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Notes to Accounts of Firstsource Solutions Ltd.

Mar 31, 2015

Cash and cash equivalents consist of cash on hand and balances with bank. Cash and cash equivalents included in the cash flow statement comprise the following balance sheet amounts:

1. Background

Firstsource Solutions Limited (''Firstsource'' or the Company) was incorporated on 6 December 2001. Firstsource is engaged in the business of providing contact center, transaction processing and debt collection services including revenue cycle management in the healthcare industry.

a. Employees stock options

For stock options granted during the year to employees and non-executive directors, refer Note 27.

b. Shares reserved for issue under options

42,308,052 (31 March 2014: 47,605,635) number of shares are reserved for employees and non-executive directors for issue under the employee stock options plan (ESOP) amounting to Rs. 423.08 (31 March 2014: Rs. 476.06). (refer Note 27)

c. Rights, preferences and restrictions attached to equity shares

The Company has a single class of equity shares. Accordingly, all equity shares rank equally with regard to dividends and share in the Company''s residual assets. The equity shareholders are entitled to receive dividend as declared from time to time. The voting rights of an equity shareholder are in proportion to its share of the paid-up equity capital of the Company.

On winding up of the Company, the holders of equity shares will be entitled to receive the residual assets of the Company, remaining after distribution of all preferential amounts in proportion to the number of equity shares held.

2A. Share application money received under ESOP scheme

During the year, the Company has allotted 55,000 shares from balance lying as share application money pending allotment under ESOP scheme as on 31 March 2014. The Company has also received Rs. 112.62 as share application money under ESOP scheme during the year.. Out of the total share application money received during the year, 6,556,583 shares were issued during the year and Rs. 0.20 is outstanding pending allotment of 20,000 shares. These shares will be allotted during the financial year 2015-16.

a. External commercial borrowing carries interest at the rate of LIBOR 471 bps. The loan is repayable from December 2013 up to June 2019 in quarterly installments. The loan is secured against pari passu charge on all current assets, non-current assets and fixed assets of the Company and its subsidiaries except assets of Anunta and FDS.

b. Finance lease obligation carries interest in the range of 6% - 12.5% for the period of 3 - 5 years from January 2011 up to November 2016 repayable in quarterly installments. This is secured by way of hypothecation of underlying fixed assets taken on lease, (refer note 11).

c. Loan from non-banking financing companies carries interest in the range of 7.5%-12.5% for the period of 3 - 4 years from October 2011 to October 2017, repayable in quarterly installments from the date of its origination.

d. The above excludes current maturity of long term borrowings which are mentioned in note 9 - Other current liabilities / Current maturities of long-term borrowings.

a. Export finance from banks including post-shipment and pre-shipment carries interest in the range of LIBOR 230 bps to LIBOR 300 bps. The same is repayable on demand / receipt from customers.

3. Leases

Operating lease

The Company is obligated under non-cancellable operating leases for office space and office equipment which are renewable on a periodic basis at the option of both the lessor and lessee. Expenses under non-cancellable operating leases for the year ended 31 March 2015 aggregated Rs. 588.76 (31 March 2014: Rs. 405.27).

The future minimum lease payments in respect of non-cancellable operating leases are as follows:

The Company also leased office facilities and residential facilities under cancellable operating leases that are renewable on a periodic basis at the option of both the lessor and lessee. Expenses under cancellable operating leases for the year ended 31 March 2015 is Rs. 247.57(31 March 2014: Rs.164.89)

The Company has acquired certain capital assets under finance lease. Future minimum lease payments under finance lease as at 31 March 2015 are as follows:

The Company has given vehicles on finance lease to its employees as per policy. As at 31 March 2015, the future minimum lease rentals receivable are as follows:

4. Employee Stock Option Plan

Stock option scheme 2002 (''Scheme 2002'')

In September 2002, the Board of the Company approved the ICICI OneSource Stock Option Scheme 2002 ("the Scheme"), which covers the employees and directors of Firstsource and its subsidiaries. The Scheme is administered and supervised by the members of the Compensation cum Board Governance Committee (the ''Committee'').

As per the Scheme, the Committee shall issue stock options to the employees at an exercise price equal to the fair value on the date of grant, as determined by an independent valuer. The Scheme provides that these options would vest in tranches over a period of four years as follows:

Further, the participants shall exercise the options within a period of nine years commencing on or after the expiry of twelve months from the date of the grant of the options.

Employee stock option scheme 2003 (''Scheme 2003'')

In September 2003, the Board and the members of Firstsource approved the ICICI OneSource Stock Option Scheme 2003 (''Scheme 2003'') effective 11 October 2003. The terms and conditions under this Scheme are similar to those under ''Scheme 2002'' except for the following, which were included in line with the amended "SEBI (Employee stock option scheme and employee stock purchase scheme) guidelines, 1999":

- The Scheme would be administered and supervised by the members of the Compensation committee.

- Exercise price to be determined based on a fair valuation carried out at the beginning of every six months for options granted during those respective periods .

After Firstsource has been listed on any stock-exchange, the Exercise Price shall be determined by the Committee on the date the Option is granted in accordance with, and subject to, the Securities and Exchange Board of India (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (as amended from time to time);

- The Compensation Cum Board Governance Committee of Firstsource, at its meeting held on 27 April 2006, amended the vesting schedule for stock options granted on 1 May 2006 to General Managers and above grade employees and to non- executive directors. The vesting schedule for 15,980,000 stock options granted pursuant to the above is set forth below:

- At the Extra-Ordinary General Meeting held on 22 November 2007, the scheme was amended to include ''Executive

Options''. 50% of the vesting for ''Executive Options'' is time linked and the balance 50% is performance linked. The vesting schedule for time linked ''Executive Options'' is set forth below:

The vesting schedule for Performance Linked options is set forth below:

50% of ''Executive Options'' which are performance linked shall vest in proportion to the achievement of 5 year performance targets to be decided by the Committee, with the first vesting being at the end of the second year from the date of grant of ''Executive Options''. The number of ''Executive Options'' vesting at the end of each year would be in proportion to the percentage achievement against the targets and if the targets were not met, the vesting period would be extended beyond 5 years. If performance was better than targets, the Options would vest in less than 5 years.

- The Compensation Cum Board Governance Committee of Firstsource, at its meeting held on 30 October 2008 prescribed the Exercise Period for stock options (other than Executive Options) whether already granted or to be granted to employees of the Company and its subsidiaries under Firstsource Solutions Employee Stock Option Scheme 2003 as 10 years from the date of grant of Options.

