MPHASIS LIMITED 
By Page
Auditors? Report 1
Condensed Consolidated Balance Sheet 2
Condensed Consolidated Statement of Profit and Loss Account 3
Explanatory Notes to the Condensed Consolidated Financial
Statements 4
Condensed Consolidated Cash Flow Statement 8
Auditors? Report
To
The Board of Directors of MphasiS Limited
1 We have audited the attached condensed consolidated balance sheet of MphasiS Limited (?the Company?) and its subsidiaries (collectively referred to as the ?MphasiS Group?) as at 31 July 2011, and also the condensed consolidated statement of profit and loss account for the quarter and nine
months ended 31 July 2011 and the condensed consolidated cash flow statement for nine months ended on that date annexed thereto. These condensed consolidated financial statements are the responsibility of the Company?s management. Our responsibility is to express an opinion on these condensed consolidated financial statements based on our audit.
2 We conducted our audit in accordance with auditing standards generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the condensed consolidated financial statements are free of material misstatement. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the condensed consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
3 We report that the condensed consolidated financial statements have been prepared by the Company?s management in accordance with the requirements of Accounting Standards (AS) 21, Consolidated Financial Statements and AS 25, Interim Financial Reporting, notified pursuant to the Companies (Accounting Standards) Rules, 2006 (as amended).
4 Based on our audit and to the best of our information and according to the explanations given to us, we are of the opinion that the attached condensed consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India:
(i) in the case of the condensed consolidated balance sheet, of the state of affairs of the MphasiS Group as at 31 July 2011;
(ii) in the case of condensed consolidated statement of profit and loss account, of the profit for the quarter and nine months ended on that date; and
(iii) in the case of condensed consolidated cash flow statement, of the cash flows for the nine months ended on that date.
For S.R. BATLIBOI & Co.Firm registration number: 301003E
Chartered Accountants
per Navin AgrawalPartner
Membership No. 56102
Bangalore
24 August 2011
1
MphasiS GroupCONDENSED CONSOLIDATED BALANCE SHEET (` 000?s)As atAs at31 July 2011 31 October 2010
SOURCES OF FUNDS SHAREHOLDERS' FUNDSShare capital | 2,100,413 | 2,099,318 |
Reserves and surplus | 37,097,481 | 30,886,691 |
Employee stock options outstanding | 78,501 | 5,400 |
39,276,395 | 32,991,409 | |
LOAN FUNDS Secured loans | 444,853 | 453,722 |
Cost 11,074,862 10,258,254
Accumulated depreciation and amortisation (8,770,017) (7,835,668) Net book value 2,304,845 2,422,586 Capital work-in-progress including capital advances 374,864 88,950 2,679,709 2,511,536GOODWILL 3,897,090 3,886,491INVESTMENTS 17,430,036 14,600,259DEFERRED TAX ASSETS 846,825 753,645CURRENT ASSETS, LOANS AND ADVANCESDebtors and unbilled revenues 12,833,205 12,054,406
Cash and bank balances 2,862,669 1,783,690 Interest receivable 2,007 1,997 Loans and advances 9,951,212 9,445,98525,649,093 23,286,078CURRENT LIABILITIES AND PROVISIONSCurrent liabilities 8,038,632 8,093,696
Provisions 2,742,873 3,496,62410,781,505 11,590,320NET CURRENT ASSETS 14,867,588 11,695,75839,721,248 33,447,689Explanatory notes annexed
The explanatory notes form an integral part of these condensed consolidated financial statements This is the condensed consolidated balance sheet referred to in our report attachedFor S.R.BATLIBOI & Co. For and on behalf of the Board of DirectorsFirm registration number: 301003E Chartered Accountants
