Press Release of Quarterly Results by listed companies

PRESS RELEASE :  Press Release of Results donot have any prescribed regulations to be followed. It can be free style. It typically includes figures as well as some journalistic description and is drafted keeping in view, the overall messaging strategy highlighting the things which the company wants the market to take note.

Typical earnings announcement Press Release by IT services company

 Snapshot of Accenture Performance - Q4 & FY07

Financial Highlights Q4 & FY07*:

• Accenture reported a strong quarter and fiscal year. All operating groups and geographies recording their highest ever revenue with double digit growth (in USD terms), both on a quarterly and annual basis.
• Annual revenue on the lower side of guided range as performance of outsourcing was weaker compared to consulting. For Q4 FY07, consulting grew at 22% Y/Y to $3.1 billion while outsourcing revenue was up 16.9% Y/Y; total new bookings were at a record $4.9 billion.
• Achieved double digit EPS growth of 22% for FY 07; annual EPS at $ 1.97 which exceeded the guided range of $ 1.94 to $ 1.96.

 * Figures for FY 2006 reflects adjustments relating to the financial impact of resolution of contracts with the National Health Service (NHS) in England and related adjustments & tax benefits

Operating Highlights Q4 & FY07:

• Utilization in Q4 FY07 at 84% and for FY07 at 85%.
• DSO reduced to 31 days in fiscal '07 from 37 days in fiscal '06.
• Q4 revenue growth driven by consulting in EMEA and outsourcing in America; going forward management sees continued strength in consulting; Accenture plans to double its management consultants as demand surges in Europe and Asia.
• Despite an overall weaker performance from outsourcing it was strong in EMEA geographies; management concentrating on smaller contracts of shorter duration but average rate per contract is steady and renewal rate higher.
• Financial services business was driven by EMEA led by banking; in America capital markets and insurance delivered solid growth.
• Management informed that there was no impact from sub-prime on business as of date.
• Management sees a healthy US & global economy and continued investment in businesses by competition and clients; expected business from discretionary spending of clients at a single digit figure.
• 60,000 new hires in FY07, total employees at 170,000, a 21% growth over FY06; Accenture employs 71,000 people outside the U.S., including 35,000 in India and 11,000 in the Philippines. Hiring is accelerating in countries such as Brazil. Attrition stable at 18% for full year and quarter.
• Spending more than $250 million to expand technology and advisory services over the next 3 years.

Corporate Restructuring : Amalgamations,demerger ,Spinoff, Capital reduction - Companies Act and Income tax act implications

The Framework under companies Act

Chapter XV of the 2013 Act deals with "Compromises, Arrangements and Amalgamations." In this chapter, the Act consolidates the applicable provisions and related issues of compromises, arrangements and amalgamations; however, other provisions are also attracted at different stages of the process. Amalgamation means an amalgamation pursuant to the provisions of the Act. In an amalgamation the undertaking comprising of property, assets and liabilities, of one (or more) company are absorbed by and transferred either to an existing company or a new company. Simply put, the transferor integrates with the transferee and the former loses its entity and dissolves without winding-up. The 2013 Act creates a new regulator, the National Law Company Tribunal ("Tribunal") who, upon its constitution, will assume jurisdiction (the High Courts will no longer have any jurisdiction) of the court for sanctioning mergers. Once the Tribunal is constituted, expected to be formed sometime this year, and related rules finalized, the provisions under the 2013 Act would be implemented.

Before detailing the key changes under the new law, a brief overview of the existing process will be useful. Under the 1956 Act, companies which have reached a consensus to merge must prepare a "scheme" of amalgamation/merger ("Scheme"). The lenders (financial institutions or banks) of the transferor and the transferee must approve¹ the Scheme in-principle, followed by the subsequent approval of the respective Board of Directors of the merging entities. If the merging entities are listed companies, then the listing agreements executed with the stock-exchanges require the company to communicate price-sensitive information to the stock exchange immediately, to seek an approval from the capital market regulator, Securities and Exchange Board of India ("SEBI") simultaneous with the public notification. This essentially happens after the approval of the Board to the Scheme. The next step is to apply² to the High Court having jurisdiction over the registered office of the company seeking an order to convene shareholders and creditors meeting. Without getting into further details of the process, the key point is that any objector amongst the stakeholders can object to the Scheme in the court proceedings.