Outstanding options as at 31 March 2015 out of Scheme 2002 is Nil (31 March 2014: Nil) and Scheme 2003 is 42,308,052 (31 March 2014: 47,605,635) i.e. total outstanding is 42,308,052.

1 The aggregate stock option pool under Employee Stock Option Scheme 2002 and Employee Stock Option Scheme 2003 is 20% fully diluted equity shares as of 31 March 2015.

2 The Company applies the intrinsic value based method of accounting for determining compensation cost for its stock- based compensation plan. Had the compensation cost been determined using the fair value approach, the Company''s net income and basic and diluted earnings per share as reported would have reduced to the proforma amounts as indicated:

5. RELATED PARTY TRANSACTIONS

Details of related parties including summary of transactions entered into during the period / year ended 31 March 2015 are summarized below:

Ultimate Holding Company - CESC Limited

Holding Company - Spen Liq Private limited (Spen Liq)

Fellow Subsidiary - Spencer Retail Limited (Spencer)

Subsidiaries wherein control exists :

The related parties where control exists are subsidiaries as referred below :-

- Firstsource Solutions UK Limited (FSL-UK)

- Firstsource Group USA, Inc. (FG US)

- Firstsource Business Process Services, LLC. (FBPS)

- Firstsource Advantage LLC (FAL)

- MedAssist Holding, Inc. (MedAssist)

- Firstsource Solutions USA LLC (earlier known as MedAssist LLC)

- Anunta Tech Infrastructure Services Limited (Anunta)

- Firstsource Transaction Services LLC (FTS)

- Firstsource Dialog Solutions (Private) Limited (earlier known as Dialog Business Services Private Limited ) (FDS)

- Firstsource BPO Ireland Limited

- Firstsource Solution S.A. (FSL Arg)

- One Advantage LLC (OAL)

- Medassist Holding LLC ( earlier known as Medassist Acquisition Inc.)

- Twin Lakes Property LLC-1 and Twin Lakes Property LLC- II have been dissolved during the previous year

Key Managerial Personnel ;

- Rajesh Subramaniam

- Dinesh Jain

Non Executive Directors :

- Sanjiv Goenka

- Ananda Mukerji**

- Charles Miller Smith

- Shailesh Mehta**

- K.P.Balaraj**

- Y.H.Malegam

- Pradip Roy

- Subrata Talukdar

- Shashwat Goenka

- Haigreve Khaitan**

- Donald W. Layden, Jr.

- V. K. Sharma

- Pradip Kumar Khaitan

- Grace Koshie

** Resigned during the period.

List of transactions with related parties having total value more than 10% of value of transactions with related parties

Advances to subsidiaries consist of the followings amounts advanced to subsidiaries towards reimbursement of expenses and are repayable on demand:

6. Employee benefits

a) Gratuity plan

The following table sets out the status of the gratuity plan as required under AS 15: Reconciliation of opening and closing balances of the present value of the defined benefit obligation and fair value of planned assets:

The estimates of future salary increase, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand factors in the employment market.

The Company continues to fund to the trust in next year by reimbursing the actual payouts.

Gratuity cost, as disclosed above, is included under ''Employee benefit expense''.

b) Contribution to Provident Fund

The provident fund charge during the year amounts to Rs. 188.38 (31 March 2014: Rs. 209.51).

7. Other operating income

Other operating income comprises of net gain on restatement and settlement of debtor balances and related gain / loss on forward / option contracts.

8. Capital and other commitments and contingent liabilities

31March 2015 31 March2014

The estimated amount of contracts remaining to be executed on 144.86 57.12

capital account and not provided for, net of advances _ -

Claims not acknowledge as debt 1.35 1.35

Guarantees and letters of credit given 13,940.05 16,504.10

Direct tax matters

Income tax demands amounting to Rs. 1,236.77 (31 March 2014: Rs. 1,240.27) for the various assessment years are disputed in appeal by the Company in respect of which the Company has favorable decisions supporting its stand based on the past assessment or otherwise and hence, the provision for taxation is considered adequate. The Company has paid Rs. 10.38 (31 March 2014: Rs. 10.38) tax under protest against the demand raised for the assessment year 2004-05, Rs. 12.50 (31 March 2014: Rs. 12.50) tax under protest against the demand raised for the assessment year 2009-10 and Rs. 80.00 (31 March 2014: Rs. 50.00) tax under protest against the demand raised for the assessment year 2011-12.

Indirect tax matters

The Service tax demands amounting to Rs. 131.15 (31 March 2014: Rs. 125.52) in respect of service tax input credit and FCCB issue expenses is disputed in appeal by the Company. The Company expects favourable appellate decision in this regard.

The Company''s pending litigations comprise of claims against the Company and pertaining to proceedings pending with Income tax and service tax. The Company has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a materially adverse effect on its financial results.

Guarantees and letters of credit given consist of the following:

9. Segmental reporting

In accordance with paragraph 4 of Accounting Standard 17 "Segment Reporting" prescribed in the Companies (Accounts) Rules, 2014, issued by the Central Government, the Company has presented segmental information only on the basis of the consolidated financial statements (refer note 31 of the consolidated financial statements).

10. Adoption of AS 30

In December 2007, the ICAI issued AS 30, Financials Instruments: Recognition and Measurement, recommendatory in respect of accounting periods commencing on or after 1 April 2009 and mandatory in respect of accounting periods commencing on or after 1 April 2011.

In March 2008, ICAI announced that earlier adoption of AS 30 is encouraged. However, AS 30, along with limited revision to other accounting standards, has not been notified under the Companies (Accounts) Rules, 2014.

On 1 October, 2008, the Company had early adopted AS 30 in its entirety, read with AS 31, effective 1 April, 2008 and the limited revisions to other Accounting Standards.

AS 30 states that particular sections of other Accounting Standards; AS 4, Contingencies and Events Occurring after Balance sheet date, to the extent it deals with contingencies, AS 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates, to the extent it deals with the ''forward exchange contracts'' and AS 13, Accounting for Investments, except to the extent it relates to accounting for investment properties, would stand withdrawn only from the date AS 30 becomes mandatory. In view of the Com- pany, on an early adoption of AS 30, accounting treatment made on the basis of the relevant sections of Accounting Standards referred above viz. AS 4, AS 11 and AS 13 stands withdrawn as it believes that principles of AS 30 more appropriately reflect the nature of these transactions.

Pursuant to the early adoption of AS 30, the Company has discounted Non-interest-bearing deposits to their present value and the difference between original amount of deposit and the discounted present value has been disclosed as "Unamortised cost" under other current and non-current assets. This unamortised cost is charged to the statement of profit and loss over the period of related lease. Correspondingly, interest income is accrued on these Non-interest bearing deposits using the implicit rate of return over the period of lease and is recognised under "Interest income".

