IGate Computer Systems Ltd Merged Directors Report

PATNI COMPUTER SYSTEMS LIMITED ANNUAL REPORT 2011 DIRECTORS REPORT To, The Members, PATNI COMPUTER SYSTEMS LIMITED Your Directors have pleasure in presenting their Thirty fourth Annual Report together with Audited statements of Accounts for the year ended 31 December 2011. Financial Results 31 Dec 2011 31 Dec 2010 (Rs. in million) (Rs. in million) Sales 21,517 18,913 Resulting in Profit Before Tax 5,940 7,155 Profit After Tax 4,998 6,551 Profit available for appropriation after adding to it Previous Years Brought Forward 21,167 26,441 Appropriated as under: Adjustment on account of employee benefits Transfer to General Reserve - 655 Final Proposed Dividend on Equity Shares @ Nil (Previous Year 150%) - 2 Special Interim Dividend on Equity Shares @ Nil (Previous Year 3150%) - 8,244 Corporate Tax on above Dividend - 1,370 Balance Carried to Balance Sheet 21,167 16,170 Business Performance: The performance of your Company during the year under report has shown improvement over the previous year. Total revenue for the year ended 31 December 2011 amounted to Rs. 21,517 million as against Rs. 18,913 million for the corresponding period last year, registering a growth of about 14%. The Company has posted the Net Profits after tax to Rs. 4,998 million as compared to Rs. 6,551 million for the corresponding period last year, registering a decline of about 24% for the year ended31 December 2011. Even on consolidated basis, revenues were increased in the current year 2011 by 12% to Rs. 35,679 million from Rs. 31,881 million in 2010.The net income decreased by 36%. Dividend With a view to conserve the resources for the proposed facility and infrastructure expansion, your Directors do not recommend any dividend for the year 2011. Business Overview Your Company is a worldwide outsourcing provider of integrated end-to-end offshore centric information technology (IT) and IT-enabled operations solutions and services. The Company delivers a comprehensive range of IT services through globally integrated onsite and offshore delivery locations primarily in India. Your Company offers its services to customers through industry focused practices, including insurance and healthcare (IHC), manufacturing, retail and logistics (MRDL), banking and financial services (BFS), communications and utilities (CEU), and media and entertainment (MELT) and through technology focused practices. IT services include application development, application maintenance and support, verification and validation, enterprise application solutions, business intelligence and data warehousing (BI & DW), packaged software implementation, infrastructure management services, quality assurance services and product engineering services. IT-enabled services include business process outsourcing (BPO), transaction processing services and customer interaction services (CIS). On 12 May 2011, iGATE through its wholly owned subsidiaries acquired 82.4% of the outstanding shares of the Company. The acquisition by iGATE combined two highly recognized IT services and outsourcing companies with complementary industry verticals for the purpose of facilitating sustained longterm growth and to strengthen their competitive position as a top-tier company in the highly-fragmented global IT industry. iGATEs strategy is to utilize your Companys expanded pool of talent, diverse expertise across multiple verticals, higher level of strategic end-to-end service offerings and established management team to enable iGATE in offering differentiated solution sets in developing and maintaining long-term client relationships with a diversified client basis that spans different industry verticals. Post acquisition, the internal management of the consolidated entities - iGATE and Patni were restructured such that there were primarily two major segments in the consolidated company - (i) iGATE Corporation (and its subsidiaries other than Patni) and; (ii) Patni. The internal restructuring also included a restructuring of the Board of Directors of your Company. Your Company offers services in an integrated manner to customers who belong to different industry verticals namely insurance and healthcare, manufacturing, retail and logistics, banking and financial services, communications and utilities, and media and entertainment. Your Companys operations are located in twenty seven countries. Through a blended strategy of offerings tailored to customers and market needs referred to as outside-in approach for problem-solving, experimenting and innovating business and technology platforms, your Company achieves results efficiently through rapid improvement and automation, resulting in reduced cycle times and costs over a period of time. Accountability for results towards aligned goals requires your Company to continuously measure its progress against the goals, thus enabling it to deliver significant benefits to its customers along with a lower risk profile. Your Company has a track record of successfully developing and managing large, long-term client relationships with some of the worlds largest and best known companies. As of 31 December 2011, your Companys customer base was 280 clients. Several of the Companys key executives are located in its client geographies to better develop and maintain client relationships at senior levels. Repeat business accounted for 98.6%, 94.6% and 94.0% of your Companys revenues in 2011, 2010 and 2009. Your Companys revenues have grown from $655.9 million in 2009 to $759.3 million in 2011, representing a CAGR of 7.6%. As of 31 December 2011, your Companys total number of employees were around 18,000. Your Company has invested in new high-tech facilities, which it refers to as knowledge parks, designed for expanding our operations and training our employees. Your Company has 130 sales and marketing personnel supported by dedicated industry specialists in 25sales offices around the globe, including North America, Europe, Japan and the rest of the Asia-Pacific region. Global Delivery Model Global demand for high quality, lower cost IT and IT-enabled services has created a significant opportunity for your Company, which it uses to successfully leverage the benefits of, and address the challenges in using, an offshore talent pool. Your Companys effective use of offshore personnel offers a variety of benefits, including lower costs, faster delivery of new IT solutions and innovations in vertical solutions, processes and technologies. Your Company has adopted a global delivery model for providing services to its clients. Your Companys global delivery model includes on-site and offshore teams. Your Company has offshore development centers located in Bangalore, Hyderabad, Chennai, Noida, Mumbai, Pune and Gandhinagar in India and has global development centers located in Australia, Mexico, Canada, the United States, China, Singapore and India. The centers can deliver both onsite and offshore services, depending on client location and preferences. IT services that your Company delivers using its offshore centers include software application development and maintenance, implementation and support of enterprise applications, package evaluation and implementation, re-engineering, data warehousing, business intelligence, analytics, data management and integration, software testing and IT infrastructure management services. Your Company believes that it delivers high quality solutions to its clients at substantial savings by using its global pool of highly talented people. IT-enabled operations offshore outsourcing solutions and services that your Company offers include BPO, transaction processing services and call center services. BPO services are offered to clients that are looking to achieve converged IT and BPO solutions. The transaction processing services offered are focused on the mortgage banking, financial services, insurance and capital market industries, except for the delivery of finance and accounting functions such as accounts payable which can be performed for clients across all industries. The call center services are offered to clients in several industries and are not industry specific. Industry Practices, Technology Practices and IT Services Your Company offers its services to customers through industry practices in insurance and healthcare, manufacturing, retail and logistics, banking and financial services, communications and utilities, and media and entertainment. Your Company also has technology practices that offer services in product engineering and product design. Your Companys industry practices and technology practices are complemented by its IT services, which it develops in response to client requirements and technology life cycles. The Companys service lines include application development, application maintenance and support, verification and validation, enterprise application