per Navin Agrawal Partner Membership No. 56102 | Balu Ganesh Ayyar Chief Executive Officer | Nawshir H Mirza Director |
Bangalore | ||
24 Aug 2011 | ||
Ganesh Murthy Executive Vice President & | A. Sivaram Nair Senior Vice President, Company Secretary | |
Chief Financial Officer | General Counsel & Ethics Officer | |
Bangalore | ||
24 Aug 2011 |
2
MphasiS GroupCONDENSED CONSOLIDATED STATEMENT OF PROFIT AND LOSS ACCOUNT(` 000?s)Quarter endedQuarter endedNine Months endedNine Months ended31 July 2011 31 July 2010 31 July 2011 31 July 2010
Revenues [refer note 2.11] 12,936,275 12,790,711 37,841,961 36,911,298Cost of revenues [refer note 2.12] 9,816,189 8,966,532 28,415,646 25,619,156
Gross profit | 3,120,086 | 3,824,179 | 9,426,315 | 11,292,142 |
Selling expenses [refer note 2.13] | 506,261 | 593,942 | 1,666,676 | 1,560,331 |
General and administrative expenses [refer note 2.14] | 537,665 | 475,383 | 1,398,867 | 1,547,895 |
Provision for doubtful debts - - - 3,003
Operating profit | 2,076,160 | 2,754,854 | 6,360,772 | 8,180,913 |
Foreign exchange gain, net | 139,398 | 54,172 | 465,947 | 450,828 |
Other income, net | 305,063 | 122,349 | 808,416 | 319,675 |
Interest income/(expense), net (15,180) (2,355) (1,614) 7,912
Profit before taxation | 2,505,441 | 2,929,020 | 7,633,521 | 8,959,328 |
Income taxes | ||||
-Current | 702,451 | 410,536 | 1,720,487 | 1,394,212 |
-Deferred | (76,377) | (129,208) | (95,757) | (192,343) |
-Minimum alternative tax credit entitlement (68,654) (64,720) (379,139) (310,419)
Profit after taxation 1,948,021 2,712,412 6,387,930 8,067,878Profit brought forward 30,419,580 22,408,743 25,979,964 17,053,799
Profit available for appropriations 32,367,601 25,121,155 32,367,894 25,121,677AppropriationsFinal dividend for earlier years - - 260 446
Tax on dividend - - 33 76
Issue of bonus shares - 25 - 25
Profit carried forward 32,367,601 25,121,130 32,367,601 25,121,130Earnings per share (par value ` 10)Basic (`) 9.28 12.93 30.42 38.47
Diluted (`) 9.25 12.87 30.33 38.28Weighted average number of shares ? Basic 210,023,518 209,819,580 209,981,901 209,712,036
Weighted average number of shares ? Diluted 210,554,027 210,722,551 210,619,022 210,746,038
Explanatory notes annexed
The explanatory notes form an integral part of these condensed consolidated financial statements This is the condensed consolidated statement of profit and loss account referred to in our report attachedFor S.R.BATLIBOI & Co. For and on behalf of the Board of DirectorsFirm registration number: 301003E
Chartered Accountantsper Navin Agrawal Balu Ganesh Ayyar Nawshir H Mirza Partner Chief Executive Officer Director Membership No. 56102Bangalore
24 Aug 2011Ganesh Murthy A. Sivaram NairExecutive Vice President & Senior Vice President, Company Secretary
Chief Financial Officer General Counsel & Ethics Officer
Bangalore
24 Aug 20113
MphasiS GroupEXPLANATORY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS1 BASIS OF PREPARATIONThe accompanying interim condensed consolidated financial statements of MphasiS Limited (?the Company?) and its subsidiaries, collectively referred to as ?the MphasiS Group? or ?the Group?, have been prepared and presented under the historical cost convention on the accrual basis of accounting in accordance with generally accepted accounting principles in India. The Company has followed
Accounting Standards prescribed by Companies (Accounting Standards) Rules, 2006, (as amended) for the purpose of these condensed consolidated financial statements.2. EXPLANATORY NOTES2.1 Description of the GroupThe MphasiS Group, a global, multicultural organisation headquartered in Bangalore, India, specialises in providing a suite of application development and maintenance services, infrastructure outsourcing services and business process outsourcing solutions to clients around the world.