In accordance with the transition provisions of AS 30, impact on first time adoption was accounted in General Reserve.

The Company has also designated forward contracts and payable on asset acquisition to hedge highly probable forecasted trans- actions on the principles as set out in AS-30.

Consequent to the early adoption of AS 30 as stated above, the profit after taxation for the year ended on 31 March 2015 and Reserves and surplus as at the Balance sheet date is higher by Rs. 31 (31 March 2014: higher by 208) and higher by Rs. 2,817 (31 March 2014: higher by Rs. 2,754 ) respectively The increase in Reserves and surplus includes translation gain on the investment in non-integral foreign operation used as hedge against translation loss on ECB, which is currently credited to Reserves and Sur- plus, would be realized upon disposal of non-integral foreign operation.

11b. Derivatives

As at 31 March 2015, the Company has derivative financial instruments to sell USD 41.99 million (31 March 2014: USD 30,60 million) having fair value gain of Rs. 50.72 (31 March 2014: gain of Rs. 45.84), GBP 62.95 million (31 March 2014: GBP 51.42 million) having fair value gain of Rs. 677.15 (31 March 2014: loss of Rs. 125.53) and AUD Nil (31 March 2014: AUD 29.02) having fair value gain of Rs. Nil (31 March 2014: gain of Rs. 10.18) relating to highly probable forecasted transactions.

Foreign currency exposures on loans and receivables that are not hedged by derivative instruments or otherwise are Rs. 340.30 (equivalent to USD 2.41 million, AUD 0.74 million and GBP 1.66 million) (31 March 2014: Rs. 249.43 (equivalent to USD 2.41 million, EUR 0.25 million and GBP 0.85 million)).

12. Corporate social responsibility (CSR)

As per Section 135 of the Companies Act, 2013, a CSR trust has been formed by the Ultimate Holding Company. The areas identified by the CSR trust includes activities for promoting healthcare, art / culture, sports and education as the four priority areas to be pursued in phases and in a manner aligned with the CSR rules and regulations. The funds have been contributed to the trust and will be utilized on these activities which are specified in Schedule VII to the Companies Act, 2013.

13. Long-term contracts

The Company has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Company has reviewed and ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of accounts.

14. Under the Micro Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from 2 October 2006 and on the basis of the information and records available with the Management, following are the dues:


Mar 31, 2014

1. EMPLOYEE STOCK OPTION PLAN

Stock option scheme 2002 (''Scheme 2002'')

In September 2002, the Board of the Company approved the ICICI One Source Stock Option Scheme 2002 ("the Scheme"), which covers the employees and directors of the Company including its holding Company and subsidiaries. The Scheme is administered and supervised by the members of the Compensation cum Board Governance Committee (the ''Committee'').

In September 2003, the Board and the members of the Company approved the ICICI One Source Stock Option Scheme 2003 (''Scheme 2003'') effective 11 October 2003. The terms and conditions under this Scheme are similar to those under ''Scheme 2002'' except for the following, which were included in line with the amended "SEBI (Employee stock option scheme and employee stock purchase scheme) guidelines, 1999":

- The Scheme would be administered and supervised by the members of the Compensation committee.

- Exercise price to be determined based on a fair valuation carried out at the beginning of every six months for options granted during those respective periods.

After the Company has been listed on any stock-exchange, the Exercise Price shall be determined by the Committee on the date the Option is granted in accordance with, and subject to, the Securities and Exchange Board of India (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (as amended from time to time);

- The Compensation Cum Board Governance Committee of the Company, at its meeting held on 30 October 2008 prescribed the Exercise Period for stock options (other than Executive Options) whether already granted or to be granted to employees of the Company and its subsidiaries under First source Solutions Employee Stock Option Scheme 2003 as 10 years from the date of grant of Options.

- The aggregate stock option pool under Employee Stock Option Scheme 2002 and Employee Stock Option Scheme 2003 is 55% fully diluted equity shares as of 31 March 2014.

The Company continues to fund to the trust in next year by reimbursing the actual payouts. Gratuity cost, as disclosed above, is included under ''Salaries, bonus and other allowances''. b) Contribution to Provident Fund

The provident fund charge during the year amounts to 209.51 (31 March 2013: 183.12).

2. OTHER OPERATING INCOME

Other operating income comprises of net gain on restatement and settlement of debtor balances and related gain / loss on forward / option contracts.

3. CAPITAL AND OTHER COMMITMENTS AND CONTINGENT LIABILITIES

31 March 2014 31 March 2013

The estimated amount of contracts remaining to be executed on 57.12 62.74 capital account and not provided for, net of advances

Claims not acknowledge as debt 1.35 1.35

Guarantees and letters of credit given 16,504.10 14,155.52

Direct tax matters

Income tax demands amounting to 1,240.27 (31 March 2013: 442.39) for the various assessment years are disputed in appeal by the Company in respect of which the Company has favorable decisions supporting its stand based on the past assessment or otherwise and hence, the provision for taxation is considered adequate. The Company has paid 10.38 (31 March 2013: 10.38) tax under protest against the demand raised for the assessment year 2004-05 , 12.50 (31 March 2013: Nil) tax under protest against the demand raised for the assessment year 2009-10 and 50.00 (31 March 2013: Nil) tax under protest against the demand raised for the assessment year 2011-12.

Indirect tax matters

The Service tax demands amounting to 125.52 (31 March 2013: 125.52) in respect of Service tax input credit and FCCB issue expense is disputed in appeal by the Company. The Company expects favourable appellate decision in this regard.

4. SEGMENTAL REPORTING

In accordance with paragraph 4 of Accounting Standard 17 "Segment Reporting" prescribed in the Companies (Accounting Standards) Rules, 2006, issued by the Central Government, the Company has presented segmental information only on the basis of the consolidated financial statements (refer note 31 of the consolidated financial statements).

5. ADOPTION OF AS 30

In December 2007, the ICAI issued AS 30, Financials Instruments: Recognition and Measurement, recommendatory in respect of accounting periods commencing on or after 1 April 2009 and mandatory in respect of accounting periods commencing on or after 1 April 2011.

In March 2008, ICAI announced that earlier adoption of AS 30 is encouraged. However, AS 30, there under limited revision to other accounting standards, has currently not been notified under the Companies (Accounting Standard) Rules, 2006.

On 1 October, 2008, the Company had early adopted AS 30 in its entirety, read with AS 31, effective 1 April, 2008 and the limited revisions to other Accounting Standards.