solutions, business intelligence and data warehousing, customer interaction services and BPO, infrastructure management services and quality assurance services. Sales and Marketing Your Companys sales teams use a multi pronged approach to market our services. They target certain industries and service lines through focused sales executives, geographies through regional sales executives and large clients through dedicated account managers. Your Company has aligned a majority of its sales and marketing teams to focus on specific industries and geographies. In addition to its sales executives, Your Company has industry experts and solution architects who complement its sales efforts by providing specific industry and service line expertise. Your Companys senior management and dedicated account managers are actively involved in managing client relationships and business development through targeted interaction with multiple contacts throughout its clients organizations. Your Company aims to develop its client relationships into partnerships by working closely with its clients managers and senior executives to formulate and execute an offshore outsourcing strategy, implement engagement models that suit their particular challenges and explore new service lines. Your Company undertakes detailed periodic reviews to identify existing and prospective clients that it believes can develop into large, strategic clients. Your Company intends to focus on adding more strategic accounts, which it defines as those who provide $5.0 million or more in annual revenues or those with whom it believes it has the potential to achieve such annual revenue amounts over a 24 to 30 month period. For each strategic client, a senior executive is identified and charged with managing the overall client relationship and leading periodic reviews with the client. Your Company has 25 sales offices across North America, Europe, Japan and the rest of the Asia-Pacific region and 130 sales and marketing personnel who are supported by dedicated industry specialists. Your Company sets targets for its sales personnel at the beginning of each year, which are subject to periodic reviews. In addition to a base salary, the Companys compensation package for sales personnel includes an incentive based compensation plan driven by achievement of the prescribed sales targets. Human Resources Your Company strongly believes that it ability to maintain and continue its growth depends to a large extent on its strength in attracting, developing, motivating and retaining the talent. Your Company operates in seven major cities in India, which enables it to recruit technology professionals from different parts of the country. The key elements of your Companys human resource management strategy include Talent Acquisition, learning and development, rewards and retention. None of your Companys employees are represented by a union. Your Company employed around 18,000, 17,600 and 14,000 employees as of 31 December 2011, 2010 and 2009, respectively. Out of 18,000 employees, around 17,000 were software professionals as of 31 December 2011. Of these software professionals, around 3,000 employees were categorized as onsite and 14,000 as offshore. The geographic breakdown for your Companys employees as of 31 December 2011 was as follows: Geography Number of Employees (rounded off) India 14,900 North America 2,500 Rest of the World 600 Total 18,000 Centers of Excellence: Your Company is developing internal centers of excellence to create expertise in emerging technologies. Your Company is working on centers of excellence that focus on next generation technologies which includes Web 2.0 and Web 3.0 specification, mobility solutions for ease of access to application, Anywhere secured access to data and in areas of Business Intelligence. Your Company partners with leading technology vendors such as Microsoft, HP, IBM and Oracle to implement these technologies. Facility Expansion A key component of your Companys global delivery model is the telecommunication linkages between client sites and its sites and between its distributed sites in India. Your Company has designed a global network architecture which provides client connectivity, offshore development center connectivity and internet connectivity. This network provides seamless access and uses high availability networks and advanced routing protocols for redundancy and availability. Although your Company relies on third parties, such as telecommunications providers and internet service providers to provide such services, your Company ensures that it has multiple service providers using multiple routes and media to attain high levels of redundancy, availability and performance. Your Company has dedicated teams to monitor the operations of its network operations 24 hours a day and seven days a week. Your Company uses encryption techniques for confidentiality of data as required. Your Companys principal executive offices are located at Mumbai, India. Your Companys North American headquarters are located in Cambridge, Massachusetts. These facilities are used primarily for management functions and support functions such as sales, marketing and general administration. Your Company has state-of-the-art facilities in nine locations in India where its technical staff is located and which serve as its primary delivery centers. Your Company also has imaging centers and distribution centers in the United States and in the United Kingdom for handling the digital processing of documents. Your Company currently has capacity for approximately 17,000 professionals at these facilities. As of 31 December 2011, your Company had used approximately 83% of its existing office space in its operations. Most of your Companys global branch offices located outside of India are used for sales and marketing. Your Company has 25 sales and marketing offices located in the U.S.A, Canada, India, Australia, China, Japan, Singapore, Malaysia, Germany, Mexico, Czech Republic, Indonesia, Sweden, Switzerland, Belgium, the Netherlands, the U.K, Finland, U.A.E., South Korea, South Africa, Turkey, Italy, Ireland and Romania. Your Company operates through its facilities located in various parts of India. In the recent past your Company has acquired facilities to support its growth. In keeping with its plans for expansion, your Company has constructed new facilities in India, which includes three knowledge parks in Chennai, Navi Mumbai and Noida. These knowledge parks have state-ofthe- art infrastructure with extensive workspace and training facilities and a modular design for ease of segregation of dedicated projects with the ability to provide scale and service to clients from one location. Your Companys Noida Knowledge Park was awarded the prestigious LEED Platinum (Leadership in Energy and Environmental Design) rating jointly by the U.S Green Building Council and the Indian Green Building Council for the Companys Green IT-BPO Centre. This makes your Companys Knowledge Park the second largest Platinum rated building in the world, and the largest Platinum rated building outside the United States. Phase I of the Navi Mumbai facility, with a capacity of 4,300 seats, is complete and occupied. Phase I of the Chennai facility, with a capacity of 1,200 seats, is complete and partially occupied. Construction of the Noida SEZ facility with capacity to accommodate 3,300 seats is completed and is partially occupied. The Navi Mumbai, Chennai and Noida facilities are expected to accommodate up to 14,000, 10,000 and 3,300 engineers, respectively when fully completed. In continuation of its policy to have its own campus operations, your Company has acquired land in Pune, Hyderabad and Kolkata in addition to its campuses in Mumbai, Chennai and Noida. These facilities when fully built, are expected to have a seating capacity for approximately 25,000 professionals. As of 31 December 2011, your Company had spent approximately $ 101.3 million on the knowledge parks. Your Company announced a Capital outlay of $120 million over a period of three years, of which $102 million relates to building a residential training facility in Pune along with a 5,000 member capacity delivery center and campus expansion in Mumbai. Quality and Project Management While quality always has been an integral part of your Companys operations, your Company became formally certified and assessed for quality models in 1995. Your Company started with ISO 9000-1994, underwent SEI-CMM level 4 and 5 assessments and as of today is ISO 9001-2000 certified and are assessed for P-CMM Level 3 and SEI-CMMi Level 5. In the last year, your Company also got reassessed for CMMI Level 5 against version 1.2. ISO 9001 is an international standard for quality management systems maintained by the International Organization for Standardization. The Capability Maturity Model (CMM) is a method for