powering the ROC Annual Report 2009-2010 the future is bright contents Financial Highlights Chairman’s Letter to Shareholders It’s Time to Bring in Business Optimization - Sudeesh Yezhuvath The New - Age Communications Service Provider - Mark Nicholson Product Innovation at Subex - Anuradha Tough Times Don’t Last, Tough People Do - Monisha Tambay Subexian Pride Award Winners & Subex Charitable Trust Board of Directors & Management Team Directors’ Report Corporate Governance 01 02 04 06 08 10 12 13 16 23 29 Management Discussion & Analysis Financial Review - Standalone 39 Financial Review - Consolidated 64 Shareholders’ Information 85 ABOUT SUBEX LIMITED Subex Limited is a leading global provider of Operations and Business Sup- port Systems (OSS/BSS) that empowers Communications Service Providers (CSPs) to achieve competitive advantage through Business Optimization and Service Agility - thereby enabling them to better operational efficiency to deliver enhanced service experiences to subscribers. The company pioneered the concept of a Revenue Operations Center (ROC) – a centralized approach that sustains profitable growth and financial health through coordinated operational control. Subex’s customers include 36 of the world’s 72 biggest telecommunications service providers. The company has more than 300 installations across 70 countries. powering the ROC financial highlights Particulars (Consolidated) Total Income Export Sales Operating Profits (EBITDA) Before Exceptional Items Depreciation & Amortization Profit/(Loss) Before Tax and Exceptional Items Profit/(Loss) After Tax & Exceptional Items Share Capital Reserves & Surplus Net Worth Gross Fixed Assets Net Fixed Assets Total Assets Figures in Rs. Million Except Key Indicators 4,747.81 1,732.32 947.23 163.58 309.49 1,002.96 579.83 2,093.05 2,730.00 1,605.11 195.75 9,217.97 Key Indicators Earnings Per Share (Year End) (Rs.) Cash Earnings Per Share (Year End) (Rs.) Book Value Per Share (Rs.) Debt (Including Working Capital) Equity Ratio EBITDA/Sales (%) Net Profit Margin (%) Return On Year End Net Worth (%) Return On Year End Capital Employed (%) 25.87 7.87 47.08 2.32 20.46 21.66 36.74 11.06 FY10 proved we are here to stay WWW.SUBEXWORLD.COM 01 Chairman’s Letter to Shareholders dear shareholders Adversity, I had written last year, is a great opportunity to introspect and improve. Your company did exactly that during the just concluded financial year FY10. Despite the de-growth in revenue, we improved our margin quite significantly. On the whole, the year turned out to be quite satisfying. Let us take a look at the numbers. Product business, which has been improving over the past 24 months, recorded Rs. 943.06 million as EBITDA – 23.8% on revenue. In keeping with the global scenario, product revenue was lower at Rs.3946.46 million as compared to FY09. The contribution of products to the total revenue stood at 83% and the company made a net profit (excluding Exceptional Items) of Rs. 208.24 million. The Year That Was – A Snapshot Financial year ended 31st March, 2010 was remarkable in more ways than one. Apart from making a strong come back on the profit front, we gained commendable traction with our Revenue Operations Centre (ROC) offering. While ensuring that we bring the company back to a sound financial footing, we were focused on growth opportunities in the future. That resulted in the launch of two new products and significant investment in ROC. Further, we stepped up our efforts in Managed Services. Just as all these efforts were progressing on the business front, we took a key step towards improvement of the balance sheet through the reduction of debt – FCCB Restructuring. On the whole, FY10 was quite eventful. The movement in revenue and EBITDA over the past several years has been captured in the graph given below. As can be seen, the company has turned around fully during FY10. powering the ROC 41% 5000 4000 3000 2000 1000 1167 4385 3618 3946 23.8% 2288 16% 11.5% 0 -1000 -2000 -3000 FY06 FY07 FY08 FY09 FY10 -22% Revenue in Rs. Mln. EBITDA 50% 40% 30% 20% 10% 0 -10% -20% -30% Way Forward The company has once again become profitable at both EBITDA and PAT levels. The next step is revenue growth. Given the non linearity of the business model, any growth in revenue will flow through to the bottomline. Your company slipped and fell. But Subexians are a tough lot and we got going when the going got tough. We thought through the issues and took all the appropriate steps to bring your company back from the brink. Now that we are back, it is once again growth and superior performance in the future. Let me sign off for now by thanking every one of you for the support and for the faith reposed in me and my colleagues. Dear Shareholders, Abraham Lincoln once said that the best way to predict the future is to create it. Each and every Subexian stays duty bound and committed to create a glorious future for your company. Subash Menon Founder Chairman, Managing Director & CEO We expect this strategy to propel our growth in the coming years. Evidence has already been seen in the form of an improving pipeline with an increasing slant on managed services. Most of the contracts won during FY10 were for ROC for one or more applications. In short, we feel fully prepared to take advantage of the changing global landscape which has resulted in higher growth in Business Optimization sector. Given the global leadership that we enjoy in the space and the three pronged strategy that is fast proving to be successful, we are quite confident of not only maintaining our leadership position, but also wid- ening the gap with our competitors by increasing our market share. FCCB Restructuring Your company had contracted US$ 180 million of quasi debt in the form of Foreign Currency Convertible Bonds (FCCBs) in March 2007 with a tenor of 5 years. With the high level of erosion in share price, conversion of these FCCBs to equity did not seem a possibility thereby converting them into pure debt repayable in March 2012. As the quantum of repayment would be quite high, the company would naturally find it a herculean task to repay in March 2012. So, a decision was taken to restructure the bonds to the extent possible. US$ 141 million worth of bonds were restructured by applying a discount of 30% to the face value and reducing the conversion price from Rs. 656.20 to Rs. 80.31. This has now improved the possibility of conversion phenomenally thereby reducing the potential redemption amount to an easily manage- able quantum. It is heartening to note that almost one third of the restructured bonds have been converted to equity as of 31st March, 2010. With performance improving with every passing quarter, we are confident that all the restructured bonds will be converted prior to the date of maturity thereby removing the debt overhang completely. Business Strategy At the end of every global recession, the world experiences an upswing in the global economy. Most of the companies fail to see this opportunity and consequently, turn very shortsighted during the recession resulting in them being totally unprepared to take advantage of the upswing, thereby losing out to competition. Being cognizant of this reality, Subex had taken adequate care to ensure that long term prospects are not sacrificed at the altar of short term gains. Towards this end, we have been working on a three pronged strategy – problem, solution and delivery. The first element of the strategy concerns the problems being faced by telcos. Your company has identified specific issues that need to be addressed. This involves issues like operational efficiency, margin management, cost manage- ment, revenue leakage etc. The next element, ‘solution’, looks at the packaging and presentation of the solutions to address the identified problems. The platform ROC underpins this strategy. Subex has been investing heavily in ROC right through the difficult period and that has resulted in overall acceptance of the platform by a variety of telcos. ROC, a unique concept pioneered by Subex, lends a very desirable differentiation to our offering while extending an attractive road map to the telcos. This road map ensures that the investments made now by the telcos are future proofed and also provides a long term vision for the evolution of higher mar- gin and better customer service. The final element is the manner in which ROC is delivered. Apart from the conventional license model of delivery, Subex has been focusing on managed services. This model, which has found favour with both large and small telcos alike, enables the telcos to stay focused on their core operations while transferring the non-core activities to us. Given the deep domain expertise and the global exposure at Subex, we are in a position to use the products in a better manner on behalf of the telcos and help them gain from their investments like never before. Telcos need not invest in building domain expertise and in constantly scaling up. They can now obtain service level commitments from us and need only monitor to ensure that those commitments are met. This model of engagement results in a deep relationship between every telco and us with both sides finding value in making it an ever lasting one. WWW.SUBEXWORLD.COM 03 Sudeesh Yezhuvath, Chief Operating Officer & Wholetime Director it’s time to bring in business optimization powering the ROC The overarching theme that is emerging now is a need to do more with less, but as we can see from the above, the challenge is very significant. Telecommunications has been a high growth industry since its inception and is now matur- ing. Markets are entering into their next phase of evolution and that means the pace of growth is starting to come down after a scorching start. The developed markets are all saturated with market penetration well in excess of 100% in most markets. With population stagnating, growth by way of new subscriber addition is not a real possibility. To add insult to injury, telecom – as a business – is getting commoditized. The holy grail for growth in the past few years was 3G and adoption of data based services. Data adoption has really taken off in the developed markets with the arrival of smart- phones like the iPhone but this is now presenting a new problem to telecom operators. While such phones cause a significant increase in data traffic by way of application and video downloads, shar- ing etc., they seldom generate much extra revenue for the operator. The cost of carrying such traffic is high as these are bandwidth hungry services and the operator needs to spend money on network equipment to maintain acceptable quality of services. However, the additional revenue from these services is not at all commensurate with the extra investment needed in network equipment. Thus, in developed markets, the telecom operator is faced with the reality of a slow growth model. In developing markets such as India, there is still high growth from subscriber addition but here, the challenge comes from hyper-competition. Price points are under constant pressure and profit mak- ing is extremely difficult. Both these situations are indicative of telecom business coming into maturity. Telecom is a rela- tively young industry with a history of about thirty years only. As the business matures, operators are finding that they have to go back to old business commonsense practices such as running efficient operations. In the days of heady growth and thus guaranteed profits, efficiency was not on top of the agenda for a telecom executive. Now, profits can be made only if the cost can be managed and that can be achieved only through improved efficiency. Thus far, cost reduction programs largely hinged on manpower reduction but that has also run its course. The ‘low hanging fruit’ is gone and not much more can be achieved by way of margin by reducing manpower costs – what needs to come down is the overall operational cost. Hence, the need is to look squarely at operations and figure out what best can be done to improve there. Strange as it may sound, this is not something that telcos are used to. This requires a change in approach and mentality for them. Various surveys have repeatedly found that telco leaks amount to more than 10% of their revenue, but there has never been concerted and clear action to address those. Of course, the telco environment is very, very complex and hence extremely difficult to manage well. They are made up of operational silos (enterprise, retail, mobile, ISP, wireline, video etc.) and these silos do not interact well and thus cause operational inefficiencies. For instance, a telco that provides wireline, mobile and TV services to a customer cannot – more often than not – make out what margin they make from that particular customer. On top of this, add the tremendous volumes of data that telcos have to deal with (a tier-1 operator will have billions of transactions a day) and you have the perfect recipe for huge leakages and inefficiencies. The overarching theme that is emerging now is a need to do more with less but as we can see from the above, the challenge is very significant. What is now required is a methodology to achieve this objective and telcos are waking up to the potential of Business Optimization as a means to towards this end. Business Optimization is all about improving efficiencies within the telco and is based on three themes - prevention of leakage, cost management and operational efficiency. Traditionally, these have been addressed through ‘point’ solutions that further increased the prob- lems due to siloed approach. These three areas touch upon the lifeline of the telco, the revenue chain. Revenue chain can be defined as the series of business processes and activities that happen in a telco from the moment they have a sales lead to the time the lead turns into a customer, gets activated, starts using the services and finally pays cash. This lead-to-cash operation is the revenue chain for the telco and to achieve efficiencies in operations and thus profits, the revenue chain needs to be managed proactively and holistically. Subex has been a proponent of this approach and has invested heavily into readying itself to be able to provide such support to telcos. We pioneered the concept of ROC as a pragmatic approach to manage the revenue and that has been accepted well in the market. All our products impact the revenue chain and we see great potential for our products and solutions in these times of chal- lenge. It is not just with products that we support the telcos as their need goes beyond that. There is an increased relevance for support on operations with Managed Services and Subex is well posi- tioned in that as well. Overall, we see tremendous opportunity for our solutions and services as the telecom market matures and we are well posi- tioned to take advantage of the scenario. Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director WWW.SUBEXWORLD.COM 05 Mark Nicholson, Chief Technology Officer the new-age communications service provider powering the ROC For many Communication Service Provid- ers (CSPs), significant parts of their next generation networks are already in-place and continue to evolve rapidly. Where car- riers continue to lag behind, however, is in the evolution of their business processes and support systems (BSS/OSS) that enable providers to run those networks and accom- panying services effectively and profitably. Today’s communications networks are about the logistics and distribution of digital con- tent including voice, video, information, and machine-to-machine data. Given the current economic and competitive reali- ties of the communications industry, CSPs need to focus on product innovation and operational excellence. However the reality is that most CSPs have the same network. It is the automation of their business processes and their choice of sup- porting BSS and OSS systems that will be one of their key differentiators. The move towards more dynamic service offer- ings means significant changes to traditional billing approaches. Customers will increasingly expect the flexibility to try, subscribe and cancel services via online self-service portals. This also means up-to-the-second access to billing/ usage information and multiple payment models, including pre-pay and any-pay. Fulfillment also becomes much more dynamic. The changes transforming service fulfillment stem largely from a shift toward increasing customer control – specifically, toward customer or device self-provisioning. Self-provisioned services, and the networks that support them, present a completely different operations model than that required for traditional services. Revenue and cost assurance have emerged in recent years to become an increasingly critical component in the transformation of telecommunications operations Customers are also increasingly expecting to be able to try, subscribe and cancel services via online self-service portals. They expect real-time service fulfillment, which means zero-touch, flow-through ordering, provisioning and activa- tion. This also means up-to-the-second access to billing/usage information and multiple payment models, including pre-pay and any-pay. So before, during and after delivery of a given service, the OSS/BSS must be able to compute how much it costs and provide an account balance that reflects any promotion or other credits that should be applied. Thirty-day posting will not meet customer expectations. The move to converged IP networks and Ethernet as an underlying technology has also significantly empowered both enterprise and residential cus- tomers. In the traditional communications world, customers bought very complex communications pipes and were, to a large extent, unaware as to how it worked. With the move toward converged IP networks and Ethernet infrastructures, however, the tide has turned. Customers have been deploying these technologies and are well versed in them. In the new world, enlightened customers know exactly what they want and are now focused on ‘content’ rather than ‘pipes’. With these changes, revenue and cost assur- ance have emerged in recent years to become an increasingly critical component in the transforma- tion of telecommunications operations. In our competitive era, it is of paramount importance to capture all revenues that are generated by the utilization of a service provider’s resources. Operating in a less efficient manner is not a viable option any longer. Customers who call with billing errors often have a higher propensity to churn, which further increases costs and creates additional pressure on margin. As operators begin to turn-up content-based serv- ices, the careful management of revenue chains and control over cost drivers and a better focus on the customer experience will become increasingly critical to the success of these new offerings and the enterprise’s overall profitability. From that basis, it is only a very short step to using the same basic functionality to extract, analyze and monitor the data associated with any operational process or group of processes. In fact, the innovations introduced through the maturity of revenue assurance can be brought into service for a more generalized ‘operational assurance’ enterprise function. This concept calls for the measuring and monitoring of any operational pro- cess that potentially has an impact on revenue or is a cost driver. In effect, operational assurance is about enabling the service provider to understand in real-time how operations are affecting profit. The results are, significantly enhanced visibility and clarity into how the enterprise is performing and much better intelligence for decision making. Operational Assurance could be described as the convergence of operations management, revenue management and business intelligence. This extension of revenue management techniques becomes most evident in the Revenue Operations Center (ROC), a concept now being pursued in various forms by service providers around the industry. A ROC is a collection of systems and processes that are oriented around collecting, analyzing and monitoring the Key Performance Indicators (KPIs) that are deemed essential for the enterprise to meet its goals. Service providers are already taking the important first steps down this path. As they begin to treat revenue assurance proactively, they are factoring the principles of process integrity and metric- oriented management into their product planning. As these projects extend and adapt the principles developed in the maturing revenue management functions, these service providers are laying the foundation for a transformation to lean operations and sustainable profit. Mark Nicholson Chief Technology Officer WWW.SUBEXWORLD.COM 07 Anuradha, Senior Vice President - Engineering product innovation at Subex powering the ROC Technical innovation is the back bone of a products company and many such initiatives were rolled out in Subex last year Engineering has a prime role to play in evolving the building blocks of our products. We need to keep pace with the new technologies by evaluat- ing their fitment into our products, proactively reducing the total cost of ownership and ensuring that the platforms remain robust and extendable to accommodate the increasing processing loads owing to the world becoming flat and communica- tion playing an important role in the same. In the last year, Engineering has been involved in technical innovations and coming out with new products and solutions. Some of these innovations are: 1. RocForms During the course of the development of a new web enabled version of Spark, we have developed a generic software framework for the generation of user interface components (screens the customer sees in our products) dynamically. This will help in ensuring a consistent behavior and screen appeal in all products that use the framework. Some of the tasks involving designing a UI screen can now be done by generated by a script. This framework has been developed using Google’s technology in web development. This has been used in all web enablement of exist- ing products and also for our new offerings like Vector which is our new offering in Fulfillment and activation space. 2. Cost Modeling One of the innovations from the performance benchmarking team has been to arrive at an ap- proach to analyze the space/time cost complexity by modeling the behavior of various algorithms / data structures that we use. This addresses the important question: Given a basic problem defini- tion, how do you choose the ‘best’ solution? Best could be the simplest, best performance, easiest to extend, etc. However the neatness of the solu- tion lies in the ability to estimate performance of a system design without actually having to build it. Apart from time / space complexity, the cost modeling also considers the behaviors of the servers / storage (e.g. how CPUs schedule jobs, how are instruction / data pipelines built, behavior of onboard CPU caches, page faults etc.) This is a proactive approach rather than a reactive approach. These techniques have been applied in the design and improvement of several features in ROC FM already. 3. New Platform Several of our products are built on a reusable software platform called Spark. The platform has a rich set of reusable features used by the products. Some examples of these features are access control, data collection and management (ETL), data base interactions, scheduling of tasks / processes etc. We have undertaken an activity to build a new framework to use the latest software innovations in the industry and extract the maximum performance gains that could be attained by the new genera- tion of servers/ storage and also new software paradigms / tools. This activity will start actively in the FY 10 - 11. The goal of the new framework would be to build: • distributed and scalable architecture • resilience • high performance • simpler programmable interfaces to the product development teams • modular software architecture 4. Support for alternate database technologies Subex has invested in supporting multiple data- base technologies both traditional DB vendors and also non-traditional databases. The achievements in this regard have been as below: • Integration of Dataupia: There is a huge explo- sion in the volume of data in telecom operators due to introduction of new services, growth in subscriber volumes etc. Dataupia is a non traditional data warehouse appliance that scales to very large volumes and can work in business optimization scenarios. • IBM DB2 partnerships: The engineering team has finished the integration of ROC RA product with DB2. Benchmark tests are in progress. We will take up similar work with the next RMS product ROC FMS. The intent or goal is to broad base our database offerings and also to venture into strategic business relationships with IBM for newer opportunities. • NetP’s new version can support the Oracle database and has improved architecture for Layer 3 support. 5. DICE (Dynamic Intuitive Cube Engine) This new module has been introduced into the ROC RA product to enhance the analysis of rev- enue leaks. This brings in the capabilities of OLAP based data analysis in RA. This feature enables an RA business analyst to slice and dice information dynamically from multiple dimensions/business scenarios. The analyst can easily locate anomalies and revenue leaks easily through an intuitive UI driven screen. This has been delivered to some customers already and the feedback has been extremely good. 6. Predictive Analytics This program evaluates various techniques to ensure that the results obtained by our products are more qualified and enhance the productivity of the analysts as well as provide more meaningful results. The algorithms developed under this pro- gram are tuned to give the most optimum results. Some of these investigations will play an important role in the CEM (Customer Experience Management) space. 7. Change Catalyst Other than the above programs, a program ‘Change Catalyst’ has been launched which is focused on work life innovations. This program encourages every Subexian in Engineering organi- zation to find ways and means to improve the work space by coming out with small innovative ideas. The Subexians prepare a business case for their ideas and once accepted, implement the same. The ideas help increase productivity and help add new delta features to the products. Anuradha Senior Vice President - Engineering WWW.SUBEXWORLD.COM 09 Monisha Tambay, Vice President & Global Head of HR tough times don’t last, tough people do powering the ROC So what helped your company get back on track from an internal perspective? What were some effective strategies that were commissioned to re-energize the workforce? Subex cares Extensive Subexian reach-out campaigns were launched with everyone on the leadership team starting with Subash, meeting with Subexians individually and in groups to talk about work demands and priorities and to genuinely listen to their inputs on what improvements could be made in the department to boost morale and productiv- ity. Planned and spontaneous reach-out sessions help establish strong connect and pull the team together. Cheer them on Acknowledging the team’s contributions was really important. Recognizing those who had accepted additional responsibilities or increased workloads and those who had made exceptional achieve- ments was the need of the hour. We launched a new Reward and Recognition Program called STARs to assist in this endeavor. The launch was accompanied by celebration of an ‘Appreciation Week’ globally that culminated in parties/give aways in various locations around the world. By confronting the situation head-on and making adjustments proactively, we were able to emerge relatively unscathed. Monisha Tambay Monisha Tambay, Vice President & Global Head of HR Allowing down time Say it’s okay to go away. It’s counter-intuitive, but during busy periods it’s necessary for team members to take some time off. Planned events like a Sports Day and an Annual Day as well as smaller unplanned events like team breaks, leav- ing the office early one day or going out for lunch, were encouraged. From a policy perspective, we launched a Global Sabbatical policy as well as a Work from Home Policy to allow teams some time to get away or to allow them flexibility in planning their time. This had a huge positive impact that helped Subexians return to the office refreshed and better prepared to take on the challenges ahead. Support Subexian careers Another valuable way we used to re-energize our team was by helping employees advance their professional knowledge. Developing new skills and staying on top of technological trends not only renewed their enthusiasm for their careers, but also increased their contributions. We ran special training programs globally to demonstrate to Subexians that their careers were important to us and that we would be ready to invest in them. The engineering teams launched new technical career paths that showed Subexians what their options were. Tough times test the true mettle of any entity. At Subex we faced this test over the past two years. Not only was the sustainability of the organization at risk due to financial concerns, we also had to contend with pockets of loss of faith within the team. In this environment of diminished morale, it took a lot more than pep talk to get everyone back on track. So what helped your company get back on track from an internal perspective? What were some effective strategies that were commissioned to re-energize the workforce? First, a leader who kept the faith in the organization and the value that it adds, in himself and his team and in all stakehold- ers – investors, shareholders, bond holders and customers. Subash led by example and his ‘never say die’ attitude was the shot of adrenalin that we needed! A steadfast commitment to our Core Values The leadership team and the entire Subex family consistently exhibited all the things that we at Subex stand for – our values of Commitment, In- novation and Fairness! This was what we all rallied around and what brought us together. Build a plan and communicate it Subash had a concrete plan to navigate Subex out of choppy waters. There was extensive and repeated communication of the plan and the help that was required from every Subexian as well as periodic updates on progress against the plan were done. On achievement of key milestones on the plan, we celebrated – shared small successes with the teams with cake and a smile! The end result – we built alignment – ensuring that the strategy was brought in to and each Subexian knew the part that they had to play. We built a tool to cascade goals/KRAs down to drive alignment. WWW.SUBEXWORLD.COM 11 Subexian Pride Award Winners & Subex Charitable Trust subexian pride award winners John Myers Presales(P) Vinay M A Legal(P) Srinivas M R Engineering(P) Rajesh Abraham PSO(P) Krishnoji Rao S Facilities & Administration Vishwanath B V Engineering(P) Vijay Raghunathan PSO(P) Sylvan Sam Sugen S Engineering(P) Arun Kumar K Engineering(P) Bhagyalaxmi H C Engineering(P) John Brooks Presales(P) Jiju George HR(P) Ravi Kumar Chakka Engineering(P) John Myers Presales(P) Sandeep Jain Engineering(P) Madhu K U Engineering(P) Thomas Walker Presales(P) Tintu Joseph PSO(P) Vijay Shankar H S Engineering(P) Meredith Milshtein PSO(P) Sunil Kumar Engineering(P) Saifullah Talut Rothin PSO(P) Meredith Milshtein PSO(P) Amit Kumar Gupta Engineering(P) Vijayakumar Vallipi Engineering(P) Mohit Gupta Engineering(P) Manoj Kumar P Engineering(P) Sankara Rao Ballari Engineering(P) Anees Ahmed A Mulla Engineering(P) Sreekanth Ramadas Engineering(P) Subhadip Duttagupta PSO(P) Sumit Ahuja Engineering(P) Shrikanth D Engineering(P) Lakshmikanth RG Finance(P) David Gibson Product Management(P) Prasad K S Engineering(P) G Vijay Finance(P) Sekharan Y Menon Corporate(P) Subex charitable trust another busy year 1. Sponsored 100 school bag kits for needy 4. Extended support to build 3 toilets in Ananda 7. Provided relief to flood victims in North Karna- students through Youth for Seva Marga school, Kolar district taka and Andhra Pradesh 2. Provided educational support to 35 students 5. Sponsored water and electricity for Prerana 8. Sponsored Speech and Physical therapy kits for through Nurture merit program resource center Gerizim Integrated Home and School For the 3. Provided educational support to children in 6. Supported Swanthana, a center for physically Handicapped Ananda Marga school, Kolar district and mentally challenged girls powering the ROC board of directors Subash Menon Founder Chairman, Managing Director & CEO V. Balaji Bhat Independent Director Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director Vinod R. Sethi Independent Director Harry Berry Independent Director Andrew Garman Independent Director management team Subash Menon Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director Mark Nicholson Chief Technology Officer Greg Le Neveu President – Americas Paul Skillen President – EMEA Raj Kumar Vinod Kumar Group President Anuradha Senior Vice President – Engineering Monisha Tambay Vice President & Global Head of HR Sekharan Y Menon President – Asia Pacific Vice President - Legal & Company Secretary Ramanathan J Vice President – Finance WWW.SUBEXWORLD.COM 13 This page is intentionally left blank general review & accountability subex annual report 09-10 15 DIRECTORS’ REPORT TO THE MEMBERS OF SUBEX LIMITED Your Directors have pleasure in presenting the 16th Annual Report of the Company on the business and operations together with the audited results for the year ended March 31, 2010. States, Canada, UK, UAE, India, Singapore and Australia. Subex is the global leader in Business Optimization for communications service providers. FINANCIAL RESULTS Total revenue Profit/(Loss) before Interest, Depreciation, Tax & Amortization Interest, Depreciation & Amortization Profit/(Loss) before Exceptional items & tax Exceptional Items Profit/(Loss) before tax Provision for taxes Profit/(Loss) after tax APPROPRIATIONS Interim Dividend Preference Dividend Dividend proposed on equity shares Provision for tax on Dividends Transfer to General Reserve Surplus/(Deficit) carried to Balance Sheet Amount in Rs. million Consolidated Standalone 2009-10 2008-09 2009-10 2008-09 4,630.78 5,584.89 3,201.44 3,011.05 947.23 662.06 999.19 559.16 637.74 663.64 510.05 489.03 309.49 794.72 1,104.21 (1.58) (1,717.59) (1,719.17) 101.25 164.46 (1,883.63) 1,002.96 489.14 891.66 1,380.80 70.13 (1,819.97) (1,749.84) 12.19 32.27 (1,782.11) 1,368.61 - - - - - - - - - - - - - - - - 1,002.96 (1,883.63) 1,368.61 (1,782.11) RESULTS OF OPERATIONS During the financial year ended March 31, 2010, the total revenue on a consolidated basis stood at Rs.4,630.78 million. The Company has made a profit of Rs.1,002.96 million for the financial year 2009-10 as against the loss of Rs.1,883.63 million in the previous year. Telecom operators are facing a difficult situation globally as their business has commoditized. Further, subscribers are expecting telcos to keep rolling out newer and more attractive services. Thus telcos are being pushed from both the cost side and the competitive side. Given this situation, telcos need to take adequate steps to protect their margins and improve operational efficiency. Subex’s solutions help them on these fronts. Our well accepted platform, the Revenue Operations Centre (ROC) brings together business intelligence, domain knowledge and workflow support. ROC acts as the underpinning solution on which telcos can build their processes to achieve several objectives like, lower cost, higher margin, higher revenue etc. CHANGES IN SHARE CAPITAL The Authorised share capital of the Company was increased pursuant to the approval of the members at the Extraordinary General Meeting held on October 20, 2009. Presently, the authorised share capital of the Company is Rs.1,300,000,000 (Rupees One Thousand Three Hundred Million only) divided into 128,040,000 (One Hundred and Twenty Eight Million and Forty Thousand) equity shares of Rs.10 (Rupees Ten only) each and 200,000 (Two Hundred Thousand) Preference Shares of Rs.98 (Rupees Ninety Eight only) each. During the year, your Company has allotted 23,136,050 equity shares, out of which: (cid:127) 19,133,637 equity shares were allotted upon conversion of FCCBs aggregating to principal amount of US$ 31.9 million, out of its US$ 98.7 million 5% Convertible Unsecured Bonds. (cid:127) 1,203 equity shares were allotted under its ESOP 2005 scheme and 1,210 equity shares were allotted under its ESOP 2000 scheme, consequent to exercise of stock options. (cid:127) 4,000,000 equity shares were allotted on a preferential basis to M/s Woodbridge Consultants, an entity belonging to Promoters/ Promoter group. As at March 31, 2010, the paid-up share capital of the Company stood at Rs.579,831,390/- comprising 57,983,139 equity shares of Rs.10/- each. On a standalone basis, the total revenue stood at Rs.3,201.44 million. The net profit for the financial year 2009-10 was Rs.1,368.61 million. SUBSIDIARIES BUSINESS Your Company is a provider of solutions in the Business Support Systems (BSS) and Operations Support Systems (OSS) areas for telecom applications. The key sub-areas in BSS and OSS are Revenue Maximization or Business Optimization, Billing Systems, Mediation, Service Fulfillment and Service Assurance. The Company operates in Business Optimization and Service Fulfillment areas. While Business Optimization solutions improve the revenues and profits of the communications service providers through identification and elimination of leakages in their revenue chain, Service Fulfillment solutions enable the carriers to fulfill the needs of their subscribers through provisioning and activation of services. Subex conceptualizes and develops software products at its facilities in Bangalore and is focused on the telecom business segment. Subex has sales and support offices in the United SUBEX TECHNOLOGIES LIMITED For the year ended March 31, 2010, Subex Technologies Limited earned an income of Rs.801.35 million, on a consolidated basis, as against Rs.1,200.08 million last year, and had a net loss of Rs.5.73 million as against a net profit of Rs.68.54 million last year. Pursuant to the demerger in 2007-08, Subex Technologies Inc became a direct subsidiary of Subex Technologies Limited. SUBEX (UK) LIMITED For the year ended March 31, 2010, the consolidated income of Subex (UK) Limited was Rs.2,892.44 million and the net profit was Rs.37.82 million. Subex (Asia Pacific) Pte Limited and Subex Inc are direct subsidiaries of Subex (UK) Limited. 