The element of preparing the Scheme has been retained under the 2013 Act. Unlike the 1956 Act, the new regime (a)recognizes cross border mergers, (b) sets out separate procedure for merger of small companies and those of holding with wholly-owned, (c) prescribes thresholds for objections, and (d) describes mandatory filings to ensure legal compliance.

The Changes to the process

1. Regulatory/Third party approvals: As shareholders' and creditors' consents are essential, the 1956 Act, therefore, contemplates issue of a notice to them. The 2013 Act requires service of the notice of the merger along with documents (such as copy of the Scheme and valuation report) not only upon the shareholders and creditors but also on various regulators including the Ministry of Corporate Affairs (through Regional Director, Registrar of Companies and Official Liquidator),⁴ Reserve Bank of India ("RBI") (where non-resident investors are involved), SEBI (only for listed companies), Competition Commission of India (where the prescribed fiscal thresholds are crossed and the proposed merger could have an adverse effect on competition), Stock Exchanges (only for listed companies), Income Tax authorities and other sector regulators or authorities which are likely to be affected by the merger.⁵ This ensures compliance of the Scheme with other regulatory requirements imposed on the merging entities. In fact, under the 1956 Act the courts have made mergers subject to approval of the regulators. The 2013 Act prescribes a 30 day time frame for the regulators to make representations, failing which the right would cease to exist. This is a positive step because in the 1956 Act no such time frame was provided leading to considerable delays in the court proceedings.
2. Approval of the Scheme through postal ballot⁶: The 1956 Act required presence of the shareholders and creditors in the physical meetings, either in person or by proxy, to cast vote for/against the Scheme. In the 2013 Act, the shareholders and creditors also have the option to cast vote through postal ballot while considering a Scheme. The 1956 Act did not allow this and the shareholders and creditors could only cast votes physically. This right will ensure wider participation of the shareholders and creditors, particularly for those who are scattered all over the country and who find it difficult to be either physically present or provide a proxy. Postal ballot, therefore, will offer them a greater flexibility to cast their votes.
3. Valuation Report: Though the 1956 Act is silent on disclosing the valuation report to the stakeholders, as a matter of transparency and good corporate governance, the listed companies used to make available the valuation report for inspection and also during the course of the meetings. Courts also required annexing of the valuation report to the application submitted before them. The 2013 Act now mandates annexing of the valuation report to the notices for the meetings to enable ready access to the shareholders and creditors⁷.
4. Objections⁸: A bane under the 1956 Act was that it permitted the individual shareholders and creditors to raise frivolous objections to arm-twist and unnecessarily harass the companies following the meetings. Such right to object to the Scheme would no longer be available to any and every person. Objections can be raised by shareholders holding 10% or more equity and creditors whose debt represent 5% or more of the total debt as per the last audited financial statements. By raising the bar, the new law aims to ensure that the frivolous objections/litigation can be avoided.
5. Accounting Standards⁹: As a matter of practice, frequently the Scheme provided for accounting treatment that would deviate from the prescribed accounting standards necessitating a note to this effect in the balance sheet of the company. This was frowned upon by the tax authorities. Consequently, in case of listed companies, the listing agreement was amended to provide that an auditor's certificate stating that the accounting treatment is in accordance with the accounting standards was required to be filed for seeking approval of the stock exchanges. The 2013 Act makes such prior certification from an auditor mandatory for both listed and unlisted companies.
6. Merger of a listed company into an unlisted one:¹⁰The 2013 Act specifically provides for the Tribunal's order to state that the merger of a listed company into an unlisted company will not ipso facto make the unlisted company listed. It will continue to be unlisted until the applicable listing regulations and SEBI guidelines in relation to allotment of shares to public shareholders are complied with. Further, in case the shareholders of the listed company decide to exit, the unlisted company would facilitate the exit with a pre-determined price formula which shall be within the price specified by SEBI regulations. The Indian securities law prescribes strict enforcement of listing requirements by companies intending to get listed. SEBI had, however, eased these requirements for listed companies proposing merger by granting them exemptions from complying with the initial public offering requirements¹¹ on a case-to-case basis. Recently SEBI had issued guidelines¹² stating that if the Scheme provides for listing of shares of an unlisted company without complying with the initial public offering requirements, then, upon court approval of the Scheme, the unlisted company has to file a specific application seeking such exemption from SEBI. Such an application has to be filed upon, inter-alia, allotment of equity shares to the holders of securities of the listed company.¹³ The changes under the 2013 Act are in line with SEBI requirements. The 1956 Act was silent on this aspect.