evaluating the quality of a companys management and software engineering practices, with Level 5 being the highest attainable certification. The CMM was developed by the Software Engineering Institute (SEI) at Carnegie Mellon University. The Software Engineering Institute subsequently released a revised version known as the Capability Maturity Model Integration (CMMi). Your Company has been using the Six Sigma Program to implement process changes including the above. Your Company continuously strives to better its quality management system with the help of industry best practices and research findings. Your Companys quality management system involves the review and continuous improvement of software development and related processes, testing of work products and regular internal and external quality audits. Your Company applies sophisticated project management and solution deployment methodologies that it has developed to help ensure timely, consistent and accurate delivery of IT solutions to its clients. In 2011, your Company has received the following recognitions: * iGATE Patni won the Golden Peacock National Quality Award - 2011 * iGATE Patnis IT and Business Enabling functions in Bangalore were successfully appraised and rated at People CMM. maturity level 5. * iGATE Patnis Employee Engagement initiative Thank God Its Monday entered the Limca Book of Records for running a corporate music show every Monday, for five consecutive years. Patni ESOP 2003 (Revised 2009): Your Company had introduced the Employees Stock Option Plan known as Patni ESOP 2003. The Plan is being administered by the Compensation and Remuneration Committee of Directors constituted as per SEBI Guidelines. The details of Options granted under the Plan are given in the Annexure to this Report. Subsidiary Companies The Company has wholly owned subsidiaries viz. Patni Americas, Inc., Patni Computer Systems (UK) Limited, Patni Computer Systems GmbH, PCS Computer Systems Mexico, SA de CV and Patni (Singapore) Pte. Ltd. Patni Telecom Solutions, Inc. and CHCS Services Inc. are the subsidiaries of Patni Americas, Inc., one of the Companys main subsidiaries. Patni Telecom Solutions (P) Limited and Patni Telecom Solutions (UK) Limited are subsidiaries of Patni Telecom Solutions, Inc. Patni Computer Systems (Czech) s.r.o. is the subsidiary of Patni Computer Systems (UK) Limited. Patni Computer Systems Japan Inc, Patni Computer Systems (Suzhou) Co.Ltd., Patni Computer Systems (Dalian) Co, Ltd. and Patni Computer Systems Indonesia are owned through Patni (Singapore) Pte. Ltd., one of the Companys main subsidiaries. In view of the above and by virtue of Section 4 of the Companies Act, 1956 the Company has following subsidiaries (Collectively to be referred as Subsidiary Companies) i) Patni Americas, Inc.; ii) Patni Computer Systems (UK) Limited; iii) Patni Computer Systems GmbH; iv) PCS Computer Systems Mexico, SA de CV; v) Patni (Singapore) Pte. Ltd.; vi) Patni Telecom Solutions, Inc.; vii) CHCS Services Inc.; viii) Patni Telecom Solutions (P) Limited; ix) Patni Telecom Solutions (UK) Limited; x) Patni Computer Systems (Czech) s.r.o.; xi) Patni Computer Systems Japan Inc.; xii) Patni Computer Systems (Suzhou) Co., Ltd.; xiii) Patni Computer Systems (Dalian) Co., Ltd.; and xiv) Patni Computer Systems Indonesia. The Company has been granted a general exemption for the year ended 31 December 2011 by the Ministry of Corporate Affairs from attaching to its Balance Sheet, the individual Annual Reports of each of its Subsidiary Companies. A statement containing brief financial details of the Companys subsidiaries for the year ended 31 December 2011 is included in the Annual Report. The annual accounts of Subsidiary Companies and the related detailed information will be made available to any member of the Company / its Subsidiary Companies seeking such information at any point of time and are also available for inspection by any member of the Company / its Subsidiary Companies at the Registered Office of the Company. Reconstitution of the Board In accordance with the requirements of the Companies Act, 1956 and Articles of Association of the Company, Mr. Shashank Singh and Mr. Goran Lindahl are liable to retire and eligible for reappointment in the forthcoming Annual General Meeting. Corporate Developments Your Company had received a letter dated 11 November 2011 from Pan - Asia iGATE Solutions and iGATE Global Solutions Limited (Collectively the Promoters), expressing their intention to initiate the process to acquire the Shares held by the public shareholders of the Company by providing an exit opportunity in accordance with the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 (as amended) (Delisting Regulations), and all other applicable regulations in order to voluntarily delist the Companys Shares from the Indian Stock Exchanges and the American Depository Shares (ADSs) from the New York Stock Exchange (NYSE) (Delisting Proposal). On 16 November 2011, the Board of Directors of the Company had granted its approval to the said Delisting Proposal and sought the approval of the shareholders of the Company through postal ballot in terms of the Delisting Regulations after complying with the SEBI and the U.S. Securities Exchange Commission requirements, if any. Your Company, vide Postal Ballot Notice dated 5 December 2011, had sought the consent of its Members to a delisting proposal received from the Promoters to voluntarily delist the equity shares of the Company from the Indian Stock Exchanges and ADSs from NYSE, USA. Special Resolution contained in the said Postal Ballot Notice was duly passed by the requisite majority as required under the Companies Act, 1956 and Delisting Regulations. The Promoters may make a public announcement of a Delisting offer in accordance with the Delisting Regulations within a period of one year from the date of the above-mentioned special resolution. Corporate Governance Your Company follows the principles of the effective corporate governance practices. The Clause 49 of the Listing Agreement deals with the Corporate Governance requirements with which every publicly listed Company is required to comply with. The Company has taken steps to comply with the requirements of revised Clause 49 of the Listing Agreement with the Stock Exchanges. A separate section on Corporate Governance forming part of the Directors Report and certificate from the Companys Auditors confirming the compliance of conditions on Corporate Governance as stipulated in Clause 49 of the Listing Agreement is included in the Annual Report. Particulars of Employees Particulars of employees as required under the provisions of Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, forms part of this Report. However, in pursuance of Section 219(1)(b)(iv) of the Companies Act, 1956, this Report is sent to all the Members of the Company excluding the aforesaid information and the said particulars are made available at the registered office of the Company. The members desirous of obtaining such particulars may write to the Company Secretary at the registered office of the Company. Fixed Deposits Your Company has not accepted any fixed deposits from the public. As such, no amount of principal or interest is outstanding as of the balance sheet date. Auditors M/s. S.R. Batliboi & Associates, Chartered Accountants, the present statutory auditors of the Company holds office until the conclusion of the ensuing Annual General Meeting. M/s. S.R. Batliboi & Associates, under Section 224(1) of the Companies Act, 1956, have furnished the certificate of their eligibility for appointment. Directors Responsibility Statement Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors, based on the representation received from the Operating Management, confirm that:- (a) in the preparation of the annual accounts, the accounting standards have been followed and that there is no material departure; (b) they, in selection of accounting policies, have consulted the Statutory Auditors and have applied them consistently and 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 Company as at 31 December 2011 and the Profit of the Company for the period 1 January 2011 to 31 December 2011; (c) they have taken proper and sufficient care, to their best of knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (d) they have prepared the annual accounts on a going concern basis. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings/ Outgo: A) Conservation of Energy Your Company consumes electricity mainly for the operation of its computers. Though the consumption of electricity is negligible as compared to the total turnover of the Company, your Company has taken effective steps at every stage to reduce consumption of electricity. B) Technology Absorption This is not applicable to your Company as it has not purchased or acquired any Technology for development of software from any outside party. C) Foreign Exchange Earnings/Outgo Earnings in Foreign Currency on 31 Dec 2011 account of: (Rs. in million) Export Sale 21,133 Others 46 Total Earnings 21,179 Expenditure in Foreign Currency on account of: Travelling Expenses 264 Overseas Employment Expenses 4,381 Professional Fees & Consultancy 286 Charges Subscription & Registration Fees 5 Other Matters 156 Total Expenditure 5,092 Net Earnings in Foreign Currency 16,087 Acknowledgements Your Directors wish to convey their appreciation to all the Companys employees for their performance and continued support. The Directors would also like to thank all the shareholders, consultants, customers, vendors, bankers, service providers and governmental & statutory authorities for their continued support. For and on behalf of the Board of Directors Jai S Pathak Phaneesh Murthy Chairman CEO & MD Date: 25 January 2012. Annexure to the Directors Report: Employee Stock Options Plan (ESOP) Information as on 31 December 2011 (Currency: in thousands of Indian Rupees except share data) (a) No. of options granted 15,759,482 * (b) Pricing formula As per market price as defined in SEBI guidelines on ESOP or on face value of equity shares (c) Options vested 2,170,621 ** (d) Options exercised 8,302,666 (e) The total number of shares arising as a result of exercise of option 8,302,666 (f) Options lapsed 5,012,320 *** (g) Variation of terms of options N/A (h) Money realized by exercise of options; 1,284,262 (i) Total number of options in force; 2,444,496 (j) Employee wise details of options granted during the year to: (I) senior managerial personnel during the year; NIL (II) any other employee who receives a grant in any one year NIL of option amounting to 5% or more of option granted during that year. (III) identified employees who were granted option, during NIL 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; (k) diluted Earnings Per Share (EPS) pursuant to issue of 29.58 shares on exercise of option calculated in accordance with the Accounting Standard (AS) 20 Earnings per Share (l) Impact of Employee Compensation cost calculated as difference between intrinsic value and fair market value in accordance with SEBI Guidelines on ESOP Profit for the year after taxation as reported 4,014,571 Add: Stock based employee compensation deteremined under the intrinsic value method 249,067 Less: Stock based employee compensation deteremined under the fair value method 227,004 Pro-forma profit 4,036,634 Reported earnings per equity share of Rs. 2 each - Basic 30.07 - Diluted 29.58 Pro-forma earnings per equity share of Rs. 2 each - Basic 30.23 - Diluted 29.75 (m) Weighted-average exercise prices and weighted-average fair values of options, for options whose exercise price equals or is less than the market price of the stock **** Weighted average exercise price - Equity 165.15 Weighted average fair value - Equity 155.89 Weighted average exercise price - ADR $0.08 Weighted average fair value - ADR $18.27 (Currency: in thousands of Indian Rupees except share data) As of 31 December 2011 (n) The fair value of each stock option is estimated on the date of grant using the Black Scholes option pricing model with the following assumptions for Equity linked options which are in accordance with SEBI Guidelines on ESOP Dividend yield 0.67% Weighted average dividend yield 0.67% Expected life 3.5 - 5.5 years Risk free interest rates 8.29% - 8.37% Expected Volatility 38.47% - 39.13% Weighted Average Volatality 38.84% The price of the underlying share in market at the time of option grant: Grant Date Price (Rs.) 29 June 2011 329.55 The fair value of each stock option is estimated on the date of grant using the Black Scholes option pricing model with the following assumptions for ADR linked options which are in accordance with SEBI Guidelines on ESOP Dividend yield 0.68% Weighted average dividend yield 0.68% Expected life 3.5 - 5.5 years Risk free interest rates 0.58% - 1.15% Expected Volatility 38.27% - 40.64% Weighted average volatility 39.71% The price of the underlying ADR in market at the time of option grant: Grant Date Price ($) 19 October 2011 13.49 (o) Ratio of ADS to Equity Shares 1 ADR = 2 Shares * Including options granted to employees, who have seperated. ** Net of options lapsed. *** As per the plan, in the event of resignation from employment, the options lapse for individual employee. However, the said options are available to Company for reissue. **** For options outstanding. MANAGEMENT DISCUSSION AND ANALYSIS Managements Discussion and Analysis of the Consolidated Financials under Indian GAAP Industry Structure and Developments: Global Markets Overview According to the Forecast Alert: IT Spending, Worldwide, 20082015, 4Q11 Update report by Gartner Inc., an IT research and advisory company, the headline is that the global IT spending growth forecast has been revised downward, from 4.6% to 3.7% in 2012. Global economic slowdown and the impact of Eurozone crisis have combined to lower the outlook for the U.S. dollar-denominated growth. The main reasons for the downward revision are as follows: * The Eurozone crisis has caused market volatility and personal and corporate uncertainty. The short-term outlook for spending on IT products and services by enterprises and consumers has reduced due to the crisis in the Eurozone, affecting major technology sectors such as enterprise software services, IT services and telecommunications services, all of which are expected to see lower growth rates. * Global economic growth will slow down in 2012 to a real GDP growth rate of less than 2% in the U.S. and a mild recession in Europe. U.S. dollar based IT spending in Western Europe has been forecasted to contract in 2012 due to political uncertainty which will lead to more cautious spending on IT products and services. * The 2012 growth outlook across all technology sectors have been revised downwards. There has been significant revision in the growth outlook for computing hardware, IT services and telecommunication equipment and services sectors with a decrease of 3.4%, 1.3% and 1.3% in spending in those sectors, respectively, compared to the previous quarters update. * The reductions in the computing hardware forecast for 2012 reflect concerns for U.S. and Western European market growth, due to weak 4Q11 results, and a highly uncertain economic outlook for both markets. The reductions also reflect the impact of HDD (Hard Disk Drive), supply constraints on HDD and PC shipments in the first half of the year. The reduction in the Western European forecast also reflects more aggressive assumptions about the ability of political leadership to adopt effective short term measures to support debt laden countries and reformation of long term structural loans. The supply of hard drives is expected to be reduced by as much as 25% during 2012 due to the impact of floods in Thailand, which is a major hub for hard-drive manufacturing, both for finished goods and components. * Through 2015, the forecast for long term annual average growth in global IT spending has been reduced to 5.0% compared with a 5.4% growth level estimated in the previous quarter. (Disclaimer: The Gartner Report described herein, Forecast Alert: ITSpending, Worldwide, 2008-2015, 4Q11 Update (ID Number: G00226278 represent) data, research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Prospectus) and the opinions expressed in the Gartner Report(s) are subject to change without notice.) Indian IT Industry Outlook According to Gartner Inc. (Source: Gartners Press Release dated 24th Jan, 2012), an IT research and advisory company, Indian Industry IT spending is forecasted to exceed $39 billion in 2012, an increase of 10.3% from 2011 spending of $36 billion. The growth of IT in India is expected to increase, with an annual increase to exceed this level through 2015. The increase in demand for IT products and services to support the rapid growth of industries has led to the emergence of IT as an enabler in industries beyond manufacturing, government and financial services. The retail industry is expected to achieve the strongest growth in 2012 where IT spending is forecast to grow 11.8%. Recent decisions to allow 100% foreign direct investment (FDI) in single brand retail, and up to 51% in multi brand retail, are expected to provide the sector with significant boost in terms of IT usage and adoption. The banking and securities sector is expected to reach $11.6 billion in 2015 from $5.2 billion in 2011, a CAGR of 11.6% . Retail is expected to see a growth from $1.7 billion in 2011 to $2.7 billion in 2015, a CAGR of 12.8%. NASSCOM Strategic Review 2011 states that Information Technologys evolution, advancements and results have continued to spread at a rapid pace. Despite global uncertainties, natural disasters and low consumer confidence in 2011, global spending on technology