16 subex annual report 09-10 SUBEX AMERICAS INC For the year ended March 31, 2010, the consolidated income of Subex Americas Inc was Rs.984.77 million and net loss was Rs.389.87 million. During the year, the following dormant subsidiaries of Subex Americas Inc were closed down -2101874 Ontario Inc, Subex Azure (GB) Limited and Subex Azure (Ireland) Limited. Also, Subex Azure (US) Inc and Subex Azure (Delaware) Inc, the two subsidiaries of Subex Azure Holdings Inc, were merged to its holding Company. Presently, Subex Americas Inc has 2 subsidiaries viz. Subex Azure Holdings Inc and Syndesis Development India Private Limited. The petition seeking approval of the reduction was approved by the Hon’ble High Court of Karnataka vide its order dated April 21, 2010. The copy of the said order and the minute confirming the reduction was registered by the Registrar of Companies, Karnataka at Bangalore vide its certificate dated May 11, 2010. The details of the implementation of the reduction as aforesaid have been elaborated in the financial statements. EMPLOYEE STOCK OPTIONS SCHEMES Your Company has introduced various Stock Option plans for its employees. Details of these, including grants to Directors and Senior Management issued during the year are given below. COMPLIANCE UNDER SECTION 212 EMPLOYEE STOCK OPTION PLAN-1999 (ESOP – I) Ministry of Corporate Affairs, Government of India, vide order No. 47/ 119/2010-CL-III dated April 20, 2010, has granted approval under section 212(8) of the Companies Act, 1956 stating that the requirement to attach various documents in respect of subsidiary companies, as set out in sub-section (1) of Section 212 of the Companies Act, 1956, shall not apply to the Company for the financial year ended March 31, 2010. Accordingly, the Balance Sheet, Profit and Loss Account and other documents of the subsidiary companies are not being attached with the Balance Sheet of the Company. Financial information of the subsidiary companies, as required by the said order, is disclosed under Annexure I to this report. The Company will make available the annual accounts of the subsidiary companies and the related information to any investor of the Company who may be interested in obtaining the same. The annual accounts of the subsidiary companies will also be kept open for inspection by any investor at the registered office of the Company. The consolidated financial statements presented by the Company include financial results of its subsidiary companies. RESTRUCTURING OF FCCBs During the financial year, your Company launched a cashless exchange offer for the holders of its US$ 180 million 2% Coupon Convertible Unsecured Bonds (“Original FCCBs”) to exchange the Original FCCBs for new FCCBs. Pursuant to the cashless exchange offer, Original FCCBs worth US$ 141 million out of US$ 180 million have been cancelled and US$ 98.7 million 5% Convertible Unsecured Bonds (“Restructured FCCBs”) in satisfaction of the same have been issued. As at March 31, 2010, a principal amount of US$ 39 million was outstanding under the Original FCCBs. During the financial year, Restructured FCCBs aggregating to principal amount of US$ 31.9 million were converted into 19,133,637 equity shares in accordance with the terms and conditions thereof. As at March 31, 2010, a principal amount of US$ 66.8 million was outstanding under the Restructured FCCBs. REDUCTION OF SECURITIES PREMIUM A proposal for reduction and utilization of Securities Premium and Capital Reserve under the provisions of section 78 read with section 100 to 104 of the Companies Act, 1956 was approved pursuant to the resolution passed by the Board of Directors on February 8, 2010 and special resolution passed by the members at the Extraordinary General Meeting held on March 4, 2010. The reduction, as aforesaid, envisages transfer of certain amounts from the Securities Premium and Capital Reserves as on April 1, 2009 and thereafter, to a Business Restructuring Reserve (BRR) to be utilized from or after April 1, 2009 for certain Permitted Utilizations as mentioned in the explanatory statement to the notice of the Extraordinary General Meeting held on March 4, 2010. This scheme was instituted during 1999 and managed by Subex Foundation with a corpus of 120,000 equity shares initially. Since the scheme was formulated prior to the promulgation of Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, the Company has discontinued the scheme. EMPLOYEE STOCK OPTION PLAN-2000 (ESOP- II) During 1999-2000, your Company established the Employee Stock Option Plan 2000, under which options have been allocated for grant to the employees of the Company and its subsidiaries. The Company has obtained in-principle approval for listing up to a maximum of 883,750 equity shares to be allotted pursuant to exercise of options granted under the scheme. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. In accordance with the scheme, a Compensation Committee has been formed, which grants options to the eligible employees. The options are granted at a price, which is not less than 85% of the average of the closing price of the equity shares during the 15 trading days preceding the date of grant on the stock exchange where there is highest trading volume during this period. Unless otherwise resolved, the options granted vest over a period of 1 to 4 years and can be exercised over a period of 3 years from the date of vesting. During the year 2008-09, the Company amended the ESOP 2000 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. EMPLOYEE STOCK OPTION PLAN-2005 (ESOP-III) Under this scheme, a corpus of 500,000 options was created for grant to the eligible employees, with each option convertible into one fully paid-up equity share of Rs.10/-. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The corpus of the scheme was further enhanced by 1,500,000 options during the financial year 2007-08. The Company has obtained the requisite in-principle approvals from the stock exchanges for the purpose of listing of equity shares arising out of exercise of options granted under the scheme. The Compensation Committee grants options to the eligible employees in accordance with the provisions of the scheme. The options are granted at a price, which is not less than 85% of the average of the closing price of the equity shares during the 15 trading days preceding the date of grant on the stock exchange where there is highest trading volume during this period. Unless otherwise resolved, the options granted vest over a subex annual report 09-10 17 period of 1 to 4 years and can be exercised over a period of 3 years from the date of vesting. During the year 2008-09, the Company amended the ESOP 2005 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. Pursuant to this, 31,500 options were surrendered by 7 employees during the financial year ended March 31, 2010. EMPLOYEE STOCK OPTION PLAN-2008 (ESOP-IV) During 2008-09, your Company instituted the Employee Stock Option Plan-2008, vide approval of shareholders through the postal ballot mechanism. A corpus of 2,000,000 options has been created for grant to the eligible employees under the scheme. The Scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Company has obtained the requisite in- principle approvals from the stock exchanges for the purpose of listing of equity shares arising out of exercise of options granted under the scheme. The Compensation Committee grants options to the eligible employees in accordance with the provisions of the scheme. The options are granted at a price, which is not less than 85% of the average of the closing price of the equity shares during the 15 trading days preceding the date of grant on the stock exchange where there is highest trading volume during this period. Unless otherwise resolved, the options granted vests over a period of 1 to 4 years and can be exercised over a period of 3 years from the date of vesting. Additional information as at March 31, 2010 required to be disclosed as per Securities and Exchange Board of India (Employee Stock Option Scheme and Stock Purchase Scheme) Guidelines, 1999 is given as Annexure II to this report. CORPORATE GOVERNANCE Your Company strongly believes that the spirit of Corporate Governance goes beyond the statutory form. Sound Corporate Governance is a key driver of sustainable corporate growth and long-term value creation for the stakeholders and protection of their interests. Your Company endeavors to meet the growing aspirations of all stakeholders including shareholders, employees and customers. Your Company is committed to maintaining the highest level of transparency, accountability and equity in its operations. Your Company always strives to follow the path of good governance through a broad framework of various processes. Your Company has complied with all the requirements as per Clause 49 of the listing agreement of the Stock Exchanges, as amended from time to time. The Auditor’s certificate on compliance with Clause 49 is included elsewhere in the Annual Report. In addition, your Company has documented its internal policies in line with the Corporate Governance guidelines. The Management Discussion & Analysis of the financial position of the Company has been provided as a part of this report. AUDIT COMMITTEE The Audit Committee presently has 5 Directors as its members viz. Mr. V. Balaji Bhat, Mr. Vinod R Sethi, Mr. Andrew Garman, Mr. Harry Berry and Mr. Subash Menon. Except for Mr. Subash Menon, all other members of the Audit Committee are Independent Directors. Mr. V Balaji Bhat is the Chairman of the Audit Committee. The role, terms of reference, the authority and power of the Audit Committee are in conformity with the requirements of section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreement. Further details of the Audit Committee have been provided in the report on Corporate Governance forming part of this annual report. AUDITORS M/s. Deloitte Haskins & Sells (ICAI registration number 008072S), the Statutory Auditors of the Company retire at the ensuing Annual General Meeting and have confirmed their eligibility as per Section 224(1B) of the Companies Act, 1956 and their willingness to accept office, if re-appointed. There were no qualifications observed in the Auditor’s report for the financial year 2009-10. DIRECTORS As per Article 87 of the Articles of Association of the Company read with section 255 and 256 of the Companies Act, 1956, atleast two-third of the Directors shall be subject to retirement by rotation. One-third of such Directors must retire from office at each Annual General Meeting of the shareholders and a retiring director is eligible for re-election. Mr. Vinod R Sethi and Mr. Andrew Garman retire by rotation and being eligible offer themselves for re-appointment at the ensuing Annual General Meeting. During the financial year 2009-10, Mr. P. P. Prabhu and Mr. K. Bala Chandran resigned from the Board of Directors of your Company. The Board places on record their immense contributions to the Company. FIXED DEPOSITS Your Company has not accepted any deposits from the public. PARTICULARS OF EMPLOYEES The 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 of this report. In terms of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of the said annexure may write to the Vice President- Legal & Company Secretary at the registered office of the Company. INFORMATION UNDER SECTION 217 (1)(e) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988 A CONSERVATION OF ENERGY The operations of your Company are not energy-intensive. However, significant measures are taken to reduce energy consumption by using energy-efficient computers and by the purchase of energy-efficient equipment. Your Company constantly evaluates new technologies and invests to make its infrastructure more energy-efficient. Currently your Company uses CFL fittings and electronic ballasts to reduce the power consumption of fluorescent tubes. Air conditioners with energy efficient screw compressors for central air conditioning and air conditioners with split air conditioning for localized areas are used. B TECHNOLOGY ABSORPTION, ADOPTION AND INNOVATION Your Company has a strong R&D Division responsible for developing technologies for its products in the telecom domain. The Company holds several patents for its technological innovations. The telecommunications domain, in which your Company operates, is subject to high level of obsolescence and rapid technological changes. Your Company has developed inherent skills to keep pace with these changes. Since software products are the significant line of business of your Company, the Company incurs expenses on product related Research & Development on a continuous basis. These expenses are charged to revenue under the respective heads and are not segregated and accounted separately. 18 subex annual report 09-10 Company as at March 31, 2010 and of the profit of the Company for the year ended on that date. c) that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provision of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. d) that the accounts for the year ended March 31, 2010 have been prepared on a going concern basis. APPRECIATION/ACKNOWLEDGEMENTS We thank our clients, vendors, investors and bankers for their continued support during the year. We place on record our appreciation for the co- operation and assistance provided by the Central and State Government authorities particularly SEZ authorities, customs and central excise authorities, Registrar of Companies, Karnataka, the Income Tax department, Reserve Bank of India and various authorities under the Government of Karnataka. Your Directors also wish to place on record their deep appreciation to Subexians at all levels for their hard work, solidarity, co-operation and support, as they are instrumental in your Company scaling new heights, year after year. Place : Bangalore Date : July 29, 2010 For and on behalf of the Board Subash Menon Founder Chairman, Managing Director & CEO C FOREIGN EXCHANGE EARNINGS AND OUTGO Your Company has over the years shifted its focus from software services to software products. This has resulted in substantial foreign exchange earnings as compared to previous years. During the year 2009-10, total foreign exchange inflow and outflow was as follows: i) Foreign Exchange earnings ii) Foreign Exchange outgo: Travelling expenses Interest expense Rs.2,910.89 Million (previous year Rs.2,975.37 Million) Rs.50.41 Million (previous year Rs.37.60 Million) Rs.178.53 Million (previous year Rs.173.15 Million) Product marketing expense and other expenditure incurred overseas for software development Rs.19.15 Million (previous year: Rs.85.21 Million) SOCIAL RESPONSIBILITIES - SUBEX CHARITABLE TRUST The trust was set up to provide for welfare activities for under privileged and the needy in the society. The trust is managed by Trustees elected amongst the employees of the Company. During the year the Trust has provided active support for education of economically challenged meritorious students, financial assistance to old age homes and to individuals who needed medical help. HUMAN RESOURCE MANAGEMENT The Human Resource function constantly endeavours to uphold the Subex Vision of “Deliver Value to Excel and Lead”. The passion, excitement, hard work and the involvement of the Subex family has ensured that your Company constantly upholds the Subex vision. During the year ended March 31, 2010, your Company successfully reinvented itself through streamlining its HR processes and identifying strategic HR initiatives. Motivation of Subexians was the critical focus area. To that end your Company launched an online Reward and Recognition Program and platform called STARs. Your Company also put a renewed emphasis on training and alignment. Communication within the Company was stepped up. Alignment, renewal, re-energizing and rewards were the critical focus areas. DIRECTORS’ RESPONSIBILITY STATEMENT In accordance with the provision of Section 217(2AA) of the Companies Act 1956, the Board of Directors affirms: a) that in the preparation of the annual accounts for the year ended March 31, 2010, the applicable accounting standards have been followed. Pursuant to, and in accordance with, the approval of the members and the Hon’ble High Court of Karnataka to a proposal for reduction of securities premium and capital reserve as described earlier, the Company has utilised the Business Restructuring Reserve for adjustment of certain expenses/impairments. Such adjustment being at variance with applicable accounting standards, necessary disclosure has been made in the Notes to the accounts in standalone and consolidated financial statements. b) that the accounting policies have been selected and applied consistently and it has made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the subex annual report 09-10 19 - h c a e 0 0 0 , 0 1 - / 0 1 . s R f o - - % 0 0 1 % 0 0 1 . s R n i t n u o m A 0 1 - 9 0 0 2 Y F R O F S E I N A P M O C I Y R A D S B U S I O T G N I T A L E R , 6 5 9 1 , T C A S E I N A P M O C E H T F O ) 8 ( 2 1 2 N O I T C E S R E D N U D E V I E C E R N O I T P M E X E O T T N A U S R U P T N E M E T A T S I - E R U X E N N A * * d t L t v P a i d n I * * . c n I c n I , 1 3 h c r a M 0 1 0 2 , 1 3 h c r a M 0 1 0 2 , 1 3 h c r a M 0 1 0 2 * d t L . e t P , 1 3 h c r a M 0 1 0 2 s i s e d n y S x e b u S x e b u S x e b u S t n e m p o l e v e D s g n i d l o H e r u z A s a c i r e m A ) c i f i c a P a i s A ( x e b u S * c n I , 1 3 h c r a M , 1 3 h c r a M , 1 3 h c r a M , 1 3 h c r a M 0 1 0 2 0 1 0 2 0 1 0 2 0 1 0 2 d e d n e d o i r e p l a i c n a n i F x e b u S ) K U ( d e t i m L i x e b u S x e b u S s e i g o l o n h c e T s e i g o l o n h c e T * * * c n I d e t i m L i y r a i d i s b u S e h t f o e m a N 7 0 0 2 . 4 0 . 1 0 7 0 0 2 . 4 0 . 1 0 7 0 0 2 . 4 0 . 1 0 6 0 0 2 . 6 0 . 3 2 6 0 0 2 . 6 0 . 3 2 6 0 0 2 . 6 0 . 3 2 0 0 0 2 . 1 0 . 2 1 5 0 0 2 . 3 0 . 8 2 y r a i d i s b u s a g n i m o c e b f o e t a D 0 0 1 % 0 0 1 e u l a v r a p o n t a % 0 0 1 2 D G S f o h c a e 1 % 0 0 1 0 0 0 , 1 D S U f o h c a e 1 0 . 0 h c a e 1 0 0 0 0 . 0 h c a e 5 4 2 , 5 6 5 , 9 3 0 , 5 0 0 0 3 P B G f o 7 6 . 0 D S U f o h c a e 4 9 9 , 9 9 9 , 3 - 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E R U X E N N A s i s e d n y S x e b u S x e b u S x e b u S * * d t L t v P a i d n I * * . c n I c n I * d t L . e t P t n e m p o l e v e D s g n i d l o H e r u z A s a c i r e m A ) c i f i c a P a i s A ( x e b u S * c n I x e b u S ) K U ( d e t i m L i , 1 3 h c r a M 0 1 0 2 , 1 3 h c r a M 0 1 0 2 , 1 3 h c r a M , 1 3 h c r a M , 1 3 h c r a M , 1 3 h c r a M 0 1 0 2 0 1 0 2 0 1 0 2 0 1 0 2 x e b u S x e b u S s e i g o l o n h c e T s e i g o l o n h c e T * * * c n I , 1 3 h c r a M 0 1 0 2 d e t i m L i , 1 3 h c r a M 0 1 0 2 - - 3 6 2 , 4 7 7 , 4 8 9 7 3 5 , 3 8 8 , 4 9 2 0 5 4 , 7 7 1 , 1 1 2 , 1 2 5 0 , 1 8 3 , 6 8 3 , 1 4 9 9 , 5 4 3 , 1 0 8 - ) 7 9 6 , 1 9 3 , 1 ( ) 4 0 5 , 2 0 1 , 8 1 ( ) 0 0 2 , 7 3 0 , 6 3 3 ( ) 6 1 0 , 5 9 8 , 5 1 ( 6 4 5 , 0 1 9 , 9 5 1 2 5 , 2 5 3 , 2 4 6 2 0 , 9 6 3 , 1 - 5 9 4 , 9 7 8 6 7 , 7 5 2 , 4 3 5 4 9 , 6 4 8 , 1 1 - 2 6 2 , 9 9 6 , 6 3 6 3 7 , 4 0 4 , 5 ) 9 0 2 , 8 1 9 ( 9 6 7 , 6 7 7 y r a i d i s b u S e h t f o e m a N n o i t a x a t e r o f e b ) s s o L ( / t i f o r P n o i t a x a t r o f n o i s i v o r P r e v o n r u T d e d n e d o i r e p l a i c n a n i F ) 7 9 6 , 1 9 3 , 1 ( ) 9 9 9 , 1 8 1 , 8 1 ( ) 8 6 9 , 4 9 2 , 0 7 3 ( ) 2 6 9 , 1 4 7 , 7 2 ( 6 4 5 , 0 1 9 , 9 5 9 5 2 , 3 5 6 , 5 ) 0 1 7 , 5 3 0 , 4 ( ) 8 7 9 , 4 9 6 , 1 ( n o i t a x a t r e t f a ) s s o L ( / t i f o r P - - - - - - - - d n e d i v i d d e s o p o r P D S U D S U D S U D G S D S U P B G D S U R N I 7 4 4 7 . 7 4 7 4 4 7 . 7 4 7 4 4 7 . 7 4 9 7 4 4 . 3 3 7 4 4 7 . 7 4 3 8 9 1 . 6 7 7 4 4 7 . 7 4 0 0 0 0 . 1 0 0 0 9 . 4 4 0 0 0 9 . 4 4 0 0 0 9 . 4 4 5 7 7 0 . 2 3 0 0 0 9 . 4 4 0 5 5 9 . 7 6 0 0 0 9 . 4 4 0 0 0 0 . 1 R N I o t y c n e r r u C g n i t r o p e R m o r f s e t a R n o i s r e v n o C s s o L & t i f o r P r o f d e t p o d a e t a r e g n a h c x E s m e t i d e t a l e r t n u o c c a t e e h S e c n a l a B r o f d e t p o d a e t a r e g n a h c x E s m e t i d e t a l e r y c n e r r u C g n i t r o p e R n o n e M h s a b u S , n a m r i a h C r e d n u o F O E C & r o t c e r i D g n i g a n a M d r a o B e h t f o f l a h e b n o d n a r o F d e t i m i L s e i g o l o n h c e T x e b u S f o y r a i d i s b u s d e n w o y l l o h W * * * d e t i m i L ) K U ( x e b u S f o s e i r a i d i s b u s d e n w o y l l o h W * c n I s a c i r e m A x e b u S f o s e i r a i d i s b u s d e n w o y l l o h W * * 0 1 0 2 , 9 2 y l u J : e t a D e r o l a g n a B : e c a l P subex annual report 09-10 21 ANNEXURE - II ADDITIONAL INFORMATION AS AT MARCH 31, 2010 AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (EMPLOYEE STOCK OPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME) GUIDELINES, 1999 SL.NO PARTICULARS 1 2 3 4 5 6 7 8 9 Net options granted as on March 31, 2010 Options granted during the year Pricing formula Options vested but not exercised as on March 31, 2010 Options exercised as on March 31, 2010 Options exercised during the year Money realized by exercise of options during the year The total number of shares arising as a result of exercise of options as on March 31, 2010 Options lapsed/cancelled/surrendered as on March 31, 2010 Options lapsed/cancelled/surrendered during the year Variation of terms of options No. of employees covered 10 Employee wise details of options granted during the year under review to: (i) Senior managerial personnel Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mark Nicholson Greg LeNeveu Paul Skillen Raj Kumar C Ramanathan J Sekharan Y Menon Vinod Kumar P Ms. Anuradha Ms. Monisha Tambay (ii) (iii) other employee receiving a grant in the year of options amounting to 5% or more of options granted during that year identified employees who were granted options, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant Diluted Earning per Share (EPS) pursuant to issue of shares on exercise of option calculated in accordance with Accounting Standard (AS) 20 ‘Earning per Share’ Where the Company has calculated the employee compensation cost using the intrinsic value of the stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options. The impact of this difference on profits and on EPS of the Company is: Weighted-average exercise prices and weighted-average fair values of options separately for options whose exercise price either equals or exceeds or is less than the market price of the stock - Description of the method used during the year to estimate the fair values of options, including the following weighted-average information: 11 12 13 14 i. ii. iii. iv. v. risk-free interest rate expected life expected volatility expected dividends, and market price on grant date Place : Bangalore Date : July 29, 2010 22 subex annual report 09-10 ESOP 2000 669,188 - ESOP 2005 ESOP 2008 1,590,558 131,300 598,954 598,954 As mentioned earlier in the report As mentioned earlier in the report As mentioned earlier in the report 161,663 236,443 1,210 81,070 1,210 936,768 56,059 None 624 - - - - - - - - - NIL NIL 468,088 7,927 1,203 80,601 1,203 2,430,019 341,991 None 1,618 - - - - 2,500 - - - 8,000 NIL NIL - - - - - - - None 272 10,000 12,000 12,000 12,000 15,000 15,000 20,000 15,000 - NIL NIL Rs.8.44 Losses would have been higher by Rs.25,502,015 Basic EPS would have been lower by Rs.0.66 and Diluted EPS would have been lower by Rs.0.36 Weighted average exercise price is Rs.53.34 Weighted average exercise price is Rs.48.45 Black Scholes method of valuation 8.00% 3 Years 34.267% 0.71% Rs.65.99 For and on behalf of the Board Subash Menon Founder Chairman, Managing Director & CEO REPORT ON CORPORATE GOVERNANCE REPORT ON CORPORATE GOVERNANCE REPORT ON CORPORATE GOVERNANCE REPORT ON CORPORATE GOVERNANCE REPORT ON CORPORATE GOVERNANCE I. COMPANY’S PHILOSOPHY ON CODE OF CORPORATE GOVERNANCE Corporate Governance is about commitment to values and ethical business conduct. It is about how an organization is managed. Therefore situation, performance, ownership and governance of the company are equally important as regards to the 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 Governance guidelines as stipulated by the stock exchanges is described in this section. The Company believes that sound Corporate Governance is critical to enhance and retain investors’ trust. Subex respects minority rights in its business decisions. The Company’s Corporate Governance philosophy is based on the 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 disclosure levels. of responsibility and accountability in its internal systems and policies. Subex respects the inalienable rights of the shareholders to information on the performance of the Company. The Company’s Corporate Governance policies ensure, among others, the accountability of the Board of Directors and the importance of its decisions to all its participants viz. customers, employees, investors, regulatory bodies etc. Subex Code of Corporate Governance has been drafted 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 amendments made thereto, from time to time. II. BOARD OF DIRECTORS The Board of Directors of Subex Limited comprises 6 Directors out of which 2 are Executive Directors and 4 are Independent Directors. Details of the composition of the Board of Directors and their attendance and other particulars are given below: A. Composition and Category of Directors as on July 29, 2010 3. Communicate externally, in a truthful manner, about how the Company Category No. of Directors % is run internally. 4. Comply with the laws in all the countries in which the Company operates. Subex is committed to good Corporate Governance practices. Consistent with this commitment, Subex seeks to achieve a high level Independent Directors Promoter and Executive Directors Other Executive Directors Total 4 1 1 6 66.66% 16.67% 16.67% 100.00% B. Attendance of Directors at the Board Meetings and the last AGM and details about Directorships and Memberships in Committees as on March 31, 2010 Director Position No. of Board meetings held No. of Board meetings attended Last AGM attendance No. of Directorships in other companies ▲ No. of No. of Committees Committees in which the in which the Director is Director is a Chairman ■ Member ■ Mr. Subash Menon Mr. Sudeesh Yezhuvath Founder Chairman, Managing Director & CEO Chief Operating Officer & Wholetime Director Mr. V. Balaji Bhat Independent Director Mr. Vinod R. Sethi Independent Director Mr. Harry Berry Independent Director Mr. Andrew Garman Independent Director Mr. K. Bala Chandran** Independent Director Mr. P P. Prabhu(cid:1) Independent Director 4 4 4 4 4 4 4 4 4 2 4 1 3 - * 1 - Yes Yes Yes No No No No N A 1 1 4 11 - - 1 3 - - 4 - - - 1 1 1 1 4 8 1 1 3 2 ▲ Excluding private limited companies & overseas companies. ■ Includes only Audit Committee and Shareholder’s Grievance Committee. Memberships in Committees in Subex Limited are included. * Participated through tele-conference at the Board meeting held on October 20, 2009. ** Ceased to be the Director of the Company consequent to resignation during the financial year 2009-10. The details of Directorships and Committee memberships stated reflect the position prior to his resignation. (cid:1) Mr. P P Prabhu resigned from the Board of Directors of the Company on May 26, 2009. The details of Directorships and Committee memberships stated reflect the position as at March 31, 2009. subex annual report 09-10 23 C. Number and Dates of Board Meetings 4 (Four) Board meetings were held during the financial year 2009-10. The dates on which meetings were held are as follows: May 26, 2009; July 29, 2009; October 20, 2009; January 19, 2010. D. Brief Details of Directors Seeking Re-appointment Mr. Vinod R. Sethi Mr. Vinod R. Sethi is a member of the Board of Directors since 2000. He is a graduate in Chemical Engineering and also holds a degree in B.Tech from IIT, Mumbai and an MBA in Finance from Stern School of Business, New York University. His earlier assignments include working with Morgan Stanley as Chief Investment Officer and Portfolio Manager of Morgan Stanley Asset Management managing over US$ 2.4 billion of investments in India. As on the date of this report, Mr. Vinod R. Sethi does not hold any equity shares of the Company. Mr. Andrew Garman Mr. Andrew Garman is a member of the Board of Directors since 2006. He is a managing partner at New Venture Partners LLC where he focuses on the firm’s software, services, networking and communications investment areas. Mr. Garman joined Lucent’s New Ventures Group in 1999. Before Lucent, Mr. Garman was a managing director of BT Ventures at Bankers Trust Company, where he created and managed a portfolio of internally generated corporate spin-outs in information technology. Prior to joining BT Ventures in 1996, Mr. Garman was the Vice President of Strategy and Business Development for Xerox’s New Enterprise Group. At Xerox, he helped expand the firm’s internal venture portfolio by developing eleven companies based upon technology innovations, primarily derived from the Xerox Palo Alto Research Centre. From 1985 to 1991, Mr. Garman was a general partner at CommTech International Inc., an incubator and venture capital firm with exclusive rights to commercialise the technology of SRI International, a non-profit research institution. Mr. Garman was formerly a director of AcuPrint, Amati Communications, Celiant, Certco, ColoRep, Document Forum, dpiX, InXight Software, Lucent Public Safety Systems (now Intrado), Placeware, Microwave Photonics, Vidus Ltd. and Visual Insights. Mr. Garman holds an AB in Engineering and Applied Physics from Harvard College, an MS in Mechanical Engineering from Stanford University and an MBA from Stanford University, where he was named an Arjay Miller Scholar. He is a past president of the Stanford Business School Alumni Association and member of the Board of Advisers. Mr. Andrew Garman does not hold any equity shares of the Company. III. AUDIT COMMITTEE A. Terms of Reference The Audit Committee has, inter alia, the following mandate: (cid:127) Overseeing the Company’s financial reporting process and disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible; (cid:127) Recommendation of appointment and removal of external auditor, fixation of audit fee and also approval for payment for any other services; (cid:127) Reviewing, with the management, the quarterly financial statements before submission to the Board for approval; (cid:127) Review of annual financial statements before submission to the Board; (cid:127) Review of adequacy of internal control systems; (cid:127) Review of adequacy of internal audit function, including the reporting structure, coverage and frequency of internal audit; and (cid:127) Review of the Company’s financial and risk management policies. The current charter of the Audit Committee is in line with international best practices and the regulatory changes formulated by SEBI and the listing agreements with the Stock Exchanges on which Subex is listed. B. Composition of Audit Committee Composition Category Mr. V. Balaji Bhat, Chairman Mr. Vinod R. Sethi Mr. Andrew Garman Mr. Harry Berry* Mr. Subash Menon Independent Director Independent Director Independent Director Independent Director Founder Chairman, Managing Director & CEO *Appointed as a member of the Audit Committee at the meeting of the Board of Directors held on January 19, 2010. Mr. Raj Kumar, Vice President-Legal & Company Secretary, is the Secretary of the Audit Committee. C. Meetings and Attendance During the Year During the Financial Year 2009-10, four Audit Committee meetings were held on May 26, 2009, July 29, 2009, October 20, 2009, and January 18, 2010. The unaudited financial results for the quarter ended March 31, 2010 were taken on record at the meeting held on April 29, 2010. The audited financial results for the financial year ended March 31, 2010 were taken on record at the meeting held on June 10, 2010. The quarterly results for the quarters April-June 2009, July-September 2009 and October-December 2009 were taken on record on July 29, 2009, October 20, 2009, and January 18, 2010 respectively. Attendance of Committee Members at the Audit Committee Meetings Held During the Financial Year 2009-10: Member Mr. V. Balaji Bhat Mr. Vinod R. Sethi Mr. Andrew Garman Mr. Harry Berry Mr. Subash Menon Mr. K. Bala Chandran* No. of Audit Committee Meetings Held No. of Audit Committee Meetings Attended 4 4 4 4 4 4 4 2 - ▲ N A(cid:1) 4 2 ▲ Participated through tele-conference at the Audit Committee meeting held on October 20, 2009 (cid:1) Appointed as a member of the Audit Committee at the meeting of the Board of Directors held on January 19, 2010 * Ceased to be the Director of the Company consequent to his resignation during the financial year 2009-10 24 subex annual report 09-10 IV. A. REMUNERATION COMMITTEE Composition of the Committee Composition Mr. Vinod R. Sethi - Chairman Mr. V. Balaji Bhat Mr. Harry Berry B. Details of Remuneration to Directors Category Independent Director Independent Director Independent Director The Committee considers the performance of the Company as well as general industry trends while fixing the remuneration of Executive Directors. There were no meetings of the Committee held during the financial year. Amount in Rs. Name Designation Salary Commission Total Mr. Subash Menon Mr. Sudeesh Yezhuvath Founder Chairman, Managing Director & CEO Chief Operating Officer & Wholetime Director 25,468,803 22,458,087 - - 25,468,803 22,458,087 Note: Further details have been disclosed in Note II.9 under Schedule P to the standalone financial statements and Note II.8 under Schedule O to the consolidated financial statements. The following Directors have been allotted stock options under the employee stock options scheme of the Company: Name Designation No. of Options Granted No. of Options vested and exercised as on March 31, 2010 Mr. V. Balaji Bhat Mr. Vinod R. Sethi Independent Director Independent Director 7,500 7,500 7,500 7,500 The above stock options were granted on the terms and conditions mentioned in the Employee Stock Option Plan-2000 of the Company. During the financial year under review, no additional stock options were granted to any of the Directors of the Company. DETAILS OF SHAREHOLDING OF NON- EXECUTIVE DIRECTORS In terms of Clause 49(IV)(E)(iv) of the Listing Agreement, the details of shares held by Non- Executive Directors are as under: Name Mr. V. Balaji Bhat Mr. Vinod R. Sethi Mr. Andrew Garman Mr. Harry Berry No. of shares held as at March 31, 2010 31,000 21,200 NIL NIL Some of the Non-Executive Directors are paid sitting fees at the rate of Rs.2,500 for attendance in the Board Meetings. The Remuneration Committee determines and recommends to 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 fixed component and a performance based commission. The compensation, however, shall be within the parameters set by the shareholders meetings and the provisions of the Companies Act, 1956. The Executive Directors have entered into service contracts with the Company. Both the Executive Directors have 3 months notice period with the Company if they decide to terminate the contract. If the termination is from the Company, the notice period shall be 12 calendar months. In case of severance from the Company, Mr. Subash Menon is eligible for compensation of not less than twenty times and Mr. Sudeesh Yezhuvath is eligible for compensation of not less than fifteen times of their total remuneration for the preceding 12 months from the date of the notice. Subject to approval of the members of the Company and other applicable provisions of the Companies Act, 1956, the Non-Executive Directors are eligible for commission not exceeding 0.5% of the profits of the Company subject to a maximum of Rs. 2 million in aggregate per year. The Non-Executive Directors are also eligible for grant of stock options of the Company subject to the terms of the stock option schemes of the Company. V. SHARE TRANSFER COMMITTEE A. Composition of the Committee Composition Category Mr. Sudeesh Yezhuvath, Chairman Mr. Subash Menon Chief Operating Officer & Wholetime Director Founder Chairman, Managing Director & CEO Authorised Representative of Share Transfer Agents. B. Meetings During the Year The Company holds Share Transfer Committee Meetings on a periodical basis, as may be required, for approving, inter alia, the transfers/ transmissions/rematerialisation of equity shares. The Company has appointed M/s. Canbank Computer Services Limited, a SEBI registered transfer agent, as its Share Transfer Agent with effect from November 6, 2001. The Share Transfer Committee has met four times during the financial year 2009-10 on the following dates: subex annual report 09-10 25 Date of the meeting July 15, 2009 October 15, 2009 December 24, 2009 No. of transfer deeds received Shares pursuant to the deeds Rematerialisation requests received Equity Shares involved 1 - - 300 - - - 1 1 - 2 600 At its meeting held on December 22, 2009, the Share Transfer Committee approved the issuance of duplicate share certificates pertaining to 200 equity shares. The Company ensures that the share transfers are effected within one month of the receipt of request for transfer. VI. INVESTOR GRIEVANCE COMMITTEE B. Location and Time of the Last Three EGMs A. Composition of the Committee Composition Category Mr. V. Balaji Bhat, Chairman* Independent Director Mr. Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director * Consequent to resignation of Mr. K Bala Chandran, Mr. V Balaji Bhat was appointed as the Chairman of the Committee at the meeting of the Board of Directors held on January 19, 2010. Mr. Raj Kumar, Vice President-Legal & Company Secretary, is the Compliance Officer of the Company. The Committee is responsible for addressing the investor complaints and grievances. The Committee meets on a periodic basis to address the investor complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. Details of grievances of the investors are provided in the “Shareholders’ Information” section of this Annual Report. VII. ESOP COMMITTEE (COMPENSATION COMMITTEE) The Company has instituted Employee Stock Option Schemes in line with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Committee grants and administers options under the stock schemes to eligible employees. A. Composition of the Committee Composition Category Mr. V. Balaji Bhat, Chairman Independent Director Mr. Vinod R. Sethi* Mr. Subash Menon Independent Director Founder Chairman, Managing Director & CEO * Consequent to resignation of Mr. K Bala Chandran, Mr. Vinod R Sethi was appointed as the Member of the Committee at the meeting of the Board of Directors held on January 19, 2010. The Committee meets on a periodic basis to administer the ESOP schemes of the Company. VIII. GENERAL BODY MEETINGS A. Location and Time of the Last Three AGMs Year Date of AGM Venue 2006-2007 July 26, 2007 2007-2008 September 23, 2008 2008-2009 July 29, 2009 Le Meridien Bangalore Registered Office Registered Office 26 subex annual report 09-10 Time 4:00 p.m. 4:00 p.m. Year Date of EGM Venue Time 2007-08 November 26, 2007 2009-10 October 20, 2009 2009-10 March 4, 2010 Corporate office Registered office Registered office 4:00 p.m. 10:30 a.m. 3:00 p.m. IX. DISCLOSURES A. There are no significant related party transactions of the Company of material nature, with the Promoters, the Directors or the management, their subsidiaries or relatives etc. that may have potential conflict with the interests of the Company at large. Transactions with the related parties are disclosed in Note II. 7 under Schedule P to the standalone financial statements and Note II. 8 under Schedule O to the consolidated financial statements in the Annual Report. B. A proposal for reduction and utilization of Securities Premium and Capital Reserve under the provisions of section 78 read with section 100 to 104 of the Companies Act, 1956 was approved pursuant to the resolution passed by the Board of Directors on February 8, 2010 and special resolution passed by the members at the Extraordinary General Meeting held on March 4, 2010. The reduction, as aforesaid, envisages transfer of certain amounts from the Securities Premium and Capital Reserves as on April 1, 2009 and thereafter, to a Business Restructuring Reserve (BRR) to be utilized from or after April 1, 2009 for certain Permitted Utilizations as mentioned in the explanatory statement to the notice of the Extraordinary General Meeting held on March 4, 2010. The petition seeking approval of the reduction was approved by the Hon’ble High Court of Karnataka vide its order dated April 21, 2010. In accordance with the reduction, as aforesaid, the BRR has been utilised for adjustment of certain expenses/ impairments. Such adjustment being at variance with applicable accounting standards, necessary disclosure has been made in the Notes to the accounts in standalone and consolidated financial statements. Also, refer to Note II.1 under Schedule P to the standalone financial statements and Note II.1 under Schedule O to the consolidated financial statements. C. The Company has not been subjected to any penalties, strictures by Stock Exchange(s)/SEBI or any statutory authorities on any matter related to capital markets, during the last three years. D. The Company has complied with the listing conditions laid down in the Listing Agreement of the Stock Exchanges where the shares of the Company are listed. X. MEANS OF COMMUNICATION 3:00 p.m. A. Annual/Half Yearly and Quarterly results The annual/half yearly/quarterly audited/un-audited results are generally adequate orientation on the Company’s businesses, group structure, risk management strategy and policies. F. Mechanism for Evaluating Non-Executive Board Members The Company compensates Non-Executive Directors keeping in view the time and attention devoted by them for the Company. While doing so, the Company evaluates the performance of the Non-Executive Directors using various parameters. However the Company is yet to formalize this evaluation by peer group comprising entire Board of Directors, excluding the Director being evaluated. G. Whistle Blower Policy The Company has established a mechanism for employees to report concerns about unethical behaviours, actual or suspected fraud or violation of the Code of Conduct. The mechanism also provides for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit Committee in exceptional cases. The employees are informed of this policy through appropriate internal communications. None of the employees have been denied access to this facility. Place : Bangalore Date : July 29, 2010 For Subex Limited Subash Menon Founder Chairman, Managing Director & CEO published in all editions of Financial Express and Udayavani/Vijay Karnataka. The complete financial statements are posted on the Company’s website www.subexworld.com. Subex also regularly provides information to the Stock Exchanges as per the requirements of the Listing Agreements and updates the website periodically to include information on new developments and business opportunities. B. Management’s Discussion and Analysis section has been separately dealt with in the Annual Report. XI. General shareholder information is provided in the “Shareholders’ Information” section of this Annual Report. XII. Auditors’ Certificate with regard to compliance of conditions of Corporate Governance as per Clause 49 of the Listing Agreement entered into with the Stock Exchanges forms part of this Annual Report. XIII. Compliance with non-mandatory requirements of Clause 49 of the Listing Agreement: Clause 49 further states that the non-mandatory requirements may be implemented as per the Company’s discretion. However, the disclosures of compliance with mandatory requirements and adoption (and compliance)/non adoption of non-mandatory requirements shall be made in the section on Corporate Governance in the annual report. The Company has complied with the following non-mandatory requirements: A. The Board The Company has an Executive Chairman and as such disclosures on maintenance of office by a Non-Executive Chairman does not arise. The Company ensures that the persons appointed as Independent Directors have the requisite qualifications and experience which would be of use to the Company and which would enable them to contribute effectively to the Company in their capacity as Independent Directors. B. Remuneration Committee The Company has constituted a Remuneration Committee. A detailed note on the Remuneration Committee has been provided earlier in the report. C. Shareholders’ Rights The Company communicates with investors regularly through e-mails, telephone and face-to-face meetings like investor conferences, earnings calls, company visits and on road shows. The Company announces quarterly financial results within four weeks of the close of a quarter. The Company publishes the quarterly financial results in leading business newspaper(s) as well as on the Company’s website. However, the Company has not initiated sending half-yearly declaration of financial performance to the household of shareholders so far. D. Audit Qualifications The Company does not have any audit qualification for the year under review. The Company always endeavours to move towards a regime of un-qualified financial statements. E. Training of Board Members All new Non-Executive Directors inducted into the Board are given subex annual report 09-10 27 DECLARATION BY THE CEO UNDER CLAUSE 49(I)(D) OF THE LISTING AGREEMENT REGARDING DECLARATION BY THE CEO UNDER CLAUSE 49(I)(D) OF THE LISTING AGREEMENT REGARDING DECLARATION BY THE CEO UNDER CLAUSE 49(I)(D) OF THE LISTING AGREEMENT REGARDING DECLARATION BY THE CEO UNDER CLAUSE 49(I)(D) OF THE LISTING AGREEMENT REGARDING DECLARATION BY THE CEO UNDER CLAUSE 49(I)(D) OF THE LISTING AGREEMENT REGARDING ADHERENCE TO THE CODE OF CONDUCT ADHERENCE TO THE CODE OF CONDUCT ADHERENCE TO THE CODE OF CONDUCT ADHERENCE TO THE CODE OF CONDUCT ADHERENCE TO THE CODE OF CONDUCT To, The Members of Subex Limited applicable for the financial year ended March 31, 2010. In accordance with Clause 49(I)(D) of the Listing Agreement with the Stock Exchanges, I hereby confirm that, all the Directors and the Senior Management personnel including me, have affirmed compliance to their respective Codes of Conduct, as Place : Bangalore Date : June 10, 2010 For Subex Limited Subash Menon Founder Chairman, Managing Director & CEO AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE 1. We have examined the compliance of conditions of Corporate Governance by Subex Limited [‘the Company’] for the year ended March 31, 2010, as stipulated under Clause 49 of the Listing Agreement of the Company with the Stock Exchanges. 2. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination has been limited to a review of the procedures and implementations thereof, adopted by the Company for ensuring compliance with the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion of the financial statements of the Company. Company has complied with the conditions of Corporate Governance as stipulated in Clause 49 of the above-mentioned Listing Agreement. 4. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company. For Deloitte Haskins & Sells Chartered Accountants (Registration No. 008072S) V. Balaji Partner Membership No. 203685 3. In our opinion and to the best of our information and according to the explanations given to us and the representations made by the Directors and the management, we certify that the Place : Bangalore Date : July 29, 2010 28 subex annual report 09-10 MANAGEMENT DISCUSSION & ANALYSISYSISYSISYSISYSIS MANAGEMENT DISCUSSION & ANAL MANAGEMENT DISCUSSION & ANAL MANAGEMENT DISCUSSION & ANAL MANAGEMENT DISCUSSION & ANAL OVERVIEW Subex Limited (“Subex” or “the Company”) has its Equity shares listed on the National Stock Exchange of India Limited (NSE) and the Bombay Stock Exchange Limited (BSE). The Global Depositary Receipts are listed on the London Stock Exchange (LSE). The Foreign Currency Convertible Bonds of the Company are listed on the London Stock Exchange (LSE) and Singapore Exchange Securities Trading Limited (SGX). The management of Subex is committed to improving the levels of transparency and disclosure. Keeping this in mind, an attempt has been made to disclose hereunder, information about the Company, its business, operations, outlook, risks and financial condition. The financial statements of the Company have been prepared in compliance with the requirements of the Companies Act, 1956, and the Generally Accepted Accounting Principles (GAAP) in India. The management of Subex accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect the form and substance of transactions in a true and fair manner, and reasonably present the state of affairs and profits for the year under review. In addition to the historical information contained herein, the following discussion may include forward looking statements which involve risks and uncertainties, including but not limited to the risks inherent in the Company’s growth strategy, dependency on certain clients, dependency on availability of qualified technical personnel and other factors discussed in this report. 1. INDUSTRY Your Company is a provider of solutions in the Business Support Systems (BSS) and Operations Support Systems (OSS) areas for telecom applications. The key sub-areas in BSS and OSS are Revenue Maximization or Business Optimization, Billing Systems, Mediation, Service Fulfillment and Service Assurance. The Company operates in Business Optimization and Service Fulfillment areas. While Business Optimization solutions improve the revenues and profits of the communications service providers through identification and elimination of leakages in their revenue chain, Service Fulfillment solutions enable the carriers to fulfill the needs of their subscribers through provisioning and activation of services. Subex conceptualizes and develops software products at its facilities in Bangalore and is focused on the telecom business segment. Subex has sales and support offices in the United States, Canada, UK, UAE, India, Singapore and Australia. Subex is the global leader in Business Optimization for communications service providers. Telecom operators are facing a difficult situation globally as their business has commoditized. Further, subscribers are expecting telcos to keep rolling out newer and more attractive services. Thus telcos are being pushed from both the cost side and the competitive side. Given this situation, telcos need to take adequate steps to protect their margins and improve operational efficiency. Subex’s solutions help them on these fronts. Our well accepted platform, the Revenue Operations Centre (ROC) brings together business intelligence, domain knowledge and workflow support. ROC acts as the underpinning solution on which telcos can build their processes to achieve several objectives like, lower cost, higher margin, higher revenue etc. 2. OPPORTUNITIES AND THREATS Strategy Subex has always been quite strategic. The key elements of the strategy are our offering, positioning and customer acquisition and retention. We have always been at the leading edge of technology and have evolved new concepts to enable our customers to keep pace with changing scenarios. Using our products, we have structured several solutions that address and solve key problems faced by our customers. The next step has been to offer these solutions as a well integrated platform called ROC. Also, we offer ROC in the form of Managed Services thereby ensuring that our customers gain significantly from our solutions. This three pronged strategy has helped us to weather the storm over the past couple of years. 3. BUSINESS SEGMENTS AND INDUSTRY OUTLOOK 3.1 Business Segments Subex operates in two business segments – telecom software products and telecom software services. The former is the key focus area for the Company and is being discussed in detail. The latter is staff augmentation services for Telcos in the United States and is fast losing its significance as can be seen from the business mix data provided herein. Revenue Mix 7 9 8 3 7 5 6 7 6 4 6 7 6 4 5 5 4 5 5 4 4 6 3 6 3 3 3 6 3 3 2 5 2 1 1 7 90 80 70 60 50 40 30 20 10 0 e g a t n e c r e P 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Revenue from Products Revenue from Services 3.2 Telecom Software Products Solutions for Business Optimization Subex offers the ROC Solution Suite for Business Optimization, which has solutions for Revenue Assurance, Fraud Management, Cost Management, Partner Settlement, Credit Risk Management and Route Optimization. Revenue Operations Centre (ROC) ROC functions as a financial command and control centre for the telcos by, (cid:127) (cid:127) (cid:127) delivering real-time and actionable insights to effectively monitor and control the operational and tactical response providing an integrated platform that sits on top of all Subex OSS/ BSS products or 3rd party systems linking service provider operations directly to financial health ROC allows for the correlation of data across business systems, creating an end-to-end view of the customer based on products, services, revenues, margins, costs, and more. ROC also enables service providers to define subex annual report 09-10 29 key cross-domain metrics and KPIs, specific to their business strategy, that can be monitored and tracked. ROC Fraud Management The ROC Fraud Management solution is the next generation fraud management solution built to deliver on a 3-step philosophy of Detect- Investigate-Protect. It detects known fraud types and patterns of unusual behaviour, helps investigate these unusual patterns for potential fraud and uses the knowledge thus generated to upgrade and protect against future intrusions. It is built to drive fraud prevention by eliminating known frauds, reducing free run time, augmenting internal controls and through continuous Fraud Management process improvement. ROC Fraud Management is differentiated by its unique architecture that harnesses the power of proven rules-based alarms and pattern matching driven by advanced statistical techniques. Adding power to this hybrid detection system is a set of strong case management tools. These tools provide all relevant case data which are made easily accessible through a single window in a fast web-based GUI. The solution's high flexibility allows operators of different sizes to customize rules to suit unique network and business requirements. Moreover, seamless visual alarm linking using third party visualization software reduces investigation efforts, thus decreasing case turnover time. The solution has the ability to detect 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. Using these solution templates, operators can dramatically reduce the time required to implement or extend the coverage of their revenue assurance practice. Moreover, operators can easily reconfigure or remodel existing templates to accommodate changing business requirements. ROC Cost Management ROC Cost Management is a state-of-the-art revenue management offering from Subex, which helps service providers effectively monitor and manage the cost of services. It enables operators to efficiently manage the process of identification, collection and comparison of cost related data across multiple sources such as partner invoices, inventory, orders, and call detail records. It ensures the profit margins and operational agility through reduction of service delivery costs. It is built on a highly integrated platform using components-based technology to provide striking performance, scalability, interoperability and reliability. The solution collects, collates and correlates the information from switches, inventory, billing, partner invoices, and financial systems to provide deeper insights about the cost aspects in an easier to understand format through dashboards & reports. It enhances margins by optimizing leased circuit costs, reducing interconnect costs, assuring access costs and by automating invoice verification process. ROC Credit Risk Management The ROC Credit Risk Management solution empowers operators to continuously assess and mitigate risk presented by subscribers throughout their lifecycle. It tracks risk in near real-time during: (cid:127) (cid:127) (cid:127) Subscriber acquisitioning Ongoing usage Collections and recovery The solution provides the operator with a holistic view that helps in understanding subscriber risk profile and thereby aids its management. Further, it can quickly, and seamlessly, accommodate new service information to provide an accurate picture of the exposure at any point in time. Allowing the operator to easily, and quickly, define various risk indicators and controls enables the solution to adapt to local cultural and regulatory requirements. This also enables the operator to stay agile in changing socio-economic conditions that affect the overall level of risk in a region. ROC Revenue Assurance ROC Partner Settlement ROC Revenue Assurance is a first-of-its-kind, comprehensive revenue assurance solution, designed to tackle critical revenue assurance challenges across the entire revenue chain. It offers a set of pre-configured solution templates to address revenue assurance challenges inherent to individual service verticals - Wireless, Fixed, Cable MSPs & MVNOs. These solution templates address revenue assurance issues across multiple functional areas such as service fulfillment, usage integrity, retail billing, interconnect/wholesale billing and content settlement. 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 (cid:127) (cid:127) (cid:127) (cid:127) Workflow to monitor, action & close cases The ROC Partner Settlement solution allows operators to quickly and accurately settle charges with their interconnect, network and content partners on a single, modular platform. Shrinking margins have highlighted the increased need for visibility of each deal’s impact on the operator’s bottom line. For agreements with domestic and international partners, it provides the ability to manage these major costs and revenues on a day-to-day, hour-to-hour basis. As product bundles and their related tariff plans become more complex, this ability to see all revenues and related costs is vital to ensuring a healthy bottom line. ROC Partner Settlement is able to support multiple business models within a single implementation through seamless addition of necessary modules. Examples of such modules include Retail, Wholesale and Satellite. The solution has been designed to evolve with minimal impact to ongoing operations. 30 subex annual report 09-10 ROC Route Optimization The ROC Route Optimization solution is designed to provide operators with the tools to manage network cost information supplied by other operators. Additional analysis on the impact of current operator tariffs as well as forecasts on potential future operator tariffs is also featured. The system is capable of taking into account factors such as call quality rate information, capacity and network costs in calculating the optimum choice of operators. ROC Route Optimization ensures that the entire end-to-end process from dial code/destination operator rate imports to switch updates is controllable and auditable. The solution is fully supported by a comprehensive list of reports, and when generating an optimized routing table the system provides an integrated management of the routing table changes across multiple business functions. Solutions for Service Fulfillment Vector Operators these days are constantly fighting over decreasing ARPU and increasing churn. In order to stay competitive and profitable in such a scenario, operators have to constantly come out with new and innovative services which increase customer involvement and help in reducing churn. Creation of new services is a very complex and time consuming process. Vector helps in simplifying the above for operators by automating the service creation process and reducing the time to market for these services from months to just a few days. Through its unique Service Creation Environment, operators can easily create new service definitions and workflows. Moreover the service catalog helps in reusing existing processes and service building blocks, which helps in bringing consistency and reliability in the service fulfillment process. It also has pre-defined “service accelerators” which capture the industry best practices and service definitions out-of-the-box. Based on production- proven, best-in-breed fulfillment solutions from Subex, Vector’s catalog- driven service fulfillment approach helps operators to adapt quickly to changing requirements, bring new and differentiated service to the market rapidly, better serve customers with on-demand offerings and support, and drive costs out of their business through greater automation. TrueSource Without consistently accurate network and service information, OSS and BSS implementations are delayed, their overall effectiveness falters, asset tracking becomes a guessing game, and revenue leaks abound. TrueSource combats these problems by providing the high levels of data integrity central to OSS and BSS data reconciliation and essential for the network and for business operations. TrueSource is the industry's first Data Integrity Management (DIM) solution for improving the quality of data that drives key service provider processes, resulting in lower costs and higher service profitability. TrueSource employs an operations-wide approach to solving data integrity problems, combining three powerful data integrity functions: multi-layer network and service discovery, data reconciliation, and discrepancy analytics. Leveraging inherent cross-domain intelligence and extensive off-the-shelf network equipment support, TrueSource discovers devices and logical services in complex multi-layer, multi-vendor, multi- service environments and reconciles this data with OSS/BSS on 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. NetProvision In the world of converging and ubiquitous communications, effective service fulfillment is all about meeting demand – satisfying increasing order volumes, aggressive delivery schedules, diverse service requirements, and customers' heightened expectations. Traditional approaches to service fulfillment are not equipped to keep pace with the demands of evolving networks, services, and subscribers. Manual and siloed service provisioning, in particular, is slow, complicated, and error-prone, forming a significant barrier to both revenue growth and customer satisfaction and retention. NetProvision automates the design and activation of complex, application-aware connectivity services, enabling flow-through provisioning of next-gen data and IP offerings across multi-vendor, multi-technology networks. NetProvision uses the industry’s most advanced and most widely deployed discovery engine, enabling the system to perform design, and assign based on the network and logical resources as they really exist, not as an off-line database thinks they might. This significantly reduces fallout rates and decreases the time required to activate a service. NetProvision also features productized Equipment Modules (i.e., device interfaces), native support for the widest range 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. 3.3 Customer Base Subex today serves over 200 customers spread across 70 countries. This includes 36 of the top 72 telcos globally. A partial list of customers is given below: Americas AT&T Bell Canada Claro Comcast Embarq Global Crossing Level 3 Qwest Sprint Telefonica Telmex Telus Time Warner Cable T-Mobile Verizon APAC Aircel Airtel BSNL CAT DTAC Idea Indosat Maxis MTNL Reliance Communications StarHub Tata Teleservices Ltd Telstra Uninor Vodafone India EMEA Avea BT Cable & Wireless CellC COLT Du MTN O2 Orange Romtelecom STC Swisscom Telecom Italia Telekom Slovenije Telenor TeliaSonera Umniah UPC Vodafone Wind Telecom 3.4 Revenue Model Subex licenses its software solutions on per subscriber or per transaction basis for every service stream of our customers, resulting in continuous growth in license revenues depending on the growth of the networks where the solutions are installed. Another sustainable revenue stream is the support revenue calculated as a function of the license revenue. Further, we also have a fourth stream of revenue namely, customization. While these four streams are directly related to the license model, we also have embarked on two additional streams of revenue namely Managed Services and SaaS. These two streams are detailed below. subex annual report 09-10 31 Managed Services Recognizing the strategic imperative of outsourcing in today’s environment, Subex offers a flexible and scalable Managed Services program that enables service providers to successfully meet the ever- changing business, technology and customer requirements. Subex Managed Services offering is designed to offer true competitive advantage by focusing on strategic, operational and cost benefits that address service providers’ current and future challenges and risks. Subex Managed Services program is designed to add both strategic and tactical value to service providers’ operations and enable better customer experience while also enhancing their operational efficiency, service agility and profitability. With Subex at the helm of its operations, service providers can redirect critical resources at core business functions generating more revenue and saving costs. Subex understands that no two service provider requirements are alike and hence offers the flexibility to pick and choose services based on: (cid:127) (cid:127) Scope of Operations: Ranging from standard operations to large scale transformational programs BSS / OSS Domains: Drawing from Subex’s established expertise on various BSS / OSS domains (cid:127) On-Site Support: High caliber, experienced resources to ensure functional continuity and high resource efficiency On-demand, Software-as-a-Service (SaaS) – ROCcloud Small and medium telcos have Business Support System (BSS) needs that are very different from those of larger telcos. In the same vein, most BSS products are developed to address the needs of large telcos. They are loaded with a host of standard features, not all of which are relevant to smaller organizations, and necessitate a substantial investment in licenses and resources. Quite naturally, it is difficult to justify this investment in most small and medium organizations. ROCcloud brings Subex’s proven Revenue Operations Center (ROC) to small and medium telcos. It is an on-demand business support system (BSS) ideally suited for small and medium telcos. ROCcloud employs a monthly subscription based usage model and is delivered over the web in a completely secure environment. It utilizes shared infrastructure at various locations across the globe. It is a pre-configured service with minimal customization needed and no implementation services required. ROCcloud is currently available for fraud management; addressing all common fraud threats. The following graph gives the revenue from each of the stream during the past several years: Revenue Composition 2 10 5 13 18 9 5 19 2 9 6 26 3 8 10 30 1 11 7 25 2 10 7 27 88 64 67 57 49 56 54 e g a t n e c r e P 100 90 80 70 60 50 40 30 20 10 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 License & Addl. License Support 3.5 Geographical Mix We have a dominant presence in both developing and developed markets. This is quite evident from the geographical mix given below. e g a t n e c r e P 100 90 80 70 60 50 40 30 20 10 0 9 36 14 34 23 23 Geographical Mix 49 8 15 35 37 27 36 17 40 54 52 55 37 50 55 43 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Customization Managed Services Third Party EMEA Americas APAC 32 subex annual report 09-10 4. RISKS AND CONCERNS Every business has several risks and ours is no different. Following are the risks that we are cognizant of: 4.1 Market The business model of communications service providers is highly dependant on consumer behaviour and any reduction on spending by consumers will negatively impact the fortunes of the Telcos. That will result in reduction of investment by the Telcos and a consequent contraction of market for our products. The communications industry continues to experience consolidation and an increased formation of alliances among communications service providers and between communications service providers and other entities. Should one of our significant customers consolidate with a service provider using a competing product and decide to discontinue the use of our product(s), this could have a negative material impact on our business. These consolidations and alliances may cause us to lose customers or require us to reduce prices as a result of enhanced customer leverage, which would have a material adverse effect on our business. We may not be able to offset the effects of any price reductions. We may not be able to expand our customer base to make up any revenue declines if we lose customers. Subex is fully dependant on the telecom industry. So, any vagaries in the telecom business environment will considerably impact the fortunes of the Company. our technology. Policing the unauthorized use of our products, trademarks and other proprietary rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. 