3,599

2000

15,390

26,151

24,062

65,603

2001

9,477

101,579

56,764

167,820

Thousands of Indian rupeesThousands ofUS Dollars


11. Interest and other income, net

12. Income tax

Interest and other income, net, comprises of

the following:

Foreign exchange gain, net*

Interest on bank deposits and bonds

Dividend

Interest earned on loans to employees

Income from sale of special import licenses

Miscellaneous income

* Arising on translation of foreign currency items

other than sales

Under the Indian Income-Tax Act, 1961, the

Group is exempt from income-tax to the extent

of profits attributable to the export revenues of

the Group and/or from the notified units of

Group. The provision for income tax consists of

the following:

Current tax expense

Deferred tax income

relating to the origination

and reversal of

temporary differences

2001

973

1,287

98

64

–

23

2,445

2001

45,374

60,017

4,553

2,996

–

1,055

113,995

2000

9,483

34,126

4,470

3,369

621

54

52,123



2001)

)

)

699

(464)

235

2001)

)

)

32,576

(21,627)

10,949

2000)

)

)

18,620

(773)

17,847



Accounting profit

Tax at the statutory rate of 39.55 per cent for the

year ended March 31, 2001 and 38.5 per cent

for the year ended March 31, 2000:

Tax effect on exempt export profit

Difference in rate between Indian and

foreign taxes

Non-deductible expenses

Tax on dividend paid

Increase in deferred tax expense resulting from

increase in tax rate

The components of the deferred tax asset

are as follows:

Temporary diminution in the value of investments

Share issue expenses

Provision for compensated absences

Accelerated book depreciation

Operating loss carry forwards

Other differences

The total deferred tax asset has been presented in

the balance sheet as follows:

Current deferred tax asset

Non current deferred tax asset

Income-tax expense, net

Total deferred tax asset

2001)

)

)

)

)

)

)

23,515

9,300

(9,135)

(30)

–

98

2

235

2001)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

1,096,492

433,663

(426,003)

(1,393)

–

4,576

106

21,085

38

–

6

4,374

–

25,497

6

10,949

25,503

25,503

2000)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

811,037

312,249

(295,862)

–

29

1,120

311

956

42

39

2,817

–

22

1,059

2,817

17,847

3,876

3,876



The following is the reconciliation of the

statutory tax rate under the Indian Income Tax

Act, 1961 and the Company’s effective tax rate:


The minimum rental payments to be made in

future in respect of these leases are as follows:

March 31

2002

2003

2004

2005

2006

Thereafter till 2010

The Group has entered into transactions with

various Citibank branches, Citicorp Information

Technology, Inc (‘CITI’), e-Serve International

Limited (‘e-Serve’) over which Citigroup and its

affiliates have significant ownership interest,

controlling interest or exercise significant

influence. The Group has also entered into

certain transactions with its investee companies

Times Online Money Limited and DotEx

International Limited.

14. Related party transactions

67,906

61,223

48,546

44,513

39,869

109,732


13. Leases

The Group leases vehicles under capital leases of

up to five years. Future minimum lease payments

under capital leases as of March 31, 2001 are as

follows:

March 31

2002

2003

2004

2005

2006

Thereafter

Total minimum payments

Less: Amount representing

future interest

Less: Current portion

The Group has taken certain office premises and

residential premises for employees under non-

cancellable leases, which expire at various dates

through to 2010. Gross rental expense for the

years ended March 31, 2001 and March 31, 2000

was Rs 65,039 and Rs 42,771 respectively.

Present value of minimum payments

Long term lease obligation

5,914

5,146

2,974

1,737

211

–

15,982

(3,392)

(4,216)

)

)

)

)

)

)

)

)

)

12,590

8,374


14.3 Lease payments

14.4 Amounts due from related parties

14.5 Amounts due to related parties

The Group has leased vehicles and computer

equipment under capital leases from e-Serve.

