This page is intentionally left blank general review &accountabilitysubex annual report 08-09 17 Your Directors have pleasure in presenting the 15th Annual Reportof the Company on the business and operations together withthe audited results for the year ended March 31, 2009.FINANCIAL RESULTSAmount in Rs. millionConsolidatedStandalone2008-092007-082008-092007-08Total revenue5,584.894,855.913,011.051,438.69Profit/(Loss) beforeInterest, Depreciation,Tax & Amortization971.30(730.20) 766.03(251.60)Interest, Depreciation& Amortization 663.64488.84 489.03400.52Profit/(Loss) beforeExceptional items & tax 307.66(1,219.04) 276.99(652.12)Exceptional Items(2,026.83)602.00(2,026.83)602.00Profit/(Loss) before tax(1,719.17)(617.04)(1,749.84)(50.12)Provision for taxes 164.4663.66 32.2711.76Profit/(Loss) after tax(1,883.63)(680.71)(1,782.11)(61.88)APPROPRIATIONSInterim DividendPreference Dividend----Dividend proposed onequity shares----Provision for tax onDividends----Transfer to GeneralReserve----Surplus/(Deficit) carriedto Balance Sheet(1,883.63)(680.71)(1,782.11)(61.88)RESULTS OF OPERATIONSDuring the financial year ended March 31, 2009, the totalrevenue on a consolidated basis grew by 15% to reachRs.5,584.89 million. The Company has incurred a loss ofRs.1,883.63 million for the financial year 2008-09 as againstthe loss of Rs.680.71 million in the previous year.On a stand-alone basis, the total revenue stood at Rs.3,011.05million. The net loss for the financial year 2008-09 wasRs.1,782.11 million.BUSINESSYour Company is a provider of solutions in the OperationsSupport Systems area for telecom applications. This area canbe broadly classified into Service Fulfillment, Service Assuranceand Revenue Maximization or Business Optimization. TheCompany operates in Business Optimization and ServiceFulfillment areas. While Business Optimization solutionsimprove the revenues and profits of the communications serviceproviders through identification and elimination of leakagesin their revenue chain, Service Fulfillment solutions enablethe carriers to fulfill the needs of their subscribers throughprovisioning and activation of services. Subex conceptualizesand develops software products at its facilities in Bangaloreand is focused on the telecom business segment. Subex hassales and support offices in the United States, Canada, UK,UAE, India, Singapore and Australia. Subex is the global leaderin Business Optimization for communications service providers.Given the global economic scenario, carriers are facing a varietyof challenges. The key among them are (a) the competitiverequirement to provide high quality services, faster andcheaper and (b) the operational requirement to have a wellintegrated Operations Support System (OSS) to meet thecompetitive requirement. Subex provides software solutionsto meet these critical requirements. Carriers have beenbuilding the support structure by acquiring disparate pieces ofsoftware and that has resulted in stove pipes getting built overtime. Our well integrated platform called Revenue OperationsCenter (ROC) addresses this issue of a solid structure withintheir networks. The solutions that form part of the ROC enablethe customers to achieve Operational Dexterity which is acombination of Operational Efficiency and Service Agility. Whilethe former ensures that cost of operation is maintained at alow enough level, the latter ensures that adequate servicelevels are achieved.CHANGES IN SHARE CAPITALDuring the year, your Company has not made any allotmentsof equity shares. The Company has also not received anyrequests for exercise of Employee Stock Options.CANCELLATION OF WARRANTSThe Board of Directors had vide its resolution passed on April30, 2007 decided to issue and allot upto 2,230,000 warrants toPromoters/Promoter Group, which was subsequently approvedby the members in the Extra-ordinary General Meeting heldon June 4, 2007. Pursuant to this resolution, the Company hadissued 2,230,000 warrants on June 18, 2007 at a purchaseprice of Rs. 630.31/- per share. Since the warrants were notexercised within the period of 18 months from the date ofissue, the same were forfeited in accordance with the provisionsof chapter XIII of Securities and Exchange Board of India(Disclosure and Investor Protection) Guidelines, 2000, and theamount of Rs. 140,559,130/-, being 10% of the totalconsideration for the warrants received upfront from thewarrant holders, was transferred to Capital Reserve.SUBSIDIARIESSUBEX TECHNOLOGIES LIMITEDFor the year ended March 31, 2009, Subex Technologies Limitedearned an income of Rs.1,200.08 million, on a consolidatedbasis, as against Rs.713.41 million last year and a net profit ofRs.68.54 million as against Rs.34.65 million last year.Pursuant to the demerger in 2007-08, Subex Technologies Incbecame a direct subsidiary of Subex Technologies Limited.DIRECTORS’ REPORT TO THE MEMBERS OF SUBEX LIMITED18 subex annual report 08-09 SUBEX (UK) LIMITEDFor the year ended March 31, 2009, the consolidated incomeof Subex (UK) Limited was Rs. 3,113.66 million and the netprofit was Rs. 223.27 million.Subex (Asia Pacific) Pte Limited and Subex Inc are directsubsidiaries of Subex (UK) Limited.SUBEX AMERICAS INCFor the year ended March 31, 2009, the consolidated incomeof Subex Americas Inc was Rs.1,481.16 million and net losswas Rs.401.19 million.During the year, the Company had taken steps to close downfew of its dormant subsidiaries. Syndesis IP Holdings LimitedPartnership, a subsidiary of 2101874 Ontario Inc, was dissolvedw.e.f. March 3, 2009. 2101874 Ontario Inc, a subsidiary of SubexAmericas Inc, was dissolved w.e.f. May 12, 2009.Presently, Subex Americas Inc has 6 subsidiaries. Subex AzureHoldings Inc, Subex Azure (GB) Limited, and SyndesisDevelopment India Private Limited are direct subsidiaries ofSubex Americas Inc. Subex Azure (US) Inc and Subex Azure(Delaware) Inc are subsidiaries of Subex Azure Holdings Inc.Subex Azure (Ireland) Limited is the subsidiary of Subex Azure(GB) Limited.COMPLIANCE UNDER SECTION 212Ministry of Corporate Affairs, Government of India, vide orderNo. 47/241/2009-CL-III dated April 24, 2009, has grantedapproval under section 212(8) of the Companies Act, 1956stating that the requirement to attach various documents inrespect of subsidiary companies, as set out in sub-section (1)of Section 212 of the Companies Act, 1956, shall not apply tothe Company for the financial year ended March 31, 2009.Accordingly, the Balance Sheet, Profit and Loss Account andother documents of the subsidiary companies are not beingattached with the Balance Sheet of the Company. Financialinformation of the subsidiary companies, as required by thesaid order, is disclosed under Annexure I to this report. TheCompany will make available the Annual Accounts of thesubsidiary companies and the related information to anyinvestor of the Company who may be interested in obtainingthe same. The annual accounts of the subsidiary companieswill also be kept open for inspection by any investor at theRegistered Office of the Company. The Consolidated FinancialStatements presented by the Company include financial resultsof its subsidiary companies.EMPLOYEE STOCK OPTIONS SCHEMESYour Company has introduced various Stock Option plans forits employees. Details of these, including grants to Directorsand senior management issued during the year are given below.EMPLOYEE STOCK OPTION PLAN-1999 (ESOP – I)This scheme was instituted during 1999 and managed by SubexFoundation with a corpus of 120,000 equity shares initially.Since the scheme was formulated prior to the promulgation ofSecurities and Exchange Board of India (Employee Stock OptionScheme and Employee Stock Purchase Scheme) Guidelines,1999, the Company has discontinued the scheme.EMPLOYEE STOCK OPTION PLAN-2000 (ESOP- II)During 1999-2000, the Company established the EmployeeStock Option Plan 2000, under which options have beenallocated for grant to the employees of the Company and itssubsidiaries. The Company has obtained in-principle approvalfor listing upto a maximum of 883,750 shares to be allottedpursuant to exercise of options granted under the scheme.This scheme has been formulated in accordance with theSecurities and Exchange Board of India (Employee Stock OptionScheme and Employee Stock Purchase Scheme) Guidelines,1999.As per the scheme, a Compensation Committee has beenformed, which grants options to the eligible employees. Theoptions are granted at a price, which is not less than 85% ofthe average of the closing price of the shares during the 15trading days preceding the date of grant on the stock exchangewhere there is highest trading volume during this period. Theoptions granted vests over a period of 1 to 4 years and can beexercised over a period of 3 years from the date of vesting.During the year, the Company amended the ESOP-II schemeby inclusion of provisions allowing employees to voluntarilysurrender their vested/unvested options at any time duringtheir employment with the Company. Pursuant to this, 156,211options were surrendered by 122 employees during the saidperiod.EMPLOYEE STOCK OPTION PLAN - 2005 (ESOP-III)Under this scheme, a corpus of 500,000 options was createdfor grant to the eligible employees, with each optionconvertible into one fully paid-up equity share of Rs.10/-. Thisscheme has been formulated in accordance with the Securitiesand Exchange Board of India (Employee Stock Option Schemeand Employee Stock Purchase Scheme) Guidelines, 1999. Thecorpus of the scheme was further enhanced by 1,500,000options during the financial year 2007-08.As per the scheme, the Compensation Committee grantsoptions to the eligible employees. The options are granted ata price, which is not less than 85% of the average of the closingprice of the shares during the 15 trading days preceding thedate of grant on the stock exchange where there is highesttrading volume during this period. The options granted vestsover a period of 1 to 4 years and can be exercised over aperiod of 3 years from the date of vesting.During the year, the Company amended the ESOP-III schemeby inclusion of provisions allowing employees to voluntarilysurrender their vested/unvested options at any time duringtheir employment with the Company. Pursuant to this,1,069,407 options were surrendered by 538 employees duringthe said period.subex annual report 08-09 19 EMPLOYEE STOCK OPTION PLAN -2008 (ESOP-IV)Your Company has instituted a new Employee Stock OptionPlan – Employee Stock Option Plan-2008, vide approval ofshareholders through the postal ballot mechanism. A corpusof 2,000,000 options has been created for grant to the eligibleemployees under the scheme. The Scheme has been formulatedin accordance with the Securities and Exchange Board of India(Employee Stock Option Scheme and Employee Stock PurchaseScheme) Guidelines, 1999. The Company has obtained therequisite in-principle approvals from the stock exchanges forthe purpose of listing of shares arising out of exercise of optionsgranted under the scheme. Hitherto, no options have beengranted under this scheme.Additional information as at March 31, 2009 required as perSecurities and Exchange Board of India (Employee Stock OptionScheme and Stock Purchase Scheme) Guidelines, 1999 is givenas Annexure II to this report.CORPORATE GOVERNANCEYour Company strongly believes that the spirit of CorporateGovernance goes beyond the statutory form. Sound CorporateGovernance is a key driver of sustainable corporate growthand long-term value creation for the stakeholders andprotection of their interests. Your Company endeavors to meetthe growing aspirations of all stakeholders includingshareholders, employees and customers. Your Company iscommitted to maintain the highest level of transparency,accountability and equity in its operations. Your Company alwaysstrives to follow the path of good Governance through a broadframework of various processes.Your Company has complied with all the requirements as perClause 49 of the listing agreement of the Stock Exchanges, asamended from time to time. The Auditor’s certificate oncompliance with Clause 49 is included elswhere in the AnnualReport. In addition, your Company has documented its internalpolicies in line with the Corporate Governance guidelines. TheManagement Discussion & Analysis of the financial position ofthe Company is provided as a part of this report.AUDIT COMMITTEEThe Audit Committee presently has 5 Directors as membersviz. Mr. V. Balaji Bhat, Mr. K. Bala Chandran, Mr. Vinod R Sethi,Mr. Subash Menon, and Mr. Andrew Garman. Except for Mr.Subash Menon, all other members of the Audit Committee areIndependent Directors. Mr. V Balaji Bhat is the Chairman ofthe Audit Committee. The role, terms of reference, theauthority and power of the Audit Committee are in conformitywith the requirements of section 292A of the Companies Act,1956 and Clause 49 of the Listing Agreement. Further detailsof the Audit Committee have been provided in the report onCorporate Governance forming part of this annual report.AUDITORSM/s. Deloitte Haskins & Sells, the Statutory Auditors of theCompany retire at the ensuing Annual General Meeting andhave confirmed their eligibility as per Section 224(1B) of theCompanies Act, 1956 and their willingness to accept office, ifre-appointed.There were no qualifications observed in the Auditor’s reportfor the Financial Year 2008-09.DIRECTORSAs per Article 87 of the Articles of Association of the Company,atleast two-third of the Directors shall be subject to retirementby rotation. One-third of such Directors must retire from officeat each Annual General Meeting of the shareholders. A retiringdirector is eligible for re-election. Mr. Sudeesh Yezhuvath andMr. V Balaji Bhat retire by rotation and being eligible offerthemselves for re-appointment at the ensuing Annual GeneralMeeting.Mr. P P Prabhu resigned form the Board of Directors of yourCompany on May 26, 2009 due to health reasons. The Boardplaces on record his immense contributions to the Company.FIXED DEPOSITSYour Company has not accepted any deposits from the public.PARTICULARS OF EMPLOYEESThe particulars of employees required under Section 217(2A)of the Companies Act, 1956 and the rules made thereunder,are given at Annexure III appended hereto and forming part ofthis report. In terms of Section 219(1)(b)(iv) of the Act, theReport and Accounts are being sent to the shareholdersexcluding the aforesaid annexure. Any shareholder interestedin obtaining a copy of the said annexure may write to theCompany Secretary at the Registered Office of the Company.INFORMATION UNDER SECTION 217 (1)(e) OF THE COMPANIESACT, 1956 READ WITH COMPANIES (DISCLOSURE OFPARTICULARS IN THE REPORT OF BOARD OF DIRECTORS)RULES, 1988ACONSERVATION OF ENERGYThe operations of your Company are not energy-intensive.However, significant measures are taken to reduce energyconsumption by using energy-efficient computers and by thepurchase of energy-efficient equipment. Your Companyconstantly evaluates new technologies and invests to make itsinfrastructure more energy-efficient. Currently your Companyuses CFL fittings and electronic ballasts to reduce the powerconsumption of fluorescent tubes. Air conditioners with energyefficient screw compressors for central air conditioning andair conditioners with split air conditioning for localized areasare used.BTECHNOLOGY ABSORPTION, ADOPTION AND INNOVATIONYour Company has a strong R&D Division responsible fordeveloping technologies for its products in the telecom domain.The Company holds many patents for its technologicalinnovations. The telecommunications domain, in which yourCompany operates, is subject to high level of obsolescenceand rapid technological changes. Your Company has developedinherent skills to keep pace with these changes. Since softwareproducts are the significant line of business of your Company,the Company incurs expenses on product related Research &Development on a continuous basis. These expenses arecharged to revenue under the respective heads and are notsegregated and accounted separately.CFOREIGN EXCHANGE EARNINGS AND OUTGOYour Company has over the years shifted its focus fromsoftware services to software products. This has resulted in20 subex annual report 08-09 substantial foreign exchange earnings as compared to previousyears. During the year 2008-09 total foreign exchange inflowand outflow was as follows:i)Foreign Exchange earningsRs. 2,975.37 Million(previous year:Rs.1,436.95 Million)ii)Foreign Exchange outgoTravelling expensesRs. 37.60 Million (previousyear: Rs. 50.00 Million) Interest expenseRs. 173.15 Million (previousyear: Rs. 147.89 Million)Consideration for acquired assets:Nil (previous year: Rs. 0.67Million)Product marketing expense andother expenditure incurredoverseas for softwareRs. 85.21 Million (previousdevelopmentyear: Rs. 194.84 Million)SOCIAL RESPONSIBILITIES - SUBEX CHARITABLE TRUSTThe trust was set up to provide for welfare activities for underprivileged and the needy in the society. The trust is managedby Trustees elected amongst the employees of the Company.During the year the Trust has provided active support foreducation of economically challenged meritorious students,financial assistance to old age homes and to individuals whoneeded medical help.HUMAN RESOURCE MANAGEMENTAt Subex, the endeavor has always been to create a globalorganization. The objective is not to build yet another softwarecompany but to create a respectable and admired telecomsoftware product company. Naturally this mission calls for adifferent outlook to the most important asset- our humanresources.The year ended March 31, 2009 was no doubt, a challengingyear for your Company as well. However, your Company hassuccessfully streamlined its HR processes by adopting bestknown HR practices across the group.Your Company adopted a new competency framework to assessthe performance of its employees. This model is aimed toalign the competency model with Company’s vision, values andtraits. The HR processes have also been fully automated.DIRECTORS’ RESPONSIBILITY STATEMENTIn accordance with the provision of Section 217(2AA) of theCompanies Act 1956, the Board of Directors affirms:a)That in the preparation of the accounts for the year endedMarch 31, 2009, the applicable accounting standards have beenfollowed and there are no material departures therefrom.b)That the accounting policies have been selected and appliedconsistently and it has made judgments and estimates thatare reasonable and prudent so as to give a true and fair viewof the state of affairs of the Company as at March 31, 2009 andof the profit of the Company for the year ended on that date.c)That proper and sufficient care has been taken for themaintenance of adequate accounting records in accordancewith the provision of the Companies Act, 1956 for safeguardingthe assets of the Company and for preventing and detectingfraud and other irregularities.d)That the accounts for the year ended March 31, 2009 havebeen prepared on a going concern basis.APPRECIATION/ACKNOWLEDGEMENTSWe thank our clients, vendors, investors and bankers for theircontinued support during the year. We place on record ourappreciation for the co-operation and assistance provided bythe Central and State Government authorities particularlySoftware Technology Park- Bangalore, SEZ authorities,customs and central excise authorities, Registrar ofCompanies, Karnataka, the Income Tax department, ReserveBank of India and various authorities under the Government ofKarnataka.Your directors also wish to place on record their deepappreciation to Subexians at all levels for their hard work,solidarity, co-operation and support, as they are instrumentalin your Company scaling new heights, year after year.For and on behalf of the BoardSubash MenonPlace : BangaloreFounder Chairman,Date : May 26, 2009Managing Director & CEOsubex annual report 08-09 21 ANNEXURE - IStatement pursuant to exemption received under Section 212(8) of the Companies Act, 1956, relating to subsidiary companies for FY 2008-09Amount in Rs.Name of the SubsidiarySubexSubexSubexSubexSubexSubexSubexSubexSubexSubexSubexSyndesis2101874TechnologiesTechnologies(UK)Inc*(Asia Pacific)AmericasAzure HoldingsAzureAzure (US)AzureAzureDevelopmentOntarioLimitedInc***LimitedPte. Ltd*IncInc.**(GB)Inc**(Ireland)(Delaware)India Pvt Ltd**Inc #**Limited**Ltd**Inc.**Financial period endedMarch 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,2009200920092009200920092009200920092009200920092009Date of becoming a subsidiary28.03.200512.01.200023.06.200623.06.200623.06.200601.04.200701.04.200701.04.200701.04.200701.04.200701.04.200701.04.200701.04.2007Holding company’s interest3999,9943000 of5,039,565,245 1,000 of2 of100 atShares held by the holding companyof Rs.10/-USD0.67of GBP0.USDSGDno par value-------in the subsidiaryeacheach000010.011 eacheacheachThe net aggregate of profits or (losses) of thesubsidiary for the current period so far as itconcerns the members of the holding companya.dealt with or provided for in the accountsof the holding company-------------b.not dealt with or provided for in theaccounts of the holding company19,080,15649,458,108191,202,70516,248,95315,813,852(269,645,551)(130,334,592)-(118,918,604)-(11,415,988)(1,208,314)-The net aggregate of profits or (losses) for previous financial years of the subsidiary so far as it concerns the members of the holding companya.dealt with or provided for in the accountsof the holding company-------------b.not dealt with or provided for in theaccounts of the holding company27,551,7037,099,68986,377,776(314,452,527)(86,682,654)(334,922,660)(8,411,640)4,593,32517,580,3652,319,098(25,992,005) (2,301,934) -Issued & Subscribed share capital40,000,000209,053,6884,059,53939258 3,533,849,725406040,09648,230293,471,52540-Reserves15,014,55819,496,172426,818,538(365,235,363)(157,459,878)(4,083,159,081)(80,316,067)(649,312)(26,750,149)(411,892)(53,565,918)(9,629,873)Loans-- 71,893,178--428,989,8725,072,000---5,072,000--Total assets143,538,629408,853,457 793,838,12689,444,74042,742,559836,415,784331,994,59248,2308,655,727-323,338,8252,823,031-Total liabilities143,538,629 408,853,457793,838,126 89,444,74042,742,559836,415,784331,994,59248,2308,655,727- 323,338,8252,823,031-InvestmentsLong Term246,402,895-495--293,511,737-48,230-----CurrentTotal246,402,895-495- -293,511,737-48,230-----22 subex annual report 08-09 ANNEXURE - I (Contd...)Statement pursuant to exemption received under Section 212(8) of the Companies Act, 1956, relating to subsidiary companies for FY 2008-09Amount in Rs.Name of the SubsidiarySubexSubexSubexSubexSubexSubexSubexSubexSubexSubexSubexSyndesis2101874TechnologiesTechnologies(UK)Inc*(Asia Pacific)AmericasAzure HoldingsAzureAzure (US)AzureAzureDevelopmentOntarioLimitedInc***LimitedPte.Ltd*IncInc.**(GB)Inc**(Ireland)(Delaware)India Pvt Ltd**Inc#**Limited**Ltd**Inc.**Financial period endedMarch 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,March 31,2009200920092009200920092009200920092009200920092009Turnover13,315,7251,186,768,3211,045,398,866393,089,215167,543,7521,459,975,271-------Profit/(Loss) before taxation 38,040,74583,558,584 270,332,70516,248,95315,813,852(269,645,551) (130,334,592)-(118,918,604)-(11,415,988)(1,208,314)-Provision for taxation18,960,58834,100,47679,130,000------ - ---Profit / (Loss) after taxation19,080,15649,458,108191,202,70516,248,95315,813,852(269,645,551)(130,334,592)-(118,918,604)-(11,415,988)(1,208,314) -Proposed dividend----- --------Conversion Rates from Reporting Currency to INRReporting CurrencyINRUSDGBPUSDSGDUSDUSDUSDUSDUSDUSDUSD -Exchange rate adopted for Profit & Lossaccount related items146.4779.1346.4732.2246.4746.4746.4746.4746.4746.4746.47 -Exchange rate adopted for Balance Sheetrelated items150.7272.4750.7233.3550.7250.7250.7250.7250.7250.7250.72-* Wholly owned subsidiaries of Subex (UK) Limited** Wholly owned subsidiaries of Subex Americas Inc*** Wholly owned subsidiary of Subex Technologies Limited# The information for the entity is not given as it is non operational and has been consolidated with the overseas parent company. The entity was dissolved on May 12, 2009.Note: Syndesis IP Holdings Limited Partnership was dissolved on March 3, 2009. As at March 31, 2009 the entity was a not a subsidiary of Subex Limited. Hence, details have not been provided in the statement.For and on behalf of the BoardSubash MenonPlace : BangaloreFounder Chairman,Date : May 26, 2009Managing Director & CEOsubex annual report 08-09 23 ANNEXURE - IIADDITIONAL INFORMATION AS AT MARCH 31, 2009 AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (EMPLOYEE STOCKOPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME) GUIDELINES, 1999SL.NOPARTICULARSESOP 2000ESOP 20051Net options granted as on March 31, 2009726,5671,801,106Options granted during the year362,0721,764,3972Pricing formulaAs mentionedAs mentionedearlier in the reportearlier in the report3Options vested but not exercised as on March 31, 20099,93062,1004Options exercised as on March 31, 20092,35,2336,724Options exercised during the year--5Money realized by exercise of options during the year--6The total number of shares arising as a result of exercise of optionsas on March 31, 2009--7Options lapsed / cancelled/ surrendered as on March 31, 2009879,3892,088,171Options lapsed /cancelled during the year217,9931,688,2608Variation of terms of optionsNoneNone9No. of employees covered6241,51110Employee wise details of options granted during the year under review to:(i)Senior managerial personnelMr.Saul Nurtman-10,000Mr.Mark Nicholson--Mr.Dean Smith-57,000Mr.Greg LeNeveu29,50041,000Mr.Paul Skillen-54,400Mr.Stephen Cooper-21,500Mr.Colin Hales-16,000Mr.Raj Kumar C-12,190Mr.Ramanathan J4,0005,500Mr.Sekharan Y Menon29,07410,950Mr.Vinodkumar P28,17011,725Ms.Anuradha21,30011,006Mr.Sanjay Paul Antony26,400-(ii)other employee receiving a grant in the year of option amounting to5% or more of option granted during that yearNILNIL(iii)identified employees who were granted option, during any one year, equal toor exceeding 1% of the issued capital (excluding outstanding warrants andconversions) of the Company at the time of grant;NILNIL11Diluted Earning per Share (EPS) pursuant to issue of shares on exercise of optioncalculated in accordance with Accounting Standard (AS) 20 ‘Earning per Share’Rs. (51.14)Rs. (51.14)12Where the Company has calculated the employee compensation cost using theintrinsic value of the stock options, the difference between the employee compensationLosses would have been higher bycost so computed and the employee compensation cost that shall have been recognizedRs.121,818,708if it had used the fair value of the options.The impact of this difference on profits and on EPS of the Company isBasic and Diluted EPS would have beenlower by Rs.3.5013Weighted-average exercise prices and weighted-average fair values of options separatelyWeightedWeightedfor options whose exercise price either equals or exceeds or is less than the marketaverage exerciseaverage exerciseprice of the stock price is Rs. 66.75 price is Rs. 74.8014Description of the method used during the year to estimate the fair values of options,Black Scholes including the following weighted-average information: method of valuationi.risk-free interest rate6.50%ii.expected life3 Yearsiii.expected volatility58.98%iv.expected dividends and1.19%v.market price on grant date67.11For and on behalf of the BoardSubash MenonPlace : BangaloreFounder Chairman,Date : May 26, 2009Managing Director & CEO24 subex annual report 08-09 I.COMPANY’S PHILOSOPHY ON CODE OF CORPORATEGOVERNANCECorporate Governance is about commitment to values andethical business conduct. It is about how an organization ismanaged. Therefore situation, performance, ownership andgovernance of the Company are equally important as regardsthe structure, activities and policies of the organization.Consequently, the organization is able to attract investors,and enhance the trust and confidence of the stakeholders.Subex Limited’s compliance with the Corporate Governanceguidelines as stipulated by the stock exchanges is described inthis section. The Company believes that sound CorporateGovernance is critical to enhance and retain investors’ trust.Subex respects minority rights in its business decisions.The Company’s Corporate Governance philosophy is based onthe following principles:1.Satisfy the spirit of the law and not just the letter of the law.2.Be transparent and maintain high degree of disclosurelevels.3.Communicate externally, in a truthful manner, about howthe Company is run internally.4.Comply with the laws in all the countries in which theCompany operates.Subex is committed to good Corporate Governance practices.Consistent with this commitment, Subex seeks to achieve aB. Attendance of Directors at the Board Meetings and the last AGM and details about Directorships and memberships in committeesas on March 31, 2009.DirectorPositionNo. ofNo. ofLast AGMNo. ofNo. ofNo. ofBoardBoardattendanceDirectorshipscommitteescommitteesmeetingsmeetingsin otherin which thein which theheldattendedcompanies ▲Director isDirector is aChairman ■member■Mr. Subash MenonFounder Chairman,Managing Director & CEO55Yes1-1Mr. Sudeesh YezhuvathChief Operating Officer& Wholetime Director55No1-1Mr. V. Balaji BhatIndependent Director54Yes433Mr. Vinod R. SethiIndependent Director53Yes11-7Mr. K. Bala ChandranIndependent Director52No113Mr. P.P. Prabhu*Independent Director53Yes312Mr. Harry BerryIndependent Director53No---Mr. Andrew GarmanIndependent Director53No--1▲Excluding private limited companies & overseas companies.