4.4 Infringement Third parties could claim that our current or future products or technology infringe their proprietary rights. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim, and could distract our management from our business. Third parties may also assert infringement claims against our customers. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers. We also generally indemnify our customers if our services infringe the proprietary rights of third parties. If anyone asserts a claim against us relating to proprietary technology or information, while we might seek to license their intellectual property, we might not be able to obtain a license on commercially reasonable terms or on any terms. 4.2 Technology and Personnel 4.5 Variability of Quarterly Operating Results Our industry is characterized by rapid technological changes and frequent new service offerings. Significant technological changes could make our technology and services obsolete, less marketable or less competitive. We must adapt to our rapidly changing market by continually improving the features, functionality, reliability and capability of our products to meet changing customer needs. We may not be able to adapt to these challenges or respond successfully or in a cost-effective way. Our failure to do so would adversely affect our ability to compete and retain customers or market share. Launching new products is a key element of our growth and an inability to bring new products with high demand to the market in a timely manner will reduce our growth and profitability. Subex has set up processes and methodologies to address this threat and to turn it into a strategic advantage by being in the forefront of technological evolution. Regular skill upgradation programs and training sessions that include attending global conferences, employing specialized consultants etc. are undertaken. Retention of software personnel is another major risk being faced by Subex. Towards this, the Company provides an empowered atmosphere with extensive mentoring, career counseling and constant learning opportunities in cutting edge and challenging technologies. 4.3 Intellectual Property Our success depends to a significant degree upon the protection of our software and other proprietary technology rights. We rely on trade secret, copyright and trademark laws and confidentiality agreements with Subexians and third parties, all of which offer only limited protection. The steps we have taken to protect our intellectual property may not prevent misappropriation of our proprietary rights or the reverse engineering of our solutions. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in several countries are uncertain and may afford little or no effective protection of our proprietary technology. Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which could require costly efforts to protect The quarterly operating results of the Company have varied in the past due to reasons like seasonal pattern of hardware and software capital spending by customers, information technology investment trends, achievement of milestones in the execution of projects, hiring of additional staff and timing and integration of acquired businesses. Hence, the past operating results and period to period comparisons may not indicate future performance. The management is attempting to mitigate this risk through expansion of client base geographically and increase of steady annuity revenue. Despite those efforts, variability could continue. 4.6 Statutory Obligations Subex has registered with Special Economic Zone for software development activities and has availed Customs Duties, Sales Tax and Central Excise exemptions. The non-fulfillment of export obligations may result in penalties as stipulated by the Government and this may have an impact on future profitability. 4.7 Environmental Matters Software development, being a pollution free industry, is not subject to any environmental regulations. 4.8 Foreign Exchange Subex has substantial exposure to foreign exchange related risks on account of revenue from export of software and outstanding liabilities. These are hedged with banks and risks mitigated to the extent possible. Despite this, particularly given the volatility in the foreign exchange market, there could be significant variations. 4.9 Taxation Consequent to the end of STPI related tax benefits for Subex, we have moved to a Special Economic Zone (SEZ). While tax protection is expected to continue under the SEZ scheme, there is a significant amount of uncertainty in the regulatory environment. This could lead to incidence of higher tax. subex annual report 09-10 33 4.10 Litigation There is an increasing trend in litigation regarding intellectual property rights, patents and copyrights in the software industry. There also exist other corporate legal risks. Subex has no material litigation pending against it in any court in India or abroad. 4.11 Contractual Obligation In terms of the contract entered into by Subex with its customers in the ordinary course of business, it is obliged to perform and act according to the contractual terms and regulations. Failure to fulfill the contractual obligations arising out of such contracts may expose Subex to financial and other risks. The management has taken sufficient measures to cover all of its contractual risks and does not foresee any major liability due to its non fulfillment of any contractual terms and conditions. 5. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY Management maintains internal control systems designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with management’s authorization and properly recorded, and accounting records are adequate for preparation of financial statements and other financial information. The internal audit function also carries out Operations Review Audits to improve the processes and strengthen control of the existing processes. The Audit Committee periodically reviews the functions of internal audit. Pursuant to revised Clause 49 of the Listing Agreement, the CEO / CFO has to accept responsibility for establishing and maintaining internal controls for financial reporting and that they have evaluated the effectiveness of internal control systems of the Company pertaining to financial reporting and that they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies. The adequacy of the Company’s internal controls are tested from time to time and control deficiencies, if any, identified during the assessments are addressed appropriately. 6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE 6.1 Key Financials and Ratio Analysis Amount in Rs million, except key indicators Financial Highlights Year ending March 31 Total Income Export Sales Operating Profits (EBITDA) Before Exceptional Items Depreciation & Amortization Profit/(Loss) Before Tax and Exceptional Items Profit/(Loss) After Tax and Exceptional Items Equity Dividend % Share Capital Reserves & Surplus Net Worth Gross Fixed Assets Net Fixed Assets Total Assets Key Indicators 2010 2009 2008 Consolidated Standalone Consolidated Standalone Consolidated Standalone 4,747.81 1,732.32 3,239.50 1,298.90 5,725.56 2,233.06 3,025.63 1,282.16 4,859.58 3,799.38 1,440.46 1,080.40 947.23 163.58 999.19 88.15 662.06 228.83 559.16 136.46 (730.20) (251.60) 184.04 121.55 309.49 489.14 (1.58) 70.13 (1,219.04) (652.12) 1,002.96 1,368.61 (1,883.63) (1,782.11) (680.71) (61.88) Nil 579.83 2,093.05 2,730.00 1,605.11 195.75 Nil 579.83 2,932.02 3,568.98 708.83 97.53 Nil Nil 348.47 348.47 3,464.34 4,167.89 3,844.51 4,562.67 1,746.33 306.65 764.23 163.34 Nil 348.47 6,348.96 6,875.17 1,507.51 388.77 Nil 348.47 6,539.30 7,097.98 742.71 265.97 9,217.97 9,753.02 15,902.45 15,830.78 16,185.94 15,957.34 Earnings Per Share (Year End) (Rs.) Cash Earnings Per Share (Year End) (Rs.) Book Value Per Share (Rs.) Debt (Including Working Capital) Equity Ratio EBITDA / Sales - % Net Profit Margin - % Return on Year End Net Worth % Return on Year End Capital Employed % 25.87 7.87 47.08 2.32 20.46% 21.66% 36.74% 11.06% 35.30 (2.06) 61.55 1.73 31.21% 42.75% 38.35% 14.03% (54.05) 23.62 110.33 (51.14) 12.61 130.93 2.83 2.28 11.85% 18.57% (33.73)% (59.19)% (49.00)% (39.06)% (12.78)% (11.92)% (19.49) (28.53) 197.30 1.35 (15.04%) (14.02%) (9.90%) (4.22%) (1.77) (14.68) 203.69 1.25 (17.49%) (4.30%) (0.87%) (0.39%) Note: Earnings per share, Cash Earnings per share and book value of share are in Rupees. 34 subex annual report 09-10 7. COMMENTARY ON FINANCIAL STATEMENTS 7.1 Share Capital 7.1.1 Of the equity paid-up capital, the Company had issued the following shares towards consideration other than cash. (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) 115,000 shares of Rs.10/- each, towards the balances in the current account of partners, Mr. Subash Menon and Mr. 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 eligible shareholders as on March 31, 1999 in the ratio of 1:1 by capitalizing the General Reserves. 12,840 shares of Rs.10/- each to the erstwhile owners of M/s. Ivth Generation Inc., towards part consideration of the cost of acquisition of that Company at Rs.1,023/- per share during 1999-2000. 10,878,784 Shares of Rs.10/- each to all eligible shareholders as on January 6, 2006 in the ratio of 1:1 by capitalizing the securities premium. 1,109,878 Shares of Rs.10/- each to the GDR holders as on April 7, 2006 @ Rs.400/-. 11,728,728 Shares of Rs.10/- each to the GDR holders as on June 22, 2006 towards consideration of the cost of acquisition of Azure Solutions Ltd at Rs.532.24 per share 7.1.2 During 2006-07 the Company issued 219,551 (including Bonus shares, wherever options are eligible) shares of Rs.10/- each to various Employees on exercise of Stock Options granted under the Employee Stock Option Plan (ESOP – II & III). 7.1.3 During 2007-08, the Company issued 31,364 (including Bonus shares, wherever options are eligible) shares of Rs.10/- each to various Employees on exercise of Stock Options granted under the Employee Stock Option Plan (ESOP – II & III). 7.1.4 During 2009-10, the Company issued 1,203 equity shares of Rs.10/- each under its ESOP 2005 scheme and 1,210 equity shares of Rs.10/- each under its ESOP 2000 scheme to various Employees on exercise of Stock Options. 7.1.5 During 2009-10, the Company issued 4,000,000 equity shares of Rs. 10/- each, on a preferential basis, to M/s Woodbridge Consultants, an entity belonging to Promoters/Promoter group, at an issue price of Rs 80/- per share. 7.1.6 During 2009-10, the Company issued 19,133,637 equity shares allotted upon conversion of FCCBs aggregating to principal amount of US$ 31.9 Million, out of its US$ 98.7 Million 5% Convertible Unsecured Bonds, in accordance with the terms and conditions thereof. 7.1.7 There are no calls in arrears. 7.2 Reserves and Surplus 7.2.1 Capital Reserve of Rs.13.00 Million was created by credit of the notional premium on 12,840 equity shares of Rs.10/- each valued at a price of Rs.1,023/- per share and issued to the owners of IVth Generation Inc, USA as part consideration for the transfer of their shareholding to Subex Systems Ltd. During the year 2009-10, additions to capital reserve due to restructuring of FCCBs net of expenses amounted to Rs.1,786.54 Million, reductions due to transfer to Business Restructuring Reserve amounted to Rs.1,700 Million and deferred interest on restructured FCCBs amounted to Rs. 203.05 Million. 7.2.2 Securities Premium Account represents the premium collected on: (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) (cid:127) 971,000 equity shares issued at a premium of Rs.65/- per share 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 a preferential basis during 1999-2000. 1,887,000 equity shares issued at a premium of Rs. /- per share to holders of ROCCPS on conversion of preferential 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 bonds at 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/-. 11,728,728 equity shares issued at a premium of Rs.522.24/- per share to holders of GDR at price of Rs.532.24 253,328 (including Bonus shares, wherever options are eligible) equity shares allotted to the employees under ESOP II & III Scheme as per the provisions of the Scheme at various premiums. 19,133,637 equity shares were allotted upon conversion of FCCBs aggregating to principal amount of US$ 31.9 Million, out of its US$ 98.7 Million 5% Convertible Unsecured Bonds, in accordance with the terms and conditions thereof 4,000,000 equity shares were allotted, on a preferential basis, to M/s Woodbridge Consultants, an entity belonging to Promoters/ Promoter group, at an issue price of Rs 80 per share including a premium of Rs.70 per share During the year 2009-10, Rs.5,000 Million and Rs.1,700 Million were transferred to Business Restructuring Reserve from securities premium and capital reserve respectively. Out of the said amount, Rs.6,499.79 Million were utilised (as explained in Note II.1 of Schedule P and Schedule O to the standalone and consolidated financial statements respectively) and consequently, the balance in Business Restructuring Reserve as of March 31, 2010 was Rs.200.21 Million. 7.3 Employee Stock Options In accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, the Company amortizes the excess of market price of the underlying equity shares as on the date of the grant of the option over the exercise price of the option, to be adjusted over the period of vesting. The net amount carried in respect of stock options outstanding at March 31, 2010 amounts to Rs.57.12 Million (Previous Year: Rs.46.31 Million). 7.4 Deferred Tax In accordance with the generally accepted accounting principles in India on Accounting for Direct Taxes, Deferred Taxes has been restated to Rs. 12.18 Million on a standalone and consolidated basis. 7.5 Secured Loans On consolidated basis, the secured loan of Rs.1,588.88 Million (Previous Year: Rs.980.04 Million) and on stand alone basis, the secured loan of Rs.1,433.62 Million (Previous Year: Rs.479.16 Million) outstanding in the books as at March 31, 2010 consists of Rs.17.74 Million pertaining to motor cars financed by the Company through Hire purchase scheme with the financiers and is secured by hypothecation of the vehicles and Rs.706.95 Million pertaining to the working capital loan from Axis Bank Ltd and State Bank of India secured by Fixed Assets and subex annual report 09-10 35 Receivables, and Rs.708.93 Million relating to long term loan from State Bank of India secured by second charge on Current Assets and pledge of portion of share of promoters. The Company’s net block of fixed assets was Rs.195.75 Million (Previous year Rs.284.28 Million) on consolidated basis and Rs.97.53 Million (Previous year Rs.163.34 Million) on standalone basis. 7.6 Unsecured Loans 7.8 Investments On a consolidated basis, the unsecured loan outstanding in the books as at March 31, 2010 consists of : Rs.1,751.10 Million (Previous Year: Rs.9,129.60 Million) relating a. to Foreign Currency Convertible Bonds issued in fiscal 2006-07. The bonds carry interest of 2% per annum and are redeemable by March 9, 2012 if not converted into equity shares as per terms of issue. These bonds are listed in the Professional Securities Market of London Stock Exchange. The premium payable on these bonds is accrued over the life of the bonds and is carried under Current Liabilities & Provisions. b. Rs.2,999.32 Million (Previous Year: Rs. Nil Million) relating to Foreign Currency Convertible Bonds issued in fiscal 2009-10 as a result of restructuring existing bonds mentioned in (a) above. The bonds carry interest of 5% per annum and are redeemable by March 9, 2012 if not converted into equity shares as per terms of issue. These bonds are listed on the Singapore Exchange Securities Trading Limited. The premium payable on these bonds is accrued over the life of the bonds and is carried under Current Liabilities & Provisions. Rs. Nil (Previous Year: Rs.29.11 Million) relates to short term c. working capital loan from Deutsche Bank. d. Rs. 2.24 Million (Previous Year : Rs. 5.07 Million) relates to an unsecured loan e. Rs. Nil (Previous Year: Rs.749.86 Million) relates to long term working capital loan from State Bank of India, now being structured as long term secured loan. On a standalone basis, the unsecured loan outstanding in the books as at March 31, 2010 consists of : a. Rs.1,751.10 Million (Previous Year: Rs.9,129.60 Million) relating to Foreign Currency Convertible Bonds issued in fiscal 2006-07. The bonds carry interest of 2% per annum and are redeemable by March 9, 2012 if not converted into equity shares as per terms of issue. These bonds are listed in the Professional Securities Market of London Stock Exchange. The premium payable on these bonds is accrued over the life of the bonds and is carried under Current Liabilities & Provisions. b. Rs.2,999.32 Million (Previous Year: Rs. Nil Million) relating to Foreign Currency Convertible Bonds issued in fiscal 2009-10 as a result of restructuring existing bonds mentioned in (a) above. The bonds carry interest of 5% per annum and are redeemable by March 9, 2012 if not converted into equity shares as per terms of issue. These bonds are listed in the Singapore Exchange Securies Trading Limited. The premium payable on these bonds is accrued over the life of the bonds and is carried under Current Liabilities & Provisions. Rs. Nil (Previous Year: Rs.29.11 Million) relates to short term c. working capital loan from Deutsche Bank. d. Rs. Nil (Previous Year: Rs.749.86 Million) relates to long term working capital loan from State Bank of India, now being structured as long term secured loan. 7.7 Fixed Assets 7.7.1 The value of intangible assets, based on the valuation report by independent valuers, is being depreciated over 5 years in accordance with the Company’s assessment of useful life thereof. 7.7.2 During the year, the Company added Rs.66.60 Million on consolidated basis and Rs.23.41 Million on standalone basis, to its gross block. The Company disposed off certain assets no longer required. 7.8.1 During 1999, the Company had acquired the whole of the outstanding common stocks numbering 3,000 of no par value of IVth Generation, Inc., New Jersey, USA, Consequent to the acquisition, IVth Generation Inc, a wholly owned subsidiary of the Company, has been renamed as “Subex Technologies Inc.” During 2007-08, the Company filed an application with Hon’ble High Court of Karnataka to transfer the Services Business Division (which included the investment in Subex Technologies Inc.) to Subex Technologies Ltd, a wholly owned subsidiary of Subex Ltd under a scheme of arrangement. On obtaining the order from the Hon’ble High Court of Karnataka, the Company has transferred the Services business to Subex Technologies Ltd with effect from September 1, 2007 (appointed date) at an aggregate consideration of Rs.310,000,000. In accordance with the order of the Hon’ble High Court, the Company shall receive 3,000,000 shares of Subex Technologies Ltd valued at Rs.30,000,000 in settlement of the consideration with the balance Rs.280,000,000 being treated as unsecured loan taken by the subsidiary from the Company. 7.8.2 On June 23, 2006, the Company acquired the entire share holding of Azure Solutions Ltd, UK. The consideration was discharged by issue of 11,728,728 GDRs each representing one equity share of Rs.10/- at a premium of Rs.522.24 per share and cash of Rs.214.57 Million. 7.8.3 During the year 2007-08, the Company completed the acquisition of Syndesis Ltd, Canada, a company engaged in Service Assurance and fulfillment space in the Telecom service industry. Pursuant to the acquisition, Syndesis Limited has been renamed as Subex Americas Inc. 7.8.4 During the year 2009-10, the Company recognized an amount of Rs. 5,000 Million as diminution in carrying value of investment in Subex Americas Inc. Consequently, the investment carrying value as of March 31, 2010 is Rs.2,749.57 Million. 7.9 Sundry Debtors 7.9.1 During the year, on a standalone basis the Company has securitized a portion of its receivables amounting to Rs.286.65 Million (Previous year: Rs.401.04 Million) with Axis Bank Ltd and on consolidated basis Rs.957.87 Million (Previous Year: Rs.582.81 Million). 7.9.2 The major customers of the Company are the telecom and cellular operators overseas and in India. The receivables are spread over a large customer base. There is no significant concentration of credit risk on a single customer, but for the majority of the services business coming from AT&T, USA. 7.9.3 All the debtors are generally considered good and realizable and necessary provision has been made for debts considered to be bad and doubtful. The level of sundry debtors is normal and is in tune with business trends requirements. 7.9.4 Sundry Debtors as a percentage of total revenue is 10% as against 11% in the previous year, on a consolidated basis. 7.9.5 The age profile on consolidated basis is as given below:es Period in days March 31, 2010 Value % Amount in Rs. million March 31, 2009 Value % Less than 180 days More than 180 days 446.84 32.37 93.25 6.75 622.31 - 100.00 - Total 479.21 100.00 622.31 100.00 36 subex annual report 09-10 The age profile on a standalone basis is as given below: Period in days March 31, 2010 Amount in Rs. million March 31, 2009 Rs.500 Million (Previous Year: Rs.731.85 Million). The subsidiaries had utilized such facilities to the extent of Rs.155.26 Million. 7.14 Profit & Loss Account Value % Value % 7.14.1 Income Less than 180 days More than 180 days 1,241.01 11.04 99.12 0.88 1,110.08 - 100.00 - Total 1,252.05 100.00 1,110.08 100.00 7.9.6 The management believes that the overall composition and condition of sundry debtors is satisfactory. The provision for doubtful debts stands at Rs.105.98 Million (Previous Year: Rs.290.77 Million) on consolidated basis and Rs.92.09 Million (Previous Year: Rs.162.21 Million) on standalone basis. 7.10 Cash and Bank Balances The bank balances in India includes both rupee accounts and foreign currency accounts. The fixed deposit of Rs.25.97 Million on consolidated basis and standalone basis is the margin money with the bankers for establishing bank guarantee/ issuing corporate credit cards. 7.11 Loans and Advances 7.11.1 Advances recoverable in cash, kind or value to be received are primarily towards pre-payments for value to be received. Advance income tax, net of provision for taxation, represents payments made towards tax liability pending assessment and refunds due. 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) Amount in Rs. million 2009-10 2008-09 0.50 45.98 312.89 (0.04) 168.46 310.83 - 181.56 114.40 166.94 Subex (UK) Limited Subex (Asia Pacific) Pte Ltd Subex Americas Inc Subex Inc Subex Technologies Ltd 7.12 Provisions Provisions for taxation represent income tax, dividend tax and wealth tax liability. The provision would be set off upon payment of tax. Provision also includes redemption premium accrued on Foreign Currency Convertible bonds – Rs.612.71 Million (Previous Year – Rs. 1361.92 Million), Provision for Other Long Term Employee Benefits Rs. 628.60 Million (Previous Year: Rs. Nil), and Differential Interest on Restructured FCCBs Rs. 203.05 Million (Previous Year: Rs. Nil). 7.13 Other Matters 7.13.1 Letters of Credit The Company has an outstanding Letters of credit amounting to Rs.23.25 Million (Previous Year: Rs.32.95 Million) on a consolidated and standalone basis. These letters of credit are in the nature of procurement of capex. 7.13.2 Guarantees On Standalone Basis The Company has provided Corporate Guarantees to Banks for credit facilities availed by its wholly owned subsidiaries to the amount of The Company derives its income from providing Software Development Services and licensing of Software Products. The segment wise break up of income on consolidated basis is given below: Amount in Rs. million except percentages Particulars 2009-10 2008-09 Value % Value % Software Products Software Services 3,829.43 801.35 82.70 4,384.81 17.30 1,200.08 78.51 21.49 Total 4,630.78 100.00 5,584.89 100.00 7.14.2 Geographically, the Company earns income from export of software services to USA and software products to most of the countries. 7.15 Other Income 7.15.1 Non Operating income consists of income derived by the Company from, bad debts recoveries, reversal of provision for doubtful debts and profit on sale of fixed assets 7.16 Expenditure 7.16.1 The staff cost decreased to Rs.2,968.34 Million (Previous year: Rs.3,866.80 Million) on consolidated basis and decreased to Rs.658.48 Million (Previous year: Rs.798.28 Million) on standalone basis. 7.16.2 The Company incurred administration and other expenses at 15.04% of its total Income during the year as compared to 18.74% during the previous year on consolidated basis and 48.14% of its total income during the year as compared to 53.90% during the previous year on a standalone basis. 7.17 Operating Profits During the year, on consolidated basis, the Company earned an Operating Profit/(Loss) before Interest, depreciation, tax and exceptional items of Rs.947.23 Million being 19.95% of total income as against Rs.662.06 Million at 11.56% during the previous year. On a standalone basis, the Company earned Operating Profit/(Loss) before Interest, depreciation, tax and exceptional items of Rs.999.19 Million being 30.84% of total income as against Rs.559.16 Million at 18.48% during the previous year. 7.18 Interest & Bank Charges The Company incurred an expenditure of Rs.474.16 Million (Previous year: Rs.434.81 Million) on consolidated basis and Rs.421.90 Million (Previous year: Rs.352.57 Million) on standalone basis. The interest paid is related to temporary overdrawls and securitized receivables. The interest on FCCBs provided alone amounted to Rs.156.31 Million(Previous Year: Rs.180.76 Million). 7.19 Depreciation 7.19.1 The provision for depreciation for the year amounted to Rs.148.23 Million (Previous year: Rs.212.88 Million) on consolidated basis and Rs.88.15 Million (Previous year: Rs.136.46 Million) on standalone basis. 7.19.2 The intangible assets i.e. IPRs and goodwill are being depreciated over 5 years in accordance with the Company’s assessment of useful life thereof. Accordingly, an amount of Rs.50.85 Million (Previous year: Rs.82.23 Million) has been charged towards depreciation. subex annual report 09-10 37 7.20 Provision for Tax The Company has provided for its tax liability in India and overseas after considering the exemptions for income from software services and products under the various applicable tax enactments. 7.21 Net Profit On consolidated basis, the net profit of the Company amounted to Rs.1,002.96 Million, as against a net loss of Rs.1,883.63 Million during the previous year. On standalone basis, the net profit of the Company amounted to Rs.1,368.61 Million as against a net loss of Rs. 1,782.11 Million during the previous year. 7.22 Earnings Per Share Earnings/(Loss) per share computed on the basis of number of common stock outstanding, as on the Balance Sheet date was Rs.25.87 per share (Previous year: Rs.(54.05) per share) on consolidated basis and Rs.35.30 per share [Previous year: Rs.(51.14) per share] on standalone basis. 8. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS, INCLUDING NUMBER OF PEOPLE EMPLOYED Subexians Our greatest assets are our people - Subexians! As a products Company, our team becomes our biggest differentiator and how we define our capability requirements, training needs and retention strategies becomes crucial. The Subex work culture nurtures initiative and creativity, bringing out the best of every Subexian. Empowering people, offering greater challenges along with more development opportunities forms the essence of Subex. We know that when Subexians realize their full potential, we can achieve our broader business goals. The Subex population is spread across the globe in our multiple offices. The larger centers are our offices in Bangalore, London, Toronto and Denver. As of March 31, 2010, we had over 978 Subexians on our rolls. Human Resources at Subex is centralized at our corporate headquarters in Bangalore, with regional HR teams providing local support aligned to the global HR strategy. The HR team provides a competitive edge to the business by enabling and supporting a very unique business model of value delivery based on global product development and delivery capabilities. HR at Subex consistently strives to adopt leading best practices in designing and deploying HR process and programs across various areas like recruitment, total rewards management, talent management, organizational development, performance management, change management, learning and development, mergers and acquisitions etc. Recruitment During the year, the recruitment team had to execute a well thought out manpower planning and analysis exercise, adopt global recruitment best practices to fulfill the organization's talent requirements. The team created and implemented high quality, repeatable recruiting practices and procedures (like “Coffee with the Hiring Manager”, "Post-offer feedback", "Mapping of potential talent" in the industry using Subexian referral program, partner feedback, interviewer feedback etc.) to help Subex to attract and hire the best talent in the industry in a cost effective and efficient manner. The main sources for hires were referrals from Subexians (the best bring the best!), campus recruitments, placement consultants, website postings and walk-ins. Our selection criteria are stringent and we hire for strength in both technology as well as the telecom domain. The entire recruitment process is managed through an internally developed tool called “Poodle”. One of the key focus areas for the recruitment team was to attract high quality resources into Subex. For this, we had to create recognition of the Subex brand on campuses. Our theme was "Refuse to be Ordinary" - aligned to the spirit of Subex! Our rigorous campus interview and selection process (multiple rounds of assessment starting with technical tests (objective and programming), followed by three rounds of competency based technical interviews and a detailed HR round), reaffirmed our theme. On the hiring of laterals or experienced resources, the recruitment team experimented with new models like the Recruitment Process Outsourcing (RPO) model to manage the dynamic growth of the business and ramp up for anticipated growth. Induction & Training There is enough research that proves that the quality of induction that new hires go through determines how successful they are in the Company and has a huge impact on retention. Each new Subexian undergoes a mandatory induction program when they join Subex. The induction program is split into in three phases. The First Day Induction is primarily a HR function and is aimed at completion of required paperwork as well as a familiarization with the Company, values, benefits and facilities. This is the followed by Phase 2 which comprises a Functional Induction wherein various department heads explain the activities within their departments. Phase 3 is the Management Induction which is organized within a month of joining. This provides the new hires with a platform for direct interaction with senior management of Subex and helps them understand the vision, culture, and current and future goals of the organization. New or recent graduates must also attend additional training programs that are tailored to their area of technology. In addition, we also have training programs for all Subexians to improve their technical and behavioural skills. We launched a Sabbatical Policy intended to support continuing education of Subexians. We also sponsor special programs for Subexians at leading educational institutions. Subex is also in the initial stages of launching Subex Academy - a global Learning and Development Platform (supporting instructor led training, on the job learning, as well as e-learning) that would enable a role based curriculum led approach to learning, while streamlining the training process as well as ensuring global reach and appropriateness of content. This automated platform would add significant value to training identification, design, delivery and evaluation. Performance Management System Subex continues to keep abreast of the latest developments in the HR arena. One such initiative has been to implement cascading Key Result Areas (KRAs) to drive alignment across the organization. Cascading KRAs help in aligning the individuals' KRAs to the corporate, functional and departmental KRAs. We have also introduced a new competency model which comprises four categories of competencies - F.E.L.T. Foundation Competencies are the basic Values based competencies required by all in Subex. Excel competencies are those that are required to do your current job really well. Lead Competencies focus on the future needs and are the skills required to succeed in leadership roles. Technical Competencies take care of the core areas of the role - knowledge about our products, the various technologies and domains. These, along with the KRAs help build and reinforce the performance oriented culture at Subex. Compensation Compensation at Subex is multi-dimensional and consists of salary, benefits, stock options, health and disability insurance. The Company benchmarks its compensation package against industry data and strives to achieve a balanced position. The Company provides robust and comprehensive cash compensation and benefits as per industry trends. We also arrive at the salary bands for Subexians by doing comprehensive job matching, data validation and quality audits. Subex also introduced a new Rewards and Recognition program called STARs. STARs is an online reward and recognition platform that will simplify the process of rewarding Subexians globally and give Subexians the choice of selecting their rewards through redeemable vouchers of major stores selected globally. 