The lease rentals (principal and interest) paid to

e-Serve on this account during the years ended

March 31, 2001 and 2000 aggregated Rs 5,775

and Rs 5,241, respectively.

Amounts receivable from related parties at

March 31, 2001 and 2000 on account of sales of

banking products and consulting services referred

to above are as follows:

Citibank branches

CITI

DotEx International

Limited

Times Online

Money Limited

e-Serve

The amount due to e-Serve towards lease

obligations repayable (principal and interest) at

March 31, 2001 and 2000 aggregate to Rs 15,981

and Rs 14,379 respectively.

The related party transactions can be categorized

as follows:

The Group supplied banking products and

earned revenues from the following related

parties during the years ended March 31, 2001

and 2000:

Citibank branches

CITI

e-Serve

The Group has provided IT solutions and

consulting services and earned revenues from the

following related parties during the years ended

March 31, 2001 and 2000:

Citibank branches

CITI

Times Online

Money Limited

DotEx International

Limited

e-Serve

14.1 Banking product revenues

14.2 IT solutions and consulting services revenues

2001

5,777

325

3

6,105

2001

9,507

14,850

214

192

1

24,764

2000

9,134

–

183

9,317

2000

528,551

284,213

–

–

–

812,764

2001

269,362

15,152

155

284,669

2001

443,316

692,434

10,000

8,960

42

1,154,752





2001

6,314

5,634

116

53

1

12,118

2000

171,114

104,372

–

–

–

275,486

2001

294,427

262,694

5,392

2,500

42

565,055




15. Segmental information

The Group has adopted SFAS No. 131,

“Disclosures about Segments of an Enterprises

and Related Information” which requires

reporting of information about operating

segments in annual financial statements. It has

also established standards for related disclosures

about products and services and geographic areas.

Operating segments are defined as components of

an enterprise about which separate financial

information is available. This information is

reviewed and evaluated regularly by the

management, in deciding how to allocate

resources and in assessing the performance.

The Group is organized geographically and by

business segment. For the management purposes,

the Group is primarily organized on a worldwide

basis into two business segments:

Product licenses and related activities, and

IT solutions and consulting services

The segments are the basis on which the Group

reports its primary segment information to the

management. The Product license segment has

banking products like the FLEXCUBE suite of

products and MicroBanker, which cater to needs

of corporate, retail and investment banking as

well as treasury operations and data warehousing

requirements. The related activities include

enhancements,

�

�

implementation and

maintenance activities.

IT solutions and consulting services comprise of

bespoke software development, provision of

computer software solutions and related

consulting services arising from such activities.

This segment is further sub-divided in the

following sub segments i.e. Business Intelligence,

Customer Relationship Management, Brokerage,

e-Commerce, Internet Services and IT and

Business Consulting.

The accounting policies of the business segments

are the same as those described in the summary

of significant accounting policies.

Particulars

Total revenue

Segmental operating expenses

Interest income and other income

Income tax

Share of associate company loss

Other information

Segment assets

Depreciation

Capital expenditure by segment


Net profit for the Group

Particulars

Total revenue



Income tax


Other information

Segment assets

Depreciation




Product licenses

and related

activities

1,694,331

756,914

767,341

40,140

32,239

937,417

Product licenses

and related

activities

36,336

16,232

16,456

861

691

20,104

Unallocated

and

others

–

519,214

1,880,263

12,499

14,385

)

)

)

)

)

)

)

)

(519,214)

Unallocated

and

others

–

11,135

40,323

268

308

)

)

)

)

)

)

)

)

(11,135)

IT solutions

and consulting

services

1,412,885

833,751

829,439

74,751

57,540

579,134

IT solutions

and consulting

services

30,300

17,880

17,788

1,603

1,234

12,420

Total

3,107,216

2,109,879

113,995

10,949

(14,840)

3,477,043

127,390

104,164

)

)

)

)

)

)

)

)

)

)

)

997,337

1,085,543

Total

66,636

45,248

2,445

235

(318)

74,567

2,732

2,233

)

)

)

)

)

)

)

)

)

)

21,388

23,280




Thousands of US Dollars



Revenue is generated through licensing of

software products as well as by providing software

solutions to the customers including consultancy.