AS 30 states that particular sections of other Accounting Standards; AS 4, Contingencies and Events Occurring after Balance sheet date, to the extent it deals with contingencies, AS 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates, to the extent it deals with the ''forward exchange contracts'' and AS 13, Accounting for Investments, except to the extent it relates to accounting for investment properties, would stand withdrawn only from the date AS 30 becomes mandatory (1 April 2011). In view of the Company, on an early adoption of AS 30, accounting treatment made on the basis of the relevant sections of Accounting Standards referred above viz. AS 4, AS 11 and AS 13 stands withdrawn as it believes that principles of AS 30 more appropriately reflect the nature of these transactions.

Pursuant to the early adoption of AS 30, the Company has discounted Non-interest-bearing deposits to their present value and the difference between original amount of deposit and the discounted present value has been disclosed as "Unamortised cost" under other current and non-current assets. This unamortised cost is charged to the statement of profit and loss over the period of related lease. Correspondingly, interest income is accrued on these Non-interest bearing deposits using the implicit rate of return over the period of lease and is recognised under "Interest income".

In accordance with the transition provisions of AS 30, impact on first time adoption has been accounted in General Reserve.

The Company has also designated forward contracts and payable on asset acquisition to hedge highly probable forecasted transactions on the principles as set out in AS-30 (also refer Note 38).

Consequent to the early adoption of AS 30 as stated above, the profit after taxation for the year and Reserves and Surplus as at the Balance sheet date is higher by 208 (31 March 2013: higher by 1,099) and 2,754 (31 March 2013: higher by 2,134 ) respectively The increase in Reserve and Surplus includes translation gain on the investment in non-integral foreign operation used as hedge against translation loss on ECB, which is currently credited to Reserve and Surplus, would be realised upon disposal of non-integral foreign operation.

6. DERIVATIVES

As at 31 March 2014, the Company has derivative financial instruments to sell USD 30,597,632 (31 March 2013: USD 20,673,912) having fair value gain of 45.84 (31 March 2013: loss of 9.61), GBP 51,429,893 (31 March 2013: GBP 22,827,009) having fair value loss of 125.53 (31 March 2013: gain of 57.24) and AUD 2,902,890 (31 March 2013: AUD 7,950,000) having fair value gain of 10.18 (31 March 2013: loss of 23.95) relating to highly probable forecasted transactions.

Foreign currency exposures on loans and receivables that are not hedged by derivative instruments or otherwise are 249.43 (equivalent to USD 2.41 million, EUR 0.25 million and GBP 0.85 million) (31 March 2013: 346.04 (equivalent to USD 2.73 million, EUR 0.24 million and LKR 1.40 million)).

7. Others matter specified in Revised Schedule VI to the Companies Act, 1956 are either Nil or not applicable to the Company for the year.

8. PRIOR PERIOD COMPARATIVES

Figures for the current period are not strictly comparable to those of previous period, which comprises effect of scheme of amalgamation.


Mar 31, 2013

1. AMALGAMATION OF REVIT

The Board of Directors of the Company at their meeting held on 28 April 2012 approved the Scheme of amalgamation and arrangement (''the Scheme'') between the Company and Rev IT Systems Private Limited (RevIT), a wholly owned subsidiary of the Company, engaged in the business of providing Information Technology Enabled Services (ITES) and Business Process Outsourcing (BPO) services. The Scheme was approved by the Honorable High Court of Judicature at Bombay vide its order dated 5 November 2012. The Scheme inter-alia provided for the amalgamation of RevIT with the Company effective 1 April 2011 (the appointed date).

The certified copy of order passed by Honorable High Court of Judicature at Bombay was filed with the Registrar of Companies (ROC), Maharashtra on 30 November 2012.

In line with the Scheme, the merger of RevIT has been accounted for under the ''Pooling of interest'' method as follows:

a) All the assets and liabilities recorded in the books of the RevIT have been transferred to and vested in the books of the Company pursuant to the Scheme at their book values as appearing in the books of RevIT;

b) All reserves and surplus of RevIT have been transferred to and vested in the books of the Company in the same form in which they appear in the books of RevIT;

c) Since RevIT is a wholly owned subsidiary of the Company, the investment by the Company in the shares of RevIT has been cancelled and the excess of the cost of investment in RevIT over the value of net assets taken over (at respective carrying amounts) amounting to Rs. 665.21 has been debited to the Capital Redemption Reserve and General Reserve by Rs. 24.98 and Rs. 640.23 respectively.

d) The financial results for the year ended 31 March 2013 include the income and expenses of RevIT.

e) The financial results of RevIT for the year ended 31 March 2012 showing a net profit after tax of Rs. 185.76 (net of MAT credit entitlement), is added to the balance brought forward of the profit and loss account.

During the year, as RevIT carried on its existing business in trust for and on behalf of the Company, all vouchers, documents etc. for the year are in the name of RevIT The title deeds, licenses, agreements, loan documents etc., are being transferred in the name of the Company.

Assets, Liabilities and Reserves of RevIT as at 31 March 2011 comprise:

2. LEASES

Operating lease

The Company is obligated under non-cancellable operating leases for office space and office equipment which are renewable on a periodic basis at the option of both the lessor and lessee. Rental expenses under non-cancellable operating leases for the year ended 31 March 2013 aggregated Rs.428.90 (31 March 2012: Rs. 326.30). Of these expenses Rs. Nil (31 March 2012: Rs. 0.90) and Rs. 15.23 (31 March 2012: Rs. Nil) has been attributed to expenses prior to the related asset being ready to use and, accordingly, has been included as part of the related fixed assets and capital work in progress respectively.

3. EMPLOYEE STOCK OPTION PLAN

Stock option scheme 2002 (''Scheme 2002'')

In September 2002, the Board of the Company approved the ICICI OneSource Stock Option Scheme 2002 ("the Scheme"), which covers the employees and directors of the company including its holding Company and subsidiaries. The Scheme is administered and supervised by the members of the Compensation-cum-Board Governance Committee (the ''Committee'').