and demand for global sourcing for IT-BPO services remained significant. Indian IT-BPO sector has retained its position as the worlds leading global sourcing destination for IT-BPO services with a share of 58% in 2011. India is one of the most cost-competitive providers of IT-BPO services. Service providers are effectively utilizing Indias talent pool by designing large scale talent re-engineering initiatives and employee engagement activities. This is enabling the industry to provide both end-to-end and high-end value-added services across various sectors. IT-BPO services will be instrumental in the economic and social rise of India in the future. As a result, the domestic IT-BPO market is expected to grow in parallel with the growth of the Indian economy. The domestic IT-BPO (excluding hardware) spending trend will continue in 2013 as the industry is expected to grow at 13-16%. IT-BPO exports is expected to grow 11-14% in 2013, driven by proliferation of as- a-service model around enterprise mobility, cloud and platform solutions, analytics offerings and social media. Software products, IT & BPO sector has approximately spent $1.3 trillion or 63% of the total spending in 2011, with IT hardware accounting for approximately $645 billion or 37% of the total spending in 2011. There was a renewed demand for overall global sourcing, which grew by 12% as compared to 2010 representing twice the global technology growth. IT software and services sectors revenue (excluding hardware) is estimated at $88 billion for the year 2012. During this period, direct employment is expected to reach nearly 2.8 million, an addition of 230,000 employees, while indirect job creation is estimated at 8.9 million. As a proportion of national GDP, the sector revenues have grown from 1.2 % in 1998 to an estimated 7.5% in 2012. The total share of total Indian exports (merchandise plus services) increased from less than 4.0% in FY1998 to 25.0% in 2012. Export revenues (excluding hardware) are estimated to reach $69 billion in 2012 accounting for a 2.2 million workforce. This represents a growth of 16.3%; these exports also account for over 68.5% share in aggregate IT-BPO revenue. Within exports, IT services segment is the fastest growing at 19% over 2011 with export revenue of $40 billion, accounting for 58 % of total exports. The BPO segment is expected to grow by 12% cent to reach $ 16 billion in 2012. The software products segments are expected to generate exports of $13 billion, a growth of nearly 14% over 2011. Domestic IT-BPO revenue (excluding hardware) is expected to grow at almost 17% to reach $918 billion in 2012. Strong economic growth, rapid advancement in technology, infrastructure, increasingly competitive Indian organizations, enhanced focus by the government and emergence of business models that help provide IT to new customer segments are key drivers for increased technology adoption in India. IT services is the fastest growing segment in the Indian domestic market, growing by 18% to reach $589 billion, driven by increasing adoption from all customer segments - government, enterprise, and consumers. Domestic BPO segment is expected to grow by 17% in 2012, to reach $149 billion, driven by demand from voice- based (local language) services and increasing adoption by both traditional and emerging verticals, including the government. The domestic software products segment is set to grow to $180 billion in 2012, a growth of 13% over 2011. Opportunities and Threats Global Delivery Model Global demand for high quality, lower cost IT and IT-enabled services has created a significant opportunity for us, which we use to successfully leverage the benefits of, and address the challenges in using, an offshore talent pool. Our effective use of offshore personnel offers a variety of benefits, including lower costs, faster delivery of new IT solutions and innovations in vertical solutions, processes and technologies. We have adopted a global delivery model for providing services to our clients. Our global delivery model includes on-site and offshore teams. We have offshore development centers located in Bangalore, Hyderabad, Chennai, Noida, Mumbai, Pune and Gandhinagar in India and have global development centers located in Australia, Mexico, Canada, the United States, China, Singapore and India. The centers can deliver both onsite and offshore services, depending on client location and preferences. IT services that we deliver using our offshore centers include software application development and maintenance, implementation and support of enterprise applications, package evaluation and implementation, re- engineering, data warehousing, business intelligence, analytics, data management and integration, software testing and IT infrastructure management services. We believe that we deliver high quality solutions to our clients at substantial savings by using our global pool of highly talented people. IT-enabled operations offshore outsourcing solutions and services that we offer include BPO, transaction processing services and call center services. BPO services are offered to clients that are looking to achieve converged IT and BPO solutions. The transaction processing services offered are focused on the mortgage banking, financial services, insurance and capital market industries, except for the delivery of finance and accounting functions such as accounts payable which can be performed for clients across all industries. Our call center services are offered to clients in several industries and are not industry specific. Our Competitive Strengths We believe our competitive strengths enable us to deliver high-quality, efficient and scalable services. These strengths include: Focused Industry Expertise We concentrate on industries where we believe we can generate sustained revenue growth, such as insurance, manufacturing, retail and distribution, financial services and communications, media and utilities. Through our extensive experience in these industries, we provide solutions that respond to technological challenges faced by our clients. We also focus on technology practices, specifically in product engineering services. Successful Client Relationships We have demonstrated the ability to build and manage our client relationships. Our long-term relationships typically develop from performing discrete projects to providing multiple service offerings spread across a clients businesses. Through our flexible approach, we believe we offer services that respond to our clients needs regardless of their size. By leveraging our industry experience with our project management capabilities and breadth of technical expertise, we solidify and expand our client relationships. Extensive Suite of IT Services We provide a comprehensive range of IT services, including application development, application maintenance and support, packaged software implementation, infrastructure management services, product engineering, business process outsourcing and quality assurance services. Our knowledge and experience span multiple computing platforms and technologies, which enable us to address a range of business needs and to function as a virtual extension of our clients IT departments. We offer a broad spectrum of services in select industry sectors, which we leverage to capitalize on opportunities throughout our clients organizations. Delivery and Operational Excellence Through our mature global delivery model, we deliver high quality and cost- effective IT services from multiple locations in a reduced timeframe. We vary the composition of our employee resource pool, in terms of seniority and location, to maximize our productivity and efficiency. Our processes and methodologies have achieved Capability Maturity Model Integrated (CMMi) Level 5, the highest attainable certification. We use project management tools to deliver services to client specifications in a timely and reliable manner while maintaining a high level of client satisfaction. Highly-skilled Professionals We have a highly qualified management team with a broad range of experience in the global IT industry. Our managers and senior technical personnel provide in-depth project management expertise to customers. To maintain this level of expertise, we have placed significant emphasis on recruiting and training our workforce of highly skilled professionals. Our Strategy Our Vision: Our vision is Changing the rules to deliver high-impact outcomes for a new technology-enabled world. The combination of iGATE and Patni is a fully integrated technology and operations (iTOPS) enterprise with a global services model. We enable clients to optimize their business through a combination of process investment strategies, technology leverage and business process outsourcing and provisioning. We have leveraged our deep understanding of diverse business challenges faced by global