■Includes only Audit Committee and Shareholder’s Grievance Committee. Memberships in Committees in Subex Limited areincluded.*Mr. P P Prabhu ceased to be a member of the Board of Directors consequent to his resignation on May 26, 2009.high level of responsibility and accountability in its internalsystems and policies. Subex respects the inalienable rights ofthe shareholders to information on the performance of theCompany. The Company’s Corporate Governance policiesensures, among others, the accountability of the Board ofDirectors and the importance of its decisions to all itsparticipants viz., customers, employees, investors, regulatorybodies etc. Subex’s Code of Corporate Governance has beendrafted in compliance with the code of “Corporate Governance”as promulgated by the Securities and Exchange Board of India(SEBI) in its meeting held on January 25, 2000 and amendmentsmade thereto.II.BOARD OF DIRECTORSThe Board of Directors of Subex Limited comprises 7 Directorsout of which 2 are Executive Directors and 5 are IndependentDirectors.Details of the composition of the Board of Directors and theirattendance and other particulars are given below:A.Composition and category of Directors as on May 26, 2009CategoryNo. of directors%Independent Directors571.44%Promoter and Executive Directors114.28%Other Executive Directors114.28%Total7100.00%REPORT ON CORPORATE GOVERNANCEsubex annual report 08-09 25 C. Number and dates of Board meetings5 (Five) Board meetings were held during the financial year2008-09. The dates on which meetings were held are as follows:April 29, 2008; June 30, 2008; July 29, 2008; October 29, 2008;January 29, 2009.D. Brief details of Directors seeking re-appointmentMr. Sudeesh YezhuvathMr. Sudeesh Yezhuvath heads the overall operations of Subex,excluding the legal and finance functions. He heads all the threeBusiness Units of the Company – RMS (Revenue MaximizationSolutions), FAS (Fulfillment and Assurance) and BT (BritishTelecom). He has been associated with Subex since 1993 andhas been instrumental in building the software business of Subex.He has been closely involved in the Company’s M&A activities,including the integration process post acquisitions.Mr. Sudeesh Yezhuvath holds a Bachelors degree inInstrumentation and Control. Mr. Sudeesh Yezhuvath has over18 years of experience in the telecom field and has presentedvarious papers on telecom and business operations in differentparts of the world.Mr. Sudeesh Yezhuvath is the brother of Mr. Subash Menon,Founder Chairman, Managing Director & CEO. He holds365,893 equity shares of the Company.Mr. V Balaji BhatMr. V Balaji Bhat is the Managing Director of Primus RetailPrivate Limited (formerly Gitanjali Lifestyle Products PrivateLimited). Primus Retail Private Limited is a leading player inthe growing retailing sector in India, engaged in retailing anddistribution of lifestyle products such as apparels, shoes andrelated accessories. Mr. V Balaji Bhat is a Chartered Accountantby profession.Mr. V Balaji Bhat holds 31,000 equity shares of the Company.III.AUDIT COMMITTEEA. Terms of ReferenceThe Audit Committee has, interalia, the following mandate:•Overseeing the Company’s financial reporting process anddisclosure of its financial information to ensure that thefinancial statements are correct, sufficient and credible;•Recommendation of appointment and removal of externalauditor, fixation of audit fee and also approval for paymentfor any other services;•Reviewing, with the management, the quarterly financialstatements before submission to the Board for approval;•Review of annual financial statements before submissionto the Board;•Review of adequacy of internal control systems;•Review of adequacy of internal audit function, including thereporting structure, coverage and frequency of internalaudit; and•Review of the Company’s financial and risk managementpolicies.The current charter of the Audit Committee is in line withinternational best practices and the regulatory changesformulated by SEBI and the listing agreements with the StockExchanges on which Subex is listed.B.Composition of Audit CommitteeCompositionCategoryMr. V. Balaji Bhat, ChairmanIndependent DirectorMr. K.Bala ChandranIndependent DirectorMr. Vinod R SethiIndependent DirectorMr. Andrew GarmanIndependent DirectorMr. Subash MenonFounder Chairman,Managing Director &CEOMr. Raj Kumar, the Company Secretary, is the Secretary of theAudit Committee.C.Meetings and attendance during the yearDuring the Financial Year 2008-09, five Audit Committeemeetings were held on April 29, 2008, June 30, 2008, July 29,2008, October 29, 2008, and January 29, 2009. The auditedfinancial results for the Financial Year ended March 31, 2009were taken on record at the meeting held on May 26, 2009. Thequarterly results for the quarters April-June 2008, July-September 2008 and October-December 2008 were taken onrecord on July 29, 2008, October 29, 2008, and January 29,2009 respectively.Attendance of Committee members at the Audit Committee meetings held during the financial year 2008-09:MemberNo. of Audit Committee meetings heldNo. of Audit Committee meetings attendedMr. V. Balaji Bhat54Mr. K. Bala Chandran53Mr. Vinod R. Sethi53Mr. Andrew Garman53Mr. Subash Menon55IV.REMUNERATION COMMITTEEComposition of the CommitteeCompositionCategoryMr. Vinod R. Sethi - ChairmanIndependent DirectorMr. K. Bala ChandranIndependent DirectorMr. V. Balaji BhatIndependent DirectorMr. Harry BerryIndependent DirectorThe Committee considers the performance of the Company aswell as general industry trends while fixing the remunerationof Executive Directors. There were no meetings of theCommittee held during the Financial Year.26 subex annual report 08-09 The following Directors have been allotted stock options under the employee stock options scheme of the Company:NameDesignationNo. of OptionsNo. of Options vested and exercisedGrantedas on March 31, 2009Mr. K. Bala ChandranIndependent Director7,5007,500Mr. V. Balaji BhatIndependent Director7,5007,500Mr. Vinod R. SethiIndependent Director7,5007,500Mr. P. P. Prabhu*Independent Director7,5004,875* Mr. P P Prabhu ceased to be a member of the Board of Directors consequent to his resignation on May 26, 2009.The above stock options were granted on the same terms and conditions as mentioned in the Employee Stock Option Plan-2000 ofthe Company.During the financial year under review, no additional stock options were granted to any of the Directors of the Company.Details of remuneration to DirectorsNameDesignationSalaryCommissionTotalMr. Subash MenonFounder Chairman, Managing Director & CEO4,800,000*-4,800,000Mr. Sudeesh YezhuvathChief Operating Officer & Wholetime Director4,800,000*-4,800,000* excludes contribution to Provident FundNote:During the year ended March 31, 2009, the Company has paid an amount of Rs. 39,750,760/- to its whole time-Directorstowards remuneration and has applied to the Central Government for approval of payments that are in excess of themaximum remuneration payable under the Companies Act, 1956. Pending the Central Government’s approval, such excessis treated as monies due from the Whole-time Directors being held by them in trust for the Company and is included underLoans and advances.Amount in Rs.The Non-Executive Directors are paid sitting fees at the rateof Rs. 2,500 for attendance in the Board Meetings.The Remuneration Committee determines and recommendsto the Board, the compensation payable to the Directors.All Board level compensation is approved by the shareholders,and separately disclosed in the financial statements.Remuneration of executive Directors consists of a fixedcomponent and a performance based commission.The compensation, however, shall be within the parametersset by the shareholders meetings and the provisions of theCompanies Act, 1956. The executive Directors have enteredinto service contracts with the Company. Both the executiveDirectors have 3 months notice period with the Company ifthey decide to terminate the contract. If the termination isfrom the Company, the notice period shall be 12 calendarmonths. In case of severance from the Company, Mr. SubashMenon is eligible for getting compensation of not less thantwenty times and Mr. Sudeesh Yezhuvath is eligible for gettingcompensation not less than fifteen times of their totalremuneration for the preceding 12 months from the date ofthe notice. The non-executive Directors are eligible forcommission not exceeding 0.5% of the profits of the Companysubject to a maximum of Rs. 2 million in aggregate per yearand also stock options of the Company subject to the terms ofthe stock option schemes of the Company.V. DETAILS OF SHAREHOLDING OF NON- EXECUTIVE DIRECTORSIn terms of Clause 49 (IV)(E)(iv) of the Listing Agreement, thedetails of shares held by Non- Executive Directors are asunder:NameNo. of shares heldas at March 31, 2009Mr. Vinod R. Sethi19,000Mr. V. Balaji Bhat31,000Mr. K. Bala Chandran15,000Mr. P.P. Prabhu*9,750Mr. Andrew GarmanNILMr. Harry BerryNIL* Mr. P P Prabhu ceased to be a member of the Board ofDirectors consequent to his resignation on May 26, 2009.VI.SHARE TRANSFER COMMITTEEA.Composition of the CommitteeCompositionCategoryMr. Sudeesh Yezhuvath, ChairmanChief Operating Officer& Wholetime DirectorMr. Subash MenonFounder Chairman,Managing Director & CEOAuthorised Representative of Share Transfer Agents.B.Meetings during the yearThe Company holds Share Transfer Committee Meetings uptothree times a month, as may be required, for approving thetransfers/transmissions/rematerialisation of equity shares.The Company has appointed M/s. Canbank Computer ServicesLimited, a SEBI recognised transfer agent, as its Share TransferAgent with effect from November 6, 2001. The Share TransferCommittee has met three times during the financial year2008-09 on the following dates:subex annual report 08-09 27 VII.INVESTOR GRIEVANCE COMMITTEEA. Composition of the CommitteeCompositionCategoryMr. K. Bala Chandran, ChairmanIndependent DirectorMr. Sudeesh YezhuvathChief Operating Officer& Wholetime DirectorMr. Raj Kumar, the Company Secretary, is the ComplianceOfficer of the Company.This Committee is responsible for addressing the investorcomplaints and grievances.The Committee meets on a periodic basis to address theinvestor complaints like delay in transfer of shares, non-receiptof balance sheet, non-receipt of declared dividends etc. Detailson Investor grievances are provided in the “Shareholders’Information” section of this Annual Report.VIII. ESOP COMMITTEE (Compensation Committee)The Company has instituted Employee Stock Option Schemesin line with the Securities and Exchange Board of India(Employee Stock Option Scheme and Employee Stock PurchaseScheme) Guidelines, 1999. In order to grant options under thescheme to eligible employees, a Compensation Committeehas been formed.A. Composition of the CommitteeCompositionCategoryMr. V. Balaji Bhat, ChairmanIndependent DirectorMr. K. Bala ChandranIndependent DirectorMr. Subash MenonFounder Chairman,Managing Director & CEOThe Committee meets on a periodic basis to administer theESOP schemes of the Company.IX. GENERAL BODY MEETINGSA.Location and time of the last three AGMsYearDate of AGMVenueTime2005-2006August 28, 2006Le Meridien4:00 p.m.Bangalore2006-2007July 26, 2007Le Meridien4:00 p.m.Bangalore2007-2008September 23, 2008Registered4:00 p.m.OfficeLocation and time of the last three EGMsYearDate of EGMVenueTime2007April 23, 2007Corporate office4:00 p.m.2007June 4, 2007Corporate office4:00 p.m.2007November 26, 2007Corporate office4:00 p.m.B. Postal ballotFollowing special resolutions were passed through a singlepostal ballot procedure during the year:1.Approval of Employee Stock Option Plan 2008 of the Company.2.Approval of grant of options under Employee Stock Option Plan2008 to eligible employees of the subsidiary companies.3.Amendment of Employee Stock Option Plan 2000 incorporatinga surrender clause.4.Amendment of Employee Stock Option Plan 2005 incorporatinga surrender clause.The businesses as set out above were not compulsorily requiredto be transacted through postal ballot. However, as a measureof good corporate governance, the Company opted for postalballot. The proposed draft special resolutions, the explanatorystatement stating all material facts and the reasons for theproposal and the postal ballot form along with self-addressedbusiness reply envelope were sent, vide notice dated June 2,2008, to all the members whose names appeared in the Registerof Members as on May 30, 2008.The Company had appointed Mr. Nagendra D Rao, PractisingCompany Secretary, to act as scrutinizer for conducting thepostal ballot process in a fair and transparent manner. Themembers were requested to send their duly completed postalballot form not later than the close of working hours on July 7,2008. The scrutinizer submitted his report to the Chairmanafter completion of the scrutiny and the result of the voting bypostal ballot was announced on July 9, 2008 at 4.00 P.M at theregistered office of the Company.The special resolutions mentioned above were declared aspassed as the number of votes cast in favour of each of theresolution were not less than three times the number of votescast against the said special resolution. Following were thedetails of voting pattern of members:Sl.ParticularsNo. of PostalNo. of% of totalno. ballot formsSharespaid upcapital1.Total postal ballotforms received3243,499,50110.04Less: Invalid postalballot forms(as per register)474,9070.01Net Valid postal ballotforms (as per register)2773,494,59410.03Date of the meetingNo. of transferShares pursuant toRematerialisationShares involveddeeds receivedthe deedsrequests receivedJune 19, 2008--110September 1, 20082104--September 17, 200812001300The Company ensures that the share transfers are effected within one month of the receipt of request for transfer.28 subex annual report 08-09 2.Postal ballot forms withassent for the ResolutionResolution No. 12553,356,6289.63Resolution No. 22523,356,5429.63Resolution No. 32513,355,8429.63Resolution No. 42513,355,8779.633.Postal ballot forms withdissent for the ResolutionResolution No. 122137,9660.39Resolution No. 225137,9670.39Resolution No. 326138,5770.39Resolution No. 426138,5420.39X. DISCLOSURESA.There are no significant related party transactions of theCompany of material nature, with the Promoters, the Directorsor the management, their subsidiaries or relatives etc. thatmay have potential conflict with the interests of the Company atlarge. Transactions with the related parties are disclosed inNote II. 7 under Schedule Q to the standalone financial statementsin this Annual Report.B.The Company has not been subjected to any penalties, stricturesby stock exchange(s)/SEBI or any statutory authorities on any matterrelated to capital markets, during the last three years.C.The Company has complied with the listing conditions laiddown in the Listing Agreement of the stock exchanges wherethe shares of the Company are listed.XI. MEANS OF COMMUNICATIONA. Annual/Half Yearly and Quarterly resultsThe annual/half yearly/quarterly audited/un-audited resultsare generally published in all editions of Business Standard orFinancial Express and regional edition of Udayavani. Thecomplete financial statements are posted on the Company’swebsite www.subexworld.com. Subex also regularly providesinformation to the Stock Exchanges as per the requirementsof the Listing Agreements and updates the website periodicallyto include information on new developments and businessopportunities.B. Management’s Discussion and Analysis section has beenseparately dealt with in the Annual Report.XII. General shareholder information is provided in the“Shareholders’ Information” section of this Annual Report.XIII. Auditors’ Certificate in respect of compliance of conditionsof Corporate Governance as per Clause 49 of the ListingAgreement entered into with the Stock Exchanges forms partof this Annual Report.XIV. Compliance with non-mandatory requirements of Clause49 of the Listing Agreement:Clause 49 states that the non-mandatory requirements maybe implemented as per the Company’s discretion. However,the disclosures of compliance with mandatory requirementsand adoption (and compliance)/non adoption of non-mandatoryrequirements shall be made in the section on CorporateGovernance in the annual report. The Company has compliedwith the following non-mandatory requirements:A.The BoardThe Company has an Executive Chairman and as such the needto disclose details on maintenance of office by a Non-ExecutiveChairman does not arise. The Company ensures that thepersons appointed as Independent Directors have the requisitequalifications and experience which would be of use to theCompany and which would enable them to contribute effectivelyto the Company in their capacity as Independent Directors.B.Remuneration CommitteeThe Company has constituted a Remuneration Committee. Adetailed note on the Remuneration Committee has beenprovided elsewhere in the report.C.Shareholders’ rightsThe Company communicates with investors regularly throughe-mails, telephone and face-to-face meetings like investorconferences, earnings calls, company visits or on road shows.The Company announces quarterly financial results within fourweeks of the close of a quarter. The Company publishes thequarterly financial results in leading business newspaper(s) aswell as on the Company’s website. However, the Company hasnot initiated sending half-yearly declaration of financialperformance to the household of shareholders so far.D.Audit QualificationsThe Company does not have any audit qualification for theyear under review. The Company always endeavours to movetowards a regime of un-qualified financial statements.E.Training of Board MembersAll new Non-Executive Directors inducted into the Board aregiven adequate orientation on the Company’s businesses,group structure, risk management strategy and policies.F.Mechanism for evaluating Non-Executive Board MembersThe Company compensates Non-Executive Directors keepingin view the time and attention devoted by them for the Company.While doing so, the Company evaluates the performance of theNon-Executive Directors using various parameters. Howeverthe Company is yet to formalize this evaluation by peer groupcomprising entire Board of Directors, excluding the Directorbeing evaluated.G.Whistle Blower PolicyThe Company has established a mechanism for employees toreport concerns about unethical behaviours, actual or suspectedfraud or violation of our Code of Conduct. The mechanism alsoprovides for adequate safeguards against victimization ofemployees who avail of the mechanism and also provide fordirect access to the Chairman of the Audit Committee inexceptional cases. The employees are informed of this policythrough appropriate internal communications. None of theemployees have been denied access to this facility.For Subex LimitedSubash MenonPlace : BangaloreFounder Chairman,Date : May 26, 2009Managing Director & CEOsubex annual report 08-09 29 1.We have examined the compliance of conditions ofCorporate Governance by Subex Limited (formerly SubexAzure Limited) [‘the Company’] for the year ended March31, 2009, as stipulated under Clause 49 of the ListingAgreement of the Company with the Stock Exchanges.2.The compliance of conditions of Corporate Governance isthe responsibility of the management. Our examinationhas been limited to a review of the procedures andimplementations thereof, adopted by the Company forensuring compliance with the conditions of the CorporateGovernance. It is neither an audit nor an expression ofopinion on the financial statements of the Company.3.In our opinion and to the best of our information andaccording to the explanations given to us and theTo,The Members of Subex LimitedIn accordance with Clause 49 I (D) of the Listing Agreementwith the Stock Exchanges, I hereby confirm that, all theDirectors and the Senior Management personnel including me,representations made by the Directors and themanagement, we certify that the Company has compliedwith the conditions of Corporate Governance as stipulatedin Clause 49 of the above-mentioned Listing Agreement.4.We further state that such compliance is neither anassurance as to the future viability of the Company nor theefficiency or effectiveness with which the management hasconducted the affairs of the Company.For Deloitte Haskins & SellsChartered AccountantsV. BalajiPlace : BangalorePartnerDate : May 26, 2009Membership No. 203685COMPLIANCE CERTIFICATE TO THE MEMBERS OF SUBEX LIMITEDDECLARATION BY THE CEO UNDER CLAUSE 49 I (D) OF THE LISTING AGREEMENT REGARDING ADHERENCE TO THE CODE OFCONDUCThave affirmed compliance to their respective Codes of Conduct,as applicable for the Financial Year ended March 31, 2009.For Subex LimitedSubash MenonPlace : BangaloreFounder Chairman,Date : May 26, 2009Managing Director & CEO30 subex annual report 08-09 3.BUSINESS SEGMENTS AND INDUSTRY OUTLOOK3.1 Business segmentsSubex operates in two business segments – telecom softwareproducts and telecom software services. The former is the keyfocus area for the Company and will be discussed in detail.200720082009201020112012Business Optimization(US$ mn)MANAGEMENT DISCUSSION & ANALYSISOVERVIEWSubex Limited (Subex) is listed on the National Stock Exchangeof India Limited (NSE) and the Bombay Stock Exchange Limited(BSE). The Global Depositary Receipts and the Foreign CurrencyConvertible Bonds of the Company are listed on the LondonStock Exchange (LSE).The management of Subex is committed to improving the levelsof transparency and disclosure. Keeping this in mind, an attempthas been made to disclose hereunder, information about theCompany, its business, operations, outlook, risks and financialcondition.The financial statements have been prepared in compliancewith the requirements of the Companies Act, 1956, and theGenerally Accepted Accounting Principles (GAAP) in India. Themanagement of Subex accepts responsibility for the integrityand objectivity of these financial statements, as well as forvarious estimates and judgments used therein. The estimatesand judgments relating to the financial statements have beenmade on a prudent and reasonable basis, in order that thefinancial statements reflect the form and substance oftransactions in a true and fair manner, and reasonably presentthe state of affairs and profits for the year under review.In addition to the historical information contained herein, thefollowing discussion may include forward looking statementswhich involve risks and uncertainties, including but not limitedto the risks inherent in the Company’s growth strategy,dependency on certain clients, dependency on availability ofqualified technical personnel and other factors discussed inthis report.1.INDUSTRY1.1Your Company is a provider of solutions in the OperationsSupport Systems area for telecom applications. This area canbroadly be classified into Service Fulfillment, Service Assuranceand Revenue Maximization or Business Optimization. TheCompany operates in Business Optimization and ServiceFulfillment areas. While Business Optimization solutionsimprove the revenues and profits of the communications serviceproviders through identification and elimination of leakagesin their revenue chain, Service Fulfillment solutions enablethe carriers to fulfill the needs of their subscribers throughprovisioning and activation of services. Subex conceptualizesand develops software products at its facilities in Bangaloreand is focused on the telecom business segment. Subex hassales and support offices in the United States, Canada, UK,UAE, India, Singapore and Australia. Subex is the global leaderin business optimization for communications service providers.Given the global economic scenario, carriers are facing a varietyof challenges. The key among them are (a) the competitiverequirement to provide high quality services faster and cheaperand (b) the operational requirement to have a well integratedOperations Support System (OSS) to meet the competitiverequirement. Subex provides software solutions to meet thesecritical requirements. Carriers have been building the supportstructure by acquiring disparate pieces of software and thathas resulted in stove pipes getting built over time. Our wellintegrated platform called Revenue Operations Center (ROC)addresses this issue of a solid structure within their networks.The solutions that form part of the ROC enable the customersto achieve Operational Dexterity which is a combination ofOperational Efficiency and Service Agility. While the formerensures that cost of operation is maintained at a low enoughlevel, the latter ensures adequate service levels are achieved.2.OPPORTUNITIES AND THREATS2.1StrategySubex has been implementing a well thought out strategy forthe past several years. There are multiple arms to that strategy.We couple the strength of an in-region front end to acquire andservice customers locally with an extensive workforce in Indiato optimize the cost of delivery. The second arm of the strategyis to offer a platform of solutions that address issues in an end-to-end manner. Our deep domain expertise is brought to bearto ensure technologically advanced and user-friendly solutionsin line with the expectations of the telcos. As reported byAnalysys Mason Limited, operators are keen to integrate BSSand OSS to make deployment easier. The third arm is to deliverthe solutions in various ways including the managed servicesformat. In the managed services format, we leverage ouroperational experience and domain expertise to the benefit ofour customers resulting in our customers gaining fromthousands of person years of collective knowledge.In keeping with this strategy, we have been embellishing ouroffering – both through acquisitions and internal development– and have developed an extensive platform spanning BusinessOptimization and Service Fulfillment.2.2Market OpportunityAn intensely competitive environment is the greatest driverfor telco spending in software solutions. Reducing churn,increasing coverage, controlling cost and enhancing revenueare the key concerns of the operators. The data on marketsize in US$ Million is provided below:InterconnectService Fulfillment**For the solutions that are currently available with Subex only.Source: Analysys Mason Limited92541851710603905735491212139063360672515841806819479545638670subex annual report 08-09 31 The latter is staff augmentation services for Telcos in the UnitedStates and is fast losing its significance as can be seen fromthe business mix data provided herein.The key challenge therefore is to build a strategic frameworkthat fosters sustained profitable growth. Telecom operatorsnow need to focus on the combination of:Service agility•by reducing time-to- market for new services•achieving rapid service provisioning•maintaining high quality of service deliveryandOperational efficiency•reducing the cost of delivery of serviceWe call this combination as Operational Dexterity.Operational dexterity ultimately allows operators to reverse thepressure on the margins by enjoying improved price realizationthrough better quality of service and reduced cost of servicethrough an efficient operation. Thus, we enable them to expandtheir margin by increasing the revenue through service agilitygain and by reducing the cost of operation through operationalefficiency gain. In short, we help them gain operational dexterityby providing two sets of solutions as detailed below.Solutions for Operational Efficiency gainsThere are six products in this solution category. They are Nikira,Moneta, Prevea, Concilia, Symphona and Optima.NikiraNikira™ Fraud Management System is the next generationfraud management solution built to deliver on a 3-stepphilosophy of Detect-Investigate-Protect. Nikira detects knownfraud types and patterns of unusual behaviour, helps investigatethese unusual patterns for potential fraud and uses theknowledge thus generated to upgrade and protect againstfuture intrusions.Nikira is differentiated by its unique architecture thatharnesses the power of proven rules-based alarms and patternmatching driven by advanced statistical techniques. Addingpower to this hybrid detection system is a set of strong casemanagement tools. These tools provide all relevant case datawhich are made easily accessible through a single window in afast web-based GUI.Nikira’s high flexibility allows operators of different sizes tocustomize rules to suit unique network and businessrequirements. Moreover, seamless visual alarm linking usingthird party visualization software reduces investigation efforts,thus decreasing case turnover time. Nikira has the ability