The revenues and expenses, which are not

attributable to a business segment, are shown as

corporate unallocated expenses and income. All

other segment revenue and expense are directly

attributable to the segments.

Segment assets include all operating assets used

by a segment and consist principally of debtors,

deposits for premises and fixed assets, net of

allowances and provisions, which are reported as

direct offsets in the balance sheet. While most

such assets can be directly attributed to

individual segments, the carrying amount of

certain assets used jointly by two or more

segments is allocated to the segments on a

reasonable basis. Assets that cannot be allocated

between the segments are shown as part of

corporate assets. The group does not track

segment liabilities by business segment.

Particulars

Total revenue



Income tax


Other information

Segment assets

Depreciation




Product licenses

and related

activities

1,064,710

488,817

371,863

39,255

47,690

575,893

Unallocated

and

others

–

246,007

1,166,755

10,379

28,119

)

)

)

)

)

)

)

)

(246,007)

IT solutions

and consulting

services

1,000,755

571,727

598,780

54,875

108,534

429,028

Total

2,065,465

1,306,551

52,123

17,847

–

2,137,398

104,509

184,343

758,914

793,190

Thousands of Indian rupeesYear ended March 31, 2000

Geographical segments:

The following table shows the distribution of the

group’s consolidated sales by geographical

market:

Regions

USA

Middle East and Africa

Asia Pacific

Europe

Latin America and Caribbean

2001

22,919

15,652

14,238

12,972

855

66,636

35

23

22

19

1

%

100

22

33

13

27

5

%

100

2001

1,068,719

729,855

663,897

604,866

39,879

3,107,216

2000

451,385

686,933

258,158

566,915

102,074

2,065,465

Thousands of US Dollars Thousands of Indian rupeesThousands of Indian rupees


16. Commitments and contingencies

16.1 Capital expenditure

16.2 Guarantees

The Group had committed to spend

approximately Rs 17,052 and Rs 19,568 as at

March 31, 2001 and 2000, respectively, under

agreements to purchase property and equipment.

The Group accounts for loss contingencies when

the likelihood of the underlying adverse event

occurring is probable and the loss can be

reasonably estimated.

Guarantees provided by banks on behalf of the

Group amounted to Rs 26,883 and Rs 18,333 as

at March 31, 2001 and 2000, respectively. The

guarantees were provided to a few customers and

prospects, landlords of residential premises taken

on lease by the Group and various Indian

government agencies. In the event of default,

the fair value of the guarantee will approximate

the outstanding payments due under accrued

rates and taxes and accrued expenses. The

Group has concluded that the risk of the

guarantee being called is remote and accordingly

no provision has been made.

16.3 Other commitments

i-flex’s operations are carried out from five units

registered under the Software Technology Parks

(‘STPs’) scheme and one unit forming part of an

Export Processing Zone (‘EPZ’). Under the STP

scheme, registered units have export obligations

to the extent of the aggregate of 1.5 times of the

annual employee salary cost and 1.5 times the

amount of the foreign exchange released for

capital goods imported over a four year period.

The unit within the EPZ is under an export

obligation that the proportion of net foreign

exchange earnings to exports on an annual basis

is more than 60 per cent. However w. e .f.

November 1, 2000, EPZ has been converted into

Special Economic Zone (SEZ) under which the

company would be required to have positive net

foreign exchange.

The consequence of not meeting the above

commitments would be a retroactive levy of

import duty on items previously imported duty

free for these units. Additionally the respective

authorities have rights to levy penalties on any

defaults on a case by case basis.

17. Employee stock purchase scheme (‘ESPS’)

On March 29, 1998 the Company adopted the

Scheme to provide equity based incentives to key

employees of the Company (‘1998 Scheme’).