38 subex annual report 09-10 financial review subex limited (standalone) subex annual report 09-10 39 AUDITORS’ REPORT TO THE MEMBERS OF SUBEX LIMITED (formerly Subex Azure Limited) AUDITORS’ REPORT TO THE MEMBERS OF SUBEX LIMITED (formerly Subex Azure Limited) AUDITORS’ REPORT TO THE MEMBERS OF SUBEX LIMITED (formerly Subex Azure Limited) AUDITORS’ REPORT TO THE MEMBERS OF SUBEX LIMITED (formerly Subex Azure Limited) AUDITORS’ REPORT TO THE MEMBERS OF SUBEX LIMITED (formerly Subex Azure Limited) 1. We have audited the attached Balance Sheet of Subex Limited (“the Company”), as at March 31, 2010, the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, both annexed thereto. These financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and the disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by the Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. Without qualifying our report, we draw attention to Note II.1 of Schedule P. As more fully explained therein, the Company has in accordance with the Proposal approved by the Hon’ble High Court of Karnataka credited the surplus of Rs. 1,583,488,419 arising on account of the restructuring of the Foreign Currency Convertible Bonds to Capital Reserve Account and debited expenses and diminution in value of investments amounting to Rs. 6,499,792,468 to the Business Restructuring Reserve instead of recording the same in the Profit and Loss Account as required by Accounting Standard 5 ‘Net Profit or Loss for the Period, Prior Period Items’. 4. We draw attention to Note II.9.b of Schedule P regarding the excess managerial remuneration of earlier years in respect of which the Company’s application is pending with the Central Government. 5. As required by the Companies (Auditor’s Report) Order, 2003 (CARO) issued by the Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 6. Further to our comments in the Annexure referred to in paragraph 5 above, we report that: (a) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit; (b) in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books; (c) the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account; (d) in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956, except to the extent indicated in paragraph 3 above for the reasons stated therein; (e) in our opinion and to the best of our information and according to the explanations given to us, the said accounts, read together with the notes thereon and our comments in paragraph 3 above, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2010; (ii) in the case of the Profit and Loss Account, of the profit of the Company for the year ended on that date; and (iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date. 7. On the basis of the written representations received from the Directors as on March 31, 2010 taken on record by the Board of Directors, none of the Directors is disqualified as on March 31, 2010 from being appointed as a director in terms of Section 274(1)(g) of the Companies Act, 1956. For Deloitte Haskins & Sells Chartered Accountants (Registration No. 008072S) V. Balaji Partner M. No. 203685 Place: Bangalore Date: June 10, 2010 ANNEXURE TO THE AUDITORS’ REPORT (Referred to in Paragraph 5 of our report of even date) 1. Having regard to the nature of the Company’s business/activities/ result, clauses iii (b) to (d), iii (f), iii (g), viii, xii, xiii, xiv, xix and xx of CARO are not applicable. 2. In respect of its fixed assets: (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of the fixed assets. (b) Some of the fixed assets were physically verified during the year by the Management in accordance with a regular programme of verification which, in our opinion, provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanation given to us, no material discrepancies were noticed on such verification. (c) The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company. 3. In respect of its inventory: (a) As explained to us, the inventories were physically verified during the year by the Management at reasonable intervals. (b) In our opinion and according to the information and explanation given to us, the procedures of physical verification of inventories followed by the Management were reasonable and adequate in relation to the size of the Company and the nature of its business. (c) In our opinion and according to the information and explanations given to us, the Company has maintained proper records of its inventories and no material discrepancies were noticed on physical verification. 40 subex annual report 09-10 4. According to the information and explanations given to us, the Company has neither granted nor taken any loans, secured or unsecured, to/from companies, firms or other parties listed in the Register maintained under Section 301 of the Companies Act, 1956. 5. In our opinion and according to the information and explanations given to us, having regard to the explanation that some of the Company’s transactions of (a) purchase of goods and services and (b) services rendered, are of special nature and suitable alternative sources are not readily available for obtaining comparable quotations, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and fixed assets and for the sale of goods and services. During the course of our audit, we have not observed any major weakness in such internal control system. 6. In respect of contracts or arrangements entered in the Register maintained in pursuance of Section 301 of the Companies Act, 1956, to the best of our knowledge and belief and according to the information and explanations given to us: (a) The particulars of contracts or arrangements referred to Section 301 that needed to be entered in the Register maintained under the said Section have been so entered. (b) Where each of such transactions is in excess of Rs.5 lakhs in respect of any party, such transactions relate to preferential allotment of shares reported under paragraph 15 below. 7. According to the information and explanations given to us, the Company has not accepted any deposit from the public during the year. 8. In our opinion, the internal audit functions carried out during the year by a firm of Chartered Accountants appointed by the Management have been commensurate with the size of the Company and the nature of its business. 9. According to the information and explanations given to us in respect of statutory dues: (a) The Company has generally been regular in depositing undisputed statutory dues, including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income-tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and other material statutory dues applicable to it with the appropriate authorities. (b) There were no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income-tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and other material statutory dues in arrears as at March 31, 2010 for a period of more than six months from the date they became payable. (c) Details of dues of Income-tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty and Cess which have not been deposited as on March 31, 2010 on account of disputes are given below: Statute Nature of the dues Forum where dispute is pending Period to which the amount relates Amount (Rs.) Income Tax Act, 1961 Income Tax Act, 1961 Income Tax Act, 1961 Income Tax Act, 1961 Income Tax Act, 1961 Income Tax (Incl. Interest) Income Tax (Incl. Interest) Income Tax (Incl. Interest) Income Tax (Incl. Interest) Income Tax (Incl. Interest) Commissioner of Income tax (appeals) Deputy Commissioner of Income tax (appeals) Deputy Commissioner of Income tax (appeals) 2001-02 2002-03 2003-04 5,859,380 1,467,549 5,557,745 Income Tax Appellate Tribunal 2004-05 22,734,060 Commissioner of Income Tax (Appeals) 2005-06 17,875,862 10. The Company did not have accumulated losses at March 31, 2010. The Company has not incurred cash losses during the year ended March 31, 2010. The Company incurred cash losses in the immediately preceding year. 11. In our opinion and according to the information and explanations given to us, the Company has not defaulted in the (re)payment of dues to banks and financial institutions. 12. In our opinion and according to the information and explanations given to us, having regard to the explanation that the Company has provided certain guarantees to financial institutions for loans taken by the subsidiaries of the Company in order to support the subsidiaries’ operations, the terms of such guarantees are not prima facie prejudicial to the interests of the Company. 13. In our opinion and according to the information and explanations given to us, the term loans have been applied for the purposes for which they were obtained, other than temporary deployment pending application. 14. In our opinion and according to the information and explanations given to us and on an overall examination of the Balance Sheet, we report that funds raised on short-term basis have not been used during the year for long- term investment. 15. According to the information and explanations given to us, the Company has made preferential allotment of shares to parties and companies covered in the Register maintained under Section 301 of the Companies Act, 1956 at a price which is prima facie not prejudicial to the interests of the Company. 16. To the best of our knowledge and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year. For Deloitte Haskins & Sells Chartered Accountants (Registration No. 008072S) V. Balaji Partner M. No. 203685 Place: Bangalore Date: June 10, 2010 subex annual report 09-10 41 BALANCE SHEET AS AT BALANCE SHEET AS AT BALANCE SHEET AS AT BALANCE SHEET AS AT BALANCE SHEET AS AT SOURCES OF FUNDS SHAREHOLDERS’ FUNDS : Share Capital Employees Stock Options Outstanding account Reserves and Surplus LOAN FUNDS : Secured Loans Unsecured Loans TOTAL APPLICATION OF FUNDS FIXED ASSETS & INTANGIBLES : Gross Block Less : Depreciation Net Block INVESTMENTS : DEFERRED TAX ASSET CURRENT ASSETS, LOANS & ADVANCES : Sundry Debtors Cash & Bank balances Loans & Advances Unbilled Revenue Less: Current liabilities & Provisions Current liabilities Provisions Schedule March 31, 2010 March 31, 2009 Amount in Rs. A B C 579,831,390 348,470,890 57,121,999 2,932,024,900 3,568,978,289 46,306,062 5,048,272,223 5,443,049,175 D 1,433,624,881 E 4,750,420,000 479,161,493 6,184,044,881 9,908,570,246 10,387,731,739 9,753,023,170 15,830,780,914 F G H IIIII J K 708,830,172 611,296,782 97,533,390 764,230,507 600,888,201 163,342,306 9,263,443,608 12,175,962 14,263,443,608 24,176,009 1,252,057,185 29,488,397 919,470,100 156,420,930 2,357,436,612 418,416,788 1,559,149,614 1,977,566,402 1,110,083,973 53,041,678 1,193,050,991 141,527,765 2,497,704,407 422,324,717 1,575,940,535 1,998,265,252 Net Current Assets PROFIT AND LOSS ACCOUNT Less : Transfer from General Reserve as per Contra TOTAL 379,870,210 499,439,155 - - 1,058,355,416 177,975,580 - 9,753,023,170 880,379,836 15,830,780,914 Significant Accounting Policies & Notes to the Accounts P The Schedules referred to above form an integral part of the Balance Sheet In terms of our report of even date for Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board V. Balaji Partner Bangalore June 10, 2010 Subash Menon Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director V. Balaji Bhat Independent Director & Chairman of Audit Committee Raj Kumar C Vice President-Legal & Company Secretary Ramanathan J Vice President-Finance 42 subex annual report 09-10 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED Schedule March 31, 2010 March 31, 2009 Amount in Rs. INCOME : Sales & Services Other Income Total EXPENDITURE : Cost of Hardware, Software and Support Charges Personnel Costs Other Operating, Selling and Administrative Expenses Financial Costs (Net) Depreciation & Amortisation Total LLLLL M N O FFFFF 3,201,436,756 38,065,026 3,239,501,782 22,293,397 658,478,298 1,559,546,166 421,898,565 88,153,818 2,750,370,244 3,011,047,937 14,585,436 3,025,633,373 37,469,453 798,276,040 1,630,725,366 352,574,093 136,458,814 2,955,503,766 Profit/(Loss) Before Taxation and Exceptional Items 489,131,538 70,129,607 918,812,565 (1,929,600,000) (27,153,560) 891,659,005 1,380,790,543 109,633,809 (1,819,966,191) (1,749,836,584) 135,348 - 49,971 12,000,000 12,185,319 1,368,605,224 (1,058,355,416) 310,249,808 6,976,548 21,170,731 4,121,669 - 32,268,948 (1,782,105,532) 723,750,116 (1,058,355,416) 35.30 8.44 (51.14) (51.14) Exceptional Items Exchange Gain/(Loss) on Restatement of FCCBs Exchange Gain/(Loss) on intra-group foreign currency loans and advances Profit/(Loss) Before Tax Provision for taxation includes - Current tax (including Wealth Tax) - MAT Credit writen off - Fringe Benefit Tax - Deferred tax Profit/(Loss) After Taxation Balance brought forward from Previous year Surplus/(Deficit) carried to Balance Sheet Earnings/(Loss) Per Share (Face value of Rs.10/- each) (Refer Note II.8 of Schedule P) - Basic - Diluted Significant Accounting Policies & Notes to the Accounts The Schedules referred to above form an integral part of the Profit and Loss account P In terms of our report of even date for Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board V. Balaji Partner Bangalore June 10, 2010 Subash Menon Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director V. Balaji Bhat Independent Director & Chairman of Audit Committee Raj Kumar C Vice President-Legal & Company Secretary Ramanathan J Vice President-Finance subex annual report 09-10 43 CASH FLOW STATEMENT FOR THE YEAR ENDED CASH FLOW STATEMENT FOR THE YEAR ENDED CASH FLOW STATEMENT FOR THE YEAR ENDED CASH FLOW STATEMENT FOR THE YEAR ENDED CASH FLOW STATEMENT FOR THE YEAR ENDED Cash flow from operating activities Net Profit before Tax Adjustments for : a) Depreciation and amortization b) Interest income c) Interest and bank charges d) Profit on sale of assets (net) e) Employee stock compensation expenses f) Provision for doubtful debts written off/(back) g) Unrealised exchange fluctuations Operating Profit before Working Capital Changes Adjustments for : a) Sundry Debtors b) Loans and advances c) Trade and other payables Cash generated from/(used in) operations a) Direct Taxes paid and Others (Refer Note II.14.3, Schedule P) Net Cash provided by operating activities Cash Flow from Investing activities a) Purchase of Fixed Assets b) Sale / disposal of fixed assets c) Interest received d) Loans (given to)/repaid by Subsidiaries (Net) Net Cash from Investing Activities Cash Flow from Financing Activities a) Proceeds/(Utilisation) from issue of shares/warrants/options b) Proceeds from/(repayment) of short term borrowings - Net c) Proceeds from Long term borrowings d) Repayment of Long term borrowings e) Dividends & Dividend tax paid Interest and bank charges paid f) g) Expenditure incurred on restructuring of FCCBs Net Cash from Financing Activities A B C Net increase in Cash or Cash equivalents [A + B + C] Effect of Exchange Differences on restatement of foreign currency cash and cash equivalents Cash or Cash equivalents at the start of the year Cash or Cash equivalents at the close of the year* * Refer Note II.14.3, Schedule P Significant Accounting policies & Notes to the accounts P The Schedule referred to above forms an integral part of the Cash flow statement In terms of our report of even date for Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board March 31, 2010 March 31, 2009 Amount in Rs. 1,380,790,543 (1,749,836,584) 88,153,818 (23,875,720) 445,774,285 (383,281) 4,568,733 (33,465,038) (928,819,161) 932,744,179 (722,793,281) (141,586,343) (99,840,148) (31,475,593) (87,697,872) (119,173,465) (23,874,819) 1,452,837 22,287,191 245,760,917 245,626,126 320,240,524 224,146,137 - (48,652,995) (109,617) (492,223,952) (153,484,275) (150,084,178) (23,631,517) 78,236 53,041,678 29,488,397 136,458,814 (51,107,777) 403,681,870 (172,727) (11,786,616) 59,115,796 1,758,633,473 544,986,249 (261,678,543) 94,130,420 96,619,094 474,057,220 (34,765,054) 439,292,166 (38,328,461) 4,674,685 1,696,744 370,693,961 338,736,929 - (421,248,627) 10,640,937 (7,334,336) (53,154) (402,301,382) - (820,296,562) (42,267,467) 2,434,586 92,874,559 53,041,678 V. Balaji Partner Bangalore June 10, 2010 Subash Menon Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director V. Balaji Bhat Independent Director & Chairman of Audit Committee Raj Kumar C Vice President-Legal & Company Secretary Ramanathan J Vice President-Finance 44 subex annual report 09-10 SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED March 31, 2010 March 31, 2009 Amount in Rs. SCHEDULE - A : SHARE CAPITAL : AUTHORISED : 128,040,000 Equity Shares of Rs.10/- each (Previous Year: 48,040,000 Equity Shares of Rs.10/- each) 200,000 Redeemable Optionally Convertible Cumulative Preference Shares (ROCCPS) of Rs.98/- each Total ISSUED, SUBSCRIBED AND PAID UP: EQUITY : 57,983,139 Equity Shares of Rs.10/- each (Previous Year: 34,847,089 Equity Shares of Rs.10/-each) Of the above: a) 115,000 shares of Rs.10/- each were allotted for consideration other than for cash; b) 4,626,940 shares of Rs.10/- each are allotted as Bonus shares by capitalisation of General Reserve; c) 12,840 shares of Rs.10/- each are allotted in part settlement of cost of acquisition of subsidiary d) 10,878,784 shares of Rs.10/- each are allotted as Bonus shares by capitalisation of Securities premium; e) 11,728,728 shares (GDRs) of Rs.10/- each are allotted in full settlement of cost of acquisition of Azure Solutions Ltd Total SCHEDULE - B : EMPLOYEES STOCK OPTIONS OUTSTANDING ACCOUNT : Employees Stock Options Outstanding Less: Deferred Employees Compensation Expenses Total SCHEDULE - C : RESERVES AND SURPLUS : Capital Reserve Opening Balance Add : Forfeiture of amount received towards warrants [Refer Note II.4, Schedule P] Add : Additions due to restructuring of FCCBs net of expenses [Refer Note II. 1, Schedule P] Less : Transferred to Business Restructuring Reserve [Refer Note II. 1, Schedule P] General Reserve Opening Balance Less: Transfer to Profit & Loss Account as per contra Securities Premium Account Opening Balance Add: Additions due to conversion of FCCBs, ESOP and preferential placement of equity shares Add : Write back from/(accrual for) redemption premium on FCCBs (Net) Less: [Refer Note II. 3, Schedule P] Transferred to Business Restructuring Reserve [Refer Note II. 1, Schedule P] Business Restructuring Reserve [Refer Note II.1 Schedule P] Opening Balance Transferred from Securities Premium/Capital Reserve Less: Amounts utilised for Permitted Utilisations Profit & Loss Account Total 1,280,400,000 19,600,000 1,300,000,000 480,400,000 19,600,000 500,000,000 579,831,390 348,470,890 579,831,390 348,470,890 74,399,900 17,277,901 57,121,999 85,899,999 39,593,937 46,306,062 153,566,050 - 1,583,488,419 1,700,000,000 37,054,469 13,006,920 140,559,130 - - 153,566,050 177,975,580 - 177,975,580 177,975,580 177,975,580 - 4,894,706,173 5,624,568,228 1,562,627,960 - 749,203,378 (729,862,055) 5,000,000,000 2,206,537,511 - 4,894,706,173 - 6,700,000,000 6,499,792,468 200,207,532 310,249,808 2,932,024,900 - - - - - 5,048,272,223 subex annual report 09-10 45 SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULE - D : SECURED LOANS : Short Term: Working Capital Loans from Banks (Secured by charge on Fixed Assets and Receivables) Long Term: March 31, 2010 March 31, 2009 Amount in Rs. 706,953,065 453,695,887 Loans from Banks [Refer Note II. 14.6, Schedule P] 708,929,933 - (Secured by second charge on Current Assets and Pledge of portion of shares of Promoters) [Amount repayable within one year: Rs. 708,929,933, Previous Year: Rs. Nil] Loans from Banks (Secured by hypothecation of assets financed by these loans) [Amount repayable within one year: Rs. 6,946,089, Previous Year: Rs. 8,887,190] Total SCHEDULE - E : UNSECURED LOANS : Short Term: Working Capital Loans from Banks Long Term: Loans from Banks [Refer Note II. 14.6, Schedule P] [Amount repayable within one year: Rs. Nil, Previous Year: Rs. 749,859,205] Foreign Currency Convertible Bonds (Refer Note II.3, Schedule P) Total 17,741,883 25,465,606 1,433,624,881 479,161,493 - - 29,111,041 749,859,205 4,750,420,000 4,750,420,000 9,129,600,000 9,908,570,246 46 subex annual report 09-10 . s R n i t n u o m A 9 0 0 2 0 1 0 2 0 1 0 2 s n o i t e l e d 9 0 0 2 0 1 0 2 , 1 3 h c r a M , 1 3 h c r a M , 1 3 h c r a M n O r a e y , 1 3 h c r a M , 1 3 h c r a M t a s A t a s A o t p U n w a r d h t i W e h t r o F o t p U t a s A s n o i t e l e D s n o i t i d d A k c o l B t e N n o i t a i c e r p e D k c o l B s s o r G 9 0 0 2 t a , 1 s A l i r p A : I S E L B G N A T N I D N A S T E S S A D E X I F : F - E L U D E H C S s r a l u c i t r a P . l S . o N 8 2 6 , 2 3 9 , 8 4 1 4 9 , 2 7 8 , 6 4 0 3 4 , 7 3 0 , 1 8 1 8 6 5 , 7 7 4 , 8 6 5 3 2 , 7 3 3 , 3 2 3 6 7 , 7 7 1 , 6 2 2 1 7 3 , 0 1 9 , 7 2 2 8 6 5 , 7 7 4 , 8 6 8 4 5 , 7 7 2 , 1 2 1 9 3 , 0 1 1 , 5 7 2 s t e s s A d e x i F e l b i g n a T e r a w d r a H r e t u p m o C e r a w t f o S d n a 0 3 7 , 8 2 0 , 1 1 5 7 , 7 2 4 8 7 8 , 6 9 0 , 5 8 9 0 , 4 3 6 7 , 0 0 6 3 1 2 , 0 0 5 , 4 9 2 6 , 4 2 5 , 5 4 1 3 , 4 - 3 4 9 , 8 2 5 , 5 s e r u t x i F & e r u t i n r u F 5 0 6 , 4 8 7 , 1 3 0 6 5 , 2 7 7 , 1 2 2 7 8 , 8 1 4 , 0 2 8 8 9 , 3 0 5 , 8 0 1 8 , 4 3 4 , 9 0 5 0 , 8 8 4 , 9 1 2 3 4 , 1 9 1 , 2 4 3 2 2 , 1 4 5 , 9 0 0 0 , 0 6 4 5 5 6 , 2 7 2 , 1 5 s e l c i h e V 2 7 1 , 6 5 2 , 2 1 3 2 5 , 1 7 9 , 9 0 9 1 , 0 7 0 , 2 1 3 8 5 , 9 5 7 4 5 4 , 9 2 9 , 3 9 1 3 , 0 0 9 , 8 3 1 7 , 1 4 0 , 2 2 8 8 6 , 1 9 7 0 1 9 , 6 7 6 , 1 1 9 4 , 6 5 1 , 1 2 s t n e m p i u q E e c i f f O 4 3 2 , 7 3 5 , 3 8 6 2 , 2 0 4 , 1 0 5 6 , 4 6 3 , 2 1 7 3 9 , 2 0 8 , 5 6 7 4 3 , 6 8 0 , 7 1 2 6 7 , 8 0 3 , 0 8 3 - - 6 6 9 , 4 3 1 , 2 4 8 6 , 9 2 2 , 0 1 8 1 9 , 6 6 7 , 3 1 0 9 5 , 6 1 7 , 8 4 2 7 1 , 2 9 5 , 1 3 3 9 0 1 , 5 9 3 , 7 9 3 - - - - 8 1 9 , 6 6 7 , 3 1 9 0 1 , 5 9 3 , 7 9 3 6 0 3 , 2 4 3 , 3 6 1 0 9 3 , 3 3 5 , 7 9 2 8 7 , 6 9 2 , 1 1 6 7 3 2 , 5 4 7 , 7 7 8 1 8 , 3 5 1 , 8 8 1 0 2 , 8 8 8 , 0 0 6 2 7 1 , 0 3 8 , 8 0 7 3 9 7 , 4 1 8 , 8 7 8 5 4 , 4 1 4 , 3 2 7 0 5 , 0 3 2 , 4 6 7 y t r e p o r P l a u t c e l l e t n I s e l b i g n a t n I l l i w d o o G s t h g R i L A T O T 6 1 6 , 4 7 9 , 5 6 2 6 0 3 , 2 4 3 , 3 6 1 1 0 2 , 8 8 8 , 0 0 6 9 9 1 , 4 0 3 , 2 1 4 1 8 , 8 5 4 , 6 3 1 6 8 5 , 3 3 7 , 6 7 4 7 0 5 , 0 3 2 , 4 6 7 6 5 1 , 6 0 8 , 6 1 1 6 4 , 8 2 3 , 8 3 2 0 2 , 8 0 7 , 2 4 7 R A E Y I S U O V E R P 1 2 3 4 1 2 subex annual report 09-10 47 SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED March 31, 2010 March 31, 2009 Amount in Rs. SCHEDULE - G : INVESTMENTS : (Long term, trade, unquoted) In wholly owned subsidiaries Subex Technologies Ltd., India [3,999,994 Equity shares fully paid up, at par value Rs.10/- each] Subex (UK) Ltd., UK (5,039,565,245 Equity shares fully paid, Par value of GBP 0.00001 each) Subex Americas Inc, Canada (100 equity shares fully paid; No par value ) Less: Provision for dimunition in the value of investment [Refer Note II.1, Schedule P] Total SCHEDULE - H : SUNDRY DEBTORS : (Unsecured) Outstanding for more than six months - Considered Good - Considered Doubtful Others - Considered Good - Considered Doubtful Less: Provision for Doubtful Debts Total (considered good) SCHEDULE - I : CASH & BANK BALANCES : Cash on hand Balance with Scheduled Banks - - - in Current Account in Indian Rupees in Deposit Account in Indian Rupees in Exchange Earner’s Foreign Currency Account Balance with Non Scheduled Banks - - - Deposit with Royal Bank of Canada in Current Account with Royal Bank of Canada, Canada (Maximum outstanding during the year Rs. 9,779, Previous Year : 2,495,032) in Checking Account with Wachovia Bank, New Jersey (Maximum outstanding during the year Rs. 91,359, Previous Year : 191,387,569) - ABN Amro Bank - Dubai - - (Maximum outstanding during the year Rs. 2,528,236, Previous Year : 7,742,720) in Bank of China - RMB account - China (Maximum outstanding during the year Rs.378,053, Previous Year : 3,339,752) in HSBC Bank - Paris (Maximum outstanding during the year Rs.9,911,398 Previous Year : 9,911,398) - HSBC Bank - Dubai (Maximum outstanding during the year Rs.1,173,575, Previous Year : 2,084,748) - Societe Generale Bank - London (Maximum outstanding during the year Rs.5,069,907, Previous Year : 147,283,805) 39,999,940 39,999,940 6,473,868,240 6,473,868,240 7,749,575,428 7,749,575,428 5,000,000,000 2,749,575,428 - 7,749,575,428 9,263,443,608 14,263,443,608 11,043,444 92,087,569 1,241,013,741 - - 98,343,424 103,131,013 98,343,424 1,110,083,973 63,866,112 1,241,013,741 1,344,144,754 92,087,569 1,252,057,185 1 2,691,926 25,969,391 225,503 - - 55,282 - - 1,173,950,085 1,272,293,509 162,209,536 1,110,083,973 8,028 4,161,946 31,907,441 328,727 - 9,779 91,359 1,465 378,053 546,294 9,911,398 - 1,173,575 - 5,069,907 Total 29,488,397 53,041,678 48 subex annual report 09-10 SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO ACCOUNTS FOR THE YEAR ENDED March 31, 2010 March 31, 2009 Amount in Rs. SCHEDULE - J : LOANS & ADVANCES : (Unsecured, considered good) Loans and advances recoverable in cash or in kind or for value to be received Loans and advances to wholly owned subsidiaries Advance Income Tax including TDS Other Deposits Total SCHEDULE - K : CURRENT LIABILITIES & PROVISIONS : Sundry Creditors - Due to Micro & Small Enterprises [Refer Note II.14.10 of Schedule P] - Due to Others Advance received from Customers Deferred Income Duties & Taxes Interest Accrued but not due Unclaimed Dividends PROVISIONS : Taxation Employee Benefits Warranty Others (Note II.14.4, Schedule P) Total 215,837,809 527,796,478 104,205,428 71,630,385 919,470,100 207,452,357 773,557,395 140,187,791 71,853,448 1,193,050,991 - 192,521,142 57,781,788 98,116,711 58,050,085 11,304,819 642,243 - 214,960,438 49,005,023 111,618,598 34,830,550 11,158,248 751,860 418,416,788 422,324,717 75,852,939 33,749,401 4,228,718 1,445,318,556 75,788,235 31,275,842 4,228,718 1,559,149,614 1,464,647,740 1,977,566,402 1,575,940,535 1,998,265,252 subex annual report 09-10 49 SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED March 31, 2010 March 31, 2009 Amount in Rs. SCHEDULE - L : OTHER INCOME : Provision for Doubtful Debts written back Other income Profit on sale of Fixed Assets (Net) Exchange Fluctuation gain (Net) Total SCHEDULE - M : PERSONNEL COSTS: Salaries, Wages & Allowances Contribution to Provident Fund and Other Funds Other staff related costs Total SCHEDULE - N : OTHER OPERATING, SELLING AND ADMINISTRATIVE EXPENSES: Software Purchases Rent Power, Fuel and Water Charges Repairs & Maintenance Insurance Communication Costs Printing & Stationery Travelling & Conveyance Rates & Taxes Including Filing Fees Advertisement & Business Promotion (including Consultancy charges) Marketing & Allied Service Charges Provision for Doubtful Debts Exchange Fluctuation Loss (Net) Miscellaneous Expenses Directors sitting fees Total SCHEDULE - O : FINANCIAL COSTS : Interest on FCCB and other term loans Other Interest & Bank Charges Interest on deposit accounts from banks (Gross of TDS of Rs. 185,548, Previous Year Rs. 347,894) Interest on Inter Company loans Total 33,465,038 4,216,707 383,281 - 38,065,026 615,536,309 29,166,874 13,775,115 658,478,298 6,058,801 95,344,518 22,358,081 25,816,004 11,630,388 14,671,497 3,254,113 81,456,491 8,493,171 52,266,619 1,201,387,219 - 36,347,099 457,165 5,000 1,559,546,166 - 1,213,774 172,727 13,198,935 14,585,436 746,809,285 29,153,941 22,312,814 798,276,040 4,377,670 94,686,746 19,423,524 25,224,576 5,870,080 16,383,076 4,246,913 94,122,949 4,330,783 84,217,428 1,215,943,412 59,115,796 - 2,762,413 20,000 1,630,725,366 244,165,609 201,608,676 445,774,285 (2,038,300) (21,837,420) (23,875,720) 421,898,565 268,359,550 135,322,320 (1,696,744) (49,411,033) 403,681,870 (51,107,777) 352,574,093 50 subex annual report 09-10 SCHEDULE – P : Significant Accounting Policies and Notes to Accounts I. SIGNIFICANT ACCOUNTING POLICIES I.1. Basis for Preparation of Financial Statements The financial statements have been prepared under the historical cost convention on accrual basis except for certain financial and other assets and liabilities which are measured on historical cost basis as permitted by the Accounting Standards or as per the Proposal approved by the Honourable High Court of Karnataka. I.2. Use of Estimates The preparation of the financial statements in conformity with Indian GAAP requires that management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities as at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. I.3. Revenue Recognition Revenue from Contracts for software product license includes fees for transfer of licenses, installation and commissioning. This revenue is recognized under the percentage completion method based on the extent of work determined to have been completed as compared to the work involved in the overall scope of the contract. In the event of any expected losses on a contract, the entire amount is provided for in the accounting period in which such losses are first anticipated. Revenue from sale of additional software licences are recognized on transfer of such licenses. Revenue from Software development is recognized on the basis of chargeable time or achievement of prescribed milestones as relevant to each contract. Sale of hardware under reseller arrangements are recognized on dispatch of goods to customers and are recorded net of discounts, rebates for price adjustment, projections, shortage in transit, taxes and duties. Maintenance and service income is recognised on time proportion basis. Interest on investments and deposits are booked on a time proportion basis taking into account the amount invested and the rate of interest. I.4. Fixed Assets and Intangibles Fixed assets are stated at cost of acquisition inclusive of freight, duties, taxes and interest on borrowed money allocated to and utilised for fixed assets up to the date of capitalisation and other direct expenditure incurred on ongoing projects. Assets acquired on hire purchase are capitalised at gross value and interest thereon is charged to revenue. Acquired Intangibles are stated at cost inclusive of duties and taxes. Costs incurred on self generated intangibles are expensed as incurred. I.5. Depreciation and Amortisation Fixed assets and Intangibles are depreciated/amortised using the 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/amortisation adopted are as under: Particulars Depreciation/Amortisation Rates % Computers (including Software) Furniture & Fixtures Vehicles Office equipments Intellectual Property Rights Goodwill 25 20 20 20 20 20 Individual assets costing less than Rs. 5,000 are depreciated in full, in the year of purchase. I.6. Employee Stock Option Plans Employee Stock Options are accounted in accordance with the guidelines stipulated by SEBI. The difference between the market price of the shares underlying the options granted on the date of grant of option and the exercise price is expensed as “Employees Compensation” over the period of vesting. I.7. Employee Benefits The Company’s contribution to provident fund, a defined contribution scheme, is charged to the profit and loss account on accrual basis. Liability for gratuity is funded with Life Insurance Corporation of India (LIC). Gratuity expense for the year has been accounted based on actuarial valuation determined under the projected credit unit method, carried out at the end of the financial year. Actuarial gains/losses are recognized in full in the profit and loss account. The retirement benefit obligation recognized in the balance sheet represents the present value of the defined benefit obligations adjusted for unrecognized past service cost and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost plus the present value of available refunds and reduction in future contributions to the scheme. Liability for encashment of leave considered to be long term liability is accounted for on the basis of an actuarial valuation. Provision for outstanding leave credits considered as short term liability is as estimated by the management. Other short term employee benefits like medical, leave travel etc are accrued based on the terms of employment on a time proportion basis The company has introduced long term employee compensation plans under which certain employees are eligible for retention and performance linked payouts. These payouts are accrued as the services are rendered and/or when the specific criteria are met. I.8. Research and Development Expenses incurred on research and development is charged to revenue in the same year. Fixed asset purchased for research and development are capitalized and depreciated as per the Company's policy. I.9. Foreign Currency Transactions and Translation Transactions denominated in foreign currencies are recorded at the exchange rates prevailing on the date of the transaction. Monetary items denominated in foreign currencies at year end are restated at the exchange rate on the date of the Balance Sheet. Non-monetary items denominated in foreign currencies are carried at cost. Exchange differences on settlement or restatement are adjusted in the Profit & Loss account. Premium or discount on forward contracts is amortized over the life of such contract and is recognized as income or expense, in the Profit and Loss account. Any profit or loss arising on cancellation or renewal or retirement of forward contract is recognized in profit and loss account. Assets (other than fixed assets) and liabilities of the foreign branches are translated into Indian rupees at the rate of exchange prevailing as at subex annual report 09-10 51 the Balance Sheet date. Fixed Assets of foreign branches are carried at the exchange rate prevailing on the date of transaction. Revenue and expenses are translated into Indian rupees at average/daily exchange rates prevailing during the year. value in use, the estimated future cash flows expected from the continuing use of the asset and from its disposal are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of time value of money and the risks specific to the asset. I.10. Investments Long term Investments are stated at cost less diminution in the value of investments that is other than temporary. I.11. Income Taxes Income Tax comprises the current tax provision under the tax payable method and the net change in the deferred tax asset or liability in the year. Deferred Tax Assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying values of the assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be received or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income statement in the period of enactment of the change. Deferred tax assets are recognized and carried forward to the extent that there is a reasonable/virtual certainty, as applicable, that sufficient future taxable income will be available against which such deferred tax assets can be realized. Minimum alternative tax (MAT) paid in accordance to the tax laws, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax after the tax holiday period. Accordingly, MAT is recognized as an asset in the balance sheet when it is probable that the future economic benefit associated with it will flow to the Company and the asset can be measured reliably. I.12. Cash Flow Statement Cash flow statement has been prepared in accordance with the indirect method prescribed in Accounting Standard 3, issued under the Companies (Accounting Standard) Rules 2006. I.13. Preliminary and Share Issue Expenses Expenses incurred during the Initial Public Offer, follow on offer and issue