enterprises, coupled with our thought leadership in IT, and process/operations excellence in building the iTOPS model. We characterize a clear value proposition around our Global Delivery Model (GDM) offering to deliver varied and complex IT-enabled services for clients global customers across multiple locations. The goal is to bring about business transformation for customers on a pioneering pay for outcomes, not effort premise. With a global presence and world-class delivery centers spanning the Americas, Europe- Middle East-Africa (EMEA) and Asia-Pacific, the iGATE Patni GDM meshes a well-defined, single business management system with industry best practices, models and standards such as ISO, CMMI, ITIL and Six Sigma. Robust knowledge and responsibility transition across employees is seamless ensuring clockwork-like efficiency and effectiveness of provided services. Penetrate and Grow Strategic Client Accounts We have achieved strong revenue growth by focusing on select, long-term customer relationships which we call strategic accounts. We aim to expand the scope of our client relationships by leveraging our focused industry sector expertise with delivery excellence, responsive engagement models and breadth of services. We intend to focus on adding new strategic clients and further penetrate our existing customer relationships. We address the needs of our larger strategic relationships through dedicated account managers who have responsibility for increasing the size and scope of our service offerings to such clients. We aim to strengthen our sales and marketing teams, a majority of which are aligned to focus on specific industries. Strengthen and Broaden our Industry Expertise with Micro Vertical Focus We intend to strengthen our understanding of key industries by investing in building or acquiring intellectual property like platforms, tools, etc in chosen micro verticals within each industry segment that we operate. We shall also continue to invest in a strong base of industry experts, business analysts and solutions architects as well as considering select from targeted acquisitions. We believe we can create competitive differentiation and add more value than a general service provider through such investments by enhancing our understanding in specific industry and domain requirements of our clients. Strengthen and Broaden our Service Lines We aim to deepen our existing client relationships through new and more comprehensive service lines. In recent years we have added new capabilities in line with our growth and customer needs. We continually explore new initiatives through our internal centers of excellence, which focus on innovation in specific technology platforms or services. For example, we added quality assurance services as a new service line, and developed increased capabilities such as business intelligence, database administration and legacy system modernization in other service lines. Optimize and Expand Delivery Capability Our process and methodologies such as PatniPLUSr consolidate decades of software development and maintenance experience in delivering and supporting enterprise applications and products for our clients. We believe that our mature process frameworks effectively reduce risk and unpredictability across the software development life cycle and flexibly integrate with our clients processes. We further believe that our quality systems create strong predictive and diagnostic focus, delivering measurable performance to clients critical to quality parameters resulting in a faster turnaround, higher productivity, and on-time to first-time-right deliveries. We provide full visibility on our projects for our clients through integrated web-based project management and monitoring tools. We are committed to enhancing the processes and methodologies that improve our efficiency. We aim to develop new productivity tools, refine our software engineering techniques and maximize reuse of our processes. To maximize improvements in our processes and methodologies we have expanded our infrastructure and we have constructed new knowledge park campuses in India to provide world-class infrastructure, high standards of quality and secure delivery. Competition The IT and IT-enabled operations offshore outsourcing services industries are highly competitive, and are served by numerous global, national, regional and local firms. Our primary competitors in the IT and IT-enabled outsourcing industry include IT outsourcing firms, consulting firms, systems integration-firms and general management consulting firms such as Tata Consultancy Services Limited, Infosys Technologies Limited, Cognizant Technology Solutions Corporation, Wipro Limited, Genpact Limited, WNS (Holdings) Limited, EXL Service Holdings Inc., Syntel Inc., Mindtree Limited, and Hexaware Technologies Limited. We believe that the principal competitive factors in the IT and IT-enabled operations offshore outsourcing markets include the range of services offered, size and scale of service provider, global reach, technical expertise, responsiveness to client needs, speed in delivery of IT solutions, quality of service and perceived value. Many companies also choose to perform some or all of their back office IT and IT-enabled operations internally. Segment-wise Performance Patnis geographic segmentation is based on location of customers and comprises United States of America (USA), Europe, Japan, India and Others. Revenue in relation to geographic segments is categorised based on the location of the specific customer entity for which services are performed irrespective of the customer entity that is billed for the services and whether the services are delivered onsite or offshore. We expect that a substantial majority of our revenues will continue to be derived from clients located in the United States. Geographic Segments: Country Year ended 31 December 2009 2010 2011 USA 79.0% 79.9% 77.6% Europe 12.7% 11.4% 13.7% Japan 3.5% 3.1% 3.3% India 1.0% 2.2% 2.2% Others 3.8% 3.4% 3.2% Total 100.0% 100.0% 100.0% Outlook, Risks and Concerns These have been discussed in detail in the Risk management section in this Annual Report. Internal Control Systems We maintain internal control systems designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with managements authorization and properly recorded, and accounting records are adequate for preparation of financial statements and other financial information. The internal audit function performs internal audit periodically to ascertain their adequacy and effectiveness. The Audit Committee which is a sub-committee to Board of Directors consists solely of independent directors. The Audit Committee monitors and provides effective supervision of our financial reporting process with a view towards ensuring accurate, timely and proper disclosures coupled with transparency, integrity and quality of financial reporting. Our Audit Committee oversees the work carried out in the financial reporting process by our management, including the internal auditors and reviews the processes and safeguards employed by each. In addition our Audit Committee has the responsibility of oversight and supervision over our system of internal controls over financial reporting, audit process, and process for monitoring the compliance with related laws and regulations. The committee also holds discussions with Statutory Auditors, Internal Auditors and the Management on matters pertaining to internal controls, auditing and financial reporting. The Committee reviews with the statutory auditors the scope and results of the audit. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors audit of that assessment requires the commitment of significant financial and managerial resources. We consistently assess the adequacy of our internal controls over financial reporting, remediate any control deficiencies that may be identified, and validate through testing that our controls are functioning as documented. Financial Condition (Rs. in thousands except share data) 31 December 31 December 2011 2010 Share capital Balance at the 262,838 258,252 beginning of the year Shares issued during the year: - ESOP plan 6,150 4,586 Balance at the close of 268,988 262,838 the year The Company has established the Patni ESOP 2003 -Revised 2009 Plan, under which it issued 3,075,053 shares to 1,411employees and 13 directors during the year. The Company is authorized to issue up to 19,142,085 equity shares to eligible employees under the said ESOP plan. In June 2009, at the Annual General Meeting the shareholders had authorized the Company to issue additional 8,000,000 equity shares to eligible employees under the Patni ESOP 2003 -Revised 2009plan. Following these issuances of the Companys equity shares during the year, the issued, subscribed and paid-up share capital increased by 3,075,053 shares. Reserves and surplus The Company transferred an amount of Rs. Nil million from its profit for the year to the general reserve, while Rs. 4,014.6 million was retained in the profit and loss account. Secured loans The Company acquires vehicles under finance lease for a non-cancellable period of four years. The lease rental obligation in relation to such vehicles is recorded under secured loans. As per the lease agreement, the ownership of these vehicles would not transfer to the Company. Net deferred tax liability The Company recorded cumulative net deferred tax liability of Rs. 118.1 million as of 31 December 2011. The deferred tax liability represents U.S. branch profit taxes for Rs. 147.1 million & others Rs. (29) million. Goodwill The excess of cost to the parent company of its investment in subsidiaries over the parent companys portion of equity in the subsidiaries, at the respective dates on which investments in subsidiaries were made, is recognized in the consolidated financial statements as goodwill. Goodwill recorded in the consolidated financial statements has not been amortized, but evaluated for impairment. The aggregate goodwill recorded in the financial statements comprises the following: (Rs. in thousands) 31 December 31 December 2011 2010 Balance at the 4,838,060 4,765,305 beginning of the year Acquisition during the - 229,237 year Effect of foreign 667,368 (156,482) currency translation Balance at the end of 5,505,428 4,838,060 the year Fixed assets (Tangible) (Rs. in thousands) Year ended Year ended Increase / 31 December 31 December (Decrease) % 2011 2010 Gross block Land - freehold 171 171 0.0% - leasehold 942,940 844,528 11.7% Buildings 3,775,092 3,657,678 3.2% Leasehold improvements 470,003 412,990 13.8% Computers and other service equipment 2,761,759 2,439,744 13.2% Electrical installations 901,387 888,856 1.4% Office equipments 1,063,415 1,019,185 4.3% Furniture and fixtures 1,198,709 1,134,489 5.7% Vehicles 26,825 53,876 -50.2% Total 11,140,301 10,451,517 6.6% Less: Accumulated depreciation 5,836,369 4,811,185 21.3% Add: Capital work-in-progress 789,319 921,512 -14.3% Net fixed assets 6,093,251 6,561,844 -7.1% Fixed assets (Intangible) (Rs. in thousands) Year ended Year ended Increase / 31 December 31 December (Decrease) % 2011 2010 Goodwill 5,505,428 4,838,060 13.8% Computer software 2,463,520 2,268,874 8.6% Intellectual property rights 1,787,690 1,508,468 18.5% Customer contracts and non contractual customer relationships 82,778 69,935 18.4% Less: Accumulated depreciation 3,718,501 2,191,715 69.7% Net fixed assets 6,120,915 6,493,622 -5.7% During 2011, the net increase in the gross block of fixed assets amounts to Rs. 688.78 million. This is mainly represented by Rs. 81.8 million on capitalization of land & additional charges paid to SIPCOT authorities towards leasehold land, Rs. 17.1 million paid to additional premium on Hinjewadi land for extension of time limit, Rs.117.4 million on capitalization of flats at Glenridge, Powai, Rs.229.3 million due to purchase of computer and equipments, Rs.15.3 million due to capitalization of Pune SEZ Rs.20.6 million capitalization of office equipments of Pune SEZ and Rs. 197.5 million due to revaluation of fixed assets of subsidiaries. The net decrease of Rs. 132.2 million under CWIP and capital due to capitalization of flats at Glenridge, Powai. During 2011, the Company added Rs. 1,154.1 million to its Intangible assets. This is represented by Rs. 136.9 million due to purchase/ capitalization of softwares, Rs. 1,001.1 million due to revaluation of goodwill, Intellectual property rights and Customer contracts and non contractual customer relationships of USA and UK. Investments Surplus cash generated from operations are invested in long-term and current money market instruments. Investments increased to Rs. 16,880.4 million as of 31 December 2011 compared to Rs. 12,614.9 million as of 31 December 2010. Increase is due to purchase of various mutual funds. Deferred tax asset (net) The Company recorded cumulative deferred tax asset (net) of Rs. 1,135.4 million as of 31 December 2011. This relates to the subsidiary companies, Patni Americas Inc. USA, Patni Computer Systems (GmbH), Patni Telecom Solutions Private Limited (India), Patni Telecom Solutions Inc (USA) and Patni Life Sciences Inc. The deferred tax asset represents timing differences arising out of provisions for retirement benefits, provision for bad and doubtful debts, deferred revenues , unbilled revenue, accrued expenses and carry forward losses, unrealized loss on derivatives, employee stock compensation costs, depreciations, amortization of intangible assets. Sundry debtors Sundry debtors of Rs. 7,314.1 million (net of provision for doubtful debts amounting to Rs. 177.9 million) represents 20.5 per cent of revenues for the year ended 31 December 2011. During the year, the debts outstanding for a period exceeding six months increased to 4.6 per cent of gross debtors as compared to 3.9 per cent in the previous year. Provision for doubtful debts as a percentage of sundry debtors decreased to 2.4 per cent from 2.9 per cent in the previous year. The age profile of debtors is given below: Period in days Year ended Year ended 31 December 2011 31 December 2010 0-180 95.4% 96.1% More than 180 4.6% 3.9% Total 100.0% 100.0% Cash and bank balances: The Company has cash and bank balances of Rs.2,259.8 million & Rs.3,533.7 million as at 31 December 2011 and 2010, respectively. Bank balances include balances maintained both in India and overseas. Bank balances in India include both rupee accounts and foreign currency accounts. As at 31 December 2011 and 2010, the Company had cash and cash equivalents (cash and bank balances including short term investments) of Rs. 19,140.2 million and Rs. 16,010.6 million, respectively. Cash and cash equivalents represent 41.9 per cent and 39.6 per cent of total assets as at 31 December 2011 and 2010, respectively. Unbilled revenue Unbilled revenue represent revenues recognized by the Company in excess of amounts billed. These amounts are billed after the milestones specified in the agreement are achieved and once customer acceptance is received. Unbilled revenue increased to Rs.1,735.5 million during the year ended 31 December 2011 compared to Rs.1,388.9 million in the year ended 31 December 2010. Loans and advances During the year ended 31 December 2011 advances recoverable in cash or kind increased to Rs. 373.7 million from Rs. 317.1 million as at 31 December 2010. During the year ended 31 December 2011 Security deposits decreased to Rs.297.2 million from Rs. 308.6 million as at 31 December 2010. The loan to the Companys employees which were outstanding as at 31 December 2011 was Rs. 44.8 million from Rs. 62.9 million as at 31 December 2010. Provision for Income Tax has been computed on the basis of Minimum Alternate Tax (MAT) in accordance with Sec 115JB of the Income Tax Act,1961, the Company has recognized MAT credit entitlement of Rs.1,613.6 million as at 31 December 2011 (2010 : Rs. 1,780.3 million). During the year ended 31 December 2011, the amount deposited with tax authorities increased to Rs. 345.9 million from Rs. 331.4 million as at 31 December 2010. During the year ended 31 December 2011 derivative assets decreased to Rs. 14.7 million from Rs. 224.1 million as at 31 December 2010 relate to Mark to Market gain on foreign exchange contracts. During the year ended 31 December 2011 the amount paid towards advance tax net of provision for tax has increased to Rs. 1,241.1 million from Rs. 398.2 million as at 31 December 2010. During the year ended 31 December 2011 amount of service tax receivable increased to Rs. 144.5 million from Rs. 47.9 million as at 31 December 2010. Current liabilities Current liabilities primarily include creditors for goods and expenses of Rs. 661.3 million, which represent amounts payable to vendors for goods or services rendered. Deferred revenue of Rs. 1,275.1 million denotes billings in excess of revenues recognized. Advances received from customers of Rs. 113.04 million include amounts received from customers for the delivery of future services. Accrued exps 3,049.9 million include employee related provision and others. Unrealised loss on derivative financial instruments of Rs. 916.1 million relate to Marked to Market loss on foreign exchange contracts. Other liabilities of Rs. 404.1 million include provisions for statutory liability. Provisions Provision for taxation represents estimated income tax liabilities, both in India and overseas. Provision for taxation (net of advance tax) as of 31 December 2011 was Rs. 1,262.6 million. As at 31 December 2011, provision for retirement benefits decreased to Rs.783.8 million from Rs. 1,227.7 million as at 31 December 2010. Results of operations The following table sets forth certain financial information for the year ended 31 December 2011 as a percentage of revenues, calculated from the