MphasiS Limited is registered under the Indian Companies Act, 1956 with its registered office in Bangalore. This is the flagship company of the Group and is listed on the principal stock exchanges of India.List of subsidiaries with percentage holdingSubsidiaries | Country of incorporation and other particulars | % of holding |
MphasiS Corporation | a company organised under the laws of Delaware, USA | 100 |
MphasiS Deutschland GmbH | a company organised under the laws of Germany | 91 |
MphasiS Australia Pty Ltd | a company organised under the laws of Australia | 100 |
MphasiS (Shanghai) Software & Services Company Limited | a company organised under the laws of The People?s Republic of China | 100 |
MphasiS Consulting Limited | a company organised under the laws of United Kingdom | 100 |
MphasiS FinsourcE Limited | a company organised under the laws of India | 100 |
MphasiS Ireland Limited | a company organised under the laws of Ireland | 100 |
MphasiS Belgium BVBA | a company organised under the laws of Belgium | 100 |
MphasiS Lanka (Private) Limited | a company organised under the laws of Sri Lanka | 100 |
MphasiS Poland s.p.z.o.o. | a company organised under the laws of Poland | 100 |
PT. MphasiS Indonesia [Refer Note 2.5] | a company organised under the laws of Indonesia | 100 |
MphasiS Europe BV | a subsidiary of MphasiS Corporation, organised under the laws of The Netherlands | 100 |
MphasiS Infrastructure Services Inc. [Refer Note 2.6] | a subsidiary of MphasiS Corporation organised under the laws of Delaware, USA | 100 |
MphasiS Pte Ltd | a subsidiary of MphasiS Europe BV, organised under the laws of Singapore | 100 |
MphasiS UK Limited | a subsidiary of MphasiS Europe BV, organised under the laws of United Kingdom | 100 |
MphasiS Software and Services (India) Private Limited | a subsidiary of MphasiS Europe BV, organised under the laws of India | 100 |
MsourcE Mauritius Inc. | a subsidiary of MphasiS Europe BV, organised under the laws of Mauritius | 100 |
Seine Acquisition Inc. [Refer Note 2.8] | a subsidiary of MphasiS UK Limited, organised under the laws of Delaware, USA | 100 |
MsourcE (India) Private Limited | a subsidiary of MsourcE Mauritius Inc., organised under the laws of India | 100 |
MsourcE India BPO Private Limited [Refer Note 2.9] | a subsidiary of MsourcE (India) Private Limited, organised under the laws of India | 100 |
4
MphasiS GroupList of closed subsidiariesSubsidiaries | Country of incorporation and other particulars | % of holding |
Wide Area Management Services Inc. [effective 4 November 2010] | a subsidiary of MphasiS Infrastructure Services Inc. organised under the laws of California, USA | 100 |
BFL Software Asia Pacific Pte Ltd [effective 8 December 2010] | a company organised under the laws of Singapore | 100 |
Had the Group adopted the intrinsic value method of accounting, the employee compensation cost would have been higher by
` 305,951 and ` 509,752 for the quarter and nine months ended 31 July 2011 respectively and profit would have been lower by that extent.
2.4 The Company filed a scheme of merger of MphasiS FinSolutions Private Limited, a wholly owned subsidiary acquired by MphasiS Limited effective 1 October 2009, with itself, with the Hon?ble High Court of Karnataka and the Hon?ble High Court of Madras. The Hon?ble High Courts had passed orders approving the petition of merger on 5 July 2010 and 17 September 2010 respectively, effective from 1 November 2009. Subsequently, the Company had filed the Court orders with the RoC of Karnataka and Chenn ai on
11 August 2010 and 8 October 2010 respectively. The appointed date of merger was 01 November 2009. Accordingly, the condensed consolidated financial statements for the quarter and nine months ended 31 July 2010 have been adjusted by incorporating the merger impact of MphasiS FinSolutions Private Limited with the Company in accordance with the aforesaid High Court orders.2.5 PT. MphasiS Indonesia was incorporated as a wholly owned subsidiary of the Company on 25 April 2011.2.6 MphasiS Corporation, a subsidiary of the Company, acquired Fortify Infrastructure Services Inc. along with its subsidiaries Fortify North America Inc. and Wide Area Management Services Inc. effective 1 May 2010 for an aggregate consideration of US$ 27,737,309 (` 1,230,427,027) including US$ 12,500,000 (` 554,500,000) payable in tranches upto the financial year ended
31 October 2012 on the basis of the fulfillment of certain Revenue /Earnings obligations. The name of the acquired company was changed to MphasiS Infrastructure Services Inc. with effect from 7 July 2010. Further, Fortify North America Inc. was merged with MphasiS Infrastructure Services Inc. effective 14 July 2010.2.7 Eldorado Computing Inc., a subsidiary of the Company was merged with its direct subsidiary MphasiS Corporation effective1 March 2010.