todetect fraud types in all telecom environments - Wireline (PSTN,ISP, VoIP), Wireless (2G, 2.5G, 3G) and across all services -postpaid, prepaid, VAS, MMS, and M-commerce.MonetaMoneta™ Revenue Assurance System is a first-of-its kind,complete RA solution, designed to tackle critical revenueassurance challenges across the entire revenue chain. Monetaoffers a set of pre-configured solution templates to addressRA challenges inherent to individual service verticals - Wireless,Fixed, Cable MSPs & MVNOs. These solution templates addressrevenue assurance issues across multiple functional areas suchas service fulfilment, usage integrity, retail billing, interconnect/wholesale billing and content settlement.Price setby theMarketCost ofServiceDeliveryEnhanced MarginsService Agility Gain-Improved price realization forservicesOperational Efficiency Gain-Reduced cost of servicedeliveryEarlier: RegulatedMargin GuaranteedCost of ServiceDeliveryCostPlusPricingTelco’s StrategyGrow ARPU• Manage up revenuePrice ApprovedBy RegulatorPrice set by theMarketCompetitivePricingToday: Free MarketTelco’s StrategyGrow AMPU• Manage up revenue• Manage down costMargin EarnedCost of ServiceDelivery3.2 Telecom software productsThe issues being faced by the telecom operators are continuingwithout any change over the past couple of years. Telecomoperators have seen their margins shrink dramatically as thebusiness model has changed from a regulated market to afree market. In a regulated market, operators could easilyadd their desired or guaranteed margin to the cost and setthe price. In today’s free market, they need to eke out theirmargin as the pricing is fixed by the competitive environment.This situation has been pictorially represented below.Revenue from ProductsRevenue from ServicesRevenue Mix90807060504030201002001-022002-032003-042004-052005-062006-072007-082008-09Percentage6764555446453633643667337525792132 subex annual report 08-09 Each solution template is ready-to-use and includes:•Set of appropriate health checks to monitor•Control points & interfaces to extract data•Reports & dashboards to present results, and•Workflow to monitor, action & close casesUsing these solution templates, operators can dramaticallyreduce the time required to implement or extend the coverageof their RA practice. Moreover, operators can easily reconfigureor remodel existing templates to accommodate changingbusiness requirements.PreveaThe Prevea™ Risk Management System empowers operatorsto continuously assess and mitigate risk presented bysubscribers throughout their lifecycle.Prevea tracks risk in a near real-time during:•Subscriber acquisitioning•Ongoing usage•Collections and recoveryPrevea provides the operator with a holistic view that helps inunderstanding subscriber risk profile and thereby aids itsmanagement. Further, Prevea can quickly, and seamlessly,accommodate new service information to provide an accuratepicture of the exposure at any point in time.Allowing the operator to easily, and quickly, define variousrisk indicators and controls enables Prevea to adapt to localcultural and regulatory requirements. This also enables theoperator to stay agile in changing socio-economic conditionsthat affect the overall level of risk in a region.ConciliaConcilia™ Interconnect Billing System allows operators to quicklyand accurately settle charges with their network partners.Shrinking margins have highlighted the increased need forvisibility of each deal’s impact on operator’s bottom line. Forinterconnect agreements with domestic and internationaloperators, Concilia provides with the ability to manage thesemajor costs and revenues on a day-to-day, hour-to-hour basis.New types of interconnect agreements, in areas such as IP andSMS, require new system capabilities to ensure that operatorshave accurate data available to assure revenues. Concilia’s flexibility,scalability and ease of use empowers all types of operators – fixedor mobile, a national PTT or a new entrant, giving them the edgeneeded to survive and prosper in today’s market.SymphonaThe Symphona™ Interparty Management System enablesoperators to bill their customers and settle with their partnerson a single modular platform. Symphona supports alloperational and management information needs. Its uniquearchitecture allows calculation of multiple charges for eachtransaction, and the correlation of retail revenues withinterconnect cost. As product bundles and their related tariffplans become more complex, this ability to see all revenuesand related costs is vital to ensuring a healthy bottom line.Symphona is able to support multiple business models withina single implementation through seamless addition ofnecessary modules. Examples of such modules include Retail,Wholesale, Satellite, IP and Inter-Company. The Symphonaframework has been designed to evolve with minimal impactto ongoing operations.OptimaOptima™ Route Optimization System is designed to provideoperators with the tools to manage network cost informationsupplied by other operators. Additional analysis on the impactof current operator tariffs as well as forecasts on potentialfuture operator tariffs is also featured. The system is capableof taking into account factors such as call quality rateinformation, capacity and network costs in calculating theoptimum choice of operators.Optima ensures that the entire end-to-end processes fromdial code/destination operator rate imports to switch updatesis controllable and auditable. Optima is fully supported by acomprehensive list of reports, and when generating anoptimized routing table the system provides an integratedmanagement of the routing table changes across multiplebusiness functions. The automated routing managementfunctionality converts the routing table into MML script foreither manual or automatic implementation on the switch.Solutions for Service Agility gainsSolutions in this category can be grouped into four categoriesas given below.Automated, Subscriber-centric Fulfillment•Syndesis Application Configuration Manager•Syndesis Express•Syndesis NetProvisionData Integrity Management•Syndesis TrueSourceInventory/Resource Management•Syndesis Adaptive Resource ManagerNew Service Creation, Order Management•Syndesis ControllerService & Network Migration & Optimization•Syndesis NetOptimizerSyndesis Application Configuration ManagerSyndesis Application Configuration Manager (ACM) automatesthe configuration, management, and detailed discovery ofapplications, policy servers, subscriber databases, and otherservice delivery platforms, making self-service a reality forthe mass market. With its high-performance, event-drivenbus architecture, scalable J2EE platform, and high-volumeactivation capabilities, ACM supports thousands of requestsper second with instantaneous response time. This enablessubscribers to manage their services 24 hours a day, 7 days aweek and supports zero-touch provisioning, self-care andmulti-media impulse buying. ACM validates service requestattributes against pre-defined service logic, generatesapplication configurations based on service needs, and activatesaffected control nodes or databases (e.g., IPTV servers, UnifiedMessaging servers, HLRs, HSSs, softswitches, VoIP featureservers, etc.) via Syndesis Application Modules. A wide rangeof off-the-shelf, productized Application Modules is availablesubex annual report 08-09 33 for market leading vendors such as Alcatel, Microsoft, Nortel,Siemens, Sonus, Sylantro and others, speeding time-to-marketwith innovative service offerings.Syndesis ExpressRecognizing the demands of the new communicationsenvironment, Syndesis Express is a subscriber-centric fulfillmentsolution that allows carriers to react quickly to ever-changingmarket conditions and customer requirements. With Express,new services can be defined and deployed within days, not weeksor months. Express is a pre-integrated solution bundle thatprovides complete, off-the-shelf, subscriber-centric fulfillmentfor IPTV, VoIP (for both Business and Consumer), and othertargeted advanced service offerings. From the wholly integratedSyndesis Express architecture, providers can quickly and easilycreate, roll-out, and deliver advanced services to a broadcustomer base while achieving new levels of subscriber controland customization. Since Express coordinates both applicationand connectivity service components from a unified platform, itsimplifies and improves the efficiency of next generation servicedelivery and management while decreasing operations costs.Syndesis NetProvisionIn the world of converging and ubiquitous communications,effective service fulfillment is all about meeting demand –satisfying increasing order volumes, aggressive deliveryschedules, diverse service requirements, and customers’heightened expectations. Traditional approaches to servicefulfillment are not equipped to keep pace with the demands ofevolving networks, services, and subscribers. Manual and siloedservice provisioning, in particular, is slow, complicated, anderror-prone, forming a significant barrier to both revenuegrowth and customer satisfaction and retention. SyndesisNetProvision automates the design and activation of complex,application-aware connectivity services, enabling flow-throughprovisioning of next-gen data and IP offerings across multi-vendor, multi-technology networks. NetProvision uses theindustry’s most advanced and most widely deployed discoveryengine, enabling the system to perform, design and assign basedon the network and logical resources as they really exist, not asan off-line database thinks they might. This significantly reducesfallout rates and decreases the time required to activate aservice. NetProvision also features productized EquipmentModules (i.e., device interfaces), native support for the widestrange of convergent IP/data technologies, and a modular,extensible, and scalable design – all of which speed time-to-market for new offerings while reducing project risk and TCO.Syndesis TrueSourceWithout consistently accurate network and service information,OSS and BSS implementations are delayed, their overalleffectiveness falters, asset tracking becomes a guessing game,and revenue leaks abound. Syndesis TrueSource combats theseproblems by providing the high levels of data integrity centralto OSS and BSS data reconciliation and essential for the networkand for business operations. TrueSource is the industry’s firstData Integrity Management (DIM) solution for improving thequality of data that drives key service provider processes,resulting in lower costs and higher service profitability.TrueSource employs an operations-wide approach to solvingdata integrity problems, combining three powerful dataintegrity functions: multi-layer network and service discovery,data reconciliation, and discrepancy analytics. Leveraginginherent cross-domain intelligence and extensive off-the-shelfnetwork equipment support, TrueSource discovers devices andlogical services in complex multi-layer, multi-vendor, multi-service environments and reconciles this data with OSS/BSSon a continuous, controlled basis. The result is consistent,relevant data throughout service provider operations,enhancing the effectiveness and value of service fulfillment,service assurance, and billing systems.Syndesis Adaptive Resource ManagerSyndesis Adaptive Resource Manager (ARM), the industry’s only“live” inventory management solution, offers service providersa low-risk path to operational transformation and highlyaccurate inventory management. By considering the completedeployment and consumption life cycle of both the networkand applications, ARM provides more comprehensiveintelligence and control over the service provider enterprise.Wholly integrated with the Syndesis Subscriber-CentricFulfillment Suite, ARM is a rapidly deployed resourcemanagement system designed specifically to meet the rigorousdemands of complex next generation networks, services, andbusiness environments. ARM can speed new serviceintroduction and delivery, accelerate new equipmentdeployment and payback, and ease OSS transformations whilelowering total cost of ownership for next-gen inventory.Syndesis ControllerAn extension of the Syndesis Subscriber-Centric FulfillmentSolution, Syndesis Controller is a pre-integrated, best-in-classOrder Management, Service Catalog Management and TechnicalWorkflow solution. Based on industry-leading technology,Controller simplifies the orchestration between SyndesisFulfillment Solution and other systems, including BSS systemsand any manual processes associated with mobile and wirelineservice turn-up. Controller leverages pre-built integration andservice workflow templates based on the best practices for servicedelivery. It provides the basis for the automation of the completeorder-to-bill cycle and enhances scalability and visibility for theentire fulfillment process, an essential pre-requisite for customerself-service. Controller decomposes orders into constituent parts,enabling end-to-end service delivery process management andoperational process improvements.Syndesis NetOptimizerNetwork maintenance is an unavoidable cost of doing business.The world’s largest networks continually evolve and change, asService Providers add bandwidth, replace defective hardware,perform upgrades, introduce new network infrastructure, optimizeexisting capacity and change technology providers. Because eachof these changes affects services offered, carriers must be able toexecute large scale changes quickly and accurately while preservingservice integrity and the customer experience. SyndesisNetOptimizer is a high-performance, carrier-class servicemigration and maintenance software tool that takes the risk, timeand effort out of the carriers’ toughest grooming operations andservice migrations. Based on accurate views of the network,NetOptimizer’s automation of large scale re-provisioning activitiesenables carriers to rapidly, safely and strategically redistributetheir services to optimize their existing resources and takeadvantage of new equipment, technologies, and topologies.3.3Customer BaseSubex today serves over 180 customers spread across 65countries. Our wide customer base has enabled us to garnerthe top slot in our traditional business of fraud and revenueassurance. We have also been up-selling and cross-sellingwithin this wide base of customers.34 subex annual report 08-09 3.4Revenue ModelSubex licenses its software solutions on per subscriber or pertransaction basis for every service stream of our customers,resulting in continuous growth in license revenues dependingon the growth of the networks where the solutions areinstalled. Another sustainable revenue stream is the supportrevenue calculated as a function of the license revenue. Thesethree streams of revenue – new license, additional license andsupport – are expected to lend stability to the overall revenueof the Company. Further, we also have a fourth stream ofrevenue namely, customization. Finally, we have a fifth streamcalled Bureau wherein we provide the solutions as a service(similar to Software as a Service – SaaS) through multi-million,multi-year contracts. The following graph gives the revenuefrom each of the streams and from Third Party during FY04,FY05, FY06, FY07, FY08 and FY09.A large portion of our revenue (36% in FY09) is annuity andthat provides a stable base. At the same time, license (a highlyprofitable stream) continues to be significant indicating thatthe business is not close to saturation.3.5Geographical MixGiven the nature of our products and the challenges faced bycommunications service providers in both developed and developingcountries, we have huge opportunities in all the geographies.This is quite evident from the geographical mix given below.3.6Average Revenue Per SubexianIn the Products business, our Average Revenue Per Subexian(ARPS), a key measure that leads to increased profitability,has been growing steadily. The following graph shows theprogression on this front.3.7QualitySubex is dedicated to maintain the highest levels of qualitystandards throughout its operations. We are an ISO 9001:2000certified Company.4.RISKS AND CONCERNSAny business has several risks related to that and ours is nodifferent. Following are the risks that we are cognizant of.4.1MarketThe business model of communications service providers ishighly dependant on consumer behaviour and any reductionon spending by consumers will negatively impact the fortunesof the Telcos. That will result in reduction of investment by theTelcos and a consequent contraction of market for our products.The communications industry continues to experienceconsolidation and an increased formation of alliances amongcommunications service providers and betweencommunications service providers and other entities. Shouldone of our significant customers consolidate with a serviceprovider using a competing product and decide to discontinuethe use of our product(s), this could have a negative materialimpact on our business. These consolidations and alliancesmay cause us to lose customers or require us to reduce pricesas a result of enhanced customer leverage, which would havea material adverse effect on our business. We may not be ableto offset the effects of any price reductions. We may not beable to expand our customer base to make up any revenuedeclines if we lose customers.Subex is fully dependant on the telecom industry. So, any va-garies in the telecom business environment will considerablyimpact the fortunes of the Company.4.2Technology and PersonnelOur industry is characterized by rapid technological changesand frequent new service offerings. Significant technologicalchanges could make our technology and services obsolete,less marketable or less competitive. We must adapt to ourrapidly changing market by continually improving the features,1009080706050403020100FY04FY05FY06FY07FY08FY09EMEAAmericasAPACPercentageGeographical Mix120000100000800006000040000200000FY04FY05FY06FY07FY08FY09Average Revenue Per Subexian530006500084000108000US$760001009080706050403020100FY04FY05FY06FY07FY08FY09License & Addl. LicenseSupportCustomizationManaged Service & BureauThird PartyRevenue CompositionPercentage83111792261959135182101030256542323145234369553637273550153755890000886467574956subex annual report 08-09 35 functionality, reliability and capability of our products to meetchanging customer needs. We may not be able to adapt tothese challenges or respond successfully or in a cost-effectiveway. Our failure to do so would adversely affect our ability tocompete and retain customers or market share. Launchingnew products is a key element of our growth and an inability tobring new products with high demand to the market in a timelymanner will reduce our growth and profitability.Subex has set up processes and methodologies to address thisthreat and to turn it into a strategic advantage by being in theforefront of technological evolution. Regular skill upgradationprograms and training sessions that include attending globalconferences, employing specialized consultants etc. areundertaken.Retention of software personnel is another major risk beingfaced by Subex. Towards this, it provides an empoweredatmosphere with extensive mentoring, career counseling andconstant learning opportunities in cutting edge and challengingtechnologies.4.3Intellectual PropertyOur success depends to a significant degree upon the protectionof our software and other proprietary technology rights. Werely on trade secret, copyright and trademark laws andconfidentiality agreements with Subexians and third parties,all of which offer only limited protection. The steps we havetaken to protect our intellectual property may not preventmisappropriation of our proprietary rights or the reverseengineering of our solutions. Legal standards relating to thevalidity, enforceability and scope of protection of intellectualproperty rights in several countries are uncertain and mayafford little or no effective protection of our proprietarytechnology. Consequently, we may be unable to prevent ourproprietary technology from being exploited abroad, whichcould require costly efforts to protect our technology. Policingthe unauthorized use of our products, trademarks and otherproprietary rights is expensive, difficult and, in some cases,impossible. Litigation may be necessary in the future to enforceor defend our intellectual property rights, to protect our tradesecrets or to determine the validity and scope of theproprietary rights of others. Such litigation could result insubstantial costs and diversion of management resources,either of which could harm our business. Accordingly, despiteour efforts, we may not be able to prevent third parties frominfringing upon or misappropriating our intellectual property.4.4InfringementThird parties could claim that our current or future productsor technology infringe their proprietary rights. Any claim ofinfringement by a third party, even those without merit, couldcause us to incur substantial costs defending against the claim,and could distract our management from our business. Thirdparties may also assert infringement claims against ourcustomers. These claims may require us to initiate or defendprotracted and costly litigation on behalf of our customers,regardless of the merits of these claims. If any of these claimssucceed, we may be forced to pay damages on behalf of ourcustomers. We also generally indemnify our customers if ourservices infringe the proprietary rights of third parties. Ifanyone asserts a claim against us relating to proprietarytechnology or information, while we might seek to licensetheir intellectual property, we might not be able to obtain alicense on commercially reasonable terms or on any terms.4.5Variability of Quarterly Operating ResultsThe quarterly operating results of the Company have varied inthe past due to reasons like seasonal pattern of hardware andsoftware capital spending by customers, informationtechnology investment trends, achievement of milestones inthe execution of projects, hiring of additional staff and timingand integration of acquired businesses. Hence, the pastoperating results and period to period comparisons may notindicate future performance. The management is attemptingto mitigate this risk through expansion of client basegeographically and increase of steady annuity revenue. Despitethose efforts, variability could continue.4.6Statutory ObligationsSubex has registered with Special Economic Zone for softwaredevelopment activities and has availed Customs Duties, SalesTax and Central Excise exemptions. The non-fulfillment ofexport obligations may result in penalties as stipulated by theGovernment and this may have an impact on future profitability.4.7Environmental MatterSoftware development, being a pollution-free industry, is notsubject to any environmental regulations.4.8Foreign ExchangeSubex has substantial exposure to foreign exchange relatedrisks on account of revenue from export of software andoutstanding liabilities. These are hedged with banks and risksmitigated to the extent possible. Despite this, particularly giventhe volatility in the foreign exchange market, there could besignificant variations.4.9 TaxationConsequent to the end of STPI related tax benefits for Subex,we have moved to a Special Economic Zone (SEZ). While taxprotection is expected to continue under the SEZ scheme, thereis a significant amount of uncertainty in the regulatoryenvironment. This could lead to incidence of higher tax.4.10 LitigationThere is an increasing trend in litigation regarding intellectualproperty rights, patents and copyrights in the software industry.There also exist other corporate legal risks. Subex has nomaterial litigation pending against it in any court in India orabroad.4.11 Contractual ObligationIn terms of the contract entered into by Subex with its customersin the ordinary course of business, it is obliged to perform andact according to the contractual terms and regulations. Failureto fulfill the contractual obligations arising out of such contractsmay expose Subex to financial and other risks.The management has taken sufficient measures to cover all ofits contractual risks and does not foresee any major liabilitydue to its non fulfillment of any contractual terms andconditions.36 subex annual report 08-09 5.INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACYManagement maintains internal control systems designed toprovide reasonable assurance that assets are safeguarded,transactions are executed in accordance with management’sauthorization and properly recorded, and accounting recordsare adequate for preparation of financial statements and otherfinancial information. The internal audit function also carriesout Operations Review Audits to improve the processes andstrengthen control of the existing processes. The AuditCommittee periodically reviews the functions of internal audit.Pursuant to revised Clause 49 of the Listing Agreement, theCEO/CFO has to accept responsibility for establishing andmaintaining internal controls for financial reporting and thatthey have evaluated the effectiveness of internal controlsystems of the Company pertaining to financial reporting andthat they have disclosed to the auditors and the AuditCommittee, deficiencies in the design or operation of suchinternal controls, if any, of which they are aware and the stepsthey have taken or propose to take to rectify these deficiencies.The adequacy of the Company’s internal controls are testedfrom time to time and control deficiencies, if any, identifiedduring the assessments are addressed appropriately.6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE6.1 Key financials and ratio analysisAmount in Rs million, except key indicatorsFinancial HighlightsYear ending March 31200920082007ConsolidatedStandaloneConsolidatedStandaloneConsolidatedStandaloneTotal income6,034.803,232.504,859.581,440.463,710.922,361.84Export sales2,233.061,282.163,799.381,080.403,330.062,108.94Operating Profits (EBITDA) beforeExceptional items971.30766.03(730.20)(251.60)812.46447.83Depreciation & Amortization228.83136.46184.04121.55148.53113.39Profit/(Loss) before tax andExceptional items307.66276.99(1,219.04)(652.12)576.61259.09Profit/(Loss) after tax andExceptional items(1,883.63)(1,782.11)(680.71)(61.88)675.66208.14Equity Dividend %NilNilNilNil20%20%Share Capital348.47348.47348.47348.47348.16348.16Reserves & Surplus3,464.344,167.896,348.966,539.308,059.127,614.14Net Worth3,844.514,562.676,875.177,097.988,348.107,949.89Gross Fixed Assets1,746.33764.231,507.51742.71821.73662.67Net Fixed Assets306.65163.34388.77265.97358.55306.44Total Assets 15,902.4515,830.7816,185.9415,957.3417,787.9817,088.88Key IndicatorsEarning per Share (Year end)(54.05)(51.14)(19.49)(1.77)19.415.98Cash Earning per Share (Year end)(2.12)3.94(28.53)(14.68)12.743.03Book value per Share110.33130.93197.30203.69239.78228.34Debt (including Working capital)Equity Ratio2.832.281.351.251.011.06EBITDA/Sales - %17.39%25.44%(15.04%)(17.49%)23.83%21.14%Net Profit Margin - %(33.73%)(59.19%)(14.02%)(4.30%)19.82%10.00%Return on year end Net Worth %(49.00%)(39.06%)(9.90%)(0.87%)8.09%3.00%Return on year end Capital Employed %(12.78%)(11.92%)(4.22%)(0.39%)4.84%3.00%Note: Earning per share, cash earning per share and book value of share are in Rupees.subex annual report 08-09 37 7.COMMENTARY ON FINANCIAL STATEMENTS7.1Share capital7.1.1Of the equity paid-up capital, the Company had issuedthe following shares towards consideration other than cash.•115,000 shares of Rs.10/- each, towards the balances inthe current account of partners, Mr. Subash Menon andMr. Alex J. Puthenchira, on the takeover of Subex Systems,a partnership firm, by the company during 1993-94.•4,626,940 Shares of Rs.10/- each to all eligibleshareholders as on 31st March 1999 in the ratio of 1:1 bycapitalizing the General Reserves.•12,840 shares of Rs.10/- each to the erstwhile owners ofM/s. IVth Generation Inc., towards part consideration ofthe cost of acquisition of that company at Rs.1,023/- pershare during 1999-2000.•10,878,784 Shares of Rs.10/- each to all eligibleshareholders as on 6th January 2006 in the ratio of 1:1 bycapitalizing the securities premium.•1,109,878 Shares of Rs.10/- each to the GDR holders ason 7th April 2006 @ Rs.400/-.•11,728,728 Shares of Rs.10/- each to the GDR holders ason 22nd June 2006 towards consideration of the cost ofacquisition of Azure Solutions Ltd at Rs.532.24 per share.7.1.2 During 2006-07 the Company issued 219,551 (includingBonus shares, wherever options are eligible) shares of Rs. 10/-each to various Employees on exercise of Stock Options grantedunder the Employee Stock Option Plan (ESOP – II & III).7.1.3 During 2007-08, the Company issued 31,364 (includingBonus shares, wherever options are eligible) shares of Rs. 10/-each to various Employees on exercise of Stock Options grantedunder the Employee Stock Option Plan (ESOP – II & III).7.1.4 There are no calls in arrears.7.2Reserves And Surplus7.2.1 Capital Reserve of Rs.13.00 Million was created by creditof the notional premium on 12,840 equity shares of Rs.10/-each valued at a price of Rs.1,023/- per share and issued tothe owners of IVth Generation Inc, USA as part considerationfor the transfer of their shareholding to Subex Systems Ltd.During the year 2008-09, Rs.140.55 Million relating to 2,230,000warrants allotted to promoters/promoter’s group, have beenforfeited and the money has been transferred to CapitalReserve.7.2.2 Securities Premium Account represents the premiumcollected on:•971,000 equity shares issued at a premium of Rs.65/- pershare through an Initial Public Offer in 1999-2000.