consolidated financial statements: (Rs. in thousands) Amount % of Income Sales and Service Income 35,679,408 95.7% Other income 1,600,030 4.3% Total income 37,279,438 100% Personnel cost 21,816,897 58.5% Selling, general and administration cost 8,284,992 22.2% Depreciation 1,367,889 3.7% Transfer from revaluation reserves (81) (0.0%) Interest costs 26,827 0.1% Impairment losses 891,844 2.4% Total expenses 32,388,368 86.9% Profit before tax & before prior period items 4,891,070 13.1% Provision for taxation 715,470 1.9% Profit after tax and 4,175,600 11.2% before prior period items Prior period items (161,029) (0.4%) Profit for the year 4,014,571 10.8% Income: The Companys sales and service income was Rs. 35,679.4 million in 2011 from Rs. 31,880.8 million in 2010. The Company derives a significant proportion of its revenues from clients located in the United States. In 2011, the Company derived 77.5 per cent of its revenues, from clients located in the United States. However, strong revenue growth was achieved in other regions and the business achieved a greater element of geographical diversification. Other income has reduced to Rs. 1,600.03 million in 2011 from Rs. 2,194.2 million in 2010. During 2011, other income comprised interest of Rs. 62.7 million for reversal of IRS interest and bank deposit interest, dividend income of Rs. 655.1 million for dividend on current investments - non trade, gain of Rs. 345.3 million on the sale of non trade investments, Rs. 383.6 million for foreign exchange gain and other miscellaneous income of Rs. 153.2 million comprises sundry creditors and advance from customer written back during the year. Personnel costs Personnel costs were Rs. 21,816.9 million and Rs. 18,898.1 million in 2011 and 2010, respectively. These costs represent 58.5 per cent and 55.5 per cent of the Companys total income in 2011 and 2010, respectively. Personnel costs comprise salaries paid to employees in India and overseas staff expenses. Selling, general and administration expenses The Company incurred selling, general and administration expenses of Rs.8,284.9 million and Rs. 6,875.9 million, representing a 22.2 per cent and 20.2 per cent of total income in 2011 and 2010, respectively. Selling, general and administration expenses include costs such as, subcontractor costs, travelling expenses, communication expenses, office expenses, legal and other professional fees, advertisement and publicity, and other miscellaneous selling and administrative costs. Depreciation and amortisation The Company provided Rs. 1,367.9 million and Rs. 1,184.7 million towards depreciation for 2011 and 2010, respectively. Depreciation as a percentage of gross block of fixed assets was 8.8 per cent and 8.3 per cent for 2011 and 2010, respectively. During the year ended 31 December 2007, Patni has, through its wholly owned subsidiary, Patni USA, acquired from one of its major customer, the worldwide rights for a software Proprietary Intellectual Property Rights (IPR) that enables communication service providers to offer customer management, retail point-of-sale and billing services for a variety of products and services The Group is using this intellectual property for the purposes of software licensing, provision of reusable IP-led IT services, managed services and provision of hosted or software-as-a-service solutions. As of and during the year ended 31 December 2011, the Management assessed the carring amount and expected cash flow from this IPR and concluded that the carring amount of this IPR is not recoverable. Accordingly, the Company recorded an impairment charge of Rs. 401.0 million for this IPR. In June 2010, Patni, through its wholly owned subsidiary, Patni UK, acquired from one of its customer, an existing software Intellectual Property Rights (IPR) which is used for education sector management in UK and Ireland. The Company intends to increase the revenue by sale of licenses in certain geographies along with significant use in horizontals or verticals other than the learning domain. During the year, the Company evaluated this IPR and concluded that it was impaired as a result of substantial decline in expected cash flow and change in business strategy for usage of IPR. Accordingly, in the year ended 31 December 2011, the Company recorded an impairment charge of Rs. 490.8 million. The aggregate impairment charge of Rs. 891.8 million for the year ended 31 December 2011. Interest The Company incurred interest costs of Rs. 26.8 million and Rs. 47.8 million in 2011 and 2010, respectively. These costs mainly comprise interest on tax assessments and interest on finance lease obligations relating to vehicles acquired by the Company. Provision for taxation The Company provided for its tax liability both in India and overseas. The details of provision for taxes are as follows: (Rs. In thousands) 2011 2010 Provision for tax expense consists of the following: Current taxes: - Indian 914,072 1,257,624 - Foreign (250,262) 239,325 - MAT credit entitlement (222,482) (709,288) 441,328 787,661 Deferred tax expense /(credit) - Indian 248,254 118,589 - Foreign 25,888 (69,179) 274,142 49,410 715,470 837,071 The Statute of limitation period for the March 2008 and March 2007 tax return of the US Branch of the Company expired in December 2011 and December 2010 respectively i.e. on expiry of 3 years from the date of filing which was 15 December 2008 and 15 December 2007. Hence the Company has reversed the provision of Rs. 390.0 million. The Company has recognised MAT credit entitlement of Rs. 222.5 million for the year ended December 2011 (2010: Rs. 709.3 million) by crediting to the Profit and Loss Account. Presently, we benefit from the tax holidays given by the Government of India for the export of IT services from specially designated software technology parks (STPs) and special economic zones (SEZs) in India. As a result of these incentives, which include a 10 year tax holiday from Indian corporate income taxes for the operation of most of our Indian facilities, our operations have been subject to relatively low tax liabilities. The tax benefits available for all our STP facilities expired on 31 March 2011. Consequently, our effective Indian tax rate has increased significantly. Development centers operating in SEZs are entitled to certain income tax incentives of 100% of the export profits for a period of five years, 50% of such profits for the next five years and 50% of the profits for a further period of five years subject to satisfaction of certain capital investments requirements. Our profitability would be adversely affected if we are not able to continue to benefit from these tax incentives. Further, provisions of the Indian Income Tax Act 1961 are amended on an annual basis by enactment of the Finance Act. In addition, we may also be subject to changes in taxation resulting from the actions of applicable income tax authorities in India or from Indian tax laws that may be enacted in the future. For example, we may incur increased tax liability as a result of a determination by applicable income tax authorities that the transfer price applied to transactions involving our subsidiaries and the Company was not appropriate. Increases in our effective tax rate due to expired tax benefits, changes in applicable tax laws or the actions of applicable income tax or other regulatory authorities could materially reduce our profitability. The Company recorded net deferred tax expenses of Rs. 274.1 million and Rs. 49.4 million for 2011 and 2010, respectively. Net Profit after tax and after prior period items Net profit was Rs. 4,014.6 million and Rs. 6,231.7 million in 2011 and 2010, respectively. Net profit as a percentage of total income was 10.8% and 18.3% in 2011 and 2010, respectively. The decline in net profit mainly on account of increase in personnel cost was by 15.4%; selling, general and administration expenses by 20.5%; impairment losses and depreciation by 90.7% (impairment in 2011 Rs. 891.8 million and in 2010 Nil) and reduction in other income by 27.1%, which is offset by higher sales and service income of 11.9% as compared to 2010. Development in Human Resources We employed around 18,000, 17,600 and 14,000 employees as of 31 December 2011, 2010 and 2009, respectively. Out of 18,000 employees, around 17,000 were software professionals as of 31 December 2011. Of these software professionals, around 3,000 employees were categorized as onsite and 14,000 as offshore. We believe that our ability to maintain and continue our growth depends to a large extent on our strength in attracting, training, motivating and retaining our employees. We operate in eight major cities in India, which enables us to recruit technology professionals from different parts of the country. The key elements of our human resource management strategy include recruitment, training and development, compensation and retention.