As per the Scheme, the Committee shall issue stock options to the employees at an exercise price equal to the fair value on the date of grant, as determined by an independent valuer. The Scheme provides that these options would vest in tranches over a period of four years as follows:

4. RELATED PARTY TRANSACTIONS

Details of related parties including summary of transactions entered into during the year ended 31 March 2013 are summarized below:

Ultimate Holding Company - CESC Limited (w.e.f. 5th December, 2012)

- Spen Liq Private limited (w.e.f. 5th December, 2012)

Holding Company The related parties where control exists are subsidiaries as referred below :-

Subsidiaries wherein control exists - Firstsource Solutions UK Limited (FSL-UK)

- Rev IT Systems Private Limited (Rev IT) ( Refer Note 26)

- Firstsource Group USA, Inc. (FG US)

- Firstsource Business Process Services, LLC. (FBPS)

- Firstsource Advantage LLC (FAL)

- Twin Lake Property LLC - I (Twinlakes-I)

- Twin Lake Property LLC - II (Twinlakes-II)

- MedAssist Holding, Inc. (MedAssist)

- Firstsource Solutions USA LLC (earlier known as MedAssist LLC)

- Anunta Tech Infrastructure Services Limited (Anunta)

- Firstsource Transaction Services LLC (FTS)

- Firstsource Dialog Solutions (Private) Limited (earlier known as Dialog Business Services Private Limited ) (FDS)

- Firstsource BPO Ireland Limited Key Managerial Personnel - Rajesh Subramaniam

- Dinesh Jain

- Deep Babur (up to December 2012)

- Alexander Matthew Vallance-

Non-Executive Directors - Sanjiv Goenka--

- Ananda Mukerji

- Charles Miller Smith

- Shailesh Mehta

- K.P. Balaraj

- Mohit Bhandari -

- Y.H. Malegam

- Pradip Roy--

- Subrata Talukdar--

- Shashwat Goenka--

- Haigreve Khaitan--

- Donald Layden, Jr.

- Pravir Vohra -

- Ram Chary -

- Resigned during the year

-- Joined during the year

5. OTHER OPERATING INCOME

Other operating income comprises of net gain on restatement and settlement of debtor balances and related gain / loss on forward / option contracts.

5.1 Buyback of FCCB

During the year ended 31 March 2012, pursuant to RBI notification, the Company bought back and cancelled 426 FCCBs of the face value of USD 100,000 each at a discount on accreted book value under the Automatic route. Due to adverse foreign currency movement, the Company recognised net loss of Rs. 67.62 for the year ended 31 March 2012 on the said buyback.

5.2 Redemption of FCCB

In accordance with the terms of issue of respective FCCBs, the Company redeemed all outstanding 1,698 FCCBs aggregating USD 169.80 million on 4 December 2012.

6. SEGMENTAL REPORTING

In accordance with paragraph 4 of Accounting Standard 17 "Segment Reporting" prescribed in the Companies (Accounting Standards) Rules, 2006, issued by the Central Government, the Company has presented segmental information only on the basis of the consolidated financial statements (refer note 32 of the consolidated financial statements).

7. ADOPTION OF AS 30

In December2007, the ICAI issued AS 30, Financials Instruments: Recognition and Measurement, recommendatory in respect of accounting periods commencing on or after 1 April 2009 and mandatory in respect of accounting periods commencing on or after 1 April 2011.

In March 2008, ICAI announced that earlier adoption of AS 30 is encouraged. However, AS 30, along with limited revision to other accounting standards, has currently not been notified under the Companies (Accounting Standard) Rules, 2006.

On 1 October, 2008, the Company had early adopted AS 30 in its entirety, read with AS 31, effective 1 April, 2008 and the limited revisions to other Accounting Standards.

AS 30 states that particular sections of other Accounting Standards; AS 4, Contingencies and Events Occurring after Balance sheet Date, to the extent it deals with contingencies, AS 11 (revised 2003), The Effects of Changes in Foreign Exchange Rates, to the extent it deals with the ''forward exchange contracts'' and AS 13, Accounting for Investments, except to the extent it relates to accounting for investment properties, would stand withdrawn only from the date AS 30 becomes mandatory (1 April 2011). In view of the Company, on an early adoption of AS 30, accounting treatment made on the basis of the relevant sections of Accounting Standards referred above viz. AS 4, AS 11 and AS 13 stands withdrawn as it believes that principles of AS 30 more appropriately reflect the nature of these transactions.

Pursuant to the early adoption of AS 30, the Company has discounted Non-interest-bearing deposits to their present value and the difference between original amount of deposit and the discounted present value has been disclosed as "Unamortised cost" under other current and non-current assets. This unamortised cost is charged to the statement of profit and loss over the period of related lease. Correspondingly, interest income is accrued on these Non- interest bearing deposits using the implicit rate of return over the period of lease and is recognised under "Interest income"

In accordance with the transition provisions of AS 30, impact on first time adoption has been accounted in General Reserve.

As permitted by AS 30, the Company designated its FCCB along with premium payable on redemption as a hedging instrument to hedge its net investment in the non-integral foreign operations effective 1 July 2008. On 1 August 2012, the Company redesignated its FCCB along with premium on redemption as a hedging instrument to hedge the forward exchange contract taken of USD 103 million and balance continued to be designated as a hedge against its net investment in the non-integral foreign operations till the repayment of the FCCB. Further, the Company accounted for embedded derivative option included in FCCB. The Company has charged Rs. 106.40 for the year ended 31 March 2013 as amortised cost on the fair value of FCCB under "Finance cost" towards accretion of FCCB liability using implicit rate of return method over the repayment tenor of FCCB.

The Company has also designated forward contracts to hedge highly probable forecasted transactions on the principles as set out in AS-30 (also refer Note 38).

Consequent to the early adoption of AS 30 as stated above, the profit after taxation for the year and Reserves and Surplus as at the Balance sheet date is higher by Rs. 199 (31 March 2012: higher by Rs. 1,099) and Rs. 2,642 (31 March 2012: higher by Rs. 2,134 ) respectively The increase in reserve and surplus includes translation gain on the investment in non-integral foreign operation used as hedging against translation loss on FCCB, which is currently credited to reserve and surplus, would be realized upon disposal of non-integral foreign operation.

8. DERIVATIVES

As at 31 March 2013, the Comp any has derivative financial instruments to sell USD 20,673,912 (31 March 2012: USD 38,777,958) having fair value loss of Rs. 9.61 (31 March 2012: loss of Rs. 63.64), GBP 22,827,009 (31 March 2012: GBP 43,503,845) having fair value gain of Rs. 57.24 (31 March 2012: gain of Rs. 180.81) and AUD 8,589,187 (31 March 2012: AUD 16,586,223) having fair value loss of Rs. 27.27 (31 March 2012: Rs..50.81) relating to highly probable forecasted transactions.

Foreign currency exposures on loans and receivables that are not hedged by derivative instruments or otherwise are Rs. 346.04 (equivalent to USD 2.73 million, EUR 0.24 million and LKR 1.40 million) (31 March 2012: Rs. 397.50 (equivalent to USD 7.52 million, AUD 0.13 million, EUR 0.01 million and LKR 3.90 million)).

9. Other matters specified in Revised Schedule VI to the Companies Act, 1956 are either Nil or not applicable to the Company for the year.