Subsequently on April 1, 1999 and on April 1,

2000 the Company adopted another Stock based

Schemes (‘1999 Scheme’ and ‘2000 Scheme’).

These schemes which have similar terms, are

administered through a Trust (‘the Trust’). The

Trust purchases shares of the Company using the

proceeds of loans obtained from the Company.

Such shares are offered by the Trust to employees

at an exercise price, which approximates the fair

value on the date of the grant. The employees

can purchase the shares in a phased manner over

a period of five years based on continued

employment, until which the Trust holds the

shares for the benefit of the employees. The

employees are entitled to receive dividends,

bonus, etc. that may be declared by the Company

from time-to-time for the entire portion of shares

held by the Trust on behalf of the employees. On

the acceptance of the offer, the selected

employee shall undertake to pay within ten years

from the date of acceptance of the offer, the cost

of the shares incurred by the Trustees including

repayment of the loan relatable thereto. In case

the employee resigns from employment, the

rights relating to shares, which are eligible for

exercise, may be purchased by payment of the

exercise price, whereas the balance shares shall

be forfeited in favor of the Trust. The Trustees

have the right of recourse against the employee

for any amounts that may remain unpaid on the

shares accepted by the employee.

The shares that an employee is eligible to

exercise during the initial five-year period merely

go to determine the amount and scheduling of

the loan to be repaid on exercise by the

employee. Accordingly, the scheme eliminates

any price risk that the Company could bear and

does not contain any option features.

The Company has elected to adopt Accounting

Principles Board Opinion No. 25, “Accounting

for Stock issued to Employees” (‘APB 25’), in

accounting for stock granted under its scheme.

As per APB 25, the Company did not recognize

compensation expense on the stock granted

because the terms are fixed and the exercise price

equals the fair value of the underlying stock on

the grant date. The shares issued to the Trust

have been considered as outstanding for basic

EPS purposes, to the extent these shares have

been allocated to employees pursuant to the

scheme and are eligible to be exercised by the

employee. For diluted EPS purposes, the shares,

which are not yet eligible for exercise, have also

been considered as outstanding to the extent

these shares are dilutive using the treasury stock

method. The loan granted to the Trust has been

presented as a separate component of equity and

repayments of the loan by way of exercise of the

shares by the employees has been applied toward

this loan in the equity statement. Dividends paid

in respect of allocated shares are charged to

retained earnings.


A summary of the activity in the Company’s

Stock plans is as follows:

As the shares granted to the employees vest upon

the employee accepting the offer, the fair value of

the shares granted to the employee computed in

accordance with SFAS 123 would not differ

significantly from the intrinsic value of the shares

as determined in accordance with APB 25.

Opening balance of unallocated shares

Shares acquired by the Trust during the year

Shares allocated to employees during the year

Shares forfeited during the year

Closing balance of unallocated shares

Closing balance of allocated shares

Shares exercised during the year

Shares eligible for exercise as at year end

Unexercised shares as at year end

2000)

)

)

)

)

)

)

502,800

346,000

(126,000)

18,500

741,300

1,099,900

(7,500)

(256,800)

835,600

2001)

)

)

)

)

)

)

)

741,300

–

(683,300)

67,500

125,000

1,715,700

(37,650)

(484,780)

1,193,270

18. Earnings per share

The following is a reconciliation of the weighted

average number of equity shares used in the

computation of basic and diluted earnings per

equity share:

Weighted average number of common shares

outstanding at year end

Weighted average number of unallocated shares

Weighted average number of shares that are not

eligible for exercise


used for basic EPS purposes

Dilutive component of shares that are not

eligible for exercise


used for diluted EPS purposes

2000)

)

)

)

)

16,407,533

(510,633)

(835,600)

15,061,300

717,557

15,778,857

2001)

)

)

)

)

16,638,200

(125,500)

(1,193,270)

15,319,430

625,779

15,945,209


Financials Financial statements for the

period ended March 31, 2001i-flex solutions bv

Directors’ ReportFinancial year 2000-2001

Dear Members,

Your Directors take great pleasure in bringing you

the first Annual Report of your Company with

accounts for the Financial Year 2000-2001.