of Bonus Shares are amortised over 5 years. Other issue expenses are charged to the securities premium account. I.14. Provisions and Contingencies A provision is recognized when an enterprise has a present obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent liabilities are not provided for but disclosed in the notes to the financial statements. I.15 Impairment of Fixed Assets At each balance sheet date, the Company reviews the carrying amounts of its fixed assets and intangibles to determine whether there is any indication that those assets suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss. Recoverable amount is the higher of an asset’s net selling price and value in use. In assessing Reversal of impairment losses recognized in prior years, if any, is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. However, the increase in carrying amount of an asset due to reversal of an impairment loss is recognized to the extent it does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized for the asset in prior years. II. NOTES TO ACCOUNTS II.1. Business Restructuring Reserve The shareholders of the Company approved the Board’s Proposal (hereinafter referred to as ‘the Proposal’) for transferring amounts from the Securities premium and Capital Reserves as on or arising after April 1, 2009 (upto March 31, 2012), to a Business Restructuring Reserve (BRR) to be utilized from or after April 1, 2009 for certain Permitted Utilizations as mentioned in the Proposal. The Company’s petition seeking the approval of the above Proposal from the Hon’ble High Court of Karnataka was filed with the Court on March 12, 2010. The Company has received the order of the Hon’ble High Court approving the Proposal on May 4, 2010 and has registered the same with the Registrar of Companies on May 11, 2010, thereby completing all the requirements for the order to be effective. In accordance with the Proposal, the Board of Directors of the Company have thus approved the following: (cid:127) (cid:127) transfer of amounts standing to the credit of Securities premium and Capital reserve (including the Profit of Rs.1,583,488,419 arising out of reduction in liability to the Foreign currency convertible bond holders pursuant to the Restructuring of the US$ 180 Million Foreign currency convertible bonds. Refer Note II.3.A below) to the extent of Rs. 6,700,000,000 to the BRR. Utilisation of the BRR for certain Permitted utilisations to the tune of Rs.6,499,792,468. Consequently the Company carries a balance of Rs.200,207,532 in the BRR as at March 31, 2010 which shall be used for such Permitted utilizations in the future as the Board may deem fit. Had the Proposal not provided for (a) transferring Profits arising out of restructuring of US$ 180 Million FCCBs (refer Note II.3.A of Schedule P) into the BRR and (b) utilisation of the BRR for Permitted utilisations as defined in the Proposal, the effect of accounting under the Accounting Standards referred in to Section 211(3C) of the Companies Act, 1956 would have been as under: In the Profit & Loss Account for year ended March 31, 2010 The Loss under Exceptional Items would have been higher as follows: - One time non recurring Long term Rs. Rs. Retention benefit plan 628,600,000 - One time non recurring expenses including restructuring fees, advisory fees, specialised marketing expenses and unrealizable advances, etc 871,192,468 52 subex annual report 09-10 - One time non recurring Profit on account of restructuring of FCCBs (1,583,488,419) Diminution in carrying value of investments 5,000,000,000 Profit after Tax would have been lower by 4,916,304,049 Basic and Diluted Earnings/(Loss) per share would have been II.2. Contingent Liabilities (91.50) Receivables factored: Current Year - Rs.286,654,667, Previous year - Rs.401,044,585. Claims against the Company not acknowledged as debt – Rs.69,065,359 (Previous year - Rs.54,272,325). These claims relate to Indian Income Tax demands which are being contested by the Company. The Company has provided Corporate Guarantees to Banks for credit facilities availed by its wholly owned subsidiaries to the amount of Rs.500,000,000 (Previous Year- Rs.731,850,000) at the year end. These facilities were utilized to the extent of Rs.155,264,299 (Previous Year Rs.657,229,872) by the subsidiaries. II.3. A. Foreign Currency Convertible Bonds (FCCBs) During the year 2006-07, the company issued Foreign Currency Convertible Bonds (the Old FCCBs) aggregating to US$ 180 Million to Institutional Investors. The bonds carry an initial interest rate of 2% per annum and were redeemable by March 9, 2012, if not converted in to equity shares as per terms of issue. During the year 2009-10, the Company restructured the Old FCCBs by offering in exchange new FCCBs having a face value of US$ 126 Million. Pursuant to the offer, Old FCCBs with a face value of US$ 141 Million were exchanged for new FCCBs with a face value of US$ 98.7 Million. The remaining bondholders holding US$ 39 Million worth of Old FCCBs (out of the original bondholders holding US$ 180 Million) didn’t chose the option for restructuring and are thus outstanding at March 31, 2010. Liability in respect of the US$ 39 Million FCCBs at March 31, 2010 amounts to Rs.1,751,100,000 (included in Long term Unsecured loans in Schedule E, under the head Foreign currency convertible bonds). Consequent to the exchange of the bonds as referred above, the reduction in liability (net of issue expenses and incremental interest payable on the new FCCBs vis-à-vis the old FCCBs) of Rs.1,583,488,419 has been credited to the Capital reserve during the year ended March 31 2010. The said amount has been transferred to Business Restructuring Reserve, in accordance with the Proposal approved by the shareholders of the Company and confirmed by the Honourable Judge of High Court of Karnataka. [Refer Note II.1 above]. The terms and conditions governing the US$ 39 Million FCCBs outstanding at March 31, 2010 are as follows: a) b) c) d) e) Conversion of the bonds into equity shares at the option of the bond holders at any time after April 18, 2007 Conversion Price – Rs.656.20 per share Exchange Rate for purpose of conversion - 1 US$ = Rs.44.08 Interest of 2% per annum payable semi-annually in arrears Redemption with yield to maturity guaranteed return of 8% per annum, calculated on semi-annual basis f) The Company can exercise an option to redeem the bonds in whole or in part on or any time after March 9, 2010, but prior to January 29, 2012, subject to appropriate approvals at a price determined on the terms defined in the offer document. g) Listing on the Professional Securities Market of London Stock Exchange The difference between the yield to maturity guaranteed rate of return of 8% and the coupon rate of 2% represents the premium payable on redemption and is charged to Securities Premium over the life of the bonds. B. New Foreign Currency Convertible Bonds (New FCCBs) During the year 2009-10, in terms of the company’s offer to exchange and restructure its outstanding Old FCCBs, the company received Old FCCBs with a face value of US$ 141 Million for issue of New FCCBs with a face value of US$ 98.7 Million. The new bonds carry an initial interest rate of 5% per annum and are redeemable by March 9, 2012, if not converted in to equity shares as per terms of issue. Other terms and conditions governing the new FCCBs are as follows: a) b) c) d) e) f) Conversion of the bonds into equity shares at the option of the bond holders at any time after November 2, 2009. Conversion Price – Rs.80.31 per share. Exchange Rate for purpose of conversion - 1 US$ = Rs.48.17. Compensating the bond holders for the reduction in principal amount by providing an increased interest element in the New FCCBs of 5% per annum payable semi-annually in arrears. Redemption with yield to maturity guaranteed return of 20% per annum, calculated on semi-annual basis. The Company can exercise an option to redeem the bonds in whole or in part on or any time after March 9, 2010, but prior to January 29, 2012, subject to appropriate approvals at a price determined on the terms defined in the offer document. g) Listing on the Singapore Exchange Securities Trading Limited. The difference between the yield to maturity guaranteed rate of return of 20% and the coupon rate of 5% represents the premium payable on redemption and is charged to Securities Premium over the life of the bonds. Out of the US$ 98.7 Million new FCCBs, bonds having a face value of US$ 31.9 Million have been converted into equity shares as of March 31, 2010. Consequently new FCCBs outstanding at March 31, 2010 amount to US$ 66.8 Million (Rs.2,999,320,000 and is included in Long term Unsecured loans in Schedule E, under the head Foreign currency convertible bonds). II.4. Monies Received Pending Allotment During financial year 2007-08, the Company allotted 2,230,000 warrants to promoters/ promoters group, entitling each holder to obtain allotment of one equity share against each such warrant on a preferential basis at a price of Rs.630.31. Under the terms of issue, the Company has received 10% of the total consideration amounting to Rs.140,559,130. To obtain the underlying equity shares, the balance 90% was to be paid within 18 months from the date of allotment of the warrants in one or more tranches. During financial year 2008-09, the warrants issued, lapsed and were forfeited and the money was transferred to Capital Reserve. The money received by the Company has been utilized for long term working capital requirements. subex annual report 09-10 53 II.5. Operating Leases ESOP – III The Company has entered into operating lease arrangements for its office facilities. These leases are for periods ranging from 1 to 5 years with an option to the Company for renewing at the end of the initial term. Rental expenses for operating leases included in the Profit and Loss account for the year is Rs.95,344,518 (Previous year Rs.94,686,746) The future minimum lease payments for non-cancelable operating leases were: Within one year Due in a period between one year and five years Due after five years Amount in Rs. March 31, 2010 March 31, 2009 90,728,870 86,881,548 159,254,801 253,011,623 - - The lease agreement for the above non-cancellable lease provides for escalation of rentals at the end of 3 years of the lease, which has been factored in the future minimum rentals disclosed above. II.6. Employees Stock Option Plan (ESOP) ESOP – II During 1999-2000, the Company established the Employee Stock Option Scheme 2000 (“ESOP 2000”) under which options have been allocated for grant to the employees of the Company and its subsidiaries. The Company has obtained in-principle approval for listing upto a maximum of 883,750 shares to be allotted pursuant to exercise of options granted under the scheme. Each option comprises one underlying equity share of Rs.10/- each and carries an entitlement of bonus shares if and when declared. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the highest volume of shares are traded for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting. During 2008-09, the Company amended the ESOP 2000 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. Pursuant to this, 156,211 options were surrendered by 122 employees during 2008-09. Due to this, Rs.6,611,773, being the previously recognized ESOP compensation cost on these options, was reversed and credited to personnel costs in 2008-09. During the year, the Company has allotted 1,210 equity shares under its ESOP 2000 scheme to the option holders upon exercise of stock options. Under this scheme 669,188 (net) options have been granted to 624 employees as at March 31, 2010. Out of the above 161,663 options are vested and exercisable. The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a charge of Rs.2,118,869 (Previous Year: Rs.1,759,270) to the Profit & Loss Account during the year. During 2005-2006, the Company established the Employee Stock Option Scheme 2005 (“ESOP 2005”) under which 500,000 options have been allocated for grant to the employees. Subsequently, during the year 2006-2007, the number of options allocated for grant to the employees was increased to 2,000,000 options. The Company has obtained in- principle approval for listing upto a maximum of 2,000,000 shares pursuant 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 the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the traded volume is the highest for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting. During 2008-09, the Company amended the ESOP 2005 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. Pursuant to this, 1,069,407 options were surrendered by 538 employees during 2008-09. Due to this, Rs.41,876,574, being the previously recognized ESOP compensation cost on these options, was reversed and credited to personnel costs in 2008-09. During the year, the Company has allotted 1,203 equity shares under its ESOP 2005 scheme to the option holders upon exercise of stock options. Under this scheme 1,590,558 (net) options have been granted to 1,618 employees as at March 31, 2010. Out of the above 468,088 options are vested and exercisable. The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a charge of Rs.8,238,058 (Previous Year: credit of Rs.25,098,927) to the Profit & Loss Account during the year. ESOP – IV During 2008-2009, the Company established the Employee Stock Option Scheme 2008 (“ESOP 2008”) under which 2,000,000 options have been allocated for grant to the employees. The Company has obtained in-principle approval for listing upto a maximum of 2,000,000 shares pursuant 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 the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the traded volume is the highest for the 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years can be exercised over a maximum period of 3 years from the date of vesting. 54 subex annual report 09-10 Under this scheme 598,954 (net) options have been granted to 272 employees as at March 31, 2010. The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a credit of Rs.537,915 (Previous Year : Nil) 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 for the compensation cost of stock option to employees of the Company. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the option. Employees’ stock options details as on the balance sheet date are: Particulars Options outstanding at the beginning of the year 2009-10 2008-09 Options (Nos) Weighted average exercise price per stock options (Rs.) Options (Nos) Weighted average exercise price per stock options (Rs.) ESOP – II ESOP – III ESOP – IV Granted during the year ESOP – II ESOP – III ESOP – IV Exercised during the year ESOP – II ESOP – III ESOP – IV Cancelled, Surrendered & Lapsed during the year ESOP – II ESOP – III ESOP – IV Options outstanding at the end of the year ESOP – II ESOP – III ESOP – IV Options exercisable at the end of the year ESOP – II ESOP – III ESOP – IV 358,117 1,794,382 - - 131,300 598,954 1,210 1,203 - 56,059 341,991 - 300,848 1,582,488 598,954 161,663 468,088 N.A 75.47 127.49 - - 48.45 53.34 - - - - - - 74.04 113.72 53.34 - - - 214,038 1,718,245 - 362,072 1,764,397 - - - - 217,993 1,688,260 - 427.48 366.67 - 66.75 74.80 - - - - - - - 358,117 75.47 1,794,382 - 9,930 62,100 - 127.49 - - - - [Weighted average remaining contractual life (considering vesting and exercise period)] ESOP – II At March 31 2009 : 4.05 Years ESOP – III At March 31, 2009 : 4.48 Years ESOP – IV At March 31, 2009 : N. A. At March 31 2010 : 3.02 Years At March 31, 2010 : 3.53 Years At March 31, 2010 : 5.79 Years subex annual report 09-10 55 Fair Value Methodology The fair value of options used to compute pro forma net income and earnings per equity share have been estimated on the date of grant using Black-Scholes model. volatility of share: 34.267% and expected dividend yield: 0.71%. The variables detailed herein represent the average of the assumptions during the pendency of the grant dates. The key assumptions used in Black-Scholes model for calculating fair value is: risk-free interest rate of 8%, expected life: 3 years, expected The impact on the EPS of the Company if fair value method is adopted is given below: Particulars Net Profit/(loss) for the year (as reported) Amount in Rs. March 31, 2010 March 31, 2009 1,368,605,224 (1,782,105,532) Add : Stock-based employee compensation relating to grants after April 1, 2006 4,568,733 (11,786,616) Less : Stock-based compensation expenses determined under fair value based method for the above grants 30,070,748 110,032,092 1,343,103,209 (1,903,924,240) 35.30 (51.14) 34.64 (54.64) 8.44 (51.14) 8.08 (54.64) Enterprises Over Which Some of the Directors Exercise Significant Influence Kivar Holdings Private Limited (formerly Subex Holdings Private Limited) and its subsidiaries Key Management Personnel Subash Menon, Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath, Chief Operating Officer & Wholetime Director Note – Related parties are as identified by the Company based on information available and relied upon by auditors. Net Profit/(Loss) (proforma) Basic earnings per share (as reported) Basic earning per share (proforma) Diluted earning per share (as reported) Diluted earnings per share (proforma) II.7. Related Party Information A) Related Parties Wholly Owned Subsidiaries Subex Americas Inc Subex (UK) Limited Subex Technologies Limited Syndesis Development India Private Limited Subex Azure Holdings Inc Subex (Asia Pacific) Pte Ltd Subex Inc Subex Technologies Inc 56 subex annual report 09-10 B) Details of the Transactions With the Related Parties: Particulars Subsidiaries Enterprises Over Which Some of the Directors Exercise Significant Infulence Amount in Rs. Key Management Personnel 2009-10 2008-09 2009-10 2008-09 2009-10 2008-09 a) Marketing and allied Service Charges and reimbursement : i) Subex (UK) Ltd ii) Subex Inc iii) Subex Americas Inc iv) Subex (Asia Pacific) Pte Ltd b) Income from Software Development and Services: i) Subex (UK) Ltd ii) Subex Inc., iii) Subex (Asia Pacific) Pte Ltd iv) Subex Americas Inc c) Reimbursement of expenses incurred on behalf of i) Subex Technologies Inc d) Salary, Perquisites & Commission (Refer Note: II.9, Schedule P) e) Amount due as at year end from/(to) i) Subex UK Ltd ii) Subex Inc iii) Subex (Asia Pacific) Pte Ltd iv) Subex Americas Inc, f) Loans outstanding as at year end from/(to) i) Subex UK Limited ii) Subex (Asia Pacific) Pte Ltd iii) Subex Americas Inc iv) Subex Inc v) Subex Technologies Ltd vi) Key Management Personnel (Refer Note: II.9, Schedule P) g) Interest received on Inter Company Loans i) Subex UK Limited ii) Subex Americas Inc iii) Subex Inc iv) Subex (Asia Pacific) Pte Ltd h) Expenses allocated to/(from): i) Subex (UK) Ltd ii) Subex, Inc iii) Subex (Asia Pacific) Pte Ltd iv) Subex Americas Inc i) Corporate Guarantee provided by Company to financial institutions in respect of finances availed by Subsidiaries j) Preferential allotment to M/s Woodbridge Consultants (Subsidiary of Kivar Holdings) (4,000,000 shares at a premium of Rs.70 per share) 705,188,610 567,342,865 590,642,394 511,488,177 18,692,414 560,818,089 81,710,231 131,982,385 540,625,886 572,403,327 188,352,987 567,713,849 568,786,957 385,143,872 161,183,829 577,084,741 16,710,645 - - - (157,574,380) 71,513,704 688,575,595 166,569,999 253,163,346 42,978,002 149,041,823 829,022,267 503,829 45,981,735 312,891,373 (44,900) 168,464,441 - 310,839,094 - 181,563,344 114,402,069 166,944,566 - 565,981 18,196,980 1,136,494 1,937,965 29,590,381 10,515,559 9,305,093 - 2,621,342 1,097,204 269,073 2,338,490 (3,436,959) 3,818,853 8,382,513 2,788,635 155,264,299 731,850,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 320,000,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 47,926,890 39,750,760 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 57,684,666 57,684,666 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - subex annual report 09-10 57 II.8. Earnings/(Loss) Per Share (EPS): Profit/(Loss) after Tax attributable to shareholders (A) Add : FCCB Interest Less : Exchange Fluctuation on FCCB Adjusted Profits after Tax for Diluted EPS (B) Weighted Average Number of Shares for Basic EPS (C) Effect of Existence of Dilutive Instruments (FCCBs and ESOPs) Weighted Average Number of Shares for Diluted EPS (D) Earning per Share – Basic [(A)/(C)] Earning per Share - Diluted [(B)/(D)] Face value of shares : Rs.10 each Amount in Rs. 2009-10 2008-09 1,368,605,224 (1,782,105,532) 155,878,882 918,812,565 #- #- 605,671,541 (1,782,105,532) 38,771,899 32,993,593 71,765,492 35.30 8.44 34,847,089 - 34,847,089 (51.14) (51.14) # FCCBs and ESOPs are anti-dilutive for FY 2008-09. Hence, the reconciliation between (i) A and B and (ii) C and D in the above table hasn’t been given. II.9. a) Managerial Remuneration to Managing Director and Whole-time Director Amount in Rs. A. Remuneration to Whole-time directors Salary and allowances (including perqusites) Contribution to Provident Fund Total (A) B. Remuneration to Non-Executive directors Sitting fees paid to Non-executive directors Commision paid to Non-executive directors Total (A+B) 2009-10 2008-09 45,346,890 2,580,000 37,170,760 2,580,000 47,926,890 39,750,760 5,000 - 20,000 - 47,931,890 39,770,760 Note: a) Contribution to PF represents the amounts paid by the company to the PF Authorities. b) Computation of Net Profit in accordance with Section 349 of the Companies Act, 1956 as per legal advice received by the Company Particulars 2009-10 Amount in Rs. 2008-09 Profit/(Loss) before tax as per the Profit & Loss Account 1,380,790,543 (1,749,836,584) Remuneration to Directors (Including Commission & Sitting Fees) charged to Profit & Loss Account 47,931,890 12,200,000 Exchange Fluctuation on FCCB (Surplus)/Loss on sale of Fixed Assets (Net) Net Profit/(Loss) U/s 349 of the Companies Act, 1956 (918,812,565) 1,929,600,000 (383,281) (172,727) 509,526,587 191,790,689 Maximum Remuneration of Whole-time Directors under provisions of the Companies Act.* 50,952,659 19,179,069 Remuneration paid to Whole-time Directors (including Commission Rs. Nil, Previous Year : Nil) Maximum Commission to Non-Executive Directors under the Companies Act, 1956 Commission Paid 47,926,890 5,095,266 Nil 39,750,760 1,917,907 Nil *The Company’s application for approving the excess remuneration paid to the directors in 2007-08 and 2008-09 respectively is pending with the Central Government. 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 under Loans and advances (Schedule: J to the financial statements). Accordingly, the director’s remuneration (including sitting fees) charged to Profit and Loss account for the year ended March 31, 2009 is Rs.12,200,000. 58 subex annual report 09-10 II.10. Auditors Remuneration Audit Fees (including fees for audit of certain subsidiaries consolidated accounts & issuance of report on the corporate governance and tax audit) – excluding service tax as applicable For Tax Matters (excluding service tax as applicable) Other Matters (excluding service tax as applicable) Reimbursement of expenses (excluding service Tax as applicable) II.11. Details of Warranty 2009-10 6,500,000 150,000 1,000,000 178,435 Amount in Rs. 2008-09 5,500,000 150,000 300,000 121,897 Amount in Rs. Year 2009-10 Opening Balance Additions during the year Utilisation/(reversal) during the year Closing Balance 4,228,718 - - 4,228,718 Probable period of outflow in case of warranty is 3 months. II.12. Other Information Pursuant to Schedule VI of the Companies Act, 1956. CIF Value of Imports: Import of systems and solutions Capital goods Expenditure in foreign currency (on payment basis) Traveling expenses Interest expense Product marketing expense and other expenditure incurred overseas for software development Earnings in foreign exchange (on accrual basis) Income from software development services and product. Year Ended March 31, 2010 5,629,681 14,449,388 50,412,543 178,530,111 19,154,500 Amount in Rs. Year Ended March 31, 2009 27,950,455 9,692,680 37,602,115 173,150,299 85,208,551 2,910,886,850 2,975,368,356 II.13. Deferred Tax a) The deferred tax asset recognised, comprises of the tax impact arising from timing differences on account of the following: Particulars Depreciation & other items (Claimable in Indian Tax Jurisdiction) II.14. Others 1. Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) Rs.6,048,373 (Previous year: Rs.981,108) 2. Unclaimed dividend of Rs. 642,243 as at March 31, 2010 (Previous Year: Rs.751,860) represent dividends not claimed for the period from 2002-2008. No part thereof has remained unpaid or unclaimed for a period of seven years from the date they become due for payment requiring a transfer to the ‘Investor Education and Protection Fund’. During the current year, the Company has transferred Rs.105,835 (Previous Year: Rs.52,514) to Investor Protection Fund. 3. Cash & Cash Equivalents include balance with Scheduled Banks on Dividend Account of Rs.642,243 (Previous Year: Rs.751,860), fixed deposit of Rs.25,969,391 (Previous Year: Rs.31,907,440) which are not available for use by the Company. The breakup of Cash and Cash Equivalents are given in Schedule I of financial statements. Direct taxes paid and Others in the Cash Flow Statement includes outflows on account of permitted utilisations from the BRR of Rs.43,559,667 (Previous Year: Nil) and Direct Taxes of Rs.44,138,205 (Previous Year: Rs.34,765,054). 4. Other Provisions comprise of - Redemption Reserve on FCCB - Rs.612,713,322 (Previous Year: Rs.1,361,916,700) As at March 31, 2010 As at March 31, 2009 12,175,962 24,176,009 Provision for Other Long Term - Rs.628,600,000 Employee Benefits (Previous Year: Rs. Nil) Differential Interest on Restructured FCCBs MTM Losses on Option Contracts - Rs.203,050,568 (Previous Year: Rs. Nil) - Rs.954,666 (Previous Year: Rs.102,731,040) 5. Personnel Cost for the year includes expenditure on Research and Development of Rs.85,139,573 (Previous year: Rs.70,461,643). This is as certified by the management and relied upon by the auditors. 6. A director of the Company has provided a personal guarantee in respect of long term loans from Banks included in Schedule D (For Current Year) and Schedule E (For Previous Year) of the financial statements. Further, portion of promoters’ shares have also been pledged towards portion of these loans. 7. As per the guidelines on accounting for Derivatives issued by the Institute of Chartered Accountants of India, the Company has provided for Mark to Market losses of Rs.954,666 (Previous Year: Rs.102,731,040) on outstanding option contracts. 8. The Company has entered into the following derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures: subex annual report 09-10 59 (a) Forward contracts to hedge foreign currency risk on export receivables: Particulars Forward contracts - USD contracts - GBP contracts (b) Option contracts outstanding: March 31, 2010 March 31, 2009 Foreign Currency Buy/Sell Amount (INR) Foreign Currency Buy/Sell Amount (INR) $ 25,400,075 £ 4,000,000 Sell Sell 1,231,492,119 318,400,000 $ 7,300,000 - Sell - 363,846,250 - Particulars Option contracts Foreign Currency Buy/Sell Amount (INR) Foreign Currency Buy/Sell Amount (INR) $ 200,000 Sell 8,540,000 $ 4,600,000 Sell 192,040,000 (c) The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are given below: March 31, 2010 March 31, 2009 Particulars Receivable towards Export of Goods & Services (including Receivable from wholly owned subsidiaries - net) Loans to wholly owned subsidiaries March 31, 2010 March 31, 2009 Rs. Foreign currency Rs. Foreign currency 11,896,703,905 473,114,548 211,610,922 20,374,303 34,781,163 15,736,659 5,290,624 3,645,025 12,586 208,490 503,829 42,732,252 45,981,735 270,114,221 USD 44,265,487 GBP 7,647,632 SGD 6,596,855 AUD 494,972 EUR 575,982 AED 1,287,257 CHF 125,000 CAD 82,504 MYR 914 CNY 31,646 AED 41,213 CAD 967,231 SGD 1,433,456 USD 6,015,901 468,324,252 85,144,228 27,422,308 14,376,508 3,911,696 USD 9,109,647 GBP 1,174,565 SGD 822,257 AUD 410,433 Other Currencies 505,124 39,197,447 62,516,082 504,394,176 AED 36,577 CAD 967,231 GBP 862,410 USD 9,943,681 Other amounts payable in foreign currency on account of: Particulars Import of Goods & Services Capital imports [including intangibles] Towards Interest on Foreign Currency Convertible Bonds Differential Interest on restructured FCCBs Towards Foreign Currency Convertible Bonds Redemption Premium accrued on FCCBs Marketing and allied service charges payable to wholly owned subsidiaries (net) March 31, 2010 March 31, 2009 Rs. Foreign currency Rs. Foreign currency 47,924,359 2,357,648 64,953 1,091,132 460,361 USD 1,067,358 EUR 39,000 THB 46,812 GBP 16,057 GBP 6,774 3,683,500 2,630,160 USD 72,624 EUR 39,000 - - 11,304,819 USD 251,778 11,158,248 USD 219,997 203,050,568 4,750,420,000 USD 4,522,273 USD 105,800,000 - 9,129,600,000 - USD 180,000,000 612,713,322 USD 13,646,176 1,361,916,700 USD 26,851,670 877,712 2,370,396 4,553,323 208,490 119,195 953,198,885 12,586 87,835,047 1,746,410,703 AED 71,798 AUD 57,586 CAD 103,063 CNY 31,646 EUR 1,972 GBP 14,026,919 MYR 914 SGD 2,738,210 USD 38,895,524 60 subex annual report 09-10 9. The following table sets out the funded status of the defined Benefit Schemes and the amount recognized in the financial Statements: I 1 2 3 4 5 6 7 8 II 1 2 III 1 2 3 4 5 IV 1 2 3 4 5 6 7 8 9 10 V 1 2 3 4 5 6 7 VI 1 2 3 4 Components of employer expense Current Service cost Interest cost Expected return on plan assets Curtailment cost/(credit) Settlement cost/(credit) Past Service Cost Actuarial Losses/(Gains) Total expense recognized in the Statement of Profit & Loss Account Actual Contribution and Benefit Payments for year ended March 31, 2010 Actual benefit payments Actual Contributions Net asset/(liability) recognized in Balance Sheet as at March 31, 2010 Present value of Defined Benefit Obligation (DBO) Fair value of plan assets Funded status [Surplus/(Deficit)] Unrecognized Past Service Costs Net asset/(liability) recognized in Balance Sheet Change in Defined Benefit Obligations during the year ended March 31, 2010 Present Value of DBO at beginning of year Current Service cost Interest cost Curtailment cost/(credit) Settlement cost/(credit) Plan amendments Acquisitions Actuarial (gains)/ losses Benefits paid Present Value of DBO at the end of year Change in Fair Value of Assets during the year ended March 31, 2010 Plan assets at beginning of year Acquisition Adjustment Actual return on plan assets(estimated) Actuarial Gain/(Loss) Actual Company contributions(less risk premium, ST) Benefits paid Plan assets at the end of period Actuarial Assumptions Discount Rate Expected Return on plan assets Salary escalation Attrition Rate Amount in Rs. Gratuity March 31, 2010 March 31, 2009 5,355,140 1,167,950 (283,770) 4,662,610 856,520 (110,440) - - - - - - (1,068,580) 5,170,740 1,458,320 4,755,310 381,560 5,790,250 899,960 1,168,390 19,323,820 5,084,380 15,328,540 1,504,530 (14,239,440) (13,824,010) - - (14,239,440) (13,824,010) 15,328,540 5,355,140 1,167,950 10,295,070 4,662,610 856,520 - - - - - - - - (1,069,490) (1,458,320) 19,323,820 414,300 (899,960) 15,328,540 1,504,530 1,092,920 - 283,770 (910) 4,755,310 (1,458,320) 5,084,380 8.30% 8.60% 6.00% 5.00% - 110,440 32,740 1,168,390 (899,960) 1,504,530 8.00% 9.00% 6.00% 5.00% (cid:127) The composition of the plan assets held under the funds managed by the Insurer is not provided, since the information is not available. (cid:127) Payments to Provident fund, a defined contribution plan Rs.26,147,258 (Previous Year Rs.25,332,138) subex annual report 09-10 61 10. The dues to Micro and Small enterprises as defined in The Micro, Small & Medium Enterprises Development Act, 2006, are identified by the Company based on inquiries with the parties and information available with the Company. This has been relied upon by the auditors. 11. Since the Company prepares consolidated financial statements, no segment information is disclosed in these financial statements. 12. Revenue is net of Rs.23,872,350/- (Previous Year: Rs.46,562,941) being reversal of Unbilled Revenues written-off or provided. 13. The Company purchases hardware and software to fulfill its obligations under contracts for sale of its Products. There were no inventory of such hardware/software at the beginning and end of the year. No quantitative information of purchases of hardware/software items have been disclosed since none of the individual items of such purchases constitute more than 10% of the total value of Purchases of hardware and / software. 14. The Company has ‘International transactions’ with ‘Associated Enterprises which are subject to Transfer Pricing regulations in India. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arm’s length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the financials statements, particularly on account of tax expense and that of provision for taxation. 15. Current Taxes include Foreign Taxes of Rs. Nil (Previous Year: Rs.6,976,548) 16. Previous year’s figures have been regrouped to conform to the classifications for the current year. 62 subex annual report 09-10 BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE COMPANY: SUBEX LIMITED I. Registration Details Registration No. Balance sheet date 3 1 - 0 3 1 - 6 2 6 0 6 1 II. Capital Raised During the Year (Rupees in Thousands) Public issue Bonus issue 3 0 - - State code Rights issues Private placements Preferential offer of shares under Employee Stock Option Plan* - Equity III. Position of the Mobilisation and Deployment of Funds (Rupees in Thousands) YEAR : 2009-2010 0 8 - 0 0 0 0 0 0 4 2 0 4 0 0 0 . 1 3 Total liabilities 0 9 7 5 3 0 2 3 Total assets 0 9 7 5 3 0 2 3 Source of Funds Paid up capital Secured loans Advance for share capital Application of Funds Net fixed assets Net current assets Miscellaneous expenditure 0 0 0 5 1 4 7 3 9 3 8 6 3 2 0 0 0 3 9 7 7 9 5 8 3 7 IV. Performance of Company (Rupees in Thousands) Turnover Profit before tax Earning per share from ordinary activities (basic) (Rs.) 0 0 0 3 2 1 3 0 0 0 8 3 1 0 5 4 7 . 3 9 3 1 5 - 3 0 - 7 1 0 Unsecured loans Deferred tax liability Reserves & surplus Investments Deferred tax assets Accumulated lossess Total expenditure Profit after tax Earning per share from ordinary activities (diluted) (Rs.) 4 7 5 0 4 2 0 2 9 8 9 1 4 0 0 0 0 0 9 0 2 0 6 1 3 2 4 1 4 7 1 1 0 8 3 0 5 6 0 8 8 8 7 6 . 1 0 4 0 - 7 4 6 - 1 5 4 V. Generic Name of Three Principal Products/ services of the Company (as per Monetary Terms) Product ITC code no. 8 5 / 2 4 Description C O M P U T E R S O F T W A R E * Issue of shares arising out of exercise of stock options granted to employees under the Company’s ESOP II and ESOP III scheme. For and on behalf of the Board Subash Menon Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director V. Balaji Bhat Independent Director & Chairman of Audit Committee Bangalore June 10, 2010 Raj Kumar C Vice President-Legal & Company Secretary Ramanathan J Vice President-Finance subex annual report 09-10 63 financial review subex limited (consolidated) 64 subex annual report 09-10 AUDITORS’ REPORT TO THE BOARD DIRECTORS OF SUBEX LIMITED AUDITORS’ REPORT TO THE BOARD DIRECTORS OF SUBEX LIMITED AUDITORS’ REPORT TO THE BOARD DIRECTORS OF SUBEX LIMITED AUDITORS’ REPORT TO THE BOARD DIRECTORS OF SUBEX LIMITED AUDITORS’ REPORT TO THE BOARD DIRECTORS OF SUBEX LIMITED 5. We draw attention to Note II.11.6 of Schedule O regarding the excess managerial remuneration of earlier years in respect of which the Company’s application is pending with the Central Government. 