10. PRIOR PERIOD COMPARATIVES

Figures for the previous period are not strictly comparable to those of current period, which comprises effect of scheme of amalgamation (refer note 26).


Mar 31, 2012

1. Leases

Operating lease

The Company is obligated under non-cancelable operating leases for office space and office equipments which are renewable on a periodic basis at the option of both the lessor and lessee. Rental expenses under non-cancelable operating leases for the year ended 31 March 2012 aggregated to Rs 326.30 (31 March 2011: Rs 281.78). Rs 0.90 (31 March 2011: Rs 13.94 ) and Nil (31 March 2011: Nil) has been attributed to expenses prior to the related asset being ready to use and, accordingly, has been included as part of the related fixed assets and capital work in progress respectively.

The Company also leases office facilities and residential facilities under cancelable operating leases that are renewable on a periodic basis at the option of both the lessor and lessee. Rental expenses under cancelable operating leases for the year ended 31 March 2012 aggregated Rs 409.33 (31 March 2011: Rs 318.82).

2. Employee Stock Option Plan

Stock option scheme 2002 ('Scheme 2002')

In September 2002, the Board of the Company approved the ICICI OneSource Stock Option Scheme 2002 ('the Scheme'), which covers the employees and directors of the Company including its holding Company and subsidiaries. The Scheme is administered and supervised by the members of the Compensation cum Board Governance Committee (the 'Committee').

Employee stock option scheme 2003 ('Scheme 2003')

In September 2003, the Board and the members of the Company approved the ICICI OneSource Stock Option Scheme 2003 ('Scheme 2003') effective 11 October 2003. The terms and conditions under this Scheme are similar to those under 'Scheme 2002' except for the following, which were included in line with the amended "SEBI (Employee stock option scheme and employee stock purchase scheme) guidelines, 1999":

- The Scheme would be administered and supervised by the members of the Compensation committee.

- Exercise price to be determined based on a fair valuation carried out at the beginning of every six months for options granted during those respective periods After the Company has been listed on any stock-exchange, the Exercise Price shall be determined by the Committee on the date the Option is granted in accordance with, and subject to, the Securities and Exchange Board of India (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (as amended from time to time);

3. The Compensation Cum Board Governance Committee of the Company, at its meeting held on 30 October 2008 prescribed the Exercise Period for stock options (other than Executive Options) whether already granted or to be granted to employees of the Company and its subsidiaries under First source Solutions Employee Stock Option Scheme 2003 as 10 years from the date of grant of Options.

Direct tax matters

Income tax demands amounting to Rs 113.70 (31 March 2011: Rs 112.52) for the various assessment years are disputed in appeal by the Company in respect of which the Company has favorable appellate decisions supporting its stand based on the past assessment and hence, the provision for taxation is considered adequate. The Company has paid Rs 10.00 (31 March 2011: Rs 10.00) tax under protest against the demand raised for the assessment year 2004-05.

Indirect tax matters

The Service tax demands amounting to Rs 116.85 (31 March 2011: Rs 23.57) in respect of service tax input credit and FCCB issue expenses is disputed in appeal by the Company. The Company expects favorable appellate decision in this regard.

The proceeds from the issue of the bonds were utilized to subscribe for shares in a wholly owned subsidiary FG US (erstwhile FSL-USA). FG US has then utilized the funds received by it for repayment of debt taken by it in connection with the acquisition of Med Assist.

4. Buyback of FCCB

During the year ended 31 March 2012, pursuant to RBI notification, the Company has bought back and cancelled 426 FCCBs of the face value of USD 100,000 each at a discount on accreted book value under the Automatic route. Due to adverse foreign currency movement, the Company has recognized net loss of Rs 67.62 (31 March 2011: Nil) on the said buyback which has been disclosed under 'Other income.

5. Segmental Reporting

In accordance with paragraph 4 of Accounting Standard 17 "Segment Reporting" prescribed in the Companies (Accounting Standards) Rules, 2006, issued by the Central Government, the Company has presented segmental information only on the basis of the consolidated financial statements (refer note 32 of the consolidated financial statements).

6. Adoption of AS 30

In December 2007, the ICAI issued AS 30, Financials Instruments: Recognition and Measurement which is recommendatory in respect of accounting periods commencing on or after 1 April 2009 and mandatory in respect of accounting periods commencing on or after 1 April 2011 for the Company.

In March 2008, ICAI announced that earlier adoption of AS 30 is encouraged. However, AS 30, along with limited revision to other accounting standards, has currently not been notified under the Companies (Accounting Standard) Rules, 2006.

In accordance with the announcement dated 27 March, 2008 issued by ICAI, the Company had made an early adoption of AS 30 with effect from March 2008 in so far as it relates to derivatives. The Company also made an early adoption of AS 30 in so far as it relates to hedging with effect from 1 July, 2008. On 1 October, 2008, the Company has early adopted AS 30 in its entirety, read with AS 31, effective 1 April, 2008 and the limited revisions to other accounting standards which come into effect upon adoption of AS 30.

AS 30 states that particular sections of other accounting standards: AS 4, Contingencies and Events Occurring after Balance sheet Date, to the extent it deals with contingencies, AS 11(revised 2003), The Effects of Changes in Foreign Exchange Rates, to the extent it deals with the 'forward exchange contracts' and AS 13, Accounting for Investments, except to the extent it relates to accounting for investment properties, would stand withdrawn only from the date AS 30 becomes mandatory (1 April 2011). In view of the Company, on an early adoption of AS 30, the Accounting Standards referred above viz. AS 4, AS 11 and AS 13 are being treated as if they stand withdrawn.

Pursuant to the early adoption of AS 30, the Company has discounted Non-interest-bearing deposits to their present value and the difference between original amount of deposit and the discounted present value has been disclosed as 'Unamortized cost' under Other Current and Non-Current Assets, which is charged to the Statement of profit and loss over the period of related lease. Correspondingly, interest income is accrued on these interest free deposits using the implicit rate of return over the period of lease and is recognized under 'Interest income.

In accordance with the transition provisions of AS 30, impact on first time adoption has been accounted in General Reserve.

Had the Company not early adopted AS 30 as stated above, and continued to record Non-interest-bearing deposits at transaction value, profit for the year ended 31 March 2012 would have been lower by Rs 1.07 (31 March 2011: lower by Rs 0.91).