Fast Track Mergers for special cases

Apart from the aforesaid changes, the 2013 Act provides for separate provisions for cross border mergers, merger of two small companies and that of holding with wholly-owned subsidiaries. These are described briefly below.

1. Cross-border mergers: The 1956 Act permits cross-border mergers only where the transferor is a foreign company. In contrast, the 2013 Act permits in-principle mergers between an Indian and a foreign company located in a jurisdiction notified by the central government in periodic consultation with RBI. Such a merger would be subject to RBI approval and Scheme may provide payment in cash or depository receipts or both. The payment in cash or depository receipts would facilitate exit to the shareholders of the merging entity who do not want to be a part of the merged entity. These changes reflect the legislature's intent to facilitate cross-border business. The Income Tax Act presently grants tax exemptions on mergers if the transferee is an Indian company and does not recognize a situation where the transferee will be a foreign company, as contemplated under the 2013 Act. The introduction of cross-border mergers under the 2013 Act may, therefore, require corresponding changes in other laws, including foreign exchange and tax.
2. Merger of "small companies" and holding with wholly-owned subsidiaries: Unlike the 1956 Act under which merger of all companies, irrespective of nature and size requires court approval, the 2013 Act carves out a separate procedure for small companies and the holding and wholly-owned subsidiaries. Section 233 of the 2013 Act prescribes a simplified fast track procedure for their merger which requires consent of shareholders holding 90% in value and creditors representing 9/10th of debt in value as well as approval of the Scheme by the Regional Director, Ministry of Corporate Affairs in case no objections are received from the Official Liquidator and Registrar of Companies. Approval of the Tribunal is not required for such mergers. This could be good news for the merging entities who may not be required to (i) file documents required to be filed under the listing agreement, in the case of listed companies, (ii) give notice to various authorities, (iii) provide auditor's certificate of compliance with applicable accounting standards. However, if the Regional Director is of the opinion that the Scheme is not in the interest of the stakeholders, he may approach the Tribunal who could follow the merger procedure prescribed under the 2013 Act. This ability to transfer to the Tribunal has the potential to change fast-track to a normal merger and make such mergers less appealing.

SPIN OFF

Taxability of gains arising on slump sale 

Section 50B provides the mechanism for computation of capital gains arising on slump sale. On a plain reading of the Section, some basic points which arise are :

1. S. 50B reads as ‘Special provision for computation of capital gains in case of slump sale’. Since slump sale is governed by a ‘special provision’, this Section overrides all other provisions of the Act.

2. Capital gains arising on transfer of an undertaking are deemed to be long-term capital gains. However, if the undertaking is ‘owned and held’ for not more than 36 months immediately before the date of transfer, gains shall be treated as short-term capital gains. 

3. Taxability arises in the year of transfer of the undertaking. The undertaking will be deemed to be transferred on execution of the agreement and registration thereof coupled with the handing over of possession of the undertaking to the transferee. However, if the year of the agreement of the undertaking and registration thereof and the year of its possession fall in two different previous years, then the previous year in which the possession of the undertaking is handed over to the transferee will be considered as the year of transfer.

4. Capital gains arising on slump sale are calculated as the difference between sale consideration and the net worth of the undertaking. Net worth is deemed to be the cost of acquisition and cost of improvement for S. 48 and S. 49 of the Act.

5. As per S. 50B, no indexation benefit is available on cost of acquisition, i.e., net worth.