•330,800 equity shares issued at a premium of Rs.740/-per share to Mutual Funds and Bodies Corporate on apreferential basis during 1999-2000.•1,887,000 equity shares issued at a premium of Rs. 88/-per share to holders of ROCCPS on conversion ofpreferential shares of Rs 98/- each, namely Intel Capital,Toronto Dominion Bank and UTI Venture Funds.•1,538,459 equity shares issued at a premium of Rs.290/-per share to holders of FCCBs on conversion of the bondsat a price of Rs.300/- per share.•1,109,878 equity shares issued at a premium of Rs.390/-per share to holders of GDR at a price of Rs.400/-per share.•11,728,728 equity shares issued at a premium of Rs.522.24/-per share to holders of GDR at price of Rs.532.24/-per share.•250,915 (including Bonus shares, wherever options areeligible) equity shares allotted to the employees underESOP II & III Scheme as per the provisions of the Schemeat various premiums.7.3Employee Stock OptionsIn accordance with the guidelines issued by SEBI under theESOS & ESPS Scheme 1999, the Company amortizes the excessof market price of the underlying equity shares as on the date ofthe grant of the option over the exercise price of the option, tobe adjusted over the period of vesting. The net amount carriedin respect of stock options outstanding at March 31, 2009 amountsto Rs.46.31 Million (Previous Year: Rs.69.65 Million).7.4Deferred TaxIn accordance with the generally accepted accounting principlesin India on Accounting for Deferred Taxes, a net gain of Rs. Nilon a stand alone basis and net change of Rs.79.13 Million on aconsolidated basis have been recorded in the P&L A/c, due torecognition of deferred tax asset as at year end amounting toRs.41.28 Million on consolidated basis and Rs.24.18 Million onstand alone basis.7.5Secured LoansOn a consolidated basis, the secured loan of Rs. 980.04 Million(Previous Year: Rs.1156.15 Million) and on stand alone basis,the secured loan of Rs.479.16 Million (Previous Year: Rs.743.22Million) outstanding in the books as at March 31, 2009 consistsof Rs.25.46 Million pertaining to motorcars financed by thecompany through Hire purchase scheme with the financiersand is secured by hypothecation of the vehicles and Rs.453.69million pertaining to the working capital loan from Axis BankLtd and State Bank of India, which is secured by Fixed Assetsand Receivables.7.6Unsecured LoansOn a consolidated basis, the unsecured loan outstanding in thebooks as at March 31, 2009 consists of –a)Rs.9,129.60 Million (Previous Year: Rs. 7,200.00 Million)relating to Foreign Currency Convertible Bonds issued in fiscal2006-07. The bonds carry interest of 2% per annum and areredeemable by March 9, 2012 if not converted into equity sharesas per terms of issue. These bonds are listed in the ProfessionalSecurities Market of London Stock Exchange. The premiumpayable on these bonds is accrued over the life of the bondsand is carried under Current Liabilities & Provisions.b)Rs.29.11 Million (Previous Year: Rs.158.97 Million) relatesto short term working capital loan from Deutsche Bank.c)Rs.749.86 Million (Previous Year: Rs.749.86 Million) relatesto long term working capital loan from State Bank of India.38 subex annual report 08-09 industry. The investment carrying value of Rs. 7,749.57 Millionincludes the incidental costs of acquisition. Pursuant to theacquisition, Syndesis Limited has been renamed as SubexAmericas Inc.7.9Sundry Debtors7.9.1During the year, on a stand alone basis the Company hassecuritized a portion of its receivables amounting to Rs.401.04Million (Previous year: Rs.133.37 Million) with Axis Bank Ltdand on a consolidated basis Rs.582.81 Million (Previous Year :Rs.133.37 Million).7.9.2The major customers of the company are the telecomand cellular operators overseas and in India. The receivablesare spread over a large customer base. There is no significantconcentration of credit risk on a single customer, but for themajority of the services business coming from AT&T, USA.7.9.3All the debtors are generally considered good andrealizable and necessary provision has been made for debtsconsidered to be bad and doubtful. The level of sundry debtorsis normal and is in tune with business trends requirements.7.9.4Sundry Debtors as a percentage of total revenue is 11%as against 27% in the previous year, on a consolidated basis.7.9.5The age profile on a consolidated basis is as given below:esAmount in Rs. millionPeriod in daysMarch 31, 2009March 31, 2008Value%Value%Less than 180 days622.31100.001040.1057.84More than 180 days--273.2142.16Total622.31100.001,313.31100.00The age profile on a stand-alone basis is as given below:Amount in Rs. millionPeriod in daysMarch 31, 2009March 31, 2008Value%Value%Less than 180 days1,110.08100682.1697.75More than 180 days--15.712.25Total1,110.08100.00697.87100.007.9.6 The management believes that the overall compositionand condition of sundry debtors is satisfactory. The provisionfor doubtful debts stands at Rs.290.77 Million (Previous Year:Rs. 309.14 million) on a consolidated basis and Rs.162.21 Million(Previous Year: Rs. 289.14 million) on a stand alone basis.7.10Cash and Bank BalancesThe bank balances in India includes both rupee accounts andforeign currency accounts. The fixed deposit of Rs.32.73 Millionon a consolidated basis and Rs.31.91 Million on a standalonebasis is the margin money with the bankers for establishingbank guarantee/issuing corporate credit cards.7.11Loans and Advances7.11.1 Advances recoverable in cash, kind or value to bereceived are primarily towards prepayments for value to bereceived. Advance income tax, net of provision for taxationrepresents payments made towards tax liability pendingassessment and refunds due.On a stand alone basis, the unsecured loan outstanding in thebooks as at March 31, 2009 consists of –a)Rs.9,129.60 Million (Previous Year: Rs. 7,200.00 Million)relates to Foreign Currency Convertible Bonds issued in fiscal2006-07. The bonds carry interest of 2% per annum and areredeemable by March 9, 2012 if not converted into equity sharesas per terms of issue. These bonds are listed in the ProfessionalSecurities Market of London Stock Exchange. The premiumpayable on these bonds is accrued over the life of the bondsand is carried under Current Liabilities & Provisions.b)Rs.29.11 Million (Previous Year: Rs.158.97 Million) relatesto short term working capital loan from Deutsche Bank.c)Rs.749.85 Million (Previous Year: Rs.749.85 Million) relatesto long term working capital loan from State Bank of India.These loans are due in fiscal 2009-10.7.7Fixed Assets7.7.1 The value of intangible assets, based on the valuationreport by independent valuers, is being depreciated over 5years in accordance with the Company’s assessment of usefullife thereof.7.7.2 During the year, the Company added Rs.106.78 Millionon a consolidated basis and Rs.38.33 Million on stand alonebasis, to its gross block. The Company disposed off certainassets no longer required. The Company’s net block of fixedassets was Rs.284.28 Million (Previous year: Rs.387.09 Million)on a consolidated basis and Rs.163.34 Million (Previous year:Rs. 265.97 Million) on a stand-alone basis.7.8Investments7.8.1 During 1999, the Company had acquired the whole of theoutstanding common stocks numbering 3,000 of no par valueof IVth Generation, Inc., New Jersey, USA, Consequent to theacquisition, IVth Generation Inc, a wholly owned subsidiary ofthe company, has been renamed as “Subex Technologies Inc.”During 2007-08, the Company filed an application with theHon’ble High Court of Karnataka to transfer the ServicesBusiness Division (which included the investment in SubexTechnologies Inc.) to Subex Technologies Ltd, a wholly ownedsubsidiary of Subex Ltd under a scheme of arrangement. Onobtaining the order from the Hon’ble High Court of Karnataka,the Company has transferred the Services business to SubexTechnologies Ltd with effect from September 1, 2007(appointed date) at an aggregate consideration ofRs.310,000,000. In accordance with the order of the Hon’bleHigh Court, the Company shall receive 3,000,000 shares ofSubex Technologies Ltd valued at Rs.30,000,000 in settlementof the consideration with the balance Rs. 280,000,000 beingtreated as unsecured loan taken by the subsidiary from theCompany.7.8.2 On 23rd June 2006, the Company acquired the entireshare holding of Azure Solutions Ltd, UK. The considerationwas discharged by issue of 11,728,728 GDRs each representingone equity share of Rs.10/- at a premium of Rs.522.24 pershare and cash of Rs.214.57 Million.7.8.3 During the year 2007-08, the Company completed theacquisition of Syndesis Ltd, Canada, a Company engaged inService Assurance and fulfillment space in the Telecom servicesubex annual report 08-09 39 7.11.2 Deposits represent rent deposit, electricity deposit,telephone deposits and advances of like nature.7.11.3 Loans due from Group Companies ( Standalone basis) Rs. In Million2008-092007-08Subex (UK) Limited310.83433.63Subex (Asia Pacific) Pte Ltd-22.06Subex Americas Inc181.56181.68Subex Inc114.40112.55Subex Technologies Ltd166.95394.617.12ProvisionsProvisions for taxation represent income tax, dividend tax andwealth tax liability. The provision would be set off upon paymentof tax.Provision also includes redemption premium accrued onForeign Currency Convertible bonds – Rs.1361.92 Million(Previous Year: Rs.632.05 Million)7.13Other Matters7.13.1 Letters of CreditThe Company has an outstanding Letters of credit amountingto Rs.32.95 Million (Previous Year: Rs.26.05 Million) onconsolidated and a standalone basis. These letters of creditare in the nature of procurement of capex & corporate creditcard.7.13.2 GuaranteesOn Stand alone BasisThe Company has provided Corporate Guarantees to Banksfor credit facilities availed by its wholly owned subsidiaries tothe amount of Rs. 731.85 Million (Previous Year: Rs.500.000Million). The subsidiaries had utilized such facilities to theextent of Rs.659.36 Million.7.14Profit & Loss Account7.14.1 IncomeThe Company derives its income from providing SoftwareDevelopment Services and licensing of Software Products.The segment wise break up of income on consolidated basis isgiven below: Amount in Rs. million except percentagesParticulars2008-092007-08Value%Value%Software Services4,384.8178.513,618.4874.52Software Products1,200.0821.491,237.4325.48Total5,584.89100.004,855.91100.007.14.2 Geographically, the company earns income from exportof software services to USA and software products to most ofthe countries.7.15Other IncomeNon Operating income consists of income derived by thecompany from, interest on deposit with Bank, insurance claimsreceived towards damages of assets, VAT refund and exchangefluctuation.7.16Expenditure7.16.1 The staff cost decreased to Rs.3,866.80 Million (Previousyear: Rs.4,022.37 Million) on a consolidated basis and increasedto Rs.798.27 Million (Previous year: Rs.516.05 Million) on astand alone basis.7.16.2 The Company incurred administration and otherexpenses at 17.78% of its total income during the year ascompared to 30.52% during the previous year on a consolidatedbasis and 50.45% of its total income during the year ascompared to 49.41 % during the previous year on a stand-alone basis.7.17Operating ProfitsDuring the year, on a consolidated basis, the Company earnedan Operating Profit/(Loss) before Interest, depreciation, taxand exceptional items of Rs.971.30 Million being 16.10% oftotal income as against Rs.(730.20) Million at 15.03% duringthe previous year. On a stand-alone basis, the Company earnedOperating Profit/(Loss) before Interest, depreciation, tax andexceptional items of Rs.766.02 Million being 17.47 % of totalincome as against Rs.(251.60) Million at 23.70 % during theprevious year.7.18Interest & Bank ChargesThe Company incurred an expenditure of Rs.434.81 Million(Previous year: Rs. 304.80 Million) on a consolidated basis andRs. 352.57 Million (Previous year: Rs. 278.97 Million) on astand-alone basis. The interest paid is related to temporaryoverdrawls and securitized receivables. The interest on FCCBsprovided alone amounted to Rs.180.76 Million ( Previous Year:Rs. 160.77 Million).7.19Depreciation7.19.1 The provision for depreciation for the year amountedto Rs. 212.88 Million (Previous year: Rs.172.32 Million) on aconsolidated basis and Rs.136.46 Million (Previous year:Rs.121.54 Million) on a stand alone basis.7.19.2 The intangible assets i.e. IPRs and goodwill are beingdepreciated over 5 years in accordance with the Company’sassessment of useful life thereof. Accordingly, an amount ofRs.82.23 Million (Previous year: Rs.84.36 Million) has beencharged towards depreciation.7.20Provision for TaxThe Company has provided for its tax liability in India andoverseas after considering the exemptions for income fromsoftware services and products under the various applicabletax enactments.7.21Net ProfitOn a consolidated basis, the net loss of the Companyamounted to Rs.1,883.63 Million as against Rs.680.71 Million40 subex annual report 08-09 during the previous year. On a stand-alone basis, the net lossof the Company amounted to Rs.1,782.11 Million as againstRs.61.88 Million during the previous year.The loss is mainly due to reinstatement of Foreign CurrencyConvertible Bonds, amounting to Rs.1,929.60 Million, which isa non-cash item, arising due to Rupee depreciating by 21%against United States Dollar.7.22 Earnings per ShareEarnings/(Loss) per share computed on the basis of number ofcommon stock outstanding, as on the Balance Sheet date wasRs.(54.05) per share (Previous year: Rs.(19.49) per share) onconsolidated basis and Rs.(51.14) per share [Previous year:Rs.(1.77) per share] on a stand-alone basis.8. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OFPEOPLE EMPLOYED.SubexiansAs a product company, Subex focuses on recruiting for depthof knowledge. Depth of domain knowledge, product engineeringskills, solution design and presentation are some of the keyrequirements at Subex. We have a highly trained workforcethat is globally distributed. The bulk of the population is at ourBangalore office with London, Toronto and Denver being theother large centres. As of March 31, 2009, we had over 1075Subexians on our rolls.The Human Resources department is centralized at ourcorporate headquarters in Bangalore and oversees HRfunctions across all other offices. At Subex, the HR teamprovides a competitive edge to the business by providing aworkforce that can support a very unique model of valuedelivery based on global product development and deliverycapabilities. It consistently strives to drive and implement auniform HR strategy in areas of Recruitment, CompensationBenefits, Subexian Relations, Retention, PerformanceManagement Processes, M&A Integration etc.RecruitingSubex has conceived and introduced many innovative processesin Recruitment which have proved most effective. Some of thepractices like “Coffee with the Hiring Manager”, post-offerfeedback, mapping of potential candidates in the industry, usingSubexian referral program, partner feedback, interviewerfeedback etc. have been very successful in helping Subex tohire the best available talent in a cost effective and efficientmanner.Subex hires entry level graduates from the top engineeringand management universities in India. The Company hascreated and implemented high quality, repeatable recruitingpractices and procedures to attract the best talent. The mainsources for hires are Subexians referral programs,advertisements, Placement consultants, website postings andwalk-ins. All jobs require a strong focus on both technologyand telecom domain. The entire recruitment process ismanaged through an internally developed tool called “Poodle”.Induction & TrainingEach of our new recruits undergoes a mandatory inductionprogram when they join Subex. The induction program is splitinto in three phases.First Day Induction by HR is aimed at familiarization of theCompany, benefits and facilities. This is then followed byFunctional Induction wherein various department heads explainthe activities within their departments. There is also aManagement Induction which is organized within a month ofjoining, to provide a platfrom for direct interaction with thesenior level management of the organization and to get anoverall understanding of the vision, culture, current and futuregoals of the organization etc.New or recent graduates must also attend additional trainingprograms that are tailored to their area of technology. Inaddition, there are training programs for all Subexians toimprove their technical skills and soft skills. We supplementcontinuing education program by sponsoring special programsfor Subexians at leading educational institutions, such as theBirla Institute of Technology & Science, Pilani.Subex is also in the initial phases of launching a Subex Academywhich would streamline the entire training process. Thisautomated platform would add significant value to trainingidentification, conduct and evaluation.Performance Management SystemSubex continues to take advantage of the latest developmentsin the industry and we have now introduced what we call the V-Model, which helps us align our existing competency modelwith our vision, values and traits.Last year, we rolled out an intranet based system to easeoperations. This year, we have improved on the alignmentbetween the competencies in the SDS and our vision, valuesand traits. The V model talks about values which are importantfor Subexians to be successful. This formed the base on whichtwo pillars were built namely, excel and lead. While “excel”takes care of competencies required for current performance,“lead” factor takes care of competencies required for the future.This, along with the KRAs reinforces the performance cultureat Subex.CompensationCompensation at Subex is multi-dimensional and consists ofsalary, benefits, stock options, health and disability insurance.The Company benchmarks its compensation package againstindustry data and strives to achieve a balanced position. Subexhas developed and perfected a Compensation Grid for use inarriving at the appropriate compensation.subex annual report 08-09 41 financial reviewsubex limited (standalone)42 subex annual report 08-09 AUDITORS’ REPORT TO THE MEMBERS OF SUBEX LIMITED (formerly Subex Azure Limited)1.The nature of the Company’s business/activities during theyear is such that, clauses iii (b) to (d), iii (f), iii (g), v (b), viii,xii, xiii, xiv, xviii, xix and xx as contained in para 4 and 5 ofthe Companies (Auditors’ Report) Order, 2003, are notapplicable to the Company for the current year.2.In respect of its fixed assets:(a)The Company has maintained proper records showing fullparticulars, including quantitative details and situation offixed assets.(b)Some of the fixed assets of the Company were physically verifiedduring the year by the management in accordance with aprogramme of verification which, in our opinion provides forphysical verification of all the fixed assets at reasonable intervals.According to the information and explanations given to us, theCompany is in the process of reconciling the details ofverification with the fixed asset records.(c)The fixed assets disposed off during the year, in ouropinion, do not constitute a substantial part of the fixedassets of the Company and such disposal has, in our opinion,not affected the going concern status of the Company.3.In respect of its inventories:(a)As explained to us, inventories were physically verifiedduring the year by the management at reasonable intervals.(b)In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of inventories followed by the managementwere reasonable and adequate in relation to the size ofthe Company and the nature of its business.ANNEXURE TO THE AUDITORS’ REPORT (REFERRED TO IN OUR REPORT OF EVEN DATE TO THE MEMBERS OF SUBEX LIMITED)(formerly Subex Azure Limited)1.We have audited the attached Balance Sheet of SubexLimited (formerly Subex Azure Limited), as at March 31,2009, the Profit and Loss Account and the Cash FlowStatement of the Company for the year ended on thatdate, both annexed thereto. These financial statementsare the responsibility of the management of the Company.Our responsibility is to express an opinion on these financialstatements based on our audit.2.We conducted our audit in accordance with generallyaccepted auditing standards in India. These Standardsrequire that we plan and perform the audit to obtainreasonable assurance whether the financial statements arefree of material misstatement. An audit includes, examiningon a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includesassessing the accounting principles used and significantestimates made by management as well as evaluating theoverall financial statements presentation. We believe thatour audit provides a reasonable basis for our opinion.3.As required by the Companies (Auditor’s Report) Order,2003 issued by the Government of India, in terms of Section227 (4A) of the Companies Act 1956, we give in theAnnexure, a statement on the matters specified inparagraphs 4 and 5 of the said Order.4.Further, to our comments in the Annexure referred toabove, we report that:(a)we have obtained all the information and explanations,which to the best of our knowledge and belief were necessaryfor the purpose of our audit.(b)in our opinion, proper books of account as required by lawhave been kept by the Company, so far as it appears fromour examination of the books.(c)the Balance Sheet, Profit and Loss Account and Cash FlowStatement dealt with by this report are in agreement withthe books of account.(d)in our opinion, the Balance Sheet, Profit and Loss Accountand Cash Flow Statement dealt with by this report are incompliance with the Accounting Standards referred to inSection 211(3C) of the Companies Act, 1956.(e)on the basis of written representations received from somedirectors as at March 31, 2009 and taken on record by theboard of directors, and the confirmation received from theCompany that the other directors do not hold directorshipsin any other public Company in India, we report that noneof the directors is disqualified as on March 31, 2009 frombeing appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act 1956.(f)without qualifying our opinion, we draw attention to NoteII.9 of Schedule Q to the financial statements regarding thetreatment of the excess managerial remuneration paid tothe Managing Director and Whole-time Director and thestatus of the application to the Central Government withregard to the same.(g)in our opinion and to the best of our information andaccording to the explanations given to us, the said accounts,give the information required by the Companies Act 1956,in the manner so required and, give a true and fair view inconformity with the accounting principles generallyaccepted in India,(i)in the case of the Balance Sheet, of the state of affairsof the Company as at March 31, 2009;(ii)in the case of the Profit and Loss Account, of the lossfor the year ended on that date; and(iii)in the case of the Cash Flow Statement, of the cashflows for the year ended on that date.For Deloitte Haskins & SellsChartered AccountantsV. BalajiPlace: BangalorePartnerDate: May 26, 2009M. No. 203685subex annual report 08-09 43 (c)In our opinion and according to the information andexplanations given to us, the Company has maintainedproper records of its inventories and no materialdiscrepancies were noticed on physical verification.4.According to the information and explanations given to us,the company has not taken/granted any loans, secured orunsecured, from/to companies, firms or other partiescovered in the register maintained under section 301 ofthe Companies Act, 1956.5.In our opinion and according to the information andexplanations given to us, having regard to the explanationthat some of the Company’s transactions of (a) purchasesof goods and services and (b) services rendered, are of aspecialized nature for which comparable quotations arenot available, there are adequate internal controlprocedures commensurate with the size of the Companyand the nature of its business with regard to the purchaseof goods and fixed assets and for the sale of goods andservices and we have not observed any continuing failureto correct major weaknesses in such internal controls.6.To the best of our knowledge and belief, and according tothe information and explanations given to us, there wereno contracts or arrangements that needed to be enteredin the register maintained in pursuance of section 301of the Companies Act 1956.7.The Company has not accepted deposits from the public.8.In our opinion, the internal audit functions carried outduring the year by a firm of Chartered Accountantsappointed by the management has been commensuratewith the size of the Company and the nature of its business.9.In respect of Statutory dues,(a)according to the information and explanations given to us,the Company has been generally regular in depositingundisputed statutory dues including Provident Fund,Employees’ State Insurance, Investor Education andProtection Fund, Income Tax, Wealth Tax, Service Tax, ExciseDuty, Customs Duty, Sales Tax, cess and any other materialstatutory dues with the appropriate authorities during theyear and there were no such dues that were outstandingat March 31, 2009 for a period of more than six monthsfrom the date they became payable.