As permitted by AS 30, the Company designated its FCCB along with premium payable on redemption as a hedging instrument to hedge its net investment in the non-integral foreign operations effective 1 July, 2008. Accordingly, the translation loss on FCCB of Rs 1,437.38 for the year ended 31 March 2012 (31 March 2011: gain of Rs 98.94), has been charged to Statement of profit and loss. Correspondingly, the gain of Rs 1,419.44 for the year ended 31 March 2012 (31 March 2011: loss of Rs 98.94) on translation of investment in non- integral foreign operations has been credited to Statement of profit and loss (refer note 22 and 24). If the Company had continued to apply the provisions of AS 11 to the FCCB and not designated it as a cash flow hedge as permitted under AS 30 and the consequent limited revision to other accounting standards, the net loss of Rs 1,437.38 (31 March 2011: gain of Rs 98.94) on FCCB would have been recorded in the Statement of profit and loss.

Further, the Company has accounted for embedded derivative option included in FCCB and revalued the same at the period end. The Company has charged Rs 143.75 for the year ended 31 March 2012 (31 March 2011: Rs 129.03) as amortized cost on the fair value of FCCB under "Finance cost" towards accretion of FCCB liability using implicit rate of return method over the repayment tenor of FCCB.

7. Derivatives

The Company has designated forward contracts to hedge highly probable forecasted transactions on the principles of set out in AS-30, Financial Instruments: Recognition and Measurement.

As at 31 March 2012, the Company has derivative financial instruments to sell USD 25,796,100 (31 March 2011: USD 14,358,483) having fair value loss of Rs 43.26 (31 March 2011: gain of Rs 24.03), GBP 43,503,845 (31 March 2011: GBP 35,500,000) having fair value loss of Rs 180.81 (31 March 2011: gain of Rs 44.81) and AUD 16,586,223 (31 March 2011: Nil) having a fair value loss of Rs 50.81 (31 March 2011: Nil) relating to highly probable forecasted transactions. The Company also has derivative financial instruments to sell EUR 3,700,000 (31 March 2011: Nil) having a fair value loss of Rs 7.96 (31 March 2011: Nil) relating to loans given.

During 31 March 2011, the Company also had derivative financial instruments of GBP 10,000,000 which has been taken to hedge the foreign currency loans. The Company had recognized mark to market gain of Rs 9.99 relating to derivative financial instruments that was designated as effective cash flow hedges in the Hedge Reserve account under Shareholders' funds (refer note 4).

The Company has recognized mark to market loss of 267.29 (31 March 2011: gain of Rs 54.56) relating to derivative financial instruments that are designated as effective cash flow hedges in the Hedge Reserve account under Shareholders' funds (refer note 4) and loss of Rs 25.31 (31 March 2011: gain of Rs 14.28) has been taken to statement of profit and loss.

Foreign currency exposures on loans and receivables that are not hedged by derivative instruments or otherwise are Rs 397.50 (equivalent to USD 7.52 million, AUD 0.13 million, EUR 0.01 million and LKR 3.90 million) (31 March 2011: Rs 58.85 (equivalent to USD 1.31 million and CAD 0.01 million)).

8. Under the Micro Small and Medium Enterprises Development Act, 2006, (MSMED) which came into force from 2 October 2006 and on the basis of the information and records available with the Management:

9. The Company is in the business of providing ITES and BPO services. Such services are not capable of being expressed in generic unit and hence, it is not possible to give the quantitative details required under paragraph 5(iii)(c) of general instructions for preparation of the statement of profit and loss as per revised schedule VI to the Companies Act, 1956.

10. Prior period comparatives

Till the year ended 31 March 2011, the Company was using pre- revised schedule VI to the Companies Act 1956, for preparation and presentation of its financial statements. During the year ended 31 March 2012, the revised schedule VI notified under the Companies Act 1956, has become applicable to the Company. Previous year's figures have been appropriately regrouped/ reclassified to conform to current year's presentation.


Mar 31, 2011

1 Leases

Operating lease

The Company is obligated under non-cancelable operating leases for offi ce space and Office equipment which are renewable on a periodic basis at the option of both the lessor and lessee. Rental expenses under non-cancelable operating leases for the year ended 31 March 2011 aggregated to Rs. 281,782 (31 March 2010: Rs. 220,452). Rs. 13,941 (31 March 2010: Rs. 3,519) and Nil (31 March 2010: Rs. 13,394) has been attributed to expenses prior to the related asset being ready to use and, accordingly, has been included as part of the related fi xed assets and capital work in progress respectively.

2 Employee Stock Option Plan

Stock option scheme 2002 (Scheme 2002)

In September 2002, the Board of the Company approved the ICICI OneSource Stock Option Scheme 2002 ("the Scheme"), which covers the employees and directors of the Company including its holding Company and subsidiaries. The Scheme is administered and supervised by the members of the Compensation cum Board Governance Committee (the Committee).

In September 2003, the Board and the members of the Company approved the ICICI OneSource Stock Option Scheme 2003 (Scheme 2003) effective 11 October 2003. The terms and conditions under this Scheme are similar to those under Scheme 2002 except for the following, which were included in line with the amended "SEBI (Employee stock option scheme and employee stock purchase scheme) guidelines, 1999":

- The Scheme would be administered and supervised by the members of the Compensation committee.

- Exercise price to be determined based on a fair valuation carried out at the beginning every six months for options granted during those respective periods. After the Company has been listed on any stock-exchange, the Exercise Price shall be determined by the Committee on the date the Option is granted in accordance with, and subject to, the Securities and Exchange Board of India (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (as amended from time to time);

- Employee stock option activity under Scheme 2003 is as follows:

3 The aggregate stock option pool under Employee Stock Option Scheme 2002 and Employee Stock Option Scheme 2003 is 20% fully diluted equity shares as of 31 March 2011.

4 The Compensation Cum Board Governance Committee of the Company, at its meeting held on 30 October 2008 prescribed the Exercise Period for stock options (other than Executive Options) whether already granted or to be granted to employees of the Company and its subsidiaries under Firstsource Solutions Employee Stock Option Scheme 2003 as 10 years from the date of grant of Options.

5 Related party transactions

Details of related parties including summary of transactions entered into during the year ended 31 March 2011 are summarised below:

Parties with substantial interests

- Metavante Investments (Mauritius) Limited**

- Aranda Investments (Mauritius) Pte Limited

Subsidiaries wherein control exists

- The related parties where control exists are subsidiaries as referred to in Schedule 1 to the financial statements.

Key Managerial Personnel including relatives

- Ananda Mukerji#

- Alexander Matthew Vallance

- Carl Saldanha

Non Executive Directors

- Dr. Ashok Ganguly*

- Dr. Shailesh Mehta

- Ananda Mukerji#

- Charles Miller Smith

- K.P.Balaraj

- Mohit Bhandari

- Y.H.Malegam

- Donald Layden, Jr.

- Lalita D. Gupte*

- Pravir Vohra***

- Ram Chary

6 Other operating income

Other operating income comprises of net gain on restatement and settlement of debtor balances and related gain / loss on forward / option contracts.