(Thousands of NLG)

Total income

Cost of sales

Gross profit for the year

Other operating expenses

Depreciation

Loss carried to the balance sheet

During the financial year 2000-01, the principal

activities of the Company had been to market

and implement FLEXCUBE, the flagship product

of the i-flex group, and provide software and

related services to clients in Europe, as well as

work on business development efforts in the

region. 18 new customers were added in the

European region within a period of 10 months

from the set up of this Company in May, 2000.

To foster the Company’s business, your Company

has taken part in several European exhibitions to

promote its products and services.

The long-term goal of your Company is to be a

respected name in the European Banking and

Financial Services industry for its products and

services and to continue to garner a significant

portion of its business from the region.

Financial Results

Operations highlights

Accounts and audit

Acknowledgments

As per the laws of the Netherlands, an audit of

the financial statements of a company is required

only if any two of the following criteria have

been met for two consecutive years:

The company should have a minimum of 50

employees

Turnover should be more than NLG 7,500,000

Assets of the company should be more than

NLG 15,000,000

Although the Company’s sales exceeded the limit

as prescribed above, the other criteria are not met

and hence the Company’s accounts are not

required to be audited. However as part of

prudent internal control, we would be getting the

accounts of the Company audited periodically.

Your Directors take this opportunity to thank

your Company’s customers and bankers for their

continued support during the year. Your Directors

place on record their delight for the excellent

contribution made by all employees at all levels

by way of competence, hard work, co-operation

and support.

for and on behalf of the Board,

for i-flex solutions bv,

Rajesh Hukku

Director

�

�

�

Period Ended

31.03.2001

7,602

6,131

1,471

2,252

7

(788)

)

)

)

)

)

)

)

Amsterdam

April 10, 2001


Balance sheetas at March 31, 2001

Sources of funds


Shareholders’ funds

Fixed assets

Profit and loss account (debit balance)

Share capitalAuthorised925 equity shares of Euro 100/- each

Issued, subscribed and paid-up185 equity shares of Euro 100/- each, fully paid-up

Improvement to leasehold premisesComputersOffice furniture

Less: Accumulated depreciation

Sundry debtorsCash and bank balances – current accountPrepaid expenses

Accounts payableLoan from i-flex solutions ltd.Other current liabilities

Total fixed assets

Net book value

Net current assets


Less: Current liabilities and provisions

2001)

)

)

)

))))))

))))

))))

)

)

3,700

739

465641333

126

62,1122,7921,753

75,1533,0043,655

14,581

739

739

1,439

66,657

81,812

1,313

(15,155)

2001)

)

)

)

))))))

))))

))))

)

)

200

40

253518

7

3,356151

95

4,061162198

788

40

40

78

3,602

4,421

71

(819)

Previous year figures are not given as this is the first year of operations.

Thousands ofIndian rupees

Thousands of NLG

AmsterdamApril 10, 2001

David MaxwellDirector

Deepak GhaisasDirector

R RavisankarDirector

Rajesh HukkuDirector

Sales

Less: Cost of sales

Employee costsTraveling expensesRentCommunication expensesOther expensesInterestDepreciation

Gross Profit

Net Profit / (Loss) carried to balance sheet

2001)

)

))

))))))))

140,685

113,461

10,8193,5874,0852,025

20,969194126

27,224

41,805

(14,581)

2001)

)

))

))))))))

7,602

6,131

585194221109

1,13310

7

1,471

2,259

(788)

Thousands ofIndian rupees

Thousands of NLG

Statement of profit and lossfor the period ended March 31, 2001

Previous year figures are not given as this is the first year of operations.

AmsterdamApril 10, 2001

David MaxwellDirector

Deepak GhaisasDirector

R RavisankarDirector

Rajesh HukkuDirector


All company or product names are trademarks or registered trademarks of their respective owners.

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Tel: +1-973-394 9007

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