(b)according to the information and explanations given to us,details of disputed sales tax, income tax, customs duty,wealth tax, service tax, excise duty and cess which have notbeen deposited as on March 31, 2009 on account of anydispute are given below:10.The accumulated losses of the Company have not exceededfifty per cent of its net worth as at the end of the year.The Company has incurred cash losses during the financialyear covered by our audit. The Company did not incur cashlosses in the immediately preceding financial year.11.In our opinion and according to the information andexplanations given to us, the Company has not defaulted inthe (re)payment of dues to financial institutions and banks.12.In our opinion and according to the information andexplanations given to us, the terms and conditions of theguarantees given by the Company to financial institutionsfor loans taken by its subsidiaries are not, prima facie,prejudicial to the interests of the Company.13.To the best of our knowledge and belief and according tothe information and explanations given to us, in our opinion,term loans availed by the Company were, applied by theCompany during the year for the purposes for which theloans were obtained, other than temporary deploymentpending application.Name of statuteNature of the duesAmount (Rs.)Period to whichForum where dispute is pendingthe amount relatesIncome Tax Act, 1961Income tax5,859,3802001-02Commissioner of Income Tax (Appeals)(Incl. interest)Income Tax Act, 1961Income tax5,357,9002003-04Honorable High Court of Karnataka(Incl. interest)Income Tax Act, 1961Income tax24,047,8602004-05Commissioner of Income Tax (Appeals)(Incl. interest)14.According to the information and explanations given to usand on an overall examination of the balance sheet of thecompany, funds raised on short term basis have, primafacie, not been used during the year for long terminvestment.15.To the best of our knowledge and belief and according tothe information and explanations given to us, no fraud onor by the Company was noticed or reported during theyear.For Deloitte Haskins & SellsChartered AccountantsV. BalajiPlace: BangalorePartnerDate: May 26, 2009M. No. 20368544 subex annual report 08-09 BALANCE SHEET AS ATScheduleMarch 31, 2009March 31, 2008SOURCES OF FUNDSSHAREHOLDERS’ FUNDS :Share CapitalA348,470,890348,470,890Monies received pending allotment-140,559,130[Refer Note II.4, Schedule Q]Employees Stock Options Outstanding accountB46,306,06269,645,719Reserves and SurplusC5,048,272,2235,443,049,1756,539,300,8447,097,976,583LOAN FUNDS :Secured Loans D 479,161,493743,222,407Unsecured Loans E 9,908,570,24610,387,731,7398,108,835,3588,852,057,765DEFERRED TAX LIABILITY-7,302,834TOTAL15,830,780,91415,957,337,182APPLICATION OF FUNDSFIXED ASSETS & INTANGIBLES :FGross Block764,230,507742,708,202Less : Depreciation600,888,201476,733,586Net Block163,342,306265,974,616INVESTMENTS :G14,263,443,60814,263,443,608DEFERRED TAX ASSET24,176,00931,478,847CURRENT ASSETS, LOANS & ADVANCES :Sundry DebtorsH1,110,083,973697,874,188Cash & Bank balancesI53,041,67892,874,559Loans & AdvancesJ1,193,050,9911,520,736,481Unbilled Revenue 141,527,765152,302,8072,497,704,4072,463,788,035Less: Current liabilities & ProvisionsKCurrent liabilities 422,324,717323,423,121Provisions 1,575,940,535743,924,8031,998,265,2521,067,347,924Net Current Assets499,439,1551,396,440,111PROFIT AND LOSS ACCOUNT1,058,355,416Less : Transfer from General Reserve as per Contra177,975,580880,379,836-TOTAL15,830,780,91415,957,337,182Significant Accounting Policies & Notes to the AccountsQThe Schedules referred to above form an integral part of the Balance SheetAmount in Rs.In terms of our report of even datefor Deloitte Haskins & SellsFor and on behalf of the BoardChartered AccountantsSubash MenonSudeesh YezhuvathV. Balaji BhatV. BalajiFounder Chairman, Managing Director & CEOChief Operating OfficerDirectorPartnerMembership No. 203685Raj KumarChief Counsel & Company SecretaryBangaloreMay 26, 2009subex annual report 08-09 45 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDEDScheduleMarch 31, 2009March 31, 2008INCOME :Sales & Services3,011,047,9371,438,684,166Other IncomeL221,450,2851,777,629Total3,232,498,2221,440,461,795EXPENDITURE :Cost of Hardware, Software and Support ChargesM37,469,453464,299,995Personnel CostsN 798,276,040516,053,309Other Operating, Selling and 1,630,725,366711,716,717Administrative ExpensesOFinancial Costs (Net)P 352,574,093278,968,260Depreciation & AmortisationF 136,458,814121,549,632Total2,955,503,7662,092,587,913Profit/(Loss) Before Taxation and Exceptional Items 276,994,456(652,126,118)Exceptional ItemsExchange Gain/(Loss) on Restatement of FCCBs (1,929,600,000)607,500,000Mark to Market losses on Option Contracts (97,231,040)(5,500,000)(2,026,831,040)602,000,000Profit/(Loss) Before Tax(1,749,836,584)(50,126,118)Provision for taxation includes-Current tax6,976,54817,129,780-MAT Credit writen off/(carried forward)21,170,731(10,042,000)-Fringe Benefit Tax 4,121,66911,930,660-Deferred tax-32,268,948(7,259,005)11,759,435Profit/(Loss) After Taxation (1,782,105,532)(61,885,553)Profit/(Loss) before tax from continuing operations (1,749,836,584)(76,648,345)Tax Expenses 32,268,9484,756,955(1,782,105,532)(81,405,300)Profit/(Loss) before tax from discontinued operations -26,522,227Tax Expenses -7,002,480-19,519,747Profit/(Loss) After Taxation (1,782,105,532)(61,885,553)Balance brought forward from Previous year 723,750,116785,666,570Profit Available for Appropriation(1,058,355,416)723,781,017APPROPRIATION :Dividend-Equity Shares - Final Dividend 2006-07-26,412-Tax on distributed profits-4,489Surplus/(Deficit) carried to Balance Sheet(1,058,355,416)723,750,116(1,058,355,416)723,781,017Earnings/(Loss) Per Share (Face value of Rs.10/- each)(Refer Note II.8 of Schedule Q)-Basic(51.14)(1.77)-Diluted(51.14)(1.77)Significant Accounting Policies & Notes to the AccountsQThe Schedules referred to above form an integral part of the Profit and Loss accountAmount in Rs.In terms of our report of even datefor Deloitte Haskins & SellsFor and on behalf of the BoardChartered AccountantsSubash MenonSudeesh YezhuvathV. Balaji BhatV. BalajiFounder Chairman, Managing Director & CEOChief Operating OfficerDirectorPartnerMembership No. 203685Raj KumarChief Counsel & Company SecretaryBangaloreMay 26, 200946 subex annual report 08-09 CASH FLOW STATEMENT FOR THE YEAR ENDEDAmount in Rs.March 31, 2009March 31, 2008Cash flow from operating activitiesNet Profit before Tax(1,749,836,584)(50,126,118)Adjustments for :a)Depreciation and amortization136,458,814123,103,856b)Interest received(51,107,777)(17,129,916)c)Interest and bank charges403,681,870296,098,176d)Profit on sale of assets (net)(172,727)(1,096,373)e)Employee stock compensation expenses(11,786,616)50,005,707f)Provision for doubtful debts59,115,796288,690,000g)Unrealised exchange fluctuations1,758,633,473(595,294,231)Operating Profit before Working Capital Changes544,986,24994,251,101Adjustments for :a)Sundry Debtors(250,125,502)(942,364,633)b)Loans and advances453,271,340(501,244,448)c)Trade and other payables96,619,094287,244,444Cash generated from/(used in) operations844,751,181(1,062,113,536)a)Direct Taxes paid(34,765,054)(101,006,118)Net Cash provided by operating activitiesA809,986,127(1,163,119,654)Cash Flow from Investing activitiesa)Purchase of Fixed Assets(38,328,461)(87,261,489)b)Sale / disposal of fixed assets4,674,6855,720,518c)Cash flows on acqusitions of subsidiaries-(345,879,403)d)Interest received1,696,74417,129,916Net Cash from Investing ActivitiesB(31,957,032)(410,290,458)Cash Flow from Financing Activitiesa)Proceeds/(Utilisation) from issue of shares/warrants/options-145,225,998b)Proceeds from/(repayment) of short term borrowings - Net(421,248,627)303,802,090c)Proceeds from Long term borrowings10,640,937768,831,945d)Repayment of Long term borrowings(7,334,336)(4,335,771)d)Dividends & Dividend tax paid(53,154)(81,503,996)e)Interest and bank charges paid(402,301,382)(305,875,936)f)Incidental expenses on issue of FCCB & GDR, (incurred)/refunded-38,374,819Net Cash from Financing ActivitiesC(820,296,562)864,519,149Net increase in Cash or Cash equivalents [A + B + C](42,267,467)(708,890,963)Effect of Exchange Differences on restatement of foreign currency cash and cash equivalents2,434,586607,427Cash or Cash equivalents at the start of the year92,874,559801,158,095Cash or Cash equivalents at the close of the year53,041,67892,874,559Note : Cash & Cash Equivalents include balance with Scheduled Banks on Dividend Account of Rs.751,860 (PY : Rs. 805,014),fixed deposit of Rs. 31,907,440 (PY : Rs.17,424,597) which are not available for use by the Company.Significant Accounting policies & Notes to the accounts QThe Schedule referred to above forms an integral part of the Cash flow statementIn terms of our report of even datefor Deloitte Haskins & SellsFor and on behalf of the BoardChartered AccountantsSubash MenonSudeesh YezhuvathV. Balaji BhatV. BalajiFounder Chairman, Managing Director & CEOChief Operating OfficerDirectorPartnerMembership No. 203685Raj KumarChief Counsel & Company SecretaryBangaloreMay 26, 2009subex annual report 08-09 47 SCHEDULES TO ACCOUNTS FOR THE YEAR ENDEDAmount in Rs.March 31, 2009March 31, 2008SCHEDULE - A :SHARE CAPITAL :AUTHORISED :48,040,000 Equity Shares of Rs. 10/- each480,400,000480,400,000200,000 Redeemable Optionally Convertible Cumulative19,600,00019,600,000Preference Shares (ROCCPS) of Rs.98/- eachTotal500,000,000500,000,000ISSUED, SUBSCRIBED AND PAID UP:EQUITY :34,847,089 Equity Shares of Rs. 10/- each348,470,890348,470,890Of the above:a)115,000 shares of Rs.10/- each were allotted forconsideration other than for cash;b)4,626,940 shares of Rs.10/- each are allotted as Bonusshares by capitalisation of General Reserve;c)12,840 shares of Rs.10/- each are allotted in partsettlement of cost of acquisition of subsidiaryd)10,878,784 shares of Rs.10/- each are allotted as Bonusshares by capitalisation of Securities premium;e)11,728,728 shares (GDRs) of Rs.10/- each are allotted in fullsettlement of cost of acquisition of Azure Solutions LtdTotal348,470,890348,470,890SCHEDULE - B :EMPLOYEES STOCK OPTIONS OUTSTANDING ACCOUNT :Employees Stock Options Outstanding85,899,999162,476,740Less:Deferred Employees Compensation Expenses39,593,93792,831,02146,306,06269,645,719SCHEDULE - C :RESERVES AND SURPLUS :Capital ReserveOpening Balance13,006,92013,006,920Add :Transfer on forfeiture of warrants140,559,130153,566,050-13,006,920General ReserveOpening Balance177,975,580177,975,580Less:Transfer to Profit & Loss Account as per contra 177,975,580--177,975,580Securities Premium AccountOpening Balance5,624,568,2286,576,304,853Add:Additions during the year-4,353,213Add/(Less) : Reversal of/(Utilised towards) incidental costs of-38,374,819issue of FCCBs & GDRsLess:Redemption premium on FCCBs [Refer Note II.3, Schedule Q]729,862,055589,904,656Less:Adjustments on account of Demerger Scheme[Refer Note II.2, Schedule Q]-4,894,706,173404,560,0015,624,568,228Profit & Loss Account-723,750,116Total5,048,272,2236,539,300,84448 subex annual report 08-09 SCHEDULES TO ACCOUNTS FOR THE YEAR ENDEDAmount in Rs.March 31, 2009March 31, 2008SCHEDULE - D :SECURED LOANS :Short Term:Working Capital Loans from Banks453,695,887721,063,402(Secured by charge on Fixed Assets and Receivables)Long Term:Loans from Banks25,465,60622,159,005(Secured by hypothecation of assets financed by these loans)[Amount repayable within one year: Rs. 8,887,190Previous Year: Rs.7,334,336)Total479,161,493743,222,407SCHEDULE - E :UNSECURED LOANS :Short Term:Working Capital Loans from Banks29,111,041158,976,153Long Term:Loans from Banks749,859,205749,859,205[Amount repayable within one year: Rs 749,859,205, PY : NIL](Refer Note II.13.4, Schedule Q)Foreign Currency Convertible Bonds (Refer Note II.3, Schedule Q)9,129,600,0007,200,000,000Total9,908,570,2468,108,835,358subex annual report 08-09 49 Schedule - FFixed assets and IntangiblesGross BlockDepreciationNet BlockSl.ParticularsAs atAdditionsDeletionsAs atUptoFor theWithdrawnUptoAs atAs atNo.April 1, March 31,March 31,yearOnMarch 31,March 31,March 31,200820092008deletions200920092008Tangible Fixed Assets1Computer Hardwareand Software257,141,90120,974,8523,006,362275,110,391188,432,09340,432,7782,687,108226,177,76348,932,62868,709,8082Furniture & Fixtures11,341,013114,8635,926,9335,528,9437,347,713905,7333,753,2334,500,2131,028,7303,993,3003Vehicles42,857,39915,220,5746,805,31851,272,65515,429,0139,088,8755,029,83819,488,05031,784,60527,428,3864Office Equipments20,205,8622,018,1721,067,54321,156,4915,935,3173,799,022834,0208,900,31912,256,17214,270,545Intangibles1Goodwill13,766,918--13,766,9187,476,3002,753,384-10,229,6843,537,2346,290,6182Intellectual PropertyRights397,395,109--397,395,109252,113,15079,479,022-331,592,17265,802,937145,281,959TOTAL 742,708,20238,328,46116,806,156764,230,507476,733,586136,458,81412,304,199600,888,201163,342,306265,974,616PREVIOUS YEAR662,665,15489,744,8899,701,841742,708,202360,261,651121,549,6325,077,696476,733,587265,974,616302,403,503Amount in Rs.50 subex annual report 08-09 SCHEDULES TO ACCOUNTS FOR THE YEAR ENDEDAmount in Rs.March 31, 2009March 31, 2008SCHEDULE - G :INVESTMENTS :(Long term, trade, unquoted)In wholly owned subsidiariesSubex Technologies Ltd., India39,999,9409,999,940[Equity shares 3,999,994 (Previous Year : 999,994) fullypaid up, at par value Rs.10/- each]Advance for Share Capital in Subex Technologies Ltd-30,000,000(Refer Note II.2, Schedule Q)Subex (UK) Ltd., UK (5,039,565,245 Equity shares fully paid,6,473,868,2406,473,868,240Par value of GBP 0.00001 each)Subex Americas Inc, Canada7,749,575,4287,749,575,428(100 equity shares fully paid; No par value )Total14,263,443,60814,263,443,608SCHEDULE - H :SUNDRY DEBTORS :(Unsecured)Outstanding for more than six months-Considered Good-15,707,751-Considered Doubtful98,343,424260,449,67398,343,424276,157,424Others-Considered Good1,110,083,973682,166,437-Considered Doubtful63,866,11228,690,0001,173,950,085710,856,4371,272,293,509987,013,861Less: Provision for Doubtful Debts162,209,536289,139,673Total (considered good)1,110,083,973697,874,188SCHEDULE - I :CASH & BANK BALANCES :Cash on hand 8,02822,470Balance with Scheduled Banks-in Current Account in Indian Rupees 4,161,9461,619,419-in Deposit Account in Indian Rupees 31,907,44117,424,597-in Exchange Earner’s Foreign Currency Account328,72769,088,130Balance with Non Scheduled Banks- Deposit with Royal Bank of Canada -64-in Current Account with Royal Bank of Canada, Canada9,779875,319(Maximum outstanding during the year Rs. 2,495,032)-in Checking Account with Wachovia Bank, New Jersey91,359211,549(Maximum outstanding during the year Rs. 191,387,569)-ABN Amro Bank - Dubai1,4651,337,294(Maximum outstanding during the year Rs. 7,742,720)-in Bank of China - RMB account - China378,053144,954(Maximum outstanding during the year Rs.3,339,752)-in HSBC Bank - Paris 9,911,398458,673(Maximum outstanding during the year Rs.9,911,398)-HSBC Bank - Dubai 1,173,5751,692,090(Maximum outstanding during the year Rs.2,084,748)-Societe Generale Bank - London5,069,907-(Maximum outstanding during the year Rs.147,283,805)Total53,041,67892,874,559subex annual report 08-09 51 SCHEDULES TO ACCOUNTS FOR THE YEAR ENDEDMarch 31, 2009March 31, 2008SCHEDULE - J :LOANS & ADVANCES :(Unsecured, considered good)Loans and advances recoverable in cashor in kind or for value to be received207,452,357172,657,203Loans and advances to wholly owned subsidiaries773,557,3951,144,251,356Advance Income Tax including TDS140,187,791111,730,708MAT credit entitlement-21,170,731Other Deposits71,853,44870,926,483Total1,193,050,9911,520,736,481SCHEDULE - K :CURRENT LIABILITIES & PROVISIONS :Sundry Creditors 214,960,438139,938,565(other than dues to Micro & Small Enterprises)(Note II.13.9 Schedule Q)Advance received from Customers 49,005,02399,439,197Deferred Income 111,618,59850,034,207Duties & Taxes 34,830,55023,428,378Interest Accrued but not due 11,158,2489,777,760Unclaimed Dividends 751,860 422,324,717805,014323,423,121PROVISIONS :Taxation75,788,23570,997,989Employee Benefits31,275,84232,505,652Warranty4,228,7182,866,506Others (Refer Note II.13.5, Schedule Q) 102,731,0405,500,000Redemption premium accrued on FCCBs 1,361,916,7001,575,940,535632,054,656743,924,803Total1,998,265,2521,067,347,924Amount in Rs.52 subex annual report 08-09 SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDEDAmount in Rs.March 31, 2009March 31, 2008SCHEDULE - L :OTHER INCOME :Other income 1,213,774681,256Profit on sale of Fixed Assets (Net) 172,7271,096,373Exchange Fluctuation gain (Net) 220,063,784-Total221,450,2851,777,629SCHEDULE - M :COST OF HARDWARE, SOFTWAREAND SUPPORT CHARGES:Cost of Hardware and Software 37,369,45335,868,381Support Charges100,000428,431,614Total37,469,453464,299,995SCHEDULE - N :PERSONNEL COSTS :Salaries, Wages & Allowances 746,809,285443,754,696Contribution to Provident Fund and Other Funds 29,153,94122,156,844Other staff related costs 22,312,81450,141,769Total798,276,040516,053,309SCHEDULE - O :OTHER OPERATING, SELLING ANDADMINISTRATIVE EXPENSES:Software Purchases 4,377,6706,812,885Rent94,686,74648,113,674Power, Fuel and Water Charges 19,423,5247,829,648Repairs & Maintenance 25,224,57619,425,600Insurance 5,870,0804,551,036Communication Costs 16,383,07619,452,011Printing & Stationery 4,246,9133,195,818Travelling & Conveyance 94,122,949105,148,445Rates & Taxes Including Filing Fees 4,330,78318,568,491Advertisement & Business Promotion 24,229,76250,372,193Marketing & Allied Service Charges 1,215,943,41259,664,498Professional & Consultancy Charges 59,987,66620,713,483Provision for Doubtful Debts 59,115,796288,690,000Exchange Fluctuation Loss -55,002,707Miscellaneous Expenses 2,762,4134,153,728Directors sitting fees 20,00022,500Total1,630,725,366711,716,717SCHEDULE - P :FINANCIAL COSTS :Interest on FCCB and other term loans 268,359,550179,306,882Other Interest & Bank Charges 135,322,320403,681,870116,791,294296,098,176Interest on deposit accounts from banks(Gross of TDS of Rs. 347,894, Previous Year Rs. 3,329,016)(1,696,744)(17,129,916)Interest on Inter Company loans (49,411,033)(51,107,777)-(17,129,916)Total352,574,093278,968,260subex annual report 08-09 53 Schedule – QSignificant accounting policies and Notes to AccountsI.SIGNIFICANT ACCOUNTING POLICIESI.1.Basis for preparation of financial statementsThe financial statements have been prepared under thehistorical cost convention in accordance with the GenerallyAccepted Accounting Principles in India (Indian GAAP), theAccounting Standards issued under the Companies (AccountingStandards) Rules 2006 and the relevant provisions of theCompanies Act, 1956, as adopted consistently by the Company.Revenues are recognised and expenses accounted on theiraccrual, including provisions/adjustments for committedobligations and amounts determined as payable or receivableduring the year.I.2.Use of EstimatesThe preparation of the financial statements in conformity withIndian GAAP requires that management makes estimates andassumptions that affect the reported amounts of assets andliabilities, disclosure of contingent liabilities as at the date ofthe financial statements, and the reported amounts of revenueand expenses during the reported period. Actual results coulddiffer from those estimates.I.3.Revenue recognitionRevenue from Contracts for software product license includes,fees for transfer of licenses, installation and commissioning.This revenue is recognized under the percentage completionmethod based on the extent of work determined to have beencompleted as compared to the work involved in the overallscope of the contract. In the event of any expected losses on acontract, the entire amount is provided for in the accountingperiod in which such losses are first anticipated.Revenue from sale of additional software licences arerecognized on transfer.Revenue from Software development is recognized on the basisof chargeable time or achievement of prescribed milestonesas relevant to each contract.Sale of hardware under reseller arrangements are recognizedon dispatch of goods to customers and are recorded net ofdiscounts, rebates for price adjustment, projections, shortagein transit, taxes and duties.Maintenance and service income is recognised on timeproportion basis.Interest on investments and deposits are booked on a timeproportion basis taking into account the amount invested andthe rate of interest.I.4.Fixed Assets and IntangiblesFixed assets are stated at cost of acquisition inclusive of freight,duties, taxes and interest on borrowed money allocated toand utilised for fixed assets up to the date of capitalisation andother direct expenditure incurred on ongoing projects. Assetsacquired on hire purchase are capitalised at gross value andinterest thereon is charged to revenue.Acquired Intangibles are stated at cost inclusive of duties andtaxes. Costs incurred on self generated intangibles areexpensed as incurred.I.5.Depreciation & AmortisationFixed assets and Intangibles are depreciated/amortised usingthe straight-line method over the useful lives of assets.Depreciation is charged on pro-rata basis for assets purchased/sold during the year.The rates of depreciation adopted are as under:ParticularsDepreciation Rates %Computers (including Software)25Furniture & Fixtures20Vehicles20Office equipments20Intellectual Property Rights20Goodwill20Individual assets costing less than Rs. 5,000 are depreciated infull, in the year of purchase.I.6.Employee Stock Option PlansEmployee Stock Options are accounted in accordance with theguidelines stipulated by SEBI. The difference between themarket price of the shares underlying the options granted onthe date of grant of option and the exercise price is expensedas “Employees Compensation” over the period of vesting.I.7.Employee BenefitsThe Company’s contribution to provident fund, a definedcontribution scheme, is charged to the profit and loss accounton accrual basis.Liability for gratuity is funded with Life Insurance Corporationof India (LIC). Gratuity expense for the year has been accountedbased on actuarial valuation determined under the projectedcredit unit method, carried out at the end of the financial year.Actuarial gains/losses are recognized in full in the profit andloss account. The retirement benefit obligation recognized inthe balance sheet represents the present value of the definedbenefit obligations adjusted for unrecognized past service costand as reduced by the fair value of scheme assets. Any assetresulting from this calculation is limited to past service costplus the present value of available refunds and reduction infuture contributions to the scheme.Liability for encashment of leave considered to be long termliability is accounted for on the basis of an actuarial valuation.Provision for outstanding leave credits considered as shortterm liability is as estimated by the management. Other shortterm employee benefits like medical, leave travel etc areaccrued based on the terms of employment on a timeproportion basisI.8.Research and developmentExpenses incurred on research and development is charged torevenue in the same year. Fixed asset purchased for researchand development are capitalized and depreciated as per theCompany’s policy.I.9.Foreign currency transactions and translationTransactions denominated in foreign currencies are recordedat the exchange rates prevailing on the date of the transaction.Monetary items denominated in foreign currencies at yearend are restated at the exchange rate on the date of theBalance Sheet. Non-monetary items denominated in foreigncurrencies are carried at cost. Exchange differences onsettlement or restatement are adjusted in the Profit & Lossaccount. Premium or discount on forward contracts isamortized over the life of such contract and is recognized asincome or expense, in the Profit and Loss account. Any profitor loss arising on cancellation or renewal or retirement offorward contract is recognized in Profit and Loss Account.54 subex annual report 08-09 Assets (other than fixed assets) and liabilities of the foreignbranches are translated into Indian rupees at the rate ofexchange prevailing as at the Balance Sheet date. Fixed Assetsof foreign branches are carried at the exchange rate prevailingon the date of transaction. Revenue and expenses aretranslated into Indian rupees at average/daily exchange ratesprevailing during the year.I.10.InvestmentsLong term Investments are stated at cost less diminution inthe value of investments that is other than temporary.I.11.Income TaxesIncome Tax comprises the current tax provision under the taxpayable method and the net change in the deferred tax assetor liability in the year. Deferred Tax Assets and liabilities arerecognized for the future tax consequences of temporarydifferences between the carrying values of the assets andliabilities and their respective tax bases.Deferred tax assets and liabilities are measured using enactedtax rates expected to apply to taxable income in the years inwhich the temporary differences are expected to be receivedor settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in the income statement inthe period of enactment of the change.Deferred tax assets are recognized and carried forward to theextent that there is a reasonable/virtual certainty, as applicable,that sufficient future taxable income will be available againstwhich such deferred tax assets can be realized.Minimum alternative tax (MAT) paid in accordance to the taxlaws, which gives rise to future economic benefits in the formof adjustment of future income tax liability, is considered as anasset if there is convincing evidence that the Company will paynormal income tax after the tax holiday period. Accordingly,MAT is recognized as an asset in the balance sheet when it isprobable that the future economic benefit associated with itwill flow to the Company and the asset can be measured reliably.I.12.Cash Flow StatementCash flow statement has been prepared in accordance withthe indirect method prescribed in Accounting Standard 3,issued under the Companies (Accounting Standard) Rules 2006.I.13.Preliminary and Share issue expensesExpenses incurred during the Initial Public Offer, follow onoffer and issue of Bonus Shares are amortised over 5 years.Other issue expenses are charged to the securities premiumaccount.I.14.Provisions and ContingenciesA provision is recognized when an enterprise has a presentobligation as a result of past event; it is probable that anoutflow of resources will be required to settle the obligation,in respect of which a reliable estimate can be made. Provisionsare not discounted to its present value and are determinedbased on best estimate required to settle the obligation at thebalance sheet date. These are reviewed at each balance sheetdate and adjusted to reflect the current best estimates.Contingent liabilities are not provided for but disclosed in thenotes to the financial statements.I.15Impairment of Fixed AssetsAt each balance sheet date, the Company reviews the carryingamounts of its fixed assets and intangibles to determinewhether there is any indication that those assets suffered animpairment loss. If any such indication exists, the recoverableamount of the asset is estimated in order to determine theextent of impairment loss. Recoverable amount is the higherof an asset’s net selling price and value in use. In assessingvalue in use, the estimated future cash flows expected fromthe continuing use of the asset and from its disposal arediscounted to their present value using a pre-tax discountrate that reflects the current market assessments of timevalue of money and the risks specific to the asset.Reversal of impairment losses recognized in prior years, ifany, is recorded when there is an indication that the impairmentlosses recognized for the asset no longer exist or havedecreased. However, the increase in carrying amount of anasset due to reversal of an impairment loss is recognized tothe extent it does not exceed the carrying amount that wouldhave been determined (net of depreciation) had no impairmentloss been recognized for the asset in prior years.II.NOTES TO ACCOUNTSII.1.Contingent liabilitiesReceivables factored – Rs. 401,044,585 (Previous Year:Rs. 133,367,178)Claims against the Company not acknowledged as debt –Rs. 54,272,325 (Previous Year: Rs. 24,365,085). These claimsrelate to Income Tax demands pertaining to FY 2001-02,2002-03, 2003-04 and 2004-05. The demands are beingcontested by the Company.The Company has provided Corporate Guarantees to Banksfor credit facilities availed by its wholly owned subsidiaries tothe amount of Rs. 731,850,000 (Previous Year: Rs. 500,000,000).These facilities were utilized to the extent of Rs. 657,229,872(Previous Year: Rs. 409,854,453) by the subsidiaries at therespective year ends.II.2.Scheme of Arrangement – Services BusinessDuring financial year 2007-08, the Company filed an applicationwith Hon’ble High Court of Karnataka to transfer the ServicesBusiness Division to Subex Technologies Ltd, a wholly ownedsubsidiary of the Company under a scheme of arrangement.On obtaining the order from the Hon’ble High Court ofKarnataka, the Company transferred the Services business toSubex Technologies Ltd with effect from September 1,2007(appointed date) at an aggregate consideration ofRs.310,000,000. In accordance with the order of the Hon’bleHigh Court the Company received 3,000,000 shares of SubexTechnologies Ltd valued at Rs.30,000,000 in settlement of theconsideration with the balance Rs. 280,000,000 being treatedas unsecured loan taken by the subsidiary from the Company.The deficit arising out of the transfer amounting toRs 404,560,001 as detailed below has been charged to theSecurities Premium account during financial year 2007-08, inaccordance with the order of the Court.Amount in Rs.Particulars of assets and liabilities transferredNet current assets406,541,994Investments in Subex Technologies Inc308,018,007Book value of assets transferred714,560,001Consideration received(310,000,000)Amount written off to Securities premium404,560,001subex annual report 08-09 55 II.3.Foreign Currency Convertible Bonds (FCCB)During the year 2006-07, the Company issued Foreign CurrencyConvertible Bonds (FCCBs) aggregating to US$ 180 million toInstitutional Investors. The bonds carry an initial interest rateof 2% per annum and are redeemable by March 9, 2012, if notconverted in to equity shares as per terms of issue.Other terms and conditions governing the bonds are as follows:a)Conversion of the bonds into equity shares at the option ofthe bond holders at any time after April 18, 2007b)Conversion Price – Rs.656.20 per sharec)Exchange Rate for purpose of conversion - 1 US$ = Rs.44.08d)Interest of 2% per annum payable semi-annually in arrearse)Redemption with yield to maturity guaranteed return of8% per annum, calculated on semi-annual basisf)The Company can exercise an option to redeem the bondsin whole or in part on or any time after March 9, 2010, butprior to January 29, 2012, subject to appropriate approvalsat a price determined on the terms defined in the offerdocument.g)Listing of the bonds on the Professional Securities Marketof London Stock ExchangeThe difference between the yield to maturity guaranteed rateof return of 8% and the coupon rate of 2% represents thepremium payable on redemption and is amortised to SecuritiesPremium over the life of the bonds on a pro-rata basis.II.4.Monies received pending allotmentDuring financial year 2007-08, the company allotted 2,230,000warrants to promoters/ promoters group, entitling each holderto obtain allotment of one equity share against each suchwarrant on a preferential basis at a price of Rs.630.31. Underthe terms of issue, the Company has received 10% of the totalconsideration amounting to Rs.140,559,130. To obtain theunderlying equity share, the balance 90% shall be paid within18 months from the date of allotment of the warrants in oneor more tranches. During the year, the warrants issued havebeen forfeited and the money has been transferred to CapitalReserve. The money received by the Company has been utilizedfor long term working capital requirements.II.5.Operating leasesThe Company has entered into operating lease arrangementsfor its office facilities. These leases