7. Buyback of FCCB

During the year ended 31 March 2010, pursuant to RBI notifi cation, the Company bought back and cancelled 129 FCCBs of the face value of USD 100,000 each under the Automatic route. The Company recognised a net gain of Nil (31 March 2010: Rs. 73,909) on the said buyback which has been disclosed under "Other Income".

8 Segmental Reporting

In accordance with paragraph 4 of Accounting Standard 17 "Segment Reporting" prescribed in the Companies (Accounting Standards) Rules, 2006, issued by the central government, the Company has presented segmental information only on the basis of the consolidated financial statements (refer Note 25 of the consolidated financial statements).

9 Adoption of AS 30

In December 2007, the ICAI issued AS 30, Financials Instruments: Recognition and Measurement which is recommendatory in respect of accounting periods commencing on or after 1 April 2009 and mandatory in respect of accounting periods commencing on or after 1 April 2011 for the Company.

In March 2008, ICAI announced that earlier adoption of AS 30 is encouraged. However, AS 30, along with limited revision to other accounting standards, has currently not been notifi ed under the Companies (Accounting Standard) Rules, 2006.

In accordance with the announcement dated 27 March, 2008 issued by ICAI, the Company had made an early adoption of AS 30 with effect from March 2008 in so far as it relates to derivatives. The Company also made an early adoption of AS 30 in so far as it relates to hedging with effect from 1 July, 2008. On 1 October, 2008, the Company has early adopted AS 30 in its entirety, read with AS 31, effective 1 April, 2008 and the limited revisions to other accounting standards which come into effect upon adoption of AS 30.

AS 30 states that particular sections of other accounting standards; AS 4, Contingencies and Events Occurring after Balance sheet Date, to the extent it deals with contingencies, AS 11(revised 2003), The Effects of Changes in Foreign Exchange Rates, to the extent it deals with the forward exchange contracts and AS 13, Accounting for Investments, except to the extent it relates to accounting for investment properties, would stand withdrawn only from the date AS 30 becomes mandatory (1 April 2011). In view of the Company, on an early adoption of AS 30, the Accounting Standards referred above viz. AS 4, AS 11 and AS 13 are being treated as if they stand withdrawn.

Pursuant to the early adoption of AS 30, the Company has discounted Non-interest-bearing deposits to their present value and the difference between original amount of deposit and the discounted present value has been disclosed as "Unamortised cost" under Loans and Advances, which is charged to the Profit and loss account over the period of related lease. Correspondingly, interest income is accrued on these interest free deposits using the implicit rate of return over the period of lease and is recognised under "Interest income".

In accordance with the transition provisions of AS 30, impact on fi rst time adoption has been accounted in General Reserves.

Had the Company not early adopted AS 30 as stated above, and continued to record Non-interest-bearing deposits at transaction value, Profit for the year ended 31 March 2011 would have been higher by Rs. 914 (31 March 2010: higher by Rs. 938).

As permitted by AS 30, the Company designated its FCCB along with premium payable on redemption as a hedging instrument to hedge its net investment in the non-integral foreign operations effective 1 July, 2008. Accordingly, the translation gain on FCCB of Rs. 98,942 for the year ended 31 March 2011 (31 March 2010: gain of Rs. 1,440,194), which is determined to be effective hedge of net investment in non integral foreign operations, has been credited to Profit and loss account. Correspondingly, the loss of Rs. 98,942 for the year ended 31 March 2011 (31 March 2010: loss of Rs. 1,440,194) on translation of investment in non- integral foreign operations has been charged to Profit and loss account (refer Schedule 18). If the Company had continued to apply the provisions of AS 11 to the FCCB and not designated it as a hedge against net investment in non integral foreign operations as permitted under AS 30 and the consequent limited revision to other accounting standards, the translation gain on FCCB would not have been recorded in the Profit and loss account.

Further, the Company has accounted for embedded derivative option included in FCCB and revalued the same at the period end. The Company has charged Rs. 129,031 for the year ended 31 March 2011 (31 March 2010: Rs. 115,255) as amortised cost on the fair value of FCCB under "Finance charges, net" towards accretion of FCCB liability using implicit rate of return method over the repayment tenor of FCCB.

Further the Company has taken hedges against ECB and translation loss of Rs. 66,853 (31 March 2010: gain of Rs. 78,952) has been taken to Hedging Reserve account.

10 Derivatives

The Company has designated forward contracts and options to hedge highly probable forecasted transactions on the principles set out in AS 30, Financials Instruments: Recognition and Measurement.

As at 31 March 2011, the Company has derivative financial instruments to sell USD 14,358,483 (31 March 2010: USD 25,702,798) having fair value gain of Rs. 24,034 (31 March 2010: Rs. 55,246) and GBP 35,500,000 (31 March 2010: GBP 35,176,114) having fair value gain of Rs. 44,806 (31 March 2010: Rs. 336,936) relating to highly probable forecasted transactions. The Company has derivative financial instruments of GBP 10,000,000 (31 March 2010: GBP 5,000,000) which has been taken to hedge the foreign currency loans. The Company has recognised mark to market gain of Rs. 9,993 (31 March 2010: Rs. 416,691) relating to these derivative financial instruments that are designated as effective cash flow hedges in the Hedge Reserve account under Shareholders funds (refer Schedule 4).

The Company has recognised mark to market gain of Rs. 54,563 (31 March 2010: Rs. 322,107) relating to derivative financial instruments that are designated as effective cash flow hedges in the Hedge Reserve account under Shareholders funds (refer Schedule 4) and gain of Rs. 14,278 (31 March 2010: Rs. 70,075) has been taken to Profit and loss account.

Foreign currency exposures on loans and receivables that are not hedged by derivative instruments or otherwise are Rs. 58,848 (equivalent to USD 1.31 million, CAD 0.01 million) (31 March 2010: Rs. 835,247 (equivalent to USD 9.3 million, GBP 10 million, AUD 0.2 million, CAD 0.1 million and EUR 0.09 million)). During the year ended 31 March 2011, the Company has recognised gain of Nil (31 March 2010: Rs. 124,426) on cancellation of undesignated derivative financial instruments in the Profit and loss account (refer Schedule 15).

11 The Company is in the business of providing ITES and BPO services. Such services are not capable of being expressed in generic unit and hence, it is not possible to give the quantitative details required under paragraphs 3, 4C and 4D of Part II of Schedule VI to the Companies Act, 1956.

12 Prior period comparatives

Previous years figures have been regrouped / reclassified to conform to current year presentation.


Mar 31, 2010

1. Background

Firstsource Solutions