6. We report that the Consolidated Financial Statements have been prepared by the Company in accordance with the requirements of Accounting Standard 21 (Consolidated Financial Statements), as notified under the Companies (Accounting Standards) Rules, 2006. 7. Based on our audit and on consideration of the separate audit reports on individual financial statements of the Company and its aforesaid subsidiaries, to the best of our information and according to the explanations given to us and read with our comments in paragraph 4 above, in our opinion, the Consolidated Financial Statements, read with the notes thereon, give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Consolidated Balance Sheet, of the state of affairs of the Group as at 31st March, 2010; (ii) in the case of the Consolidated Profit and Loss Account, of the profit of the Group for the year ended on that date; and (iii) in the case of the Consolidated Cash Flow Statement, of the cash flows of the Group for the year ended on that date. For Deloitte Haskins & Sells Chartered Accountants (Registration No. 008072S) V. Balaji Partner M. No. 203685 Place : Bangalore Date : June 10, 2010 1. We have audited the attached Consolidated Balance Sheet of Subex Limited (“the Company”), its subsidiaries (the Company and its subsidiaries constitute “the Group”) as at 31st March, 2010 the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement of the Group for the year ended on that date, both annexed thereto. These financial statements are the responsibility of the Company’s Management and have been prepared on the basis of the separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audit. 2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and the disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by the Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We did not audit the financial statements of the subsidiaries, whose financial statements reflect total assets of Rs.151,100,796 as at 31st March, 2010, total revenues of Rs.803,785,156 and net cash outflows amounting to Rs.56,367,535 for the year ended on that date as considered in the Consolidated Financial Statements. These financial statements have been audited by other auditors whose reports have been furnished to us, and our opinion, in so far as it relates to the amounts included in respect of these subsidiaries is based solely on the reports of the other auditors. 4. Without qualifying our report, we draw attention to Note II.1 of Schedule O. As more fully explained therein, the Company has in accordance with the Proposal approved by the Hon’ble High Court of Karnataka credited the surplus of Rs.1,583,488,419 arising on account of the restructuring of the Foreign Currency Convertible Bonds to Capital Reserve Account and debited expenses and diminution in value of Goodwill amounting to Rs.6,499,792,468 to the Business Restructuring Reserve instead of recording the same in the Profit and Loss Account as required by Accounting Standard 5 ‘Net Profit or Loss for the Period, Prior Period Items’. subex annual report 09-10 65 CONSOLIDATED BALANCE SHEET AS AT CONSOLIDATED BALANCE SHEET AS AT CONSOLIDATED BALANCE SHEET AS AT CONSOLIDATED BALANCE SHEET AS AT CONSOLIDATED BALANCE SHEET AS AT Schedule March 31, 2010 March 31, 2009 Amount in Rs. A B C D E F G H I J SOURCES OF FUNDS : SHAREHOLDERS’ FUNDS Share Capital Employees Stock Options Outstanding account Reserves and Surplus LOAN FUNDS Secured Loans Unsecured Loans DEFERRED TAX LIABILITY TOTAL APPLICATION OF FUNDS : FIXED ASSETS & INTANGIBLES : Gross Block Less: Depreciation Net Block Capital work in progress GOODWILL ON CONSOLIDATION DEFERRED TAX ASSET CURRENT ASSETS, LOANS & ADVANCES Sundry Debtors Cash & Bank balances Loans & Advances Unbilled Revenue Less: Current liabilities & Provisions Current liabilities Provisions Net Current Assets Miscellaneous expenditure (To the extent not written off or adjusted) (Refer Note II.11.10, Schedule O) PROFIT AND LOSS ACCOUNT Less : Transfer from General Reserve as per Contra 579,831,390 57,121,999 2,238,462,522 1,588,884,707 4,752,665,000 1,605,110,910 1,409,356,712 195,754,198 - 479,214,046 72,389,980 538,950,340 438,065,920 1,528,620,286 1,334,487,151 1,695,868,676 3,030,355,827 348,470,890 46,306,062 4,612,714,441 5,007,491,393 2,875,415,911 6,341,549,707 999,872 9,217,965,490 980,044,543 9,913,642,246 10,893,686,789 1,268,432 15,902,446,614 195,754,198 10,366,358,775 12,175,812 306,645,794 15,366,358,775 42,545,532 1,723,966,193 1,439,683,959 284,282,234 22,363,560 622,310,844 187,410,632 604,637,455 683,206,791 2,097,565,722 1,307,609,931 1,766,041,861 3,073,651,792 (1,501,735,541) - (976,086,070) 14,606,462 323,387,826 177,975,580 1,326,351,701 145,412,246 177,975,580 1,148,376,121 15,902,446,614 TOTAL 9,217,965,490 Significant Accounting Policies & Notes to the Accounts OOOOO The Schedules referred to above form an integral part of the Balance Sheet In terms of our report of even date for Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board V. Balaji Partner Bangalore June 10, 2010 Subash Menon Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director V. Balaji Bhat Independent Director & Chairman of Audit Committee Raj Kumar C Vice President-Legal & Company Secretary Ramanathan J Vice President-Finance 66 subex annual report 09-10 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED Schedule March 31, 2010 March 31, 2009 Amount in Rs. K L M N F INCOME : Sales & Services Other Income Total EXPENDITURE : Cost of Hardware, Software and Support Charges Personnel Costs Other Operating, Selling and Administrative Expenses Financial Costs (Net) Miscellaneous Expenses amortised Depreciation & Amortisation Total Profit/(Loss) Before Taxation and Exceptional Items Exceptional Items Exchange Gain/(Loss) on Restatement of FCCBs Exchange Gain/(Loss) on intra group foreign currency loans and advances Profit/(Loss) Before Tax Provision for taxation - Current tax (including Wealth Tax) - MAT Credit writen off - Fringe Benefit Tax - Deferred tax Profit/(Loss) After Taxation Add: Balance brought forward from Previous year Surplus/(Deficit) carried to Balance Sheet Earnings/(Loss) Per Share (Face value of Rs.10/- each) (Refer Note II.9, Schedule O) - Basic - Diluted 4,630,779,130 117,029,534 4,747,808,664 118,063,478 2,968,335,402 714,180,191 474,156,210 15,353,671 148,226,752 4,438,315,704 309,492,960 5,584,894,844 140,662,164 5,725,557,008 123,896,305 3,866,803,529 1,072,790,888 434,812,830 15,944,201 212,882,602 5,727,130,355 (1,573,347) 918,812,565 (1,929,600,000) (124,091,356) 794,721,209 212,006,989 (1,717,593,011) 1,104,214,169 (1,719,166,358) 69,891,085 - 49,971 31,309,238 60,037,612 21,170,731 4,121,669 79,130,000 164,460,012 (1,883,626,370) 557,274,669 (1,326,351,701) 101,250,294 1,002,963,875 (1,326,351,701) (323,387,826) 25.87 3.34 (54.05) (54.05) Significant Accounting Policies & Notes to the Accounts The Schedules referred to above form an integral part of the profit and loss account O In terms of our report of even date for Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board V. Balaji Partner Bangalore June 10, 2010 Subash Menon Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director V. Balaji Bhat Independent Director & Chairman of Audit Committee Raj Kumar C Vice President-Legal & Company Secretary Ramanathan J Vice President-Finance subex annual report 09-10 67 OW STATEMENT FOR THE YEAR ENDED OW STATEMENT FOR THE YEAR ENDED CONSOLIDATED CASH FL CONSOLIDATED CASH FL OW STATEMENT FOR THE YEAR ENDED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED OW STATEMENT FOR THE YEAR ENDED CONSOLIDATED CASH FL CONSOLIDATED CASH FL Cash flow from operating activities Net Profit/(Loss) before Tax Adjustments for : a) Depreciation and amortization b) Interest / Dividend Income c) Interest and bank charges d) Profit on sale of assets e) Employee stock compensation expenses f) Provision for doubtful debts written off/(back) g) Unrealised exchange fluctuations Operating Profit before Working Capital Changes Adjustments for : a) Sundry Debtors b) Loans and advances c) Trade and other payables Cash generated from operations a) Direct Taxes paid and Others [Refer Note II.11.3 Schedule O] Net Cash provided by operating activities Cash Flow from Investing activities a) Purchase of Fixed Assets b) Sale / disposal of fixed assets c) Interest received Net Cash from Investing Activities Cash Flow from Financing Activities a) Proceeds from issue of Share Capital/Options/Warrants b) Proceeds from/(repayment) of short term borrowings - Net c) Proceeds from Long term borrowings d) Repayment of Long term borrowings e) Dividends & Dividend tax paid f) Interest and bank charges g) Expenditure incurred on restructuring of FCCBs Net Cash from Financing Activities Net increase in Cash or Cash equivalents [A + B + C] Effect of Exchange Differences on restatement of foreign currency cash and cash equivalents Cash or Cash equivalents at the start of the year Cash or Cash equivalents at the close of the year * * Refer Note II.11.3, Schedule O Significant Accounting policies & Notes to the accounts A B C O The Schedule referred to above forms an integral part of the Cash flow statement In terms of our report of even date for Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board March 31, 2010 March 31, 2009 Amount in Rs. 1,104,214,169 (1,719,166,358) 162,833,214 (2,205,361) 476,361,571 (383,281) 10,815,937 (107,195,967) (752,538,905) 891,901,377 191,352,100 46,544,415 10,088,859 1,139,886,751 (683,359,873) 456,526,878 (49,469,362) 1,452,837 616,832 (47,399,693) 320,240,524 (90,153,351) - (51,040,230) (109,617) (522,811,238) (153,484,275) (497,358,187) (88,231,002) (26,789,650) 187,410,632 72,389,980 228,826,803 (3,950,282) 438,763,112 (536,706) (23,339,657) 195,931,919 1,968,866,010 1,085,394,841 562,191,565 (656,399,678) (61,991,228) 929,195,500 (106,137,912) 823,057,588 (127,462,604) 8,725,885 3,950,282 (114,786,437) - (331,831,098) 10,240,330 (9,339,136) (53,154) (437,382,624) - (768,365,682) (60,094,531) 16,319,817 231,185,346 187,410,632 V. Balaji Partner Bangalore June 10, 2010 Subash Menon Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath Chief Operating Officer & Wholetime Director V. Balaji Bhat Independent Director & Chairman of Audit Committee Raj Kumar C Vice President-Legal & Company Secretary Ramanathan J Vice President-Finance 68 subex annual report 09-10 SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED March 31, 2010 March 31, 2009 Amount in Rs. SCHEDULE - A : SHARE CAPITAL : AUTHORISED : 128,040,000 Equity Shares of Rs. 10/- each (Previous Year: 48,040,000 Equity Shares of Rs. 10/- each) 200,000 Redeemable Optionally Convertible Cumulative Preference Shares (ROCCPS) of Rs.98/- each Total ISSUED, SUBSCRIBED AND PAID UP: EQUITY : 57,983,139 Equity Shares of Rs. 10/- each (Previous Year: 34,847,089 Equity Shares of Rs.10/- each) Of the above: a) 115,000 shares of Rs.10/- each were allotted for consideration other than for cash; b) 4,626,940 shares of Rs.10/- each are allotted as Bonus shares by capitalisation of General Reserve; c) 12,840 shares of Rs.10/- each are allotted in part settlement of cost of acquisition of Subsidiary d) 10,878,784 (PY: Nil) shares of Rs.10/- each are allotted as Bonus shares by capitalisation of Securities premium; e) 11,728,728 shares (GDRs) of Rs.10/- each are allotted in full settlement of cost of acquisition of Azure Solutions Ltd. Total SCHEDULE - B : Employees Stock Options Outstanding Less: Deferred Employees Compensation Expenses Total SCHEDULE - C : RESERVES AND SURPLUS : Capital Reserve Opening Balance Add : Forfeiture of amount received towards warrants [Refer Note II.5, Schedule O] 1,280,400,000 19,600,000 1,300,000,000 480,400,000 19,600,000 500,000,000 579,831,390 348,470,890 579,831,390 348,470,890 74,399,900 17,277,901 57,121,999 85,899,999 39,593,937 46,306,062 153,566,050 - 13,006,920 140,559,130 Add : Additions due to restructuring of FCCBs net of expenses 1,583,488,419 [Refer Note II.1, Schedule O] Less : Transferred to Business Restructuring Reserve 1,700,000,000 37,054,469 - - 153,566,050 [Refer Note II.1, Schedule O] General Reserve Opening Balance Less : Transfer from Profit & Loss Account as per contra Securities Premium Account Opening Balance Add : Additions due to conversion of FCCBs, ESOP and preferential placement of equity shares Add : Write back from/(accrual for) redemption premium on FCCBs (Net) [Refer Note II.4, Schedule O] Less: Transferred to Business Restructuring Reserve 177,975,580 177,975,580 4,894,706,184 1,562,627,960 177,975,580 177,975,580 - 5,624,568,228 - - 749,203,378 (729,862,044) [Refer Note II.1, Schedule O] 5,000,000,000 2,206,537,522 - 4,894,706,184 Business Restructuring Reserve [Refer Note II.1, Schedule O] Opening Balance Transferred from Securities Premium/Capital Reserve Less : Amounts utilised for Permitted Utilisations Exchange Reserve on Consolidation - 6,700,000,000 6,499,792,468 Total 200,207,532 (205,337,001) 2,238,462,522 - - - - (435,557,793) 4,612,714,441 subex annual report 09-10 69 SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED March 31, 2010 March 31, 2009 Amount in Rs. SCHEDULE - D : SECURED LOANS : Short Term: Working Capital Loans from Banks (Secured by charge on Receivables and fixed assets) Long Term: Loans from Banks [Refer Note II.11.14, Schedule O] (Secured by second charge on current assets and pledge of portion of share of promoters) [Amount repayable within one year: Rs. 708,929,333, Previous Year: Rs. Nil] Loans from Banks (Secured by Hypothecation of Assets financed by these loans) [Amount repayable within one year: Rs. 6,946,089, Previous Year: Rs. 8,887,190] 862,212,891 954,578,937 708,929,933 - 17,741,883 25,465,606 Total 1,588,884,707 980,044,543 SCHEDULE - E : UNSECURED LOANS : Short Term: Working Capital Loans from Banks Long Term: Loans from Banks [Refer Note II.11.14, Schedule O] [Amount repayable within one year: Rs. 2,245,000, Previous Year: Rs. 752,395,205] Foreign Currency Convertible Bonds [Refer Note II.4, Schedule O] Total - 29,111,041 2,245,000 754,931,205 4,750,420,000 4,752,665,000 9,129,600,000 9,913,642,246 70 subex annual report 09-10 . s R n i t n u o m A K C O L B T E N N O I T A I C E R P E D K C O L B S S O R G : I S E L B G N A T N I D N A S T E S S A D E X I F : F - E L U D E H C S t a s A t a s A o t p U n w a r d h t i W e h t r o F o t p U t a s A 9 0 0 2 0 1 0 2 0 1 0 2 s n o i t e l e D 9 0 0 2 0 1 0 2 , 1 3 h c r a M , 1 3 h c r a M , 1 3 h c r a M n o r a e Y s t n e m t s u j d A , 1 3 h c r a M , 1 3 h c r a M s n o i t e l e D s n o i t i d d A s t n e m t s u j d A t a , 1 s A l i r p A 9 0 0 2 s r a l u c i t r a P . l S . o N 4 8 6 , 7 9 7 , 6 5 1 9 0 4 , 8 7 1 , 8 3 1 7 6 4 , 2 5 3 , 4 9 7 3 9 6 , 5 2 2 , 4 7 6 4 9 , 8 1 0 , 5 7 ) 1 1 4 , 0 5 1 , 3 7 ( 5 2 6 , 9 0 7 , 6 6 8 6 7 8 , 0 3 5 , 2 3 9 3 9 6 , 5 2 2 , 4 7 6 1 3 , 3 6 0 , 2 6 ) 6 5 0 , 4 1 8 , 8 7 ( 9 0 3 , 7 0 5 , 3 2 0 , 1 s t e s s A d e x i F e l b i g n a T d n a e r a w d r a H r e t u p m o C e r a w t f o S 6 8 5 , 8 9 7 , 5 9 5 7 , 4 0 5 , 3 0 7 5 , 8 1 7 , 6 7 8 9 0 , 4 3 2 4 , 2 0 1 , 2 ) 7 4 0 , 4 5 0 , 9 ( 2 9 2 , 4 7 6 , 3 8 6 0 6 , 4 8 7 , 1 3 0 6 5 , 2 7 7 , 1 2 2 7 8 , 8 1 4 , 0 2 7 8 9 , 3 0 5 , 8 0 1 8 , 4 3 4 , 9 - 9 4 0 , 8 8 4 , 9 1 6 9 0 , 6 7 1 , 6 2 6 5 , 4 4 6 4 1 8 , 6 1 9 , 5 5 4 3 2 , 7 3 5 , 3 8 6 2 , 2 0 4 , 1 0 5 6 , 4 6 3 , 2 1 7 3 9 , 2 0 8 , 5 6 7 4 3 , 6 8 0 , 7 1 2 6 7 , 8 0 3 , 0 8 3 - - - 1 9 0 , 5 8 3 , 4 1 3 9 2 , 5 6 1 , 3 1 7 7 5 , 6 7 2 , 9 6 3 8 5 , 9 5 7 2 8 9 , 3 0 1 , 5 5 3 0 , 5 1 7 , 5 ) 2 3 9 , 0 3 2 , 6 ( 0 1 1 , 3 6 1 , 1 7 ) 8 4 2 , 5 2 6 , 6 ( 7 2 0 , 7 2 8 , 6 5 6 6 9 , 4 3 1 , 2 0 9 5 , 6 1 7 , 8 4 - - 4 8 6 , 9 2 2 , 0 1 8 1 9 , 6 6 7 , 3 1 2 7 1 , 2 9 5 , 1 3 3 9 0 1 , 5 9 3 , 7 9 3 9 2 3 , 3 2 2 , 0 8 2 3 4 , 1 9 1 , 2 4 0 7 8 , 1 4 4 , 2 8 6 7 3 , 1 6 5 , 6 5 4 1 3 , 4 7 6 7 , 3 6 ) 2 0 0 , 9 0 3 , 9 ( 8 7 8 , 2 7 4 , 9 8 s e r u t x i F & e r u t i n r u F 3 2 2 , 1 4 5 , 9 0 0 0 , 0 6 4 - 5 5 6 , 2 7 2 , 1 5 8 8 6 , 1 9 7 0 1 0 , 9 0 0 , 4 ) 3 5 6 , 3 2 3 , 6 ( 1 0 2 , 8 4 5 , 5 8 s t n e m p i u q E e c i f f O s e l c i h e V - - - - - - ) 7 4 7 , 1 4 4 , 6 ( 3 2 1 , 3 0 0 , 3 6 s t n e m e v o r p m I d l o H e s a e L - - 8 1 9 , 6 6 7 , 3 1 9 0 1 , 5 9 3 , 7 9 3 s t h g i R y t r e p o r P l a u t c e l l e t n I s e l b i g n a t n I l l i w d o o G 4 3 2 , 2 8 2 , 4 8 2 8 9 1 , 4 5 7 , 5 9 1 2 1 7 , 6 5 3 , 9 0 4 , 1 1 6 3 , 3 9 4 , 3 8 2 5 7 , 6 2 2 , 8 4 1 ) 8 3 6 , 0 6 0 , 5 9 ( 9 5 9 , 3 8 6 , 9 3 4 , 1 0 1 9 , 0 1 1 , 5 0 6 , 1 8 1 9 , 2 6 5 , 4 8 3 9 0 , 6 9 5 , 6 6 ) 8 5 4 , 8 8 8 0 0 1 ( , 3 9 1 , 6 6 9 , 3 2 7 , 1 L A T O T 9 9 4 , 0 9 0 , 7 8 3 4 3 2 , 2 8 2 , 4 8 2 9 5 9 , 3 8 6 , 9 3 4 , 1 7 3 0 , 2 7 4 , 7 2 2 0 6 , 2 8 8 , 2 1 2 7 2 3 , 9 3 5 , 5 3 1 7 6 0 , 4 3 7 , 8 1 1 , 1 3 9 1 , 6 6 9 , 3 2 7 , 1 4 1 2 , 1 6 6 , 5 3 0 9 2 , 1 8 7 , 6 0 1 1 5 5 , 1 2 0 , 7 4 1 6 6 5 , 4 2 8 , 5 0 5 , 1 R A E Y S U O I V E R P 1 2 3 4 5 1 2 subex annual report 09-10 71 SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED March 31, 2010 March 31, 2009 Amount in Rs. SCHEDULE - G : SUNDRY DEBTORS : (Unsecured) Outstanding for more than six months - Considered Good - Considered Doubtful Others - Considered Good - Considered Doubtful Less: Provision for Doubtful Debts Total (considered good) SCHEDULE - H : CASH & BANK BALANCES : Cash on hand Balance with Scheduled Banks - in Current Account in Indian Rupees - in Deposit Account in Indian Rupees - in Exchange Earner’s Foreign Currency account Balance with Non Scheduled Banks Total SCHEDULE - I : LOANS & ADVANCES : (Unsecured, considered good) Loans and advances recoverable in cash or in kind or for value to be received Advance Income Tax including TDS Other Deposits Total SCHEDULE - J : CURRENT LIABILITIES & PROVISIONS : SUNDRY CREDITORS : Sundry Creditors - Due to Micro & Small Enterprises [Refer Note II.11.11 of Schedule O] - Due to Others Advance received from Customers Deferred Income Duties & Taxes Interest Accrued but not due Unclaimed Dividends PROVISIONS : Taxation Employee Benefits Warranty Others [Refer Note II.11.4, Schedule O] Total 72 subex annual report 09-10 32,367,773 105,985,338 446,846,268 - - 226,905,108 138,353,111 226,905,108 622,310,844 63,866,112 446,846,268 585,199,379 105,985,333 479,214,046 62,661 2,781,093 37,459,445 225,503 31,861,278 72,389,980 266,430,373 192,754,042 79,765,925 538,950,340 686,176,956 913,082,064 290,771,220 622,310,844 66,738 4,543,475 32,735,679 328,727 149,736,013 187,410,632 276,833,622 237,047,277 90,756,556 604,637,455 - 694,057,089 203,777,220 287,194,956 137,510,824 11,304,819 642,243 136,701,373 109,620,029 4,228,718 1,445,318,556 - 722,818,031 61,194,713 408,442,681 103,244,398 11,158,248 1,334,487,151 751,860 1,307,609,931 155,481,618 141,683,786 4,228,718 1,695,868,676 1,464,647,739 1,766,041,861 3,030,355,827 3,073,651,792 SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED SCHEDULES TO CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED March 31, 2010 March 31, 2009 Amount in Rs. SCHEDULE - K : OTHER INCOME : Provision for Doubtful Debts written back Other income Profit on sale of Fixed Assets (Net) Exchange Fluctuation gain (Net) Total SCHEDULE - L : PERSONNEL COSTS : Salaries, Wages & Allowances Contribution to Provident Fund and Other Funds Other staff related costs Sub Contract Charges Total SCHEDULE - M : OTHER OPERATING, SELLING AND ADMINISTRATIVE EXPENSES : Software Purchases Rent Power, Fuel and Water Charges Repairs & Maintenance Insurance Communication Costs Printing & Stationery Travelling & Conveyance Directors sitting fees Rates & Taxes Including Filing Fees Advertisement & Business Promotion (including Consultancy charges) Bad Debts Written Off Provision for Doubtful Debts Commission on Sales Exchange Fluctuation Loss (Net) Miscellaneous Expenses Total SCHEDULE - N : FINANCIAL COSTS : Interest on FCCBs and other term loans Interest & Bank Charges Less : Interest Income Total 107,195,967 9,450,286 383,281 - 117,029,534 2,544,815,837 104,693,561 128,600,935 190,225,069 2,968,335,402 13,055,162 192,094,519 37,145,027 81,782,945 17,844,743 71,127,466 7,039,654 215,902,627 5,000 14,740,405 5,195,997 - - 18,751,861 29,664,691 9,830,094 714,180,191 476,361,571 (2,205,361) 474,156,210 - 2,546,032 536,706 137,579,426 140,662,164 3,326,685,814 157,847,594 121,354,630 260,915,491 3,866,803,529 17,845,672 199,641,694 31,119,962 85,786,037 11,226,273 79,766,835 9,130,054 249,071,892 20,000 10,218,303 167,209,604 110,250 195,821,669 9,368,199 - 6,454,444 1,072,790,888 268,359,550 170,403,562 438,763,112 (3,950,282) 434,812,830 247,027,007 229,334,564 subex annual report 09-10 73 SCHEDULE – O : Significant Accounting Policies and Notes to Accounts I. SIGNIFICANT ACCOUNTING POLICIES I.1. Basis for Preparation of Consolidated Financial Statements The financial statements have been prepared under the historical cost convention on accrual basis except for certain financial and other assets and liabilities which are measured on historical cost basis as permitted by the Accounting Standards or as per the Proposal approved by the Honourable High Court of Karnataka. I.2. Use of Estimates The preparation of the financial statements in conformity with Indian GAAP requires that management makes estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities as at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. I.3. Principles of Consolidation The financial statements of the Company and it’s wholly owned subsidiaries have been combined on a line by line basis by adding together like items of assets, liabilities, income and expense. The intra-group balances and intra-group transactions are eliminated. The excess of cost to the Company of its investments in the subsidiary over it’s share of the equity of the subsidiary, at the date on which the investments in the subsidiary Company was made, is recognized as ‘goodwill’ being an asset in the consolidated financial statements. The following entities are considered in the consolidated financial statements. Sl. Name of entity no. Country of incorporation % of % of ownership ownership held at March 31, March 31, 2010 held at 2009 Subex (UK) Limited United Kingdom 100 100 100 United States of America India 100 100 United States of America 100 100 100 Singapore 100 100 Subex Technologies Inc. (Wholly owned subsidiary of Subex Technologies Ltd., India) Subex Technologies Ltd India Subex Inc. (wholly owned subsidiary of Subex (UK) Ltd.) Subex (Asia Pacific) Pte. Ltd, (wholly owned subsidiary of Subex (UK) Ltd.) 1 2 3 4 5 6 7 Subex Americas Inc Canada Subex Azure Holdings United Inc (wholly owned subsidiary of Subex Americas Inc) States of America 100 100 100 100 India 100 100 8 Syndesis Development India Private Ltd (wholly owned subsidiary of Subex Americas Inc) 9 Subex Azure (US) Inc # United 10 Subex Azure (Delawere) Inc # 11 2101874 Ontario Inc* States of America United States of America United States of America - - - 12 13 Subex Azure (GB) Ltd* United Kingdom - Subex Azure (Ireland) Ltd* Ireland - 100 100 100 100 100 The financial statements of the Company and its subsidiaries are prepared under uniform accounting policies in accordance with the generally accepted accounting principles in India. # Merged with Subex Azure Holdings Inc * Closed during FY 2009-10 I.4. Revenue Recognition Revenue from Contracts for software product licences includes fees for transfer of licences, installation and commissioning. This revenue is recognized under the percentage completion method based on the extent of work determined to have been completed as compared to the work involved in the overall scope of the contract. In the event of any expected losses on a contract, the entire amount is provided for in the accounting period in which such losses are first anticipated. Revenue from sale of additional software licences are recognized on transfer of such licenses. Revenue from Software development is recognized on the basis of chargeable time or achievement of prescribed milestones as relevant to each contract. Sale of hardware under reseller arrangements are recognized on dispatch of goods to customers and are recorded net of discounts, rebates for price adjustment, projections, shortage in transit, taxes and duties. Maintenance and service income is recognised on accrual basis. Interest on investments and deposits are booked on a time proportion basis taking into account the amount invested and the rate of interest. I.5. Fixed Assets and Intangibles Fixed assets are stated at cost of acquisition inclusive of freight, duties, taxes and interest on borrowed money allocated to and utilised for fixed assets up to the date of capitalisation and other direct expenditure incurred on ongoing projects. Assets acquired on hire purchase are capitalised at gross value and interest thereon is charged to revenue. Acquired intangibles are stated at cost inclusive of duties and taxes. Cost incurred on self – generated intangibles are expensed as incurred. I.6. Depreciation Fixed assets are depreciated using the straight-line method over the useful lives of assets. Depreciation is charged on pro-rata basis for assets purchased/sold during the year. 74 subex annual report 09-10 The rates of depreciation/amortisation adopted are as under ; Particulars Depreciation/Amortisation Rates % Leasehold improvements Computers (including Software) Furniture & Fixtures Vehicles Office equipments Intellectual Property Rights Goodwill Over the lease term 25 20 20 20 20 20 Individual assets costing less than Rs.5,000 are depreciated in full, in the year of purchase. I.7. Employee Stock Option Employee Stock Options are accounted in accordance with the guidelines stipulated by SEBI. The difference between the market price of the shares underlying the options granted on the date of grant of option and the option price is expensed as “Employees Compensation” over the period of vesting. loss account. Premium or discount on forward contracts is amortized over the life of such contract and is recognized as income or expense to the Profit and Loss account. Any profit or loss arising on cancellation or renewal or retirement of forward contract is recognized in profit and loss account as appropriate. On Consolidation, (cid:127) (cid:127) In the case of non-integral operations, assets and liabilities are translated at the exchange rate prevailing on the balance sheet date. Revenue and expenses are translated at yearly average exchange rates prevailing during the year. Exchange differences arising out of these translations are included in ‘Exchange Reserve on consolidation’ under Reserves & Surplus. In the case of integral operations, assets and liabilities (other than non-monetary items), are translated at the exchange rate prevailing on the balance sheet date. Non-monetary items are carried at historical cost. Revenue and expenses are translated at yearly average exchange rates prevailing during the year. Exchange differences arising out of these translations have been charged to the Profit and Loss account. I.8. Employee Benefits I.11. Income Taxes The Company’s contribution to provident fund, a defined contribution scheme, is charged to the profit and loss account on accrual basis. Gratuity expense for the year has been accounted based on actuarial valuation carried out at the end of the financial year. The retirement benefit obligation recognized in the balance sheet represents the present value of the defined benefit obligations adjusted for unrecognized past service cost and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost plus the present value of available refunds and reduction in future contributions to the scheme. Liability for encashment of leave considered to be long term liability is accounted for on the basis of an actuarial valuation. Provision for outstanding leave credits considered are short term liability is as estimated by the management and accrued for based on last month’s salary. Other short term employee benefits like medical, leave travel etc are accrued based on the terms of employment on a time proportion basis. Other companies in the group run defined contribution schemes, the cost of which is fully provided for and charged to expenditure. Accrued leave is accounted for fully and charged to the profit & loss account. The company has introduced long term employee compensation plans under which certain employees are eligible for retention and performance linked payouts. These payouts are accrued as the services are rendered and/or when the specific criteria are met. I.9. Research and Development Expenses incurred on research and development is charged to revenue in the same year. Fixed asset purchased for research and development are capitalized and depreciated as per the Company's policy. I.10. Foreign Currency Transactions and Translation Transactions denominated in foreign currencies are recorded at the exchange rates prevailing on the date of the transaction. Monetary items denominated in foreign currencies at year end are translated at the exchange rate on the date of the Balance Sheet. Non-monetary items denominated in foreign currencies are carried at cost. Exchange differences on settlement or restatement are adjusted in the profit & Income tax comprises the current tax provision under the tax payable method and the net change in the deferred tax asset or liability in the year. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying values of the assets and liabilities and their respective tax bases. Deferred tax assets are recognized and carried forward to the extent that there is a reasonable / virtual certainty, as applicable, that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be received or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income statement in the period of enactment of the change. Minimum alternative tax (MAT) paid in accordance to the tax laws, which gives rise to future economic benefits in the form of adjustment of future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax after the tax holiday period. Accordingly, MAT is recognized as an asset in the balance sheet when it is probable that the future economic benefit associated with it will flow to the Company and the asset can be measured reliably. I.12. Cash Flow Statement Cash flow statement has been prepared in accordance with the indirect method prescribed in Accounting Standard 3, issued under the Companies (Accounting Standard) Rules 2006. I.13. Preliminary and Share Issue Expenses Expenses incurred during the Initial Public Offer, follow on offer and issue of Bonus Shares are amortised over 5 years. Other issue expenses are charged to the securities premium account. I.14. Provisions & Contingencies A provision is recognized when an enterprise has a present obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable subex annual report 09-10 75 estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. Contingent liabilities are not provided for, but disclosed in the notes to the financial statements. I.15 Impairment of Fixed Assets At each balance sheet date, the Company reviews the carrying amounts of its fixed assets and intangibles to determine whether there is any indication that those assets suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss. Recoverable amount is the higher of an asset’s net selling price and value in use. In assessing value in use, the estimated future cash flows expected from the continuing use of the asset and from its disposal are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of time value of money and the risks specific to the asset. Reversal of impairment losses recognized in prior years, if any, is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. However, the increase in carrying amount of an asset due to reversal of an impairment loss is recognized to the extent it does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized for the asset in prior years. II. NOTES TO ACCOUNTS II.1. Business Restructuring Reserve The shareholders of the Company approved the Board’s Proposal (hereinafter referred to as ‘the Proposal’) for transferring amounts from the Securities premium and Capital Reserves as on or arising after April 1, 2009 (upto March 31, 2012), to a Business Restructuring Reserve (BRR) to be utilized from or after April 1, 2009 for certain Permitted Utilizations as mentioned in the Proposal. The Company’s petition seeking the approval of the above Proposal from the Hon’ble High Court of Karnataka was filed with the Court on March 12, 2010. The Company has received the order of the Hon’ble High Court approving the Proposal on May 4, 2010 and has registered the same with the Registrar of Companies on May 11, 2010, thereby completing all the requirements for the order to be effective. In accordance with the Proposal, the Board of Directors of the Company have thus approved the following: (cid:127) (cid:127) transfer of amounts standing to the credit of Securities premium and Capital reserve (including the Profit of Rs.1,583,488,419 arising out of reduction in liability to the Foreign currency convertible bond holders pursuant to the Restructuring of the US$ 180 Million Foreign currency convertible bonds. Refer Note II.4.A below) to the extent of Rs.6,700,000,000 to the BRR. Utilisation of the BRR for certain Permitted utilisations to the tune of Rs.6,499,792,468. Consequently the Company carries a balance of Rs.200,207,532 in the BRR as at March 31, 2010 which shall be used for such Permitted utilizations in the future as the Board may deem fit. Had the Proposal not provided for (a) transferring Profits arising out of restructuring of US$ 180 Million FCCBs (refer Note II.4.A of Schedule O) into the BRR and (b) utilisation of the BRR for Permitted utilisations as defined in the Proposal, the effect of accounting under the Accounting Standards referred in to Section 211(3C) of the Companies Act, 1956 would have been as under: In the Profit & Loss Account for year ended March 31, 2010 The Loss under Exceptional Items would have been higher as follows: - One time non recurring Long term Rs. Rs. Retention benefit plan 628,600,000 - One time non recurring expenses including restructuring fees, advisory fees, specialised marketing expenses and unrealizable advances, etc - One time non recurring Profit on 871,192,468 account of restructuring of FCCBs (1,583,488,419) Diminution in carrying value of Goodwill 5,000,000,000 Profit after Tax would have been lower by 4,916,304,049 Basic and diluted Earnings/(Loss) per share would have been II.2. Deferred Income Taxes (100.93) a) The deferred tax asset/(liability) as at March 31, 2010 comprises the tax impact arising from timing differences on account of: Particulars - Depreciation - Business loss Deferred Tax Asset Deferred tax liability on depreciation Amount in Rs. As at March 31, 2010 March 31, 2009 As at 12,175,812* - 12,175,812 24,176,006* 18,369,526# 42,545,532 (999,872) (1,268,432) * These differences are on account of depreciation, which are claimable in the India tax jurisdiction. # Deferred tax assets recognized on unabsorbed tax losses at March 31, 2009, pertain to the Company’s subsidiary, Subex (UK) Ltd. The recognition is restricted to the extent that there is virtual certainty of future taxable incomes arising and is supported by the business achieved subsequent to the year end and on the basis of confirmed orders on hand in the subsidiary. II.3. Contingent Liabilities Receivables Rs.582,810,763) factored – Rs.957,872,591 (Previous year: Claims against the Company not acknowledged as debts: a) Rs.69,065,359 (Previous year: Rs.54,272,325). These claims relate to Indian income Tax demands which are being contested by the Company. b) Claim made by a vendor of a subsidiary of an acquired entity Rs. Nil (Previous Year: Rs.121,728,000) c) Others – Rs.Nil (Previous year: Rs.50,000,000) II.4. A. Foreign Currency Convertible Bonds (FCCBs) During the year 2006-07, the company issued Foreign Currency Convertible Bonds (the Old FCCBs) aggregating to US$ 180 Million to Institutional Investors. The bonds carry an initial interest rate of 2% per annum and were redeemable by March 9, 2012, if not converted in to equity shares as per terms of issue. 