are for a period rangingfrom 1 to 5 years with an option to the Company for renewingat the end of the initial term. Rental expenses for operatingleases included in the Income statement for the year isRs. 94,686,746 (Previous year: Rs. 48,113,674)The future minimum lease payments for non-cancelableoperating leases were:Amount in Rs.March 31, 2009March 31, 2008Within one year86,881,54881,377,844Due in a period betweenone year and five years253,011,623132,917,145Due after five years--The lease agreement for the above non-cancellable leaseprovides for escalation of rentals at the end of 3 years of thelease, which has been factored in the future minimum rentalsdisclosed above.II.6.Employees Stock Option Plan (ESOP)ESOP – IIDuring 1999-2000, the Company established the Employee StockOption Scheme 2000 (“ESOP 2000”) under which options havebeen allocated for grant to the employees of the Company andits subsidiaries. The Company has obtained in-principle approvalfor listing upto a maximum of 883,750 shares to be allottedpursuant to exercise of options granted under the scheme. Eachoption comprises one underlying equity share of Rs.10/- eachand carries an entitlement of bonus shares if and when declared.This scheme has been formulated in accordance with theSecurities and Exchange Board of India (Employee Stock OptionScheme and Employee Stock Purchase Scheme) Guidelines, 1999.As per the scheme, the Compensation Committee grants theoptions to the employees deemed eligible by the Advisory Boardconstituted for the purpose. The options are granted at a price,which is not less than 85% of the average market price of theunderlying shares based on the quotation on the Stock Exchangewhere the highest volume of shares are traded for 15 days priorto the date of grant. The shares granted vest over a period of 1to 4 years and can be exercised over a maximum period of 3years from the date of vesting.During the year, the Company amended the ESOP 2000 schemeby inclusion of provisions allowing employees to voluntarilysurrender their vested/unvested options at any time duringtheir employment with the Company. Pursuant to this, 156,211options were surrendered by 122 employees during the saidperiod. Due to this, Rs.6,611,773, being the previouslyrecognized ESOP compensation cost on these options, havebeen reversed and credited to personnel costs during the year.The difference between the market price of the share underlyingthe options granted on the date of grant of option and the exerciseprice of the option are expensed over the vesting period as perthe SEBI guidelines. The net impact of the movement in optiongrants during the period resulted in a charge of Rs.1,759,270(Previous Year: charge of Rs.19,082,165) to the Profit & LossAccount during the year.ESOP – IIIDuring 2005-2006, the Company established the EmployeeStock Option Scheme 2005 (“ESOP 2005”) under which 500,000options have been allocated for grant to the employees.Subsequently, during the year 2006-2007, the number ofoptions allocated for grant to the employees was increased to2,000,000 options. The Company has obtained in-principleapproval for listing upto a maximum of 2,000,000 sharespursuant to exercise of options granted under the scheme.Each option comprises one underlying equity share of Rs.10/-each. This scheme has been formulated in accordance with theSecurities and Exchange Board of India (Employee Stock OptionScheme and Employee Stock Purchase Scheme) Guidelines,1999. As per the scheme, the Compensation Committee grantsthe options to the employees deemed eligible by the AdvisoryBoard constituted for the purpose. The options are granted at56 subex annual report 08-09 2008-092007-08ParticularsOptions (Nos)Weighted averageOptions (Nos)Weighted averageexercise price perexercise price perstock options (Rs.)stock options (Rs.)Options outstanding at the beginning of the yearESOP – II214,038427.48 261,202408.57ESOP – III1,718,245366.67422,533429.37Granted during the yearESOP – II362,07266.75 - -ESOP – III1,764,39774.801,671,700380.31Exercised during the yearESOP – II- 30,927ESOP – III-437Cancelled, Surrendered & Lapsed during the yearESOP – II217,993 16,237ESOP – III1,688,260375,551Options outstanding at the end of the yearESOP – II358,117 75.47 214,038 427.48ESOP – III1,794,382127.491,718,245366.67Options exercisable at the end of the yearESOP – II9,930 73,798ESOP – III62,100105,539[Weighted average remaining contractual life (considering vesting and exercise period)]ESOP – IIAt March 31, 2008 : 3.48 YearsAt March 31, 2009 : 4.05 YearsESOP – IIIAt March 31, 2008 : 4.96 YearsAt March 31, 2009 : 4.48 Yearsa price, which is not less than 85% of the average market priceof the underlying shares based on the quotation on the StockExchange where the traded volume is the highest for 15 daysprior to the date of grant. The shares granted vest over aperiod of 1 to 4 years and can be exercised over a maximumperiod of 3 years from the date of vesting.During the year, the Company amended the ESOP 2005 schemeby inclusion of provisions allowing employees to voluntarilysurrender their vested/unvested options at any time duringtheir employment with the Company. Pursuant to this,1,069,407 options were surrendered by 538 employees duringthe said period. Due to this, Rs. 41,876,574, being thepreviously recognized ESOP compensation cost on theseoptions, have been reversed and credited to personnel costsduring the year.The difference between the market price of the shareunderlying the options granted on the date of grant of optionand the exercise price of the option are expensed over thevesting period as per the SEBI guidelines. The net impact ofthe movement in option grants during the period resulted in acredit of Rs.25,098,927 (Previous Year : Charge of Rs. 4,236,147)to the Profit & Loss Account during the year.Method used for accounting for share based payment plan:The Company has used intrinsic value method to account forthe compensation cost of stock option to employees of theCompany. Intrinsic value is the amount by which the quotedmarket price of the underlying share exceeds the exerciseprice of the option.Employees’ stock options details as on the balance sheet date are:subex annual report 08-09 57 ParticularsMarch 31, 2009March 31, 2008Net Profit/(Loss) for the year (as reported) (1,782,105,532)(61,885,553)Add : Stock-based employee compensation relating to grants (11,786,616) 23,318,312Less : Stock-based compensation expenses determined under fair value basedmethod for the above grants110,032,092 62,566,550Net Profit/(Loss) (proforma)(1,903,924,240) (101,133,791)Basic earnings per share (as reported) (51.14) (1.77)Basic earning per share (proforma) (54.64) (2.90)Diluted earning per share (as reported) (51.14) (1.77)Diluted earnings per share (proforma)(54.64) (2.90)II.7.Related party informationA) Related partiesWholly Owned Subsidiaries controlled by the CompanySubex Americas Inc.Subex (UK) LimitedSubex Technologies LimitedSubex Azure (GB) Limited2101874 Ontario Inc (Dissolved on May 12, 2009)Syndesis Development India Private LimitedSubex Azure Holdings Inc.Subex (Asia Pacific) Pte LtdSubex Inc.Subex Technologies Inc.Subex Azure (U.S) Inc.Fair value methodologyThe fair value of options used to compute pro forma net incomeand earnings per equity share have been estimated on thedate of grant using Black-Scholes model.The key assumptions used in Black-Scholes model forcalculating fair value is: risk-free interest rate of 6%, expectedlife: 3 years, expected volatility of share: 58.98% and expecteddividend yield: 1.19%. The variables detailed herein representthe average of the assumptions during the pendency of thegrant dates.The impact on the EPS of the Company if fair value method isadopted is given below:Subex Azure (Delaware) Inc.Subex Azure (Ireland) LimitedSyndesis IP Holdings Limited, Canada (Dissolved onMarch 3, 2009)Enterprises over which some of the directors exercisesignificant influenceKivar Holdings Private Limited (formerly Subex HoldingsPrivate Limited) and its subsidiariesKey Management PersonnelSubash Menon, Founder Chairman, Managing Director &CEOSudeesh Yezhuvath, Chief Operating Officer & WholetimeDirectorNote - Related parties are as identified by the Company’based on information available and relied upon by auditors.Amount in Rs.58 subex annual report 08-09 Nature of TransactionSubsidiariesEnterprises over whichKey Managementsome of the directorsPersonnelexercise significant infulence2008-092007-082008-092007-082008-092007-08a)Marketing and allied Service Chargespaid/payable to :i)Subex Technologies Inc-463,299,185----ii)Subex (UK) Ltd567,342,86550,165,299----iii)Subex Inc511,488,1773,354,235----iv)Subex Americas Inc18,692,414-----v)Subex (Asia Pacific) Pte Ltd131,982,385-----b)Income from Software Developmentand Services:i)Subex (UK) Ltd568,786,957145,239,530----ii)Subex Inc.,385,143,872192,511,363----iii)Subex (Asia Pacific) Pte Ltd161,183,82918,804,724----iv)Subex Americas Inc577,084,741-----c)Salary, Perquisites & Commission(Refer Note: II.9, Schedule Q)----12,180,00012,180,000d)Amount due as at year end fromi)Subex UK Ltd823,747,337163,672,379----ii)Subex Inc841,730,069217,853,555----iii)Subex (Asia Pacific) Pte Ltd205,685,09522,518,943----iv)Subex Americas Inc, Canada948,558,532235,487,659----e)Amount due as at year end toi)Subex UK Ltd752,233,633-----ii)Subex (Asia Pacific) Pte Ltd162,707,0934,826,642----iii)Subex Americas Inc119,536,26576,039,117----iv)Subex Inc675,160,070-----f)Loans outstanding as at year end from/(to)i)Subex UK Limited310,839,094433,633,416----ii)Subex (Asia Pacific) Pte Ltd-22,067,280----iii)Subex Americas Inc181,563,344181,677,223----iv)Subex Inc114,402,069112,549,941----v)Subex Technologies Ltd166,944,566394,612,450----g)Expense incurred on behalf of:i)Subex Americas Inc, Canada-162,975,799----h)Interest on Inter Company Loansi)Subex UK Limited29,590,381-----ii)Subex Americas Inc10,515,559-----iii)Subex Inc 9,305,093-----i)Expenses allocated to/(from):i)Subex (UK) Ltd(3,436,959)27,326,167----ii)Subex, Inc3,818,85310,574,251----iii)Subex (Asia Pacific) Pte Ltd8,382,5133,725,496----iv)Subex Americas Inc2,788,63561,645,149----v)Subex Technologies Ltd (See Note 1)-35,663,585----j)Consideration for Transfer of ServiceBusiness to Subex Technologies Ltdi)Shares allotted/to be allotted fromSubex Technologies Ltd-30,000,000----ii)Loan to Subex Technologies Ltd-280,000,000----k)Money received againstwarrants issued-113,455,800-27,103,330l)Corporate Guarantee provided by Companyto financial institutions in respect offinances availed by Subsidiaries731,850,000500,000,000----B) Details of the transactions with the related parties other than employees who are related to the Directors of the company are as under:Amount in Rs.Note -1 – Support charges under schedule M is net of costs allocated to STL of Rs. Nil (Previous Year: 35,663,585)subex annual report 08-09 59 II.9. a) Managerial Remuneration to Managing Director and Whole-time Director2008-092007-08A.Remuneration to Whole-time directorsSalary and allowances (including perqusites)9,600,0009,600,000Contribution to Provident Fund2,580,0002,580,000Total (A)12,180,00012,180,000B.Remuneration to Non-Executive directorsSitting fees paid to Non-executive directors20,00022,500Commision paid to Non-executive directors--Total (A+B)12,200,00012,202,500Note: Contribution to PF represents the amounts paid by the company to the PF Authorities.b) Computation of Net Profit in accordance with Section 198/349 of the Companies Act, 1956Amount in Rs.Particulars2008-092007-08Profit/(Loss) before tax as per the Profit & Loss Account(1,749,836,584)(50,126,118)Remuneration to Directors (Including Commission & Sitting Fees) - See (a) above12,200,00012,202,500Surplus/Loss on sale of Fixed Assets (Net)(172,727)(1,096,373)Net Profit/(Loss) u/s 198/349 of the Companies Act, 1956(1,737,463,857)(36,827,245)Maximum Remuneration of Whole-time Directors under provisions of the Companies Act*9,600,0009,600,000Remuneration paid to Whole-time Directors (including Commission Rs. Nil, Previous Year: Nil)9,600,0009,600,000Maximum Commission to Non-executive directors under the Companies Act NilNilCommission Paid NilNil* In view of the inadequacy of profits in Year ending March 31, 2009, the maximum remuneration is based on Schedule XIII to theCompanies Act, 1956 and excludes Contribution to Provident Fund.Note: During the year ended March 31, 2009, the Company has paid an amount of Rs. 39,750,760 to its Managing director andwhole time director towards remuneration and has applied to the Central Government for approval of payments that are inexcess of the maximum remuneration payable under the Companies Act, 1956. Pending the Central government’s approval,such excess is treated as monies due from the directors being held by them in trust for the Company and is included underLoans and advances (Schedule: J to the financial statements). The excess remuneration paid to the directors in 2007-08amounting to Rs.27,533,906 are also included under loans and advances (Schedule ‘J’ to the financial statements).The Company’s application for approving the excess remuneration is pending with the Central Government.II.8. Earnings/(Loss) per share (EPS):Amount in Rs.2008-092007-08Profits after tax attributable to shareholders(1,782,105,532)(61,885,553)Weighted average number of shares for basic EPS34,847,08934,834,666Weighted average number of shares for diluted EPS34,847,08934,834,666Earnings per share – basic(51.14)(1.77)Earnings per share – diluted(51.14)(1.77)Face value of shares : Rs. 10 eachNote: Employee Stock Options, FCCBs and Warrants (if any) outstanding at year end are anti dilutive and hence ignored incomputing Diluted Earnings per share.Amount in Rs.60 subex annual report 08-09 March 31, 2009March 31, 2008ParticularsUS$Buy/SellAmount (INR)US$Buy/SellAmount (INR)Forward contracts7,300,000Sell363,846,2501,400,000Sell55,987,000Option contracts4,600,000Sell192,040,0005,000,000Sell202,244,000II.12. Details of warrantyYearOpening BalanceAdditions during the yearUtilisation/(reversal) during the yearClosing Balance2008-092,866,5064,228,718(2,866,506)4,228,7182007-082,983,6542,866,506(2,983,654)2,866,506Probable period of outflow in case of warranty is 3 months.Amount in Rs.II.10. Auditors remunerationAmount in Rs.2008-092007-08Audit Fees (including fees for audit of certain subsidiaries [Previous Year – None]consolidated accounts & issuance of report on the corporate governanceand tax audit) – excluding Service tax5,650,0002,150,000For Tax Matters (excluding service tax)300,000200,000Reimbursement of expenses121,897 -II.11.Pursuant to court order, the Company has transferred its Service business to its wholly-owned subsidiary, Subex TechnologiesLtd during the year ended March 31, 2008. The disclosure required under the Accounting Standard 24 “Discontinuing Operations”,with regard to the Service business is as follows:Amount in Rs.for the year endedParticularsMarch 31, 2008Revenue from discontinued operations523,956,263Expenses from discontinued operations497,434,036Net Cash out flow from operating activities(139,400,000)Net Cash flow from Investing activities-Net Cash flow from financing activities-II.13. Others1Estimated amount of contracts, remaining to be executedon capital account and not provided for (net of advancespaid) Rs. 981,108 (Previous year: Rs. 5,199,547)2.Unclaimed dividend of Rs. 751,860 as at March 31, 2009represent dividends not claimed for the period from2001-2008. No part thereof has remained unpaid orunclaimed for a period of seven years from the date theybecome due for payment requiring a transfer to the‘Investor Education and Protection Fund’. During thecurrent year, the company has transferred Rs 52,514 toInvestor Protection Fund.3.Personnel Cost for the year includes expenditureon Research and Development of Rs. 70,461,643(Previous year: Rs. 66,755,179). This is as certified by themanagement and relied upon by the auditors.4.A director of the Company has provided a personalguarantee in respect of long term loans from Banksincluded in schedule E of the financial statements. Further,the promoters’ shares have also been pledged towardsportion of these loans.5.As per the guidelines on accounting for Derivatives issuedby the Institute of Chartered Accountants of India, theCompany has provided for Mark to Market losses ofRs. 102,731,040 (Previous Year: Rs.5,500,000), onoutstanding option contracts.6.The Company has entered into the following derivativeinstruments for the purposes of hedging the risksassociated with foreign exchange exposures.(i) Forward/Option Contractssubex annual report 08-09 61 (ii) The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are given below:March 31, 2009March 31, 2008Receivable towardsRs.Foreign currencyRs.Foreign currencyExport of Goods & Services468,324,252USD 9,109,647272,441,596USD 6,791,047(including Net Receivable from85,144,228GBP 1,174,565103,657,328GBP 1,286,830wholly owned subsidiaries)27,422,308SGD 822,25723,881,639SGD 821,45814,376,508AUD 410,4332,246,915AUD 60,8743,911,696Other Currencies71,011,476EUR 1,120,8285,152THB 4,0003,393AED 311Loans to/(from) subsidiaries62,516,082GBP 862,410265,560,199GBP 3,296,699504,394,176USD 9,943,681480,598,650USD 11,986,190505,124AED 36,5773,769,011SGD 129,64339,197,447CAD 967,231Amounts payable in foreign currency on account of:March 31, 2009March 31, 2008Rs.Foreign currencyRs.Foreign currencyImport of Goods & Services3,683,500US$ 72,62419,697,427US$ 491,2572,630,160EUR 39,000--Capital imports [including--305,021GBP 3,787intangibles]355,359US$ 8,863Towards Interest on Foreign11,158,248US$ 219,9979,777,760US$ 244,444Currency Convertible BondsTowards Foreign Currency9,129,600,000US$ 180,000,0007,200,000,000US$ 180,000,000Convertible BondsRedemption Premium accrued1,361,916,700US$ 26,851,670632,054,656US$ 15,801,366on FCCBs62 subex annual report 08-09 Amount in RupeesGratuityMarch 31,2009March 31,2008IComponents of employer expense1Current Service cost4,662,610 2,487,7002Interest cost856,520 529,7203Expected return on plan assets(110,440) (91,370)4Curtailment cost/(credit) - -5Settlement cost/(credit) - -6Past Service Cost - -7Actuarial Losses/(Gains)381,560 1,221,0208Total expense recognized in the Statement of Profit & Loss Account5,790,250 4,147,070IIActual Contribution and Benefit Payments for year ended 31 March 20091Actual benefit payments899,960 1,215,0602Actual Contributions1,168,390 1,102,330IIINet asset/(liability) recognized in Balance Sheet as at March 31, 20091Present value of Defined Benefit Obligation (DBO)15,328,540 10,295,0662Fair value of plan assets1,504,530 1,092,9203Funded status [Surplus/(Deficit)](13,824,010) (9,202,150)4Unrecognized Past Service Costs- -5Net asset/(liability) recognized in Balance Sheet(13,824,010) (9,202,150)IVChange in Defined Benefit Obligations during the year ended March 31, 20091Present Value of DBO at beginning of year10,295,070 7,229,0362Current Service cost4,662,610 2,487,7003Interest cost856,520 529,7204Curtailment cost/(credit) - -5Settlement cost/(credit) - -6Plan amendments - -7Acquisitions - -8Actuarial (gains)/ losses414,300 1,263,6749Benefits paid(899,960) (1,215,060)10Present Value of DBO at the end of year15,328,540 10,295,070VChange in Fair Value of Assets during the year ended March 31, 20091Plan assets at beginning of year1,092,920 1,062,8322Acquisition Adjustment--3Actual return on plan assets(estimated)110,440 91,3704Actuarial Gain/(Loss)32,74051,4485Actual Company contributions(less risk premium, ST)1,168,390 1,102,3306Benefits paid(899,960) (1,215,060)7Plan assets at the end of period1,504,530 1,092,920VIActuarial Assumptions1Discount Rate8.00%8.70%2Expected Return on plan assets9.00%9.00%3Salary escalation6.00%5.00%4Attrition Rate5.00%5.00%•The composition of the plan assets held under the funds managed by the Insurer is not provided, since the information is not available.•Payments to Provident fund, a defined contribution plan Rs.25,332,138 (Previous Year Rs.22,354,146)7.The following table sets out the funded status of the defined Benefit Schemes and the amount recognized in the financial Statements.subex annual report 08-09 63 II.14. Other information pursuant to Schedule VI of the Companies Act, 1956.Amount in Rs.Year endedYear endedMarch 31, 2009 March 31, 2008CIF value of imports :Import of systems and solutions27,950,45519,315,371Capital goods9,692,68031,589,202Expenditure in foreign currency (on payment basis)Traveling expenses37,602,11549,994,507Interest expenses173,150,299147,893,999Consideration for acquired assets-670,332Product marketing expense and other expenditure incurred overseas forsoftware development 85,208,551194,844,732Earnings in foreign exchange (on accrual basis)Income from software development services andproducts on receipt basis2,975,368,3561,436,954,037Remittance in foreign currency on account of dividendAmount remitted during the year in foreign currency on account ofdividends for the year2006-07-415,754No. of non-resident shareholders for the year2007-08-3Shares held by 3 non-resident shareholders on which dividend wasdue for the year2006-07--8.Current tax includes foreign Taxes of Rs. 6,976,548/-,(Previous Year: Rs. 7,087,780)9.The dues to Micro and Small enterprises as defined in TheMicro, Small & Medium Enterprises Development Act, 2006,are identified by the Company based on inquiries with theparties and information available with the Company. This hasbeen relied upon by the auditors.10.Since the Company prepares consolidated financialstatements, no segment information is disclosed in thesefinancial statements.11.Revenue is net of Rs.46,562,941/- being reversal of UnbilledRevenues that have been written-off or provided.12.The Company purchases hardware and software to fulfillits obligations under contracts for sale of its Products. Therewere no inventory of such hardware/software at the beginningand end of the year. No quantitative information of purchasesof hardware/software items have been disclosed since none ofthe individual items of such purchases constitute more than10% of the total value of Purchases of hardware/software.13.The Company has ‘International transactions’ with‘Associated Enterprises which are subject to Transfer Pricingregulations in India. The Management of the Company, is ofthe opinion that such transactions with Associated Enterprisesare at arm’s length and hence in compliance with the aforesaidlegislation. Consequently, this will not have any impact on thefinancials statements, particularly on account of tax expenseand that of provision for taxation.14.Previous year’s figures have been regrouped to conformto the classifications for the current year.II.15. Deferred Taxa) The deferred tax asset/(liability) recognised, comprises of the tax impact arising from timing differences on account of thefollowing:ParticularsAs atAs atMarch 31, 2009March 31, 2008Depreciation & other items(Claimable in Indian Tax Jurisdiction)24,176,009(7,302,834)Depreciation (Claimable in Other Tax Jurisdiction) -31,478,84764 subex annual report 08-09 BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILECOMPANY: SUBEX LIMITEDYEAR : 2008-2009I.Registration detailsRegistration No.16663State code08Balance sheet date31-03-2009II.Capital raised during the year (Rupees in thousands)Public issue-Rights issues-Bonus issue-Private placements-III.Position of the mobilisation and development of funds (Rupees in thousands)Total liabilities15830781Total assets15830781Source of fundsPaid up capital348471Unsecured loans9908570Secured loans479161Deferred tax liability-Advance for share capital-Reserves & surplus5094579Application of fundsNet fixed assets163342Investments14263444Net current assets499439Deferred tax assets24176Miscellaneous expenditure-Accumulated lossess880380IV.Performance of Company (Rupees in thousands)Turnover3011048Total expenditure4982335Loss before tax1749837Loss after tax1782106Earning per share from(51.14)Earning per share from(51.14)ordinary activities (basic) (Rs.)ordinary activities (diluted) (Rs.)V.Generic name of three principal products/ services of the Company (As per monetary terms)ProductITC code no.85/24DescriptionCOMPUTERSOFTWAREFor and on behalf of the BoardBangaloreSubash MenonSudeesh YezhuvathV. Balaji BhatMay 26, 2009Founder Chairman, Managing Director & CEOChief Operating OfficerDirectorsubex annual report 08-09 65 financial reviewsubex limited (consolidated)66 subex annual report 08-09 AUDITORS’ REPORT TO THE BOARD OF SUBEX LIMITED1.We have audited the attached Consolidated Balance Sheetof Subex Limited, formerly Subex Azure Limited, (“theCompany”) and its subsidiaries (the Company and itssubsidiaries constitute “the Group”) as at March 31, 2009,the Consolidated Profit and Loss Account and theConsolidated Cash Flow Statement for the year then ended,both annexed thereto. These financial statements are theresponsibility of the Company’s management and have beenprepared by the management on the basis of separatefinancial statements and other financial informationregarding components. Our responsibility is to express anopinion on these financial statements based on our audit.2.We conducted our audit in accordance with generallyaccepted auditing standards in India. These Standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes, examining on a test basis, evidence supportingthe amounts and disclosures in the financial statements.An audit also includes assessing the accounting principlesused and significant estimates made by management aswell as evaluating the overall financial statementspresentation. We believe that our audit provides areasonable basis for our opinion.3.We did not audit the financial statements of the subsidiaries,whose financial statements reflect gross total assets ofRs. 214,050,313 as at March 31, 2009, total revenues ofRs. 1,237,118,256 and net cash flows inflows ofRs. 277,868,017 for the year then ended, as considered inthese financial statements. These financial statements andother financial information have been audited by otherauditors whose reports have been furnished to us, and ouropinion, in so far as it relates to amounts included in respectof these subsidiaries is based solely on the reports of theother auditors.4.We report that the consolidated financial statements havebeen prepared by the Company’s management inaccordance with the requirements of Accounting Standard(AS) 21, Consolidated Financial Statements, notified underthe Companies (Accounting Standard) Rules, 2006.5.Without qualifying our opinion, we draw attention to NoteII.11.5 of Schedule P to the financial statements regardingthe treatment of the excess managerial remuneration paidto the Managing Director and Whole-time Director andthe status of the application with regard to the samepending with the Central government.6.Based on our audit and on the consideration of the reportsof other auditors on separate financial statements and onthe other financial information of the components, and tothe best of our information and according to theexplanations given to us, we are of the opinion that theattached consolidated financial statements give a true andfair view in conformity with the accounting principlesgenerally accepted in India:a)in the case of the Consolidated Balance Sheet, of the stateof affairs of the Group as at March 31, 2009;b)in the case of the Consolidated Profit and Loss Account, ofthe loss of the Group for the year then ended; andc)in the case of the Consolidated Cash Flow Statement of thecash flows of the Group for the year then ended.For Deloitte Haskins & SellsChartered AccountantsV. BalajiPlace : BangalorePartnerDate : May 26, 2009M. No. 203685subex annual report 08-09 67 CONSOLIDATED BALANCE SHEET AS ATIn terms of our report of even datefor Deloitte Haskins & SellsFor and on behalf of the BoardChartered AccountantsSubash MenonSudeesh YezhuvathV. Balaji BhatV. BalajiFounder Chairman, Managing Director & CEOChief Operating OfficerDirectorPartnerMembership No. 203685Raj KumarChief Counsel & Company SecretaryBangaloreMay 26, 2009Amount in Rs.ScheduleMarch 31, 2009March 31, 2008SOURCES OF FUNDSSHAREHOLDERS’ FUNDSShare CapitalA348,470,890348,470,890Monies received pending allotment-140,559,130[Refer Note II.5, Schedule P]Employees Stock Options Outstanding accountB46,306,06269,645,719Reserves and SurplusC4,612,714,4415,007,491,3936,348,958,5736,907,634,312LOAN FUNDSSecured LoansD980,044,5431,156,150,935Unsecured LoansE9,913,642,24610,893,686,7898,114,849,7599,271,000,694DEFERRED TAX LIABILITY1,268,4327,302,834TOTAL15,902,446,61416,185,937,840APPLICATION OF FUNDSFIXED ASSETS & INTANGIBLES :FGross Block1,723,966,1931,505,824,566Less : Depreciation1,439,683,9591,118,734,067Net Block284,282,234387,090,499Capital work in progress22,363,5601,682,246306,645,794388,772,745GOODWILL ON CONSOLIDATION15,366,358,77515,293,562,487DEFERRED TAX ASSET42,545,532131,380,902CURRENT ASSETS, LOANS & ADVANCESSundry DebtorsG622,310,8441,313,308,647Cash & Bank balancesH187,410,632231,185,346Loans & AdvancesI604,637,455493,494,014Unbilled Revenue683,206,791586,456,9462,097,565,7222,624,444,953Less: Current liabilities & ProvisionsJCurrent liabilities1,307,609,9311,440,967,492Provisions1,766,041,861843,717,9583,073,651,7922,284,685,450Net Current Assets(976,086,070)339,759,503Miscellaneous expenditure14,606,46232,462,203(To the extent not written off or adjusted)(Refer Note II.11.9, Schedule P)PROFIT AND LOSS ACCOUNT1,326,351,701Less : Transfer from General Reserve as per Contra177,975,5801,148,376,121-TOTAL15,902,446,61416,185,937,840Significant Accounting Policies & Notes to the AccountsPThe Schedules referred to above form an integral part of the Balance Sheet68 subex annual report 08-09 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDEDAmount in Rs.ScheduleMarch 31, 2009March 31, 2008INCOMESales & Services5,584,894,8444,855,907,768Other Income K449,900,1933,671,189Total6,034,795,0374,859,578,957EXPENDITURE :Cost of Hardware, Software and Support Charges L123,896,30584,469,871Personnel Costs M3,866,803,5294,022,373,009Other Operating, Selling andAdministrative Expenses N1,072,790,8881,482,941,781Financial Costs (Net) O434,812,830304,803,291Miscellaneous Expenses amortised15,944,20111,721,965Depreciation & Amortisation F212,882,602172,319,419Total5,727,130,3556,078,629,336Profit/(Loss) Before Taxation and Exceptional Items307,664,682(1,219,050,379)Exceptional ItemsExchange Gain/(Loss) on Restatement of FCCBs(1,929,600,000)607,500,000Mark to Market losses on Option Contracts(97,231,040)(5,500,000)(2,026,831,040)602,000,000Profit/(Loss) Before Tax(1,719,166,358)(617,050,379)Provision for taxation- Current tax60,037,61224,444,655- MAT Credit writen off/(carried forward)21,170,731(10,042,000)- Fringe Benefit Tax4,121,66911,930,660- Deferred tax79,130,000164,460,01237,331,67763,664,992Profit/(Loss) After Taxation(1,883,626,370)(680,715,371)Add: Balance brought forward from Previous year557,274,6691,238,020,941Profit Available for Appropriation(1,326,351,701)557,305,570APPROPRIATION :Dividend- Equity Shares - Final Dividend 2006-07-26,412- Tax on distributed profits-4,489Surplus/(Deficit) carried to Balance Sheet(1,326,351,701)557,274,669(1,326,351,701)557,305,570Earnings/Loss Per Share (Face value of Rs.10/- each)(Refer Note II.9 of Schedule P)- Basic(54.05)(19.49)- Diluted(54.05)(19.49)Significant Accounting Policies & Notes to the Accounts PThe Schedules referred to above form an integral part of the profit and loss accountIn terms of our report of even datefor Deloitte Haskins & SellsFor and on behalf of the BoardChartered AccountantsSubash MenonSudeesh YezhuvathV. Balaji BhatV. BalajiFounder Chairman, Managing Director & CEOChief Operating OfficerDirectorPartnerMembership No. 203685Raj KumarChief Counsel & Company SecretaryBangaloreMay 26, 2009subex annual report 08-09 69 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDEDAmount in Rs.March 31, 2009March 31, 2008Cash flow from operating activitiesNet Profit/(Loss) before Tax(1,719,166,358)(617,050,379)Adjustments for :a) Depreciation and amortization228,826,803186,023,763b) Interest/Dividend Income(3,950,282)(20,661,716)c) Interest and bank charges438,763,112325,465,007d) Profit on sale of assets(536,706)(1,096,373)e) Employee stock compensation expenses(23,339,657)50,005,707f) Provision for doubtful debts & debts written off195,931,919293,139,148g) Unrealised exchange fluctuations1,555,437,640(621,437,873)Operating Profit before Working Capital Changes671,966,471(405,612,716)Adjustments for :a) Sundry Debtors562,191,565(50,412,652)b) Loans and advances(242,971,308)(32,494,368)c) Trade and other payables(61,991,228)(556,134,930)Cash generated from operations929,195,500(1,044,654,666)a) Direct Taxes paid(106,137,912)(140,247,795)Net Cash provided by operating activities A823,057,588(1,184,902,461)Cash Flow from Investing activitiesa) Purchase of Fixed Assets(127,462,604)(146,208,824)b) Sale/disposal of fixed assets8,725,8858,611,552c) Cash flows on acquisitions of subsidiaries-(275,884,850)d) Interest received3,950,28220,661,716e) Adjustments on account of Demerger (Refer Note II.4, Schedule P)-(404,560,001)Net Cash from Investing Activities B(114,786,437)(797,380,407)Cash Flow from Financing Activitiesa) Proceeds from issue of Share Capital/Options/Warrants-145,225,998b) Proceeds from/(repayment) of short term borrowings - Net(331,831,098)660,606,711c) Proceeds from Long term borrowings10,240,330774,474,749d) Repayment of Long term borrowings(9,339,136)(5,261,559)e) Dividends & Dividend tax paid(53,154)(81,503,996)f) Interest and bank charges(437,382,624)(335,242,767)g) Incidental expenses on issue of FCCBs & GDR (incurred)/refunded-38,374,819Net Cash from Financing Activities C(768,365,682)1,196,673,955Net increase in Cash or Cash equivalents [A + B + C](60,094,531)(785,608,913)Consolidation Adjustments-107,508,001Effect of Exchange Differences on restatement of foreign currencycash and cash equivalents16,319,8175,809,337Cash or Cash equivalents at the start of the year231,185,346903,476,921Cash or Cash equivalents at the close of the year187,410,632231,185,346Note : Cash & Cash Equivalents include balance with Scheduled Banks on Dividend Account of Rs.751,860 (PY : Rs. 805,014), fixeddeposit of Rs. 32,735,679 (PY : Rs.27,992,954) which are not available for use by the Company.Significant Accounting policies & Notes to the accountsPThe Schedule referred to above forms an integral part of the Cash flow statementIn terms of our report of even datefor Deloitte Haskins & SellsFor and on behalf of the BoardChartered AccountantsSubash MenonSudeesh YezhuvathV. Balaji BhatV. BalajiFounder Chairman, Managing Director & CEOChief Operating OfficerDirectorPartnerMembership No. 203685Raj KumarChief Counsel & Company SecretaryBangaloreMay 26, 200970 subex annual report 08-09 SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDEDMarch 31, 2009 March 31, 2008SCHEDULE - ASHARE CAPITAL :AUTHORISED :48,040,000 Equity Shares of Rs. 10/- each480,400,000480,400,000200,000 Redeemable Optionally Convertible Cumulative19,600,00019,600,000Preference Shares (ROCCPS) of Rs.98/- eachTotal500,000,000500,000,000ISSUED, SUBSCRIBED AND PAID UP:EQUITY :34,847,089 Equity Shares of Rs. 10/- each348,470,890348,470,890Of the above:a)115,000 shares of Rs.10/- each were allotted forconsideration other than for cash;b)4,626,940 shares of Rs.10/- each are allotted asBonus shares by capitalisation of General Reserve;c)12,840 shares of Rs.10/- each are allotted in partsettlement of cost of acquisition of Subsidiaryd)10,878,784 (PY: Nil) shares of Rs.10/- each are allottedas Bonus shares by capitalisation of Securities premium;e)11,728,728 shares (GDRs) of Rs.10/- each are allottedin full settlement of cost of acquisition ofAzure Solutions LtdTotal348,470,890348,470,890SCHEDULE - B :Employees Stock Options Outstanding85,899,999162,476,740Less: Deferred Employees Compensation Expenses39,593,93792,831,021Total46,306,06269,645,719SCHEDULE - C :RESERVES AND SURPLUS :Capital ReserveOpening Balance13,006,92013,006,920Add : Transfer on forfeiture of warrants140,559,130153,566,050-13,006,920General ReserveOpening Balance177,975,580-177,975,580Less : Transfer from Profit & Loss Account as per contra177,975,580--177,975,580Securities Premium AccountOpening Balance5,624,568,2286,576,304,853Add : Additions during the year-4,353,213Add/(Less) : Reversal of/(Utilised towards) incidental costs-38,374,819of issue of FCCBs & GDRsLess: Redemption premium on FCCBs (Refer Note II.3, Schedule P)729,862,044589,904,656Less : Adjustments on account of Demerger Scheme(Refer Note II.4, Schedule P)-4,894,706,184404,560,0015,624,568,228Exchange Reserve on Consolidation(435,557,793)(23,866,824)Profit & Loss Account-557,274,669Total4,612,714,4416,348,958,573Amount in Rs.subex annual report 08-09 71 SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDEDMarch 31, 2009March 31, 2008SCHEDULE - D :SECURED LOANS :Short Term:Working Capital Loans from Banks954,578,9371,132,528,923(Secured by charge on Receivables and fixed assets)Long Term:Loans from Banks25,465,60623,622,012(Secured by Hypothecation of Assets financed by these loans)[Amount repayable within one year: Rs. 8,887,190Previous Year: Rs.7,334,336)Total980,044,5431,156,150,935SCHEDULE - E :UNSECURED LOANS :Short Term:Working Capital Loans from Banks29,111,041158,976,154Long Term:Loans from Banks754,931,205755,873,605[Amount repayable within one year: Rs 752,395,205,PY : 2,004,800](Refer Note II.11.4, Schedule P)Foreign Currency Convertible Bonds9,129,600,0007,200,000,000(Refer Note II.3, Schedule P)Total 9,913,642,2468,114,849,759Amount in Rs.72 subex annual report 08-09 SCHEDULE - FFixed Assets and IntangiblesAmount in Rs.GROSS BLOCKDEPRECIATIONNET BLOCKSl.ParticularsAs atAs atUptoFor theWithdrawnUptoAs atAs atNo.April 1,AdjustmentAdditionsDeletionsMarch 31,March 31,AdjustmentYearonMarch 31,March 31,March 31,200820092008deletions200920092008Tangible Fixed Assets1Computer Hardware andSoftware841,198,273111,489,22483,902,86313,083,0511,023,507,309668,269,045102,411,847107,157,48311,128,749866,709,625156,797,684172,929,2782Furniture & Fixtures80,273,65419,343,6161,123,08811,267,48089,472,87872,730,16917,380,3452,231,931 8,668,15383,674,2925,798,5867,543,4853Vehicles46,174,014-15,220,57410,121,93351,272,65516,878,504-9,380,2226,770,67719,488,04931,784,60629,295,5104Office Equipments76,598,9067,409,0772,728,9681,188,75085,548,20159,023,9796,877,8556,165,733904,45771,163,11014,385,09117,574,9275Lease Hold Improvements50,417,6928,779,6343,805,797-63,003,12342,242,9208,869,2805,714,827-56,827,0276,176,0968,174,772Intangibles1Goodwill13,766,918---13,766,9187,476,300-2,753,384-10,229,6843,537,2346,290,6182Intellectual Property Rights397,395,109-- -397,395,109252,113,15079,479,022-331,592,17265,802,937145,281,909TOTAL1,505,824,566147,021,551106,781,29035,661,2141,723,966,1931,118,734,067135,539,327212,882,60227,472,0361,439,683,959284,282,234387,090,499PREVIOUS YEAR821,726,754549,748,878152,795,08018,446,1461,505,824,566467,212,184490,133,430172,319,41910,930,9661,118,734,067387,090,499354,514,570subex annual report 08-09 73 SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDEDMarch 31, 2009March 31, 2008SCHEDULE - G :SUNDRY DEBTORS :(Unsecured)Outstanding for more than six months- Considered Good-273,209,491- Considered Doubtful226,905,108226,905,108280,451,408553,660,899Others- Considered Good622,310,8441,040,099,156- Considered Doubtful63,866,112686,176,95628,690,0001,068,789,156913,082,0641,622,450,055Less: Provision for Doubtful Debts290,771,220309,141,408Total (considered good)622,310,8441,313,308,647SCHEDULE - H :CASH & BANK BALANCES :Cash on hand66,73838,939Balance with Scheduled Banks- in Current Account in Indian Rupees4,543,4753,048,916- in Deposit Account in Indian Rupees32,735,67927,992,954- in Exchange Earner’s Foreign Currency account328,72769,100,260Balance with Non Scheduled Banks149,736,013131,004,277Total187,410,632231,185,346SCHEDULE - I :LOANS & ADVANCES :(Unsecured, considered good)Loans and advances recoverable in cashor in kind or for value to be received276,833,622203,534,636Advance Income Tax including TDS237,047,277173,995,964MAT credit entitlement-21,170,731Other Deposits90,756,55694,792,683Total604,637,455493,494,014SCHEDULE - J :CURRENT LIABILITIES & PROVISIONS :SUNDRY CREDITORS :Sundry Creditors722,818,031684,807,973Advance received from Customers61,194,713100,140,877Deferred Income408,442,681575,530,366Duties & Taxes103,244,39869,905,502Interest Accrued but not due11,158,2489,777,760Unclaimed Dividends751,8601,307,609,931805,0141,440,967,492PROVISIONS :Taxation155,481,618134,408,936Employee Benefits141,683,78668,887,860Warranty4,228,7182,866,506Others (Refer Note II.11.7, Schedule P)102,731,0395,500,000Redemption premium accrued on FCCBs1,361,916,7001,766,041,861632,054,656843,717,958Total3,073,651,7922,284,685,450Amount in Rs.74 subex annual report 08-09 SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDEDMarch 31, 2009March 31, 2008SCHEDULE - K :OTHER INCOME :Other income2,546,0322,574,816Profit on sale of Fixed Assets (Net)536,7061,096,373Exchange Fluctuation gain (Net)446,817,455-Total449,900,1933,671,189SCHEDULE - L :COST OF HARDWARE, SOFTWARE AND SUPPORT CHARGES :Cost of Hardware and Software102,871,49843,269,115Support Charges21,024,80741,200,756Total123,896,30584,469,871SCHEDULE - M :PERSONNEL COSTS :Salaries, Wages & Allowances3,326,685,8143,414,127,688Contribution to Provident Fund and Other Funds157,847,594167,099,066Other staff related costs121,354,630193,665,785Sub Contract Charges260,915,491247,480,470Total3,866,803,5294,022,373,009SCHEDULE - N :OTHER OPERATING, SELLING ANDADMINISTRATIVE EXPENSES :Software Purchases17,845,67216,645,747Rent199,641,694185,993,051Power, Fuel and Water Charges31,119,96232,437,542Repairs & Maintenance85,786,03788,153,952Insurance11,226,27313,896,389Communication Costs79,766,835117,545,832Printing & Stationery9,130,05411,582,357Travelling & Conveyance249,071,892356,019,968Directors sitting fees20,00022,500Rates & Taxes Including Filing Fees10,218,30326,591,206Advertisement & Business Promotion28,774,12795,665,156Professional & Consultancy Charges138,435,477126,928,478Bad Debts Written Off110,2502,785,990Provision for Doubtful Debts195,821,669290,353,158Commission on Sales9,368,19913,997,278Exchange Fluctuation Loss (Net)-73,341,539Miscellaneous Expenses6,454,44430,981,638Total1,072,790,8881,482,941,781SCHEDULE - O :FINANCIAL COSTS :Interest on FCCBs and other term loans268,359,550194,560,568Interest & Bank Charges170,403,562438,763,112130,904,439325,465,007Interest Income(3,950,282)(20,661,716)Total434,812,830304,803,291Amount in Rs.subex annual report 08-09 75 SCHEDULE – PSignificant accounting policies and Notes to AccountsI. SIGNIFICANT ACCOUNTING POLICIESI.1. Basis for preparation of consolidated financial statementsThe consolidated financial statements relate to Subex Limited(the Company) and its wholly owned subsidiaries, (‘the Group’).The consolidated financial statements have been preparedunder the historical cost convention in accordance with theGenerally Accepted Accounting Principles in India (IndianGAAP), the Accounting Standards issued under the Companies(Accounting Standards) Rules 2006 and the relevant provisionsof the Companies Act, 1956, as adopted consistently by theCompany. Revenues are recognised and expenses accountedon their accrual, including provisions/adjustments forcommitted obligations and amounts determined as payableor receivable during the year.I.2.Use of EstimatesThe preparation of the financial statements in conformity withIndian GAAP requires that, management makes estimatesand assumptions that affect the reported amounts of assetsand liabilities, disclosure of contingent liabilities as at the dateof the financial statements and the reported amounts ofrevenue and expenses during the reported period. Actualresults could differ from those estimates.I.3.Principles of ConsolidationThe financial statements of the Company and it’s wholly ownedsubsidiaries have been combined on a line by line basis byadding together like items of assets, liabilities, income andexpense. The intra-group balances and intra-grouptransactions are eliminated.The excess of cost to the Company of its investments in thesubsidiary over it’s share of the equity of the subsidiary, at thedate on which the investments in the subsidiary company wasmade, is recognized as ‘goodwill’ being an asset in theconsolidated financial statements.The following entities are considered in the consolidatedfinancial statements.Sl.Name ofCountry of% of% ofno.entityincorporationownershipownershipheld atheld atMarch 31,March 31,200920081SubexTechnologies Inc.(Wholly ownedsubsidiary of SubexUnitedTechnologies Ltd.,States ofIndia)America1001002SubexTechnologies LtdIndiaIndia1001003Subex (UK) LimitedUnited Kingdom1001004Subex Inc.(wholly ownedUnitedsubsidiary of SubexStates of(UK) Ltd.)America1001005Subex (Asia Pacific)Pte. Ltd, (whollyowned subsidiary ofSubex (UK) Ltd.)Singapore1001006Subex Azure (US) Inc(wholly ownedUnitedsubsidiary of SubexStates ofAmericas Inc)America1001007Subex Azure HoldingsInc (wholly ownedUnitedsubsidiary of SubexStates ofAmericas Inc)America1001008Subex Azure(Delaware) Inc (whollyUnitedowned subsidiary ofStates ofSubex Americas Inc)America1001009Syndesis DevelopmentIndia Private Ltd(wholly ownedsubsidiary of SubexAmericas Inc)India100100102101874 Ontario Inc(wholly ownedUnitedsubsidiary of SubexStates ofAmericas Inc)America10010011Subex Americas IncCanada10010012Subex Azure (GB) Ltd(wholly ownedsubsidiary of SubexAmericas Inc)United Kingdom10010013Subex Azure (Ireland)Ltd(wholly ownedsubsidiary of SubexAmericas Inc)Ireland100100The financial statements of the Company and its subsidiariesare prepared under uniform accounting policies in accordancewith the generally accepted accounting principles in India.I.4.Revenue recognitionRevenue from Contracts for software product licences includes,fees for transfer of licences, installation and commissioning.This revenue is recognized under the percentage completionmethod based on the extent of work determined to have beencompleted as compared to the work involved in the overallscope of the contract. In the event of any expected losses on acontract, the entire amount is provided for in the accountingperiod in which such losses are first anticipated.Revenue from sale of additional software licences arerecognized on transfer.Revenue from Software development is recognized on the basisof chargeable time or achievement of prescribed milestonesas relevant to each contract.Sale of hardware under reseller arrangements are recognizedon dispatch of goods to customers and are recorded net ofdiscounts, rebates for price adjustment, projections, shortagein transit, taxes and duties.Maintenance and service income is recognised on accrual basis.Interest on investments and deposits are booked on a timeproportion basis taking into account the amount invested andthe rate of interest.76 subex annual report 08-09 I.5.Fixed Assets and IntangiblesFixed assets are stated at cost of acquisition inclusive of freight,duties, taxes and interest on borrowed money allocated toand utilised for fixed assets up to the date of capitalisation andother direct expenditure incurred on ongoing projects. Assetsacquired on hire purchase are capitalised at gross value andinterest thereon is charged to revenue.Acquired intangibles are stated at cost inclusive of duties andtaxes. Cost incurred on self – generated intangibles areexpensed as incurred.I.6.DepreciationFixed assets are depreciated using the straight-line methodover the useful lives of assets. Depreciation is charged on pro-rata basis for assets purchased/sold during the year.The rates of depreciation adopted are as under:ParticularsDepreciation Rates %Leasehold improvementsOver the lease termComputers (including Software)25Furniture & Fixtures20Vehicles20Office equipments20Intellectual Property Rights20Goodwill20Individual assets costing less than Rs. 5,000 are depreciated infull, in the year of purchase.I.7.Employee Stock OptionEmployee Stock Options are accounted in accordance with theguidelines stipulated by SEBI. The difference between themarket price of the shares underlying the options granted onthe date of grant of option and the option price is expensed as“Employees Compensation” over the period of vesting.I.8.Employee BenefitsThe company’s contribution to provident fund, a definedcontribution scheme, is charged to the profit and loss accounton accrual basis.Gratuity expense for the year has been accounted based onactuarial valuation carried out at the end of the financial year.The retirement benefit obligation recognized in the balancesheet represents the present value of the defined benefitobligations adjusted for unrecognized past service cost and asreduced by the fair value of scheme assets. Any asset resultingfrom this calculation is limited to past service cost plus thepresent value of available refunds and reduction in futurecontributions to the scheme.Liability for encashment of leave considered to be long termliability is accounted for on the basis of an actuarial valuation.Provision for outstanding leave credits considered are shortterm liability is as estimated by the management and accruedfor based on last month’s salary. Other short term employeebenefits like medical, leave travel etc are accrued based onthe terms of employment on a time proportion basis.Other companies in the group run defined contributionschemes, the cost of which is fully provided for and charged toexpenditure. Accrued leave is accounted for fully and chargedto the profit & loss account.I.9.Research and developmentExpenses incurred on research and development is charged torevenue in the same year. Fixed asset purchased for researchand development are capitalized and depreciated as per theCompany’s policy.I.10.Foreign currency transactions and translationTransactions denominated in foreign currencies are recordedat the exchange rates prevailing on the date of the transaction.Monetary items denominated in foreign currencies at yearend are translated at the exchange rate on the date of theBalance Sheet. Non-monetary items denominated in foreigncurrencies are carried at cost. Exchange differences onsettlement or restatement are adjusted in the profit & lossaccount. Premium or discount on forward contracts isamortized over the life of such contract and is recognized asincome or expense to the Profit and Loss account. Any profitor loss arising on cancellation or renewal or retirement offorward contract is recognized in profit and loss account asappropriate.On Consolidation,•In the case of non-integral operations, assets and liabilitiesare translated at the exchange rate prevailing on thebalance sheet date. Revenue and expenses are translatedat yearly average exchange rates prevailing during theyear. Exchange differences arising out of these translationsare included in ‘Exchange Reserve’ under Reserves &Surplus.•In the case of integral operations, assets and liabilities(other than non-monetary items), are translated at theexchange rate prevailing on the balance sheet date. Non-monetary items are carried at historical cost. Revenueand expenses are translated at yearly average exchangerates prevailing during the year. Exchange differencesarising out of these translations have been charged to theProfit and Loss account.I.11.Income TaxesIncome tax comprises the current tax provision under the taxpayable method and the net change in the deferred tax assetor liability in the year. Deferred tax assets and liabilities arerecognized for the future tax consequences of temporarydifferences between the carrying values of the assets andliabilities and their respective tax bases. Deferred tax assetsare recognized and carried forward to the extent that there isa reasonable/virtual certainty, as applicable, that sufficientfuture taxable income will be available against which suchdeferred tax assets can be realized.Deferred tax assets and liabilities are measured using enactedtax rates expected to apply to taxable income in the years inwhich the temporary differences are expected to be receivedor settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in the income statement inthe period of enactment of the change.subex annual report 08-09 77 Minimum alternative tax (MAT) paid in accordance to the taxlaws, which gives rise to future economic benefits in the formof adjustment of future income tax liability, is considered as anasset if there is convincing evidence that the Company will paynormal income tax after the tax holiday period. Accordingly,MAT is recognized as an asset in the balance sheet when it isprobable that the future economic benefit associated with itwill flow to the Company and the asset can be measuredreliably.I.12.Cash Flow StatementCash flow statement has been prepared in accordance withthe indirect method prescribed in Accounting Standard 3,issued under the Companies (Accounting Standard) Rules 2006.I.13.Preliminary and Share issue expensesExpenses incurred during the Initial Public Offer, follow onoffer and issue of Bonus Shares are amortised over 5 years.Other issue expenses are charged to the securities premiumaccount.I.14.Provisions & ContingenciesA provision is recognized when an enterprise has a presentobligation as a result of past event; it is probable that anoutflow of resources will be required to settle the obligation,in respect of which a reliable estimate can be made. Provisionsare not discounted to its present value and are determinedbased on best estimate required to settle the obligation at thebalance sheet date. These are reviewed at each balance sheetdate and adjusted to reflect the current best estimates.Contingent liabilities are not provided for, but disclosed in thenotes to the financial statements.I.15Impairment of Fixed AssetsAt each balance sheet date, the Company reviews the carryingamounts of its fixed assets and intangibles to determinewhether there is any indication that those assets suffered animpairment loss. If any such indication exists, the recoverableamount of the asset is estimated in order to determine theextent of impairment loss. Recoverable amount is the higherof an asset’s net selling price and value in use. In assessingvalue in use, the estimated future cash flows expected fromthe continuing use of the asset and from its disposal arediscounted to their present value using a pre-tax discountrate that reflects the current market assessments of timevalue of money and the risks specific to the asset.Reversal of impairment losses recognized in prior years, ifany, is recorded when there is an indication that the impairmentlosses recognized for the asset no longer exist or havedecreased. However, the increase in carrying amount of anasset due to reversal of an impairment loss is recognized tothe extent it does not exceed the carrying amount that wouldhave been determined (net of depreciation) had no impairmentloss been recognized for the asset in prior years.II. NOTES TO ACCOUNTSII.1. Deferred income taxesa) The deferred tax asset/(liability) as at March 31, 2009comprises the tax impact arising from timing differences onaccount of:Amount in Rs.ParticularsAs atAs atMarch 31, 2009March 31, 2008- Depreciation24,176,011*30,414,688+- Business loss18,369,526#100,966,215#Deferred Tax Asset42,545,537131,380,903Deferred tax liability ondepreciation(1,268,432)(7,302,834) * These differences are on account of depreciation, which areclaimable in the India tax jurisdiction.+ These differences are on account of depreciation, which areclaimable in the foreign tax jurisdiction.