2.8 During the quarter ended 31 July 2011, Group has signed a definitive agreement to acquire Wyde Corporation, a US corporation along with its Subsidiaries. The acquisition has not yet closed and accordingly, effect of this transaction is not given in these financial statements. Seine Acquisition Inc. was incorporated as a wholly owned subsidiary of MphasiS UK Limited. on 27 July2011 for the intended acquisition of Wyde Corporation.
2.9 MsourcE India BPO Private Limited had filed an application under Section 560 of the Companies Act, 1956, for striking its name off the register with the Registrar of Companies, Ministry of Corporate Affairs under Fast Track Exit (FTE) mode which is under review with the Registrar of Companies.2.10 Loans and advances include service tax input credit receivable ` 2,634,320,600(31 October 2010: ` 2,533,428,878). Based on legal opinions obtained by the Group, service tax liability on imported services is being discharged effective 1 December 2010 using accumulated balance available in CENVAT Credit Account.
2.11 Revenues for the quarter and nine months ended 31 July 2011 includes reversal of credit notes pertaining to earlier period which are no longer required amounting to ` 665,613,175 and ` 665,613,175 (quarter and nine months ended 31 July 2010: ` Nil and ` Nil) respectively. 2.12 Cost of revenues (?COR?) for the quarter and nine months ended 31 July 2011 are net of reversal of certain provisions which are no longer required amounting to ` 110,307,817 and ` 580,526,356 (quarter and nine months ended 31 July 2010: ` Nil and ` Nil) respectively. 2.13 Selling Expenses (?SE?) for the quarter and nine months ended 31 July 2011 are net of reversal of certain provisions which are no longer required amounting to ` 156,315,153 and ` 290,830,010 (quarter and nine months ended 31 July 2010: ` Nil and ` Nil) respectively. 2.14 General and administrative expenses (?GA?) for the quarter and nine months ended 31 July 2011 are net of reversal of certain provisions which are no longer required amounting to ` Nil and ` 259,528,697 (quarter and nine months ended 31 July 2010: ` Nil and ` 206,092,099) respectively.5
MphasiS Group2.15 The Group has accrued expenses for certain services received from a related party where significant influence exists for which the Master Service Agreement (?MSA?) has expired and is expected to be renewed upon completion of the ongoing negotiation of terms. As at 31 July 2011, the provisioning for such services has been made on best estimate basis.
2.16 The Group allocates certain common expenses between COR, SE and GA on reasonable and best estimate basis for the purpose of functional classification of profit and loss account.2.17 Contingent liabilities(a) Claims against the Group not acknowledged as debts amount to ` 1,927,852,338 (31 October 2010: ` 906,725,078). Increase from the previous year is primarily on account of orders received from the Income Tax department for which the Group has filed appeals;
(b) Guarantees outstanding including those furnished to the Customs authorities as at 31 July 2011: ` 326,733,975 (31 October 2010: ` 395,241,752); (c) The Group has issued performance guarantees to certain clients and its subsidiaries for any futures liabilities which may arise out of such contracts.2.18 Segment reportingThe Group was reporting Applications Services, Infrastructure Outsourcing Services and Business Process Outsourcing Services as its primary business segments till 31 October 2010. Effective 1 November 2010, the Group has redefined its Organisational Structure and accordingly has identified Banking and Capital Market, Insurance, Information Technology, Communication and Entertainment and Emerging Industries as primary business segments of the Group. The comparative figures have been restated to reflect information for these new segments.
The accounting policies consistently used in the preparation of the financial statements are also applied to record revenue and expenditure in individual segments. Assets, liabilities, revenues and direct expenses in relation to segments are categorised based on items that are individually identifiable to that segment, while other items, wherever allocable, are apportioned to the segments on an appropriate basis. Certain items are not specifically allocable to individual segments as the underlying services are used interchangeably. The Group therefore believes that it is not practical to provide segment disclosures relating to such items, andaccordingly such items are separately disclosed as ?unallocated?.
Primary segment information (` 000?s)Quarter endedQuarter endedNine months endedNine months ended31 July 2011 31 July 2010 31 July 2011 31 July 2010
Segment revenueBanking and Capital Market 3,178,001 3,303,163 9,685,961 8,929,944
Insurance 1,210,888 1,149,580 3,602,520 3,246,221 Information Technology, Communication and Entertainment 3,841,782 3,233,541 10,509,244 9,992,516 Emerging Industries 4,579,890 4,894,597 13,637,558 13,839,049Unallocated - Hedge 125,714 209,830 406,678 903,568
12,936,275 12,790,711 37,841,961 36,911,298
Segment profitBanking and Capital Market 677,190 880,386 2,118,340 2,373,841
Insurance 201,608 298,817 823,196 856,566 Information Technology, Communication and Entertainment 1,269,854 742,159 3,072,834 2,262,054 Emerging Industries 845,720 1,692,987 3,005,267 4,896,113 Unallocated - Hedge 125,714 209,830 406,678 903,5683,120,086 3,824,179 9,426,315 11,292,142As atAs at31 July 2011 31 October 2010
Segment assetsBanking and Capital Market 4,801,305 4,751,759
Insurance 1,386,866 1,450,861 Information Technology, Communication and Entertainment 4,980,379 4,562,579 Emerging Industries 6,406,675 5,577,743 Unallocated 32,927,528 28,695,06750,502,753 45,038,009Segment liabilitiesBanking and Capital Market 2,175,841 2,381,469
Insurance 794,520 766,885 Information Technology, Communication and Entertainment 2,149,439 2,127,139 Emerging Industries 3,060,446 2,803,635 Unallocated 3,046,112 3,967,47211,226,358 12,046,6006
MphasiS Group(` 000?s) | ||
As at 31 July 2011 | As at 31 October 2010 | |
Capital Employed | ||
Banking and Capital Market | 2,625,464 | 2,370,290 |
Insurance | 592,346 | 683,976 |
Information Technology, Communication and Entertainment | 2,830,940 | 2,435,440 |
Emerging Industries | 3,346,229 | 2,774,108 |
Unallocated | 29,881,416 | 24,727,595 |
39,276,395 | 32,991,409 |
2.19 During 2005-06, the Group had paid an amount of US$ 397,217 (` 17,529,186) against a claim received from a client in respect of alleged identity theft pertaining to customer bank accounts involving the Group?s employees and ex-employees. Liquid assets and properties worth US$ 228,489 (` 10,055,790) of the alleged offenders have been frozen by the authorities.
During July 2007, the Group has received from the client, who was given this amount by the Court to be held in trust, an amount of ` 10,732,170 including interest from the aforesaid frozen assets. The said amount has been assigned by the client to the Group and has been kept in Fixed Deposit, until such time the Court in a final, non-appealable written order holds that the amounts may be appropriated by the Group or the client.2.20 The figures of previous period have been regrouped / reclassified, wherever necessary, to conform with the current period?sclassification.
For S.R. BATLIBOI & Co.Firm registration number: 301003E Chartered Accountants
For and on behalf of the Board of Directorsper Navin AgrawalPartner
Membership No.56102
Bangalore 24 Aug 2011Balu Ganesh AyyarChief Executive Officer
Ganesh MurthyExecutive Vice President &
Chief Financial Officer
Bangalore
24 Aug 2011Nawshir H MirzaDirector
A. Sivaram NairSenior Vice President, Company Secretary
General Counsel & Ethics Officer
7
MphasiS GroupCONDENSED CONSOLIDATED CASH FLOW STATEMENTNine months ended(` 000?s)Nine months ended31 July 2011 31 July 2010
Cash flows generated by operating activities
Cash flows used in investing activities Cash flows used in financing activities Net (decrease)/ increase in cash and cash equivalents5,439,857 6,777,555
(3,402,600) (6,711,071)
(986,330) (397,136)
1,050,927 (330,652)
Effect of exchange rate changes 28,052 (12,058)
Cash and cash equivalents at beginning of the period*Cash and cash equivalents at end of the period*1,783,690 1,785,6982,862,669 1,442,988* Cash and cash equivalents consists of cash and bank balances and short-term funds that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. It also includes restricted deposits amounting ` 54,954,002 (31 October 2010: ` 70,732,170).
For S.R. BATLIBOI & Co.Firm registration number: 301003E
Chartered AccountantsFor and on behalf of the Board of Directorsper Navin AgrawalPartner
Membership No.56102
Bangalore 24 Aug 2011Balu Ganesh AyyarChief Executive Officer
Ganesh MurthyExecutive Vice President &
Chief Financial Officer
Bangalore
24 Aug 2011Nawshir H MirzaDirector
A. Sivaram NairSenior Vice President, Company Secretary
General Counsel & Ethics Officer
8