76 subex annual report 09-10 During the year 2009-10, the Company restructured the Old FCCBs by offering in exchange new FCCBs having a face value of US$ 126 Million. Pursuant to the offer, Old FCCBs with a face value of US$ 141 Million were exchanged for new FCCBs with a face value of US$ 98.7 Million. The remaining bondholders holding US$ 39 Million worth of Old FCCBs (out of the original bondholders holding US$ 180 Million) didn’t chose the option for restructuring and are thus outstanding at March 31, 2010. Liability in respect of the US$ 39 Million FCCBs at March 31, 2010 amounts to Rs.1,751,100,000 (included in Long term Unsecured loans in Schedule E, under the head Foreign currency convertible bonds). Consequent to the exchange of the bonds as referred above, the reduction in liability (net of issue expenses and incremental interest payable on the new FCCBs vis-à-vis the old FCCBs) of Rs.1,583,488,419 has been credited to the Capital reserve during the year ended March 31 2010. The said amount has been transferred to Business Restructuring Reserve, in accordance with the Proposal approved by the shareholders of the Company and confirmed by the Honourable Judge of High Court of Karnataka. [Refer Note II.1 above]. The terms and conditions governing the US$ 39 Million FCCBs outstanding at March 31, 2010 are as follows: a) b) c) d) e) f) g) Conversion of the bonds into equity shares at the option of the bond holders at any time after April 18, 2007. Conversion Price – Rs.656.20 per share. Exchange Rate for purpose of conversion - 1 US$ = Rs.44.08. Interest of 2% per annum payable semi-annually in arrears. Redemption with yield to maturity guaranteed return of 8% per annum, calculated on semi-annual basis. The Company can exercise an option to redeem the bonds in whole or in part on or any time after March 9, 2010, but prior to January 29, 2012, subject to appropriate approvals at a price determined on the terms defined in the offer document. Listing on the Professional Securities Market of London Stock Exchange. The difference between the yield to maturity guaranteed rate of return of 8% and the coupon rate of 2% represents the premium payable on redemption and is charged to Securities Premium over the life of the bonds. B. New Foreign Currency Convertible Bonds (New FCCBs) During the year 2009-10, in terms of the company’s offer to exchange and restructure its outstanding Old FCCBs, the company received Old FCCBs with a face value of US$ 141 Million for issue of New FCCBs with a face value of US$ 98.7 Million. The new bonds carry an initial interest rate of 5% per annum and are redeemable by March 9, 2012, if not converted in to equity shares as per terms of issue. Other terms and conditions governing the new FCCBs are as follows: a) b) c) d) e) Conversion of the bonds into equity shares at the option of the bond holders at any time after November 2, 2009. Conversion Price – Rs.80.31per share. Exchange Rate for purpose of conversion - 1 US$ = Rs.48.17. Compensating the bond holders for the reduction in principal amount by providing an increased interest element in the New FCCBs of 5% per annum payable semi-annually in arrears. Redemption with yield to maturity guaranteed return of 20% per annum, calculated on semi-annual basis. f) The Company can exercise an option to redeem the bonds in whole or in part on or any time after March 9, 2010, but prior to January 29, 2012, subject to appropriate approvals at a price determined on the terms defined in the offer document. g) Listing on the Singapore Exchange Securities Trading Limited. The difference between the yield to maturity guaranteed rate of return of 20% and the coupon rate of 5% represents the premium payable on redemption and is charged to Securities Premium over the life of the bonds. Out of the US$ 98.7 Million new FCCBs, bonds having a face value of US$ 31.9 Million have been converted into equity shares as of March 31, 2010. Consequently new FCCBs outstanding at March 31, 2010 amount to US$ 66.8 Million (Rs.2,999,320,000 and is included in Long term Unsecured loans in Schedule E, under the head Foreign currency convertible bonds). II.5 Monies Received Pending Allotment During financial year 2007-08, the Company allotted 2,230,000 warrants to promoters/ promoters group, entitling each holder to obtain allotment of one equity share against each such warrant on a preferential basis at a price of Rs.630.31. Under the terms of issue, the Company has received 10% of the total consideration amounting to Rs.140,559,130. To obtain the underlying equity shares, the balance 90% was to be paid within 18 months from the date of allotment of the warrants in one or more tranches. During financial year 2008-09, the warrants issued, lapsed and were forfeited and the money was transferred to Capital Reserve. The money received by the Company has been utilized for long term working capital requirements II.6. Operating Leases The Group has entered into operating lease arrangements for its office facilities. These leases are for periods ranging from 1 to 5 years with an option to the Group for renewing at the end of the initial term. Rental expenses for operating leases included in the Profit and Loss account for the year is Rs.192,094,519 (Previous year, Rs.199,641,694). The future minimum lease payments for non-cancelable operating leases were: Particulars Within one year Due in a period between one year and five years Due after five years Amount In Rs. March 31, 2010 March 31, 2009 141,938,102 163,972,720 286,649,419 345,290,473 - - II.7. Employee Stock Option Plan (ESOP) ESOP – II During 1999-2000, the Company established the Employee Stock Option Scheme 2000 (“ESOP 2000”) under which options have been allocated for grant to the employees of the Company and its subsidiaries. The Company has obtained in-principle approval for listing upto a maximum of 883,750 shares to be allotted pursuant to exercise of options granted under the scheme. Each option comprises one underlying equity share of Rs.10/- each and carries an entitlement of bonus shares if and when declared. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the subex annual report 09-10 77 the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a credit of Rs. 8,238,058 (Previous Year: charge of Rs. 25,098,927) to the Profit & Loss Account during the year. ESOP – IV During 2008-2009, the Company established the Employee Stock Option Scheme 2008 (“ESOP 2008”) under which 2,000,000 options have been allocated for grant to the employees.. The Company has obtained in-principle approval for listing upto a maximum of 2,000,000 shares pursuant 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 the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the traded volume is the highest for the 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years can be exercised over a maximum period of 3 years from the date of vesting. Under this scheme 598,954 (net) options have been granted to 272 employees as at March 31, 2010. The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a credit of Rs.537,915 (Previous Year : Nil) 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 for the compensation cost of stock option to employees of the Company. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the option. scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the highest volume of shares are traded for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting. During 2008-09, the Company amended the ESOP 2000 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. Pursuant to this, 156,211 options were surrendered by 122 employees during 2008-09. Due to this, Rs.6,611,773, being the previously recognized ESOP compensation cost on these options, was reversed and credited to personnel costs in 2008-09. During the year, the Company has allotted 1,210 equity shares under its ESOP 2000 scheme to the option holders upon exercise of stock options. Under this scheme 669,188 (net) options have been granted to 624 employees as at March 31, 2010. Out of the above 161,663 options are vested and exercisable. The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a charge of Rs.2,118,869 (Previous Year: Rs.1,759,270) to the Profit & Loss Account during the year. ESOP – III During 2005-2006, the Company established the Employee Stock Option Scheme 2005 (“ESOP 2005”) under which 500,000 options have been allocated for grant to the employees. Subsequently, during the year 2006-2007, the number of options allocated for grant to the employees was increased to 2,000,000 options. The Company has obtained in- principle approval for listing upto a maximum of 2,000,000 shares pursuant 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 the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the traded volume is the highest for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting. During 2008-09, the Company amended the ESOP 2005 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. Pursuant to this, 1,069,407 options were surrendered by 538 employees during 2008-09. Due to this, Rs. 41,876,574, being the previously recognized ESOP compensation cost on these options, was reversed and credited to personnel costs in 2008-09. During the year, the Company has allotted 1,203 equity shares under its ESOP 2005 scheme to the option holders upon exercise of stock options Under this scheme 1,590,558 (net) options have been granted to 1,618 employees as at March 31, 2010. Out of the above 468,088 options are vested and exercisable. The difference between the market price of 78 subex annual report 09-10 Employees’ stock options details as on the balance sheet date are : Particulars Options (Nos) Options outstanding at the beginning of the year 2009-10 2008-09 Weighted average exercise price per stock options (Rs.) Options (Nos) Weighted average exercise price per stock options (Rs.) ESOP – II ESOP – III ESOP – IV Granted during the year ESOP – II ESOP – III ESOP – IV Exercised during the year ESOP – II ESOP – III ESOP – IV Cancelled, Surrendered & Lapsed during the year ESOP – II ESOP – III ESOP – IV Options outstanding at the end of the year ESOP – II ESOP – III ESOP – IV Options exercisable at the end of the year ESOP – II ESOP – III ESOP – IV 358,117 1,794,382 - - 131,300 598,954 1,210 1,203 - 56,059 341,991 - 300,848 1,582,488 598,954 161,663 468,088 N.A 75.47 127.49 - - 48.45 53.34 - - - - - - 74.04 113.72 53.34 - - - 214,038 1,718,245 - 362,072 1,764,397 - - - - 217,993 1,688,260 - 427.48 366.67 - 66.75 74.80 - - - - - - - 358,117 75.47 1,794,382 - 9,930 62,100 - 127.49 - - - - [Weighted average remaining contractual life (considering vesting and exercise period)] ESOP – II At March 31 2009 : 4.05 Years ESOP – III At March 31, 2009 : 4.48 Years ESOP – IV At March 31, 2009 : N. A. At March 31 2010 : 3.02 Years At March 31, 2010 : 3.53 Years At March 31, 2010 : 5.79 Years subex annual report 09-10 79 Fair Value Methodology The fair value of options used to compute pro forma net income and earnings per equity share have been estimated on the date of grant using Black-Scholes model. The key assumptions used in Black-Scholes model for calculating fair value is: risk-free interest rate of 8%, expected life: 3 years, expected volatility of share: 34.267% and expected dividend yield: 0.71%. The variables detailed herein represent the average of the assumptions during the pendency of the grant dates. The impact on the EPS of the Company if fair value method is adopted is given below: Amounts in Rs. Particulars Net Profit/(Loss) [as reported] Add : Stock-based employee compensation relating to grants after 1st April, 2008 Less : Stock-based compensation expenses determined under fair value based method for the above grants Net Profit (proforma) Basic earnings/(loss) per share (as reported) Basic earning/(loss) per share (proforma) Diluted earning/(loss) per share (as reported) Diluted Earning/(loss) per share (proforma) II.8. Related Party Information A) Related Parties March 31, 2010 March 31, 2009 1,002,963,875 (1,883,626,370) 10,894,842 (23,339,657) 30,070,748 110,032,092 983,787,969 (2,016,998,119) 25.87 25.37 3.34 3.08 (54.05) (57.88) (54.05) (57.88) Enterprises Over Which Some of the Directors Exercise Significant Influence Kivar Holdings Private Limited (formerly Subex Holdings Private Limited) and its subsidiaries Key Management Personnel Subash Menon, Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath, Chief Operating Officer & Wholetime Director Note: Related parties are as identified by the Company and relied upon by the auditors. B) Details of the Transactions with the Related Parties are as under: Particulars a) Salary, Perquisites & Commission b) Loans outstanding as at year end from Key Management Personnel (Refer Note: II.11.6, Schedule O) c) Preferential allotment to M/s Woodbridge Consultants (Subsidiary of Kivar Holdings) (4,000,000 shares at a premium of Rs.70 per share) II.9. Earnings Per Share (EPS) Profit/(Loss) after Tax attributable to shareholders (A) Add : FCCB Interest Less : Exchange Fluctuation on FCCB Adjusted Profits after Tax for Diluted EPS (B) Weighted Average Number of Shares for Basic EPS (C) Effect of Existence of Dilutive Instruments (FCCBs and ESOPs) Weighted Average Number of Shares for Diluted EPS (D) Earnings/loss per Share – Basic [(A)/(C)] Earnings/loss per Share - Diluted [(B)/(D)] Face value of shares : Rs. 10 each Enterprises Over Which Some of the Directors Exercise Significant Influence Amounts in Rs. Key Management Personnel 2009-10 - 2008-09 - 2009-10 2008-09 47,926,890 39,750,760 - 320,000,000 - - 57,684,666 57,684,666 - - 2009-10 Amount in Rs. 2008-09 1,002,963,875 (1,883,626,370) 155,878,882 918,812,565 #- #- 240,030,192 (1,883,626,370) 38,771,899 32,993,593 71,765,492 25.87 3.34 34,847,089 - 34,847,089 (54.05) (54.05) # FCCBs and ESOPs are anti-dilutive for FY 2008-09. Hence, the reconciliation between (i) A and B and (ii) C and D in the above table hasn’t been given. 80 subex annual report 09-10 II.10. Segmental Reporting The Group’s operation comprises of software development and services. Primary segmental reporting comprises of products and services segment. Secondary segments are identified based on geographical location of customers. The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income and expenditure in individual segments. These are as set out in the note on significant accounting policies. Information About Primary Business Segment: Amounts in Rs. Particulars Products Services Consolidated 2009-10 2008-09 2009-10 2008-09 2009-10 2008-09 Revenues 3,829,433,136 4,384,810,798 801,345,994 1,200,084,046 4,630,779,130 5,584,894,844 780,196,089 311,255,969 3,453,080 121,983,514 783,649,169 433,239,483 Segment results before interest & taxes Unallocable Income, net of unallocable expense Interest expense Profit/(Loss) before tax Provision for taxation: Current MAT credit written off/ carried forward Fringe benefit tax Deferred Profit/(Loss) After Tax Particulars of Segment Assets & Liabilities: 794,721,210 (1,717,593,011) (474,156,210) (434,812,830) 1,104,214,169 (1,719,166,358) 69,891,085 60,037,612 - 21,170,731 49,971 4,121,669 31,309,238 79,130,000 1,002,963,875 (1,883,626,370) Amounts in Rs. Particulars Products Services Consolidated 2009-10 2008-09 2009-10 2008-09 2009-10 2008-09 Segment Assets 11,551,369,143 17,136,599,207 346,610,074 396,923,807 11,897,979,217 17,533,523,014 Segment Liabilities 2,019,233,324 1,476,446,676 46,710,178 67,896,690 2,065,943,502 1,544,343,366 Unallocable Assets exclude Advance Income Taxes Deferred tax asset (Net) Miscellaneous Expenditure Total Unallocable Liabilities exclude Loans Provisions for tax Others Total Additions to Assets: Amount in Rs. Region 2009-10 2008-09 Product Services Product Services Americas 30,466,424 139,595 32,017,171 141,828 EMEA APAC 12,575,616 23,414,458 - - 35,601,651 39,020,640 - - 192,754,042 237,047,277 11,175,939 - 41,277,100 14,606,462 203,929,981 292,930,839 6,341,549,707 10,893,686,789 136,701,373 155,481,618 827,710,952 1,373,826,808 7,305,962,032 12,422,995,215 subex annual report 09-10 81 Information About Secondary Business Segment Revenue attributable to location of customers is: Amount in Rs. Products Services Consolidated 2009-10 2008-09 2009-10 2008-09 2009-10 2008-09 AMERICAS 1,521,860,102 1,853,064,486 801,345,994 1,200,084,046 2,323,206,096 3,053,148,532 EMEA 797,297,213 1,045,398,866 APAC, Etc 1,510,275,821 1,486,347,446 797,297,213 1,045,398,866 1,510,275,821 1,486,347,446 Total 3,829,433,136 4,384,810,798 801,345,994 1,200,084,046 4,630,779,130 5,584,894,844 Segment Assets Based on Their Location Amount in Rs. 2009-10 2008-09 4,051,331,483 9,704,385,598 6,861,893,442 7,135,658,717 984,754,292 693,478,699 11,897,979,217 17,533,523,014 AMERICAS EMEA APAC, etc Total II.11. Others 1. Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) Rs. 6,048,373 (Previous year: Rs 981,108). 2. Unclaimed dividend of Rs. 642,243 as at March 31, 2010 (Previous Year: Rs. 751,860) represent dividends not claimed for the period from 2002-2008. No part thereof has remained unpaid or unclaimed for a period of seven years from the date they become due for payment requiring a transfer to the ‘Investor Education and Protection Fund’. During the current year, the Company has transferred Rs 105,835 (Previous Year: Rs. 52,514) to Investor Protection Fund. 3. Cash & Cash Equivalents include balance with Scheduled Banks on Dividend Account of Rs. 642,243 (Previous year: Rs. 751,860), fixed deposit of Rs. 25,969,391 (Previous year: Rs.32,735,679) which are not available for use by the Company. The breakup of Cash and Cash Equivalents are given in Schedule H to the financial statements. Direct taxes paid and Others in the Cash Flow Statement includes outflows on account of permitted utilisations from the BRR of Rs.557,712,246 (Previous Year: Nil) and Direct taxes Rs.125,647,627 (Previous Year: Rs.106,137,912). 4. Other Provisions comprise - Redemption Reserve on FCCB - Rs.612,713,322 (Previous Year: Rs.1,361,916,700) Provision for Other Long Term - Rs.628,600,000 Employee Benefits (Previous Year: Rs. Nil) Differential Interest on Restructured FCCBs - Rs.203,050,568 (Previous Year: Rs. Nil) MTM Losses on Option Contracts - Rs.954,666 (Previous Year: Rs.102,731,040) 5. Personnel Cost for the year includes expenditure on Research and Development of Rs.122,177,387 (Previous year, Rs.168,048,643). This is as certified by the management and relied upon by the auditors. 6. The Company’s application for approving the excess remuneration paid to the directors in 2007-08 and 2008-09 respectively is pending with the Central Government. 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 under Loans and advances (Schedule: I to the financial statements). 7. The following table sets out the funded status of the defined Benefit Schemes and the amount recognized in the financial statements. I 1 2 3 4 5 6 7 8 II 1 2 Components of employer expense Current Service cost Interest cost Expected return on plan assets Curtailment cost/(credit) Settlement cost/(credit) Past Service Cost Actuarial Losses/(Gains) Total expense recognized in the Statement of Profit & Loss Account Actual Contribution and Benefit Payments for year ended March 31, 2010 Actual benefit payments Actual Contributions Amount in Rs. Gratuity March 31, 2010 March 31, 2009 5,355,140 1,167,950 (283,770) - - - (1,068,580) 5,170,740 1,458,320 4,755,310 4,662,610 856,520 (110,440) - - - 381,560 5,790,250 899,960 1,168,390 82 subex annual report 09-10 III 1 2 3 4 5 IV 1 2 3 4 5 6 7 8 9 10 V 1 2 3 4 5 6 7 VI 1 2 3 4 Net asset/(liability) recognized in Balance Sheet as at March 31, 2010 Present value of Defined Benefit Obligation (DBO) Fair value of plan assets Funded status [Surplus/(Deficit)] Unrecognized Past Service Costs Net asset/(liability) recognized in Balance Sheet 19,323,820 5,084,380 15,328,540 1,504,530 (14,239,440) (13,824,010) - - (14,239,440) (13,824,010) Change in Defined Benefit Obligations during the year ended March 31, 2010 Present Value of DBO at beginning of year Current Service cost Interest cost Curtailment cost/(credit) Settlement cost/(credit) Plan amendments Acquisitions Actuarial (gains)/ losses Benefits paid Present Value of DBO at the end of year Change in Fair Value of Assets during the year ended March 31, 2010 Plan assets at beginning of year Acquisition Adjustment Actual return on plan assets(estimated) Actuarial Gain/(Loss) Actual Company contributions(less risk premium, ST) Benefits paid Plan assets at the end of period Actuarial Assumptions Discount Rate Expected Return on plan assets Salary escalation Attrition Rate 15,328,540 5,355,140 1,167,950 10,295,070 4,662,610 856,520 - - - - - - - - (1,069,490) (1,458,320) 19,323,820 414,300 (899,960) 15,328,540 1,504,530 1,092,920 - 283,770 (910) 4,755,310 (1,458,320) 5,084,380 8.30% 8.60% 6.00% 5.00% - 110,440 32,740 1,168,390 (899,960) 1,504,530 8.00% 9.00% 6.00% 5.00% Note: Contributions under Defined Contribution Schemes Rs.35,133,385 (Previous Year: Rs.31,552,879) 8. The Company has entered into the following derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures. (i) Forward contracts to hedge foreign currency risk on export receivables: Amount in Rs. Particulars Forward contracts - USD contracts - GBP contracts (ii) Option contracts outstanding: March 31, 2010 March 31, 2009 Foreign Currency Buy/Sell Amount (INR) Foreign Currency Buy/Sell Amount (INR) $ 25,400,075 £ 4,000,000 Sell 1,231,492,119 318,400,000 Sell $ 7,300,000 - Sell - 363,846,250 - March 31, 2010 March 31, 2009 Amount in Rs. Particulars Option contracts Foreign Currency Buy/Sell Amount (INR) Foreign Currency Buy/Sell Amount (INR) $ 200,000 Sell 8,540,000 $ 4,600,000 Sell 192,040,000 As per the guidelines on accounting for Derivatives issued by the Institute of Chartered Accountants of India, the Company has provided for Mark to Market losses of Rs.954,666 (Previous Year Rs.102,731,040) on outstanding option contracts. subex annual report 09-10 83 9. The year end foreign currency exposures that have not been hedged by derivative instruments or otherwise are given below. Receivable at March 31, 2010 in Receivables at March 31, 2009 in Foreign Currency Equivalent Rupees Foreign Currency Equivalent Rupees EUR 1,341,949 AUD 120,557 CAD 31,000 AED 942,457 USD 14,944,295 THB 4,252,500 CHF 125,000 OMR 44,352 SGD 150,210 GBP 84,705 81,085,860 4,962,419 1,369,579 11,521,491 670,768,236 5,900,473 5,290,624 5,172,444 4,818,355 5,756,196 EUR 405,894 AUD 170,375 CAD 23,107 MYR 114,119 USD 882,141 29,423,236 8,641,399 1,171,963 3,805,874 39,441,613 Note: The above does not include exposure on intra-group balances, being eliminated on consolidation. 10. Termination benefits(included under Miscellaneous Expenditure in the Balance Sheet) incurred in respect of employees in Subex (UK) Limited in the financial year 2006-07, are amortised over a period from the time such costs were incurred till March 31, 2010, on a pro-rata basis. As on March 31, 2010, there is no balance under this head that is carried forward. 11. The dues to Micro and Small enterprises as defined in The Micro, Small & Medium Enterprises Development Act, 2006, are identified by the Company based on inquiries with the parties and information available with the Company. This has been relied upon by the auditors. 12. Revenue includes Rs.79,855,991/- (Previous Year: 108,277,625) being reversal of provision for Unbilled Revenues no longer required. 13. The Company has ‘International transactions’ with ‘Associated Enterprises which are subject to Transfer Pricing regulations in India. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arm’s length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the financials statements, particularly on account of tax expense and that of provision for taxation. 14. A director of the Company has provided a personal guarantee in respect of long term loans from Banks included in Schedule D (For Current Year) and Schedule E (For Previous Year) of the financial statements. Further, portion of promoters’ shares have also been pledged towards portion of these loans. 15. Previous year’s figures have been regrouped to conform to the classifications for the current year. 84 subex annual report 09-10 SHAREHOLDERS’ INFORMATION SHAREHOLDERS’ INFORMATION SHAREHOLDERS’ INFORMATION SHAREHOLDERS’ INFORMATION SHAREHOLDERS’ INFORMATION REGISTERED OFFICE The Registered office of the Company is at Adarsh Tech Park, Outer Ring Road, Devarabisanahalli, Bangalore – 560 037 DATE AND VENUE OF THE ANNUAL GENERAL MEETING (AGM) Date Venue Time : : : September 13, 2010 Adarsh Tech Park, Outer Ring Road, Devarabisanahalli, Bangalore – 560 037 3.00 P.M. DATES OF BOOK CLOSURE From September 8, 2010 to September 13, 2010 (both days inclusive) BOARD MEETINGS AND FINANCIAL CALENDAR Financial year : April 1 to March 31 Calendar of Board Meetings to adopt the accounts (tentative and subject to change): For quarter ending June 30, 2010 For quarter ending September 30, 2010 For quarter ending December 31, 2010 For the year ending March 31, 2011 – on July 29, 2010 – on October 29, 2010 – on January 27, 2011 – on April 27, 2011 DIVIDEND The Directors have not proposed any dividend to be paid for the financial year 2009–10. LISTING ON STOCK EXCHANGES Equity Shares of the Company are quoted on the National Stock Exchange of India Limited (NSE) since September 5, 2003 and on the Bombay Stock Exchange Limited (BSE) since July 31, 2000. The Company has paid listing fees for the year 2010-11 in accordance with the provisions of the Listing Agreement with NSE and BSE. The Global Depositary Receipts (GDRs) and the US$ 180 million 2% Coupon Convertible Unsecured Bonds of the Company are listed on the London Stock Exchange since March 9, 2007. STOCK MARKET DATA RELATING TO EQUITY SHARES LISTED IN INDIA The Company’s US$ 98.7 million 5% Convertible Unsecured Bonds, issued pursuant to the restructuring of US$ 180 million 2% Coupon Convertible Unsecured Bonds, have been listed on the Singapore Exchange Securities Trading Limited since November 6, 2009. The stock codes of the Company at the Stock Exchanges are as follows: Name and address of the Stock Exchange Stock code National Stock Exchange of India Limited, Exchange Plaza, Bandra Kurla Complex, Mumbai- 400051 Bombay Stock Exchange Limited, Phiroze Jeejeebhoy Towers Dalal Street, Mumbai 400001 London Stock Exchange 10 Paternoster Square London EC4M 7LS Singapore Exchange Securities Trading Limited 2 Shenton Way #19-00 SGX Centre 1, Singapore 068804 SUBEX 532348 SUBX 4AFB The International Securities Identification Number (ISIN) for the Company’s equity shares in dematerialized form is INE754A01014. CUSTODIAL FEE Pursuant 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 to the depositories with effect from April 1, 2005. The said circular has been partially modified vide SEBI’s Circular No MRD/DoP/SE/Dep/Cir-2/2009 dated February 10, 2009. The Company has, in accordance with the aforesaid circulars, paid custodial fees for the year 2010-11 to NSDL and CDSL on the basis of the number of beneficial accounts maintained by them as on March 31, 2010. Monthly high and low quotations during each month in the financial year 2009-10 as well as the volume of shares traded on NSE and BSE are as under: Month Apr ‘09 May ‘09 Jun ‘09 Jul ’ 09 Aug ‘09 Sep’ 09 Oct ‘09 Nov ‘09 Dec ‘09 Jan ‘10 Feb ‘10 Mar ‘10 High Rs. 34.70 53.55 68.00 82.30 77.45 95.70 93.65 78.50 102.00 97.00 72.35 69.00 TOTAL NSE Low Rs. 22.10 28.30 46.10 58.50 63.00 68.80 70.40 64.45 68.30 63.00 55.65 52.00 Volume Nos. 1,823,622 3,387,703 2,207,756 3,191,203 2,184,915 8,344,425 1,996,575 1,044,684 9,858,193 17,699,823 25,388,791 11,377,437 88,505,127 High Rs. 34.70 53.30 68.30 81.95 78.80 95.40 93.70 78.40 101.50 100.00 72.30 70.00 TOTAL BSE Low Rs. 22.00 28.55 46.60 58.10 63.55 68.65 70.50 65.15 68.00 63.05 55.00 59.50 Volume Nos. 1,399,810 2,316,734 2,149,063 2,635,205 1,693,521 5,346,405 2,016,688 1,000,838 6,847,991 10,209,967 14,550,831 6,024,651 56,191,704 subex annual report 09-10 85 SUBEX LIMITED SHARE PRICE VERSUS NSE S&P CNX NIFTY AND SENSEX 6000 4800 3600 2400 1200 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 125 100 75 50 25 0 20,000 16,000 12,000 8,000 4,000 0 120 90 60 30 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar S&P CNX NIFTYshare p Subex SENSEX Subex SHAREHOLDING PATTERN Distribution of Shareholding: No. of Equity shares held As on March 31, 2010 As on March 31, 2009 No. of shareholders % to total shareholders No. of shareholders % to total shareholders 1 5001 10001 – – – 5000 10000 20000 20001 – 30000 30001 40001 - - 40000 50000 50001 - 100000 100001 and above 39,526 3,146 1,465 485 202 190 233 267 86.84 6.91 3.22 1.07 0.44 0.42 0.51 0.59 26,342 1,423 749 220 116 79 121 140 90.24 4.87 2.57 0.75 0.40 0.27 0.41 0.49 Total 45,514 100.00 29,190 100.00 Categories of Shareholders: As on March 31, 2010 As on March 31, 2009 Category No. of share holders Voting strength % No. of shares held No. of share holders Voting strength % No. of shares held Public & Others Companies/ Bodies Corporate Core Promoters Mutual Funds ESOP- employee shareholders FII Total 44,346 1,091 3 5 54 15 33.26 21.53 13.97 3.31 0.25 27.68 19,283,242 12,483,894 8,101,801 1,920,482 146,410 16,047,310 28,390 712 2 6 60 20 30.41 6.92 11.56 4.36 0.49 10,594,315 2,411,949 4,028,700 1,520,832 170,458 46.26 16,120,835 45,514 100.00 57,983,139 29,190 100.00 34,847,089 86 subex annual report 09-10 R&T AGENTS AND SHARE TRANSFER SYSTEM SHARES HELD IN PHYSICAL AND DEMATERIALISED FORM Canbank 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 held in physical form and dematerialized form vide a tripartite agreement dated December 5, 2001 in respect of shares held with NSDL and a tripartite agreement dated November 27, 2001 in respect of shares held with CDSL. As on March 31, 2010, 99.88 % of the Company’s shares were held in dematerialized form and the rest in physical form. OUTSTANDING GDRs/ ADRs/ WARRANTS/ CONVERTIBLE INSTRUMENTS AND THEIR IMPACT ON EQUITY As on March 31, 2010, 9,207,300 GDRs and Foreign Currency Convertible Bonds aggregating to US$ 105.8 Million were outstanding. Process for Transfer of Shares: LEGAL PROCEEDINGS Share transfers would be registered and returned within a period of 20 days from the date of receipt, if the documents are clear in all respects. The Company holds Share Transfer Committee Meetings up to three times a month, as may be required, for approving the transfers/transmissions of equity shares. Share transfers and other communication regarding Share certificates, updation of records, etc. may be addressed to: M/s Canbank Computer Services Limited, J P Royale, 1st Floor, No.218, 2nd Main, Sampige Road (Near 14th Cross), Malleswaram, Bangalore - 560 003 Tel Nos. +91 80-23469661/62, 23469664/65 Fax Nos. +91 80-23469667/68 E-mail: canbankrta@ccsl.co.in Website: www.canbankrta.com There are no legal proceedings against the Company which are material in nature. NOMINATION Pursuant to the provisions of Section 109A of the Companies Act, 1956, members may file nomination in respect of their shareholdings. Any member willing to avail this facility may submit to the Company the prescribed Form 2B (in duplicate), if not already filed. Form 2B can be obtained with the help of M/s Canbank Computer Services Limited, the R&T Agents. Members holding shares in electronic form are requested to give the nomination request to their respective Depository Participants directly. PROCEDURE FOR CLAIMING UNPAID DIVIDEND In terms of Section 205A(5) of the Companies Act, 1956, monies transferred to the Unpaid Dividend Account of the Company, which remain unpaid or unclaimed for a period of seven years from the date of such transfer, shall be transferred by the Company to the Investor Education and Protection Fund established by the Central Government. Brief particulars of dividend declared on the equity share capital are given below: Which year the dividend pertains to 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Declared at the AGM/Board meeting held on November 15, 2002 September 9, 2003 August 24, 2004 January 27, 2005 July 28, 2005 October 28, 2005 August 28, 2006 January 29, 2007 July 26, 2007 Nature of dividend % of dividend Final Final Final Interim Final Interim Final Interim Final 10 10 20 10 20 15 10 15 20 Due date for transfer to the fund See note below* Before October 8, 2010 Before September 23, 2011 Before February 26, 2012 Before August 27, 2012 Before November 27, 2012 Before September 27, 2013 Before February 28, 2014 Before September 25, 2014 The Company declared bonus at 1:1 in the years 2000-01 and 2005-06. * The final dividend declared for the Financial Year 2001-02 which was unclaimed for 7 years from the date of payment being due, was transferred to the Investor Education and Protection Fund. Members can claim the unpaid dividend from the Company before transfer to the Investors Education and Protection Fund. It may be noted that the unpaid dividend cannot be claimed from the Company after it has been transferred to the said Fund. subex annual report 09-10 87 INVESTOR GRIEVANCES Investor grievances received from April 1, 2009 to March 31, 2010: Nature of complaints Received Cleared Non-receipt of share certificates/refund orders/call money notice/allotment advice/dividend warrant Letters from NSDL, Banks etc. Correction/change of bank mandate of refund order/change of address Postal returns of cancelled stock invests/refund orders/share certificates/dividend warrants Other general query Total 2 - - - - 2 2 - - - - 2 During the year ended March 31, 2010, the Company has attended to all the investors’ grievances/correspondence within a period of 10 days from the date of receipt of the same, if the requisite documents, if any, were clear and complete in all respects. ADDRESS FOR CORRESPONDENCE WEBSITE For any queries, please write to: Mr. Raj Kumar Vice President–Legal & Company Secretary Subex Limited, Adarsh Tech Park, Outer Ring Road, Devarabisanahalli, Bangalore – 560 037, India. Telephone: 91 80 6659 8700 Fax: 91 80 6696 3333 Email: rajkumar.c@subexworld.com investorrelations@subexworld.com Company’s website www.subexworld.com contains comprehensive information about the Company, products, press releases and investor relations. It serves as a source of information to the shareholders by providing key information like Board of Directors and the committees, financial results, shareholding pattern, distribution of shareholding, dividend etc. 88 subex annual report 09-10 SUBEX LIMITED, ADARSH TECH PARK, OUTER RING ROAD, DEVARABISANAHALLI, BANGALORE 560 037, INDIA BROOMFIELD (cid:1) DUBAI (cid:1) IPSWICH (cid:1) LONDON (cid:1) MELBOURNE OTTAWA (cid:1) PITTSBURGH (cid:1) SINGAPORE (cid:1) SYDNEY (cid:1) TORONTO www.subexworld.com subex annual report 09-10 89
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