# Deferred tax assets recognized on unabsorbed tax losses atMarch 31, 2009, pertain to the company’s subsidiary, Subex(UK) Ltd. The recognition is restricted to the extent that thereis virtual certainty of future taxable incomes arising and issupported by the business achieved subsequent to the yearend and on the basis of confirmed orders on hand in thesubsidiary.II.2.Contingent liabilitiesReceivables factored – Rs. 582,810,763 (Previous year:Rs. 133,367,178)Claims against the company not acknowledged as debts:a) Rs. 54,272,325 (Previous year: Rs. 24,365,085). These claimsrelate to Indian Income Tax demands pertaining to FY 2001-02, 2002-03, 2003-04 and 2004-05. The demands are beingcontested by the Company.b) Rs.121,728,000 (Previous Year: Nil) – This relates to a claimmade by a vendor of a subsidiary of an acquired entity.c) Claim from erstwhile employees Rs.Nil (Previous Year:Rs.48,000,000)d) Others – Rs.50,000,000 (Previous year: Rs.50,000,000)II.3.Foreign Currency Convertible Bonds (FCCB)During the year 2006-07, the company issued Foreign CurrencyConvertible Bonds (FCCBs) aggregating to US$ 180 million toInstitutional Investors. The bonds carry an initial interest rateof 2% per annum and are redeemable by March 9, 2012, if notconverted in to equity shares as per terms of issue.Other terms and conditions governing the bonds are as follows:a)Conversion of the bonds into equity shares at the option ofthe bond holders at any time after April 18,2007b)Conversion Price – Rs.656.20 per sharec)Exchange Rate for purpose of conversion - 1 US$ = Rs.44.08d)Interest of 2% per annum payable semi-annually in arrearse)Redemption with yield to maturity guaranteed return of8% per annum, calculated on semi-annual basisf)The Company can exercise an option to redeem the bonds inwhole or in part on or any time after March 9, 2010, but priorto January 29, 2012, subject to appropriate approvals at aprice determined on the terms defined in the offer document.g)Listing on the Professional Securities Market of LondonStock Exchange78 subex annual report 08-09 The difference between the yield to maturity guaranteed rateof return of 8% and the coupon rate of 2% represents thepremium payable on redemption for is charged to SecuritiesPremium over the life of the bonds.II.4.Scheme of Arrangement – Services BusinessDuring financial year 2007-08, the Company filed an applicationwith Hon’ble High Court of Karnataka to transfer the ServicesBusiness Division to Subex Technologies Ltd, a wholly ownedsubsidiary of the Company under a scheme of arrangement.On obtaining the order from the Hon’ble High Court ofKarnataka, the Company transferred the Services business toSubex Technologies Ltd with effect from September 1,2007(appointed date) at an aggregate consideration ofRs. 310,000,000. In accordance with the order of the Hon’bleHigh Court the Company received 3,000,000 shares of SubexTechnologies Ltd valued at Rs.30,000,000 in settlement of theconsideration with the balance Rs. 280,000,000 being treatedas unsecured loan taken by the subsidiary from the Company.The deficit arising out of the transfer amounting toRs 404,560,001 as detailed below has been charged to theSecurities Premium account during financial year 2007-08,in accordance with the order of the Court.Particulars of assets and liabilities transferredAmount (Rs.)Net current assets406,541,994Investments in Subex Technologies Inc308,018,007Book value of assets transferred714,560,001Consideration received310,000,000Amount written off to Securities premium404,560,001II.5. Monies received pending allotmentDuring financial year 2007-08, the company allotted 2,230,000warrants to promoters/ promoters group, entitling each holderto obtain allotment of one equity share against each suchwarrant on a preferential basis at a price of Rs.630.31. Underthe terms of issue, the Company has received 10% of the totalconsideration amounting to Rs.140,559,130. To obtain theunderlying equity share, the balance 90% shall be paid within18 months from the data of allotment of the warrants in oneor more tranches. During the year, the warrants issued havebeen forfeited and the money has been transferred to CapitalReserve. The money received by the Company has been utilizedfor long term working capital requirements.II.6. Operating leasesThe Group has entered into operating lease arrangements forits office facilities. These leases are for a period ranging from1 to 5 years with an option to the Group for renewing at theend of the initial term. Rental expenses for operating leasesincluded in the Income statement for the year is Rs. 199,641,694(Previous year: Rs. 185,993,051)The future minimum lease payments for non-cancelableoperating leases were:Amount In Rs.ParticularsMarch 31, 2009March 31, 2008Within one year163,972,720175,042,669Due in a period betweenone year and five years345,290,473320,237,727Due after five years-12,796,360II.7. Employee Stock Option Plan (ESOP)ESOP – IIDuring 1999-2000, the Company established the EmployeeStock Option Scheme 2000 (“ESOP 2000”) under which optionshave been allocated for grant to the employees of theCompany and its subsidiaries. The Company has obtained in-principle approval for listing upto a maximum of 883,750shares to be allotted pursuant to exercise of options grantedunder the scheme. Each option comprises one underlyingequity share of Rs.10/- each and carries an entitlement ofbonus shares if and when declared. This scheme has beenformulated in accordance with the Securities and ExchangeBoard of India (Employee Stock Option Scheme and EmployeeStock Purchase Scheme) Guidelines, 1999. As per the scheme,the Compensation Committee grants the options to theemployees deemed eligible by the Advisory Board constitutedfor the purpose. The options are granted at a price, which isnot less than 85% of the average market price of theunderlying shares based on the quotation on the StockExchange where the highest volume of shares are traded for15 days prior to the date of grant. The shares granted vestover a period of 1 to 4 years and can be exercised over amaximum period of 3 years from the date of vesting.During the year, the Company amended the ESOP 2000 schemeby inclusion of provisions allowing employees to voluntarilysurrender their vested/unvested options at any time duringtheir employment with the Company. Pursuant to this, 156,211options were surrendered by 122 employees during the saidperiod. Due to this, Rs.6,611,773, being the previouslyrecognized ESOP compensation cost on these options, havebeen reversed and credited to personnel costs during the year.Under this scheme 726,567 (net) options have been granted to624 employees as at March 31, 2009. Out of the above 9930options are vested and exercisable. The difference betweenthe market price of the share underlying the options grantedon the date of grant of option and the exercise price of theoption are expensed over the vesting period as per the SEBIguidelines. The net impact of the movement in option grantsduring the period resulted in a charge of Rs.1,759,270 (PreviousYear: Charge of Rs.19,082,165) to the Profit & Loss Accountduring the year.ESOP – IIIDuring 2005-2006, the Company established the EmployeeStock Option Scheme 2005 (“ESOP 2005”) under which 500,000options have been allocated for grant to the employees.Subsequently, during the year 2006-2007, the number ofoptions allocated for grant to the employees was increased to2,000,000 options. The Company has obtained in-principleapproval for listing upto a maximum of 2,000,000 sharespursuant to exercise of options granted under the scheme.Each option comprises one underlying equity share of Rs.10/-each. This scheme has been formulated in accordance with theSecurities and Exchange Board of India (Employee Stock OptionScheme and Employee Stock Purchase Scheme) Guidelines,1999. As per the scheme, the Compensation Committee grantsthe options to the employees deemed eligible by the AdvisoryBoard constituted for the purpose. The options are granted ata price, which is not less than 85% of the average market priceof the underlying shares based on the quotation on the Stocksubex annual report 08-09 79 2008-092007-08ParticularsOptions (Nos)Weighted averageOptions (Nos)Weighted averageexercise price perexercise price perstock option (Rs.)stock option (Rs.)Options outstanding at the beginning of the yearESOP – II214,038 427.48 261,202408.57ESOP – III1,718,245 366.67422,533429.37Granted during the yearESOP – II362,07266.75 --ESOP – III1,764,397 74.801,671,700380.31Exercised during the yearESOP – II- 30,927ESOP – III-437Cancelled, Surrendered & Lapsed during the yearESOP – II217,993 16,237ESOP – III1,688,260375,551Options outstanding at the end of the yearESOP – II358,117 75.47 214,038427.48ESOP – III1,794,382 127.491,718,245366.67Options exercisable at the end of the yearESOP – II9,930 73,798ESOP – III62,100105,539Employees’ stock options details as on the balance sheet date are :[Weighted average remaining contractual life (considering vesting and exercise period)]ESOP – IIAt March 31, 2008 : 3.48 YearsAt March 31, 2009 : 4.05 YearsESOP – IIIAt March 31, 2008 : 4.96 YearsAt March 31, 2009 : 4.48 YearsExchange where the traded volume is the highest for the 15days prior to the date of grant. The shares granted vest over aperiod of 1 to 4 years can be exercised over a maximum periodof 3 years from the date of vesting.During the year, the Company amended the ESOP 2005 schemeby inclusion of provisions allowing employees to voluntarilysurrender their vested/unvested options at any time duringtheir employment with the Company. Pursuant to this,1,069,407 options were surrendered by 538 employees duringthe said period. Due to this, Rs.41,876,574, being the previouslyrecognized ESOP compensation cost on these options, havebeen reversed and credited to personnel costs during the year.As on March 31, 2009, 1,801,106 (net) options have been grantedto 1,511 employees under this scheme. Out of the above 62,100options are vested and exercisable. The difference betweenthe market price of the share underlying the options grantedon the date of grant of option and the exercise price of theoption are expensed over the vesting period as per the SEBIguidelines. The net impact of the movement in option grantsduring the period resulted in a credit of Rs.25,098,927 (PreviousYear: Charge of Rs. 4,236,147)to the Profit & Loss Accountduring the year.Method used for accounting for share based payment planThe company has used intrinsic value method to account forthe compensation cost of stock option to employees of thecompany. Intrinsic value is the amount by which the quotedmarket price of the underlying share exceeds the exerciseprice of the option.80 subex annual report 08-09 II.9.Earning per Share (EPS)Amount in Rs.2008-092007-08Profits/(loss) after Tax attributable to shareholders(1,883,626,370)(680,715,371)Weighted Average Number of Shares for Basic EPS34,847,08934,834,666Weighted Average Number of Shares for Diluted EPS34,847,08934,834,666Earning /(loss) per Share – Basic(54.05)(19.49)Earning /(loss) per Share – Diluted(54.05)(19.49)Face value of shares : Rs. 10 eachB) Details of the transactions with the related parties are as under:Amounts in Rs.Nature of TransactionEnterprises over which some of theKey management personneldirectors exercise significant influence2008-092007-082008-092007-08a)Salary, perquisites and commission--12,180,00012,180,000b)Money recieved against warrants issued-113,455,800-27,103,330Employee Stock Options, FCCB’s and warrants (if any) outstandingat year end are anti -dilutive and hence ignored in computingDiluted Earnings per share.II.10.Segmental ReportingThe Group’s operation comprises software development andservices. Primary segmental reporting comprises productsII.8. Related party informationA) Related partiesEnterprises over which some of the directors exercisesignificant influenceKivar Holdings Private Limited (formerly Subex HoldingsPrivate Limited) and its subsidiariesKey management personnelSubash Menon, Founder Chairman, Managing Director & CEOSudeesh Yezhuvath, Whole Time Director & Chief OperatingOfficerAmounts in Rs.ParticularsMarch 31, 2009March 31, 2008Net Profit/(Loss) [as reported] (1,883,626,370)(680,715,371)Add : Stock-based employee compensation relating to grants after 1st April, 2008(23,339,657) 23,318,312Less : Stock-based compensation expenses determined under fair value basedmethod for the above grants110,032,092 62,566,550Net Profit (proforma)(2,016,998,119) (719,963,609)Basic earnings/(loss) per share (as reported)(54.05) (19.49)Basic earning /(loss) per share (proforma)(57.88) (20.61)Diluted earning/loss per share (as reported)(54.05) (19.49)Diluted Earning /(loss) per share (proforma)(57.88) (20.61)Fair value methodologyThe fair value of options used to compute pro forma net incomeand earnings per equity share have been estimated on thedate of grant using Black-Scholes model.The key assumptions used in Black-Scholes model for calculatingfair value is: risk-free interest rate of 6%, expected life: 3 years,expected volatility of share: 58.98% and expected dividendyield: 1.19%. The variables detailed herein represent the averageof the assumptions during the pendency of the grant dates.The impact on the EPS of the Company if fair value method isadopted is given below:and services segment. Secondary segments are identifiedbased on geographical location of customers. The accountingprinciples consistently used in the preparation of the financialstatements are also consistently applied to record incomeand expenditure in individual segments. These are as set outin the note on significant accounting policies.subex annual report 08-09 81 Particulars of Segment Assets & LiabilitiesProductsServicesUnallocableConsolidated2008-092007-082008-092007-082008-092007-082008-092007-08Segment assets17,136,599,20716,647,984,613396,923,807545,343,467918,285,40917,533,523,01418,111,613,489Segment Liabilities 13,743,960,273 67,896,690 2,150,276,514 13,811,856,963 2,150,276,514Unallocable Assets excludeAdvance Income Taxes 237,047,277 195,166,695Deferred tax asset (Net) 41,277,100 124,078,067Miscellaneous Expenditure 14,606,462 32,462,203Total 292,930,839 351,706,965Unallocable Liabilities excludeLoans - Secured 1,156,150,935Loans - Unsecured 8,114,849,759Provisions for tax 155,481,618 134,408,936Total 155,481,618 9,405,409,630Amount in Rs.Information about primary business segment:Amounts in Rs.ParticularsProductsServicesConsolidated2008-092007-082008-092007-082008-092007-08Revenues 4,384,810,798 3,618,480,866 1,200,084,046 1,237,426,902 5,584,894,844 4,855,907,768Segment results beforeinterest & taxes 523,262,958 (808,159,331) 121,983,514 72,453,627 645,246,472 (735,705,704)Unallocable Income,net of unallocable expense (1,929,600,000) 423,458,616Interest expense (434,812,830) (304,803,291)Profit before tax (1,719,166,358) (617,050,379)Provision for taxation:Current 60,037,612 24,444,655MAT credit written off/carried forward 21,170,731 (10,042,000)Fringe Benefit Tax 4,121,669 11,930,660Deferred Tax 79,130,000 37,331,677Profit After Tax (1,883,626,370) (680,715,371)Additions to assets Amount in Rs.Region2008-092007-08ProductServicesAmericas32,017,171141,82820,080,132EMEA35,601,65140,037,364APAC39,020,64092,677,584During the year ended March 31, 2008, Fixed and certain otherassets used in the Company’s business or liabilities contractedwere not identified to any of the primary reportable segments,as these assets and services were used interchangeablybetween segments. The Company believes that it is currentlynot practicable to provide segment disclosures (for 2007-08)relating to segment assets & liabilities since a meaningfulsegregation of the available data is onerous.82 subex annual report 08-09 Amount in Rs.GratuityMarch 31 2009March 31 2008IComponents of employer expense1Current Service cost4,662,610 2,487,7002Interest cost856,520 529,7203Expected return on plan assets(110,440) (91,370)4Curtailment cost/(credit) - -5Settlement cost/(credit) - -6Past Service Cost - -7Actuarial Losses/(Gains)381,560 1,221,0208Total expense recognized in the Statement of Profit & Loss Account5,790,250 4,147,070IIActual Contribution and Benefit Payments for year ended 31 March 20091Actual benefit payments899,960 1,215,0602Actual Contributions1,168,390 1,102,330IIINet asset/(liability) recognized in Balance Sheet as at March 31, 20091Present value of Defined Benefit Obligation (DBO)15,328,540 10,295,0662Fair value of plan assets1,504,530 1,092,9203Funded status [Surplus/(Deficit)](13,824,010) (9,202,150)4Unrecognized Past Service Costs- -5Net asset/(liability) recognized in Balance Sheet(13,824,010) (9,202,150)II.11. Others1.Estimated amount of contracts, remaining to be executedon capital account and not provided for (net of advancespaid) Rs. 981,108 (Previous year: Rs. 5,199,547).2.Unclaimed dividend of Rs. 751,860 as at March 31, 2009represent dividends not claimed for the period from 2001-2008. No part thereof has remained unpaid or unclaimedfor a period of seven years from the date they become duefor payment, requiring a transfer to the ‘Investor Educationand Protection Fund’. During the current year, the companyhas transferred Rs. 52,514 to Investor Protection Fund.3.Personnel Cost for the year includes expenditure onResearch and Development of Rs. 168,048,643 (Previousyear: Rs. 66,755,179). This is as certified by themanagement and relied upon by the auditors.4.A director of the Company has provided a personalguarantee in respect of certain long term loans from Banksincluded in schedule E of the financial statements. Further,the promoters’ shares have also been pledged towardsportion of these loans.5.The Company has applied to the Central Government toregularize the excess managerial remuneration paid to wholetime directors for the year ended March 31, 2009 amountingto Rs. 28,998,760 and March 31, 2008 Rs. 27,533,906. PendingCentral Government’s approval, such excess is treated asmonies due from the wholetime Directors held by them, intrust, for the Company and is included under loans & advances(Schedule I to the financial statements).Segment assets based on their location2008-092007-08AMERICAS9,704,385,5989,665,449,258EMEA7,135,658,7167,537,620,955APAC, Etc693,478,699908,543,276Total17,533,523,01418,111,613,489Amount in Rs.Information about secondary business segmentRevenue attributable to location of customers is:Amount in Rs.ProductsServicesConsolidated2008-092007-082008-092007-082008-092007-08AMERICAS 1,853,064,486 1,255,241,906 1,200,084,046 1,237,426,902 3,053,148,532 2,492,668,808EMEA 1,045,398,866 1,802,019,538 1,045,398,866 1,802,019,538APAC, Etc 1,486,347,446 561,219,422 1,486,347,446 561,219,422Total 4,384,810,798 3,618,480,866 1,200,084,046 1,237,426,902 5,584,894,844 4,855,907,7686.The following table sets out the funded status of the defined Benefit Schemes and the amount recognized in the financial statements.subex annual report 08-09 83 7.The Company has entered into the following derivative instruments for the purposes of hedging the risks associated withforeign exchange exposures as at March 31, 2009:(i) Forward/Option Contracts:Amount in Rs.March 31, 2009March 31, 2008ParticularsUS$Buy/SellAmount (INR)US$Buy/SellAmount (INR)Forward contracts7,300,000Sell363,846,2501,400,000Sell55,987,000Option contracts4,600,000Sell192,040,0005,000,000Sell202,244,000As per the guidelines on accounting for Derivatives issued by the Institute of Chartered Accountants of India, the Company hasprovided for Mark to Market losses of Rs. 102,731,040 (Previous year: Rs. 5,500,000) on outstanding option contracts.8.The year end foreign currency exposures that have not been hedged by derivative instruments or otherwise are given below.Receivable at March 31, 2009 inReceivables at March 31, 2008 in Foreign CurrencyEquivalent RupeesForeign CurrencyEquivalent RupeesEURO 405,89429,423,236EURO 2,268,820 143,030,980AUD 170,375 8,641,399AUD 1,136,477 41,615,766MYR 114,119 3,805,874MYR 2,068,553 26,157,543USD 882,14139,441,613USD 19,526,015 782,915,097CAD 23,107 1,171,963GBP 135,991 10,954,552OMR97,171 10,108,808AED314 3,4149.Termination benefits(included under Miscellaneous Expenditure in the Balance Sheet) incurred in respect of employees inSubex (UK) Limited in the financial year 2006-07, are amortised over a period from the time such costs were incurred tillMarch 31, 2010, on a pro-rata basis.10.Revenue for the year ended March 31, 2009 is adjusted for Rs. 108,277,625, being reversal of unbilled revenues (net).11.The Company has ‘International transactions’ with ‘Associated Enterprises which are subject to Transfer Pricing regulationsin India. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arm’slength and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the financialsstatements, particularly on account of tax expense and that of provision for taxation.12.Previous year’s figures have been regrouped to conform to the classifications for the current year.IVChange in Defined Benefit Obligations during the year ended March 31, 20091Present Value of DBO at beginning of year10,295,070 7,229,0362Current Service cost4,662,610 2,487,7003Interest cost856,520 529,7204Curtailment cost/(credit) - -5Settlement cost/(credit) - -6Plan amendments - -7Acquisitions - -8Actuarial (gains)/ losses414,300 1,263,6709Benefits paid(899,960) (1,215,060)10Present Value of DBO at the end of year15,328,540 10,295,066VChange in Fair Value of Assets during the year ended March 31, 20091Plan assets at beginning of year1,092,920 1,062,8322Acquisition Adjustment--3Actual return on plan assets(estimated)110,440 91,3704Actuarial Gain/(Loss)32,740 51,4485Actual Company contributions(less risk premium, ST)1,168,390 1,102,3306Benefits paid(899,960) (1,215,060)7Plan assets at the end of period1,504,530 1,092,920VIActuarial Assumptions1Discount Rate8.00%8.70%2Expected Return on plan assets9.00%9.00%3Salary escalation6.00%5.00%4Attrition Rate5.00%5.00%Note: Contributions under Defined Contribution Schemes Rs. 65,464,571.84 subex annual report 08-09 SHAREHOLDERS’ INFORMATIONREGISTERED OFFICEThe Registered office of the Company is at Adarsh Tech Park,Outer Ring Road, Devarabisanahalli, Bangalore – 560 037DATE AND VENUE OF THE ANNUAL GENERAL MEETING (AGM)Date:July 29, 2009Venue:Adarsh Tech Park, Outer Ring Road,Devarabisanahalli, Bangalore – 560 037Time:3.00 P.M.DATES OF BOOK CLOSUREFrom July 28, 2009 to July 29, 2009 (both days inclusive)BOARD MEETINGS & FINANCIAL CALENDARFinancial year:April 1 to March 31Calendar of Board Meetings to adopt the accounts (tentative andsubject to change):For quarter ending June 30, 2009–on July 29, 2009For quarter ending September 30, 2009–on October 29, 2009For quarter ending December 31, 2009–on January 29, 2010For the year ending March 31, 2010–on April 29, 2010DIVIDENDThe Directors have not proposed any dividend to be paid forthe financial year 2008 – 2009.LISTING ON STOCK EXCHANGESShares of the Company are quoted on National Stock Exchangeof India Limited (NSE) since September 5, 2003 and on BombayStock Exchange Limited (BSE) since July 31, 2000. The GlobalDepositary Receipts (GDRs) and Foreign Currency ConvertibleBonds (FCCBs) of the Company are listed on London StockExchange since March 9, 2007.Listing Fees have been paid to all the above Stock Exchangesfor 2009-10.The stock codes of the Company at the Stock Exchanges are asfollows:Name and address of the stock exchangeStock codeNational Stock Exchange of India Limited,Exchange Plaza, 5th Floor,Bandra Kurla Complex,Mumbai- 400051SUBEXBombay Stock Exchange Ltd,Phiroze Jeejeebhoy TowersDalal Street, Mumbai 400001532348London Stock Exchange10 Paternoster SquareLondonEC4M 7LSSUBXThe International Securities Identification Number (ISIN)for the company’s shares in dematerialized form isINE754A01014.CUSTODIAL FEEPursuant to the Securities and Exchange Board of India (SEBI)Circular No. MRD/DoP/SE/Dep/Cir-4/2005 dated January 28,2005 issuer companies are required to pay custodial fees tothe depositories with effect from April 1, 2005. The saidcircular has been partially modified vide SEBI’s Circular NoMRD/DoP/SE/Dep/Cir-2/2009 dated February 10, 2009. TheCompany has, in accordance with the aforesaid circulars, paidcustodial fees for the year 2009-10 to NSDL and CDSL on thebasis of the number of beneficial accounts maintained by themas on March 31, 2009.NSEBSEMonthHighLowVolumeHighLowVolumeRs.Rs.Nos.Rs.Rs.Nos.Apr ‘08218.80153.452,363,551224.00153.60803,837May ‘08162.50120.104,158,808162.50120.002,260,565Jun ‘08135.0094.002,283,700134.9094.251,407,199Jul ’ 0896.9073.001,859,85095.0073.10912,447Aug ‘08121.4074.0054,401,761121.7073.2527,875,084Sep’ 08112.4068.2016,161,940112.2071.357,995,594Oct ‘0888.5528.253,501,90788.3528.751,932,691Nov ‘0842.9029.002,295,00342.7529.001,030,488Dec ‘0837.0028.951,443,09437.2529.00851,916Jan ‘0935.1524.801,983,26735.0024.851,222,504Feb ‘0933.4019.85698,58633.0020.10569,120Mar ‘0924.5518.801,094,79425.1518.85879,929TOTAL92,246,261TOTAL14,699,455STOCK MARKET DATA RELATING TO SHARES LISTED IN INDIAMonthly high and low quotations during each month in the financial year 2008-09 as well as the volume of shares traded on NSEand BSE are as under:subex annual report 08-09 85 Categories of shareholdersAs on March 31, 2009As on March 31, 2008CategoryNo. of shareVotingNo. of sharesNo. of shareVotingNo. of sharesholdersstrength %heldholdersstrength %heldPublic & Others28,39030.41%10,594,31516,33140.77%14,208,388Companies/ Bodies Corporate7126.92%2,411,9496945.86%2,043,775Core Promoters211.56%4,028,70028.85%3,083,103Mutual Funds64.36%1,520,8321613.00%4,528,486ESOP- employee shareholders600.49%170,458600.40%138,234FII2046.26%16,120,8354031.12%10,845,103TOTAL29,190100.00%34,847,08917,143100.00%34,847,089SHAREHOLDING PATTERNDistribution of shareholding:No. of Equity shares heldAs on March 31, 2009As on March 31, 2008No. of shareholders% of shareholdingNo. of shareholders% of shareholding1–500026,34290.2415,74891.865001–100001,4234.876603.8410001–200007492.573421.9920001 –300002200.75890.5130001-400001160.40650.3740001-50000790.27420.2450001-1000001210.41700.40100001 and above1400.491270.7429,190100.0017,143100.00SubexSENSEXSUBEX LIMITED SHARE PRICE VERSUS NSE S&P CNX NIFTY AND SENSEX6000500040003000200010000250200150100500Subex share priceS&P CNX NIFTYAprMayJunJulAugSepOctNovDecJanFebMar200001600012000800040000AprMayJunJulAugSepOctNovDecJanFebMar25020015010050086 subex annual report 08-09 R&T AGENTS AND SHARE TRANSFER SYSTEMCanbank Computers Services Limited, J P Royale, 1st Floor,No.218, 2nd Main, Sampige Road (Near 14th Cross),Malleswaram, Bangalore - 560 003, were appointed as‘Registrar and Transfer Agent’ both in respect of shares heldin physical form and dematerialized form vide a tripartiteagreement dated December 5, 2001 in respect of shares heldwith NSDL and a tripartite agreement dated November 27,2001 in respect of shares held with CDSL.Process for transfer of shares:Share transfers would be registered and returned within a periodof 20 days from the date of receipt, if the documents are clear inall respects. The Company holds Share Transfer CommitteeMeetings up to three times a month, as may be required, forapproving the transfers/transmissions of equity shares.Share transfers and other communication regarding Sharecertificates and change of address, etc., may be addressed to:M/s Canbank Computer Services Ltd.,J P Royale, 1st Floor,No.218, 2nd Main,Sampige Road (Near 14th Cross),Malleswaram,Bangalore - 560 003Tel Nos. 080-23469661/62, 23469664/65Fax Nos. 080-23469667/68E-mail: canbankrta@ccsl.co.in , Website: www.canbankrta.comSHARES HELD IN PHYSICAL AND DEMATERIALISED FORMAs on March 31, 2009, 99.80% of the Company’s shares wereheld in dematerialized form and the rest in physical form.OUTSTANDING GDRs/ ADRs/ WARRANTS/ CONVERTIBLEINSTRUMENTS AND THEIR IMPACT ON EQUITYAs on March 31, 2009 9,218,131 GDRs issued by the Companywere outstanding. The Company issued Foreign CurrencyConvertible Bonds amounting to US $ 180 Million in March2007, which are outstanding as on March 31, 2009.LEGAL PROCEEDINGSThere are no legal proceedings against the Company whichare of material nature.NOMINATIONPursuant to the provisions of Section 109A of the CompaniesAct, 1956, members may file nomination in respect of theirshareholdings. Any member willing to avail this facility maysubmit to the Company the prescribed Form 2B (in duplicate),if not already filed. Form 2B can be obtained with the help ofthe R&T Agents. Members holding shares in electronic formare requested to give the nomination request to theirrespective Depository Participants directly.PROCEDURE FOR CLAIMING UNPAID DIVIDENDIn terms of Section 205A (5) of the Companies Act, 1956, moniestransferred to the Unpaid Dividend Account of the Company,which remain unpaid or unclaimed for a period of seven yearsfrom the date of such transfer, shall be transferred by theCompany to the Investor Education and Protection Fundestablished by the Central Government.Brief particulars of dividend declared on the equity share capitalare given below:Which year theDeclared at theNature of dividend% of dividendDue date fordividend pertainsAGM/Boardtransfer to the fundtomeeting held on2000-01July 13, 2001Final20See note below*2001-02November 15, 2002Final10Before December 14, 20092002-03September 9, 2003Final10Before October 8, 20102003-04August 24, 2004Final20Before September 23, 20112004-05January 27, 2005Interim10Before February 26, 2012July 28, 2005Final20Before August 27, 20122005-06October 28, 2005Interim15Before November 27, 2012August 28, 2006Final10Before September 27, 20132006-07January 29, 2007Interim15Before February 28, 2014July 26, 2007Final20Before September 25, 2014The Company declared bonus at 1:1 in the years 2000-01 and 2005-06.* The final dividend declared for the FY 2000-01 which wasunclaimed for 7 years from the date of tranfer to unpaiddividend account, was transferred to the Investor Educationand Protection Fund.Members can claim the unpaid dividend from the Companybefore transfer to the Investors Education and Protection Fund.It may be noted that after the unpaid dividend is transferred tothe said Fund, the same cannot be claimed.subex annual report 08-09 87 Nature of complaintsReceivedClearedNon-receipt of share certificates/refund orders/call moneynotice/allotment advice/ dividend warrant22Letters from NSDL, Banks etc.--Correction/change of bank mandate of refund order, change of address--Postal returns of cancelled stock invests/refund orders/sharecertificates/dividend warrants--Other general query--Total22During the year ended March 31, 2009, the Company has attended to all the investors’ grievances/correspondence within a periodof 10 days from the date of receipt of the same.ADDRESS FOR CORRESPONDENCEFor any queries, please write to:Mr. Raj KumarChief Counsel & Company SecretarySubex Limited, Adarsh Tech Park,Outer Ring Road, Devarabisanahalli,Bangalore – 560 037, India.Telephone: 91 80 6659 8700Fax: 91 80 6696 3333Email: rajkumar.c@subexworld.cominvestorrelations@subexworld.comWEBSITECompany’s website www.subexworld.com containscomprehensive information about the Company, products,press releases and investor relations. It serves to inform theshareholders by providing key information like Board ofDirectors and the committees, financial results, shareholdingpattern, distribution of shareholding, dividend etc.INVESTOR GRIEVANCESInvestor grievances received from April 1, 2008 to March 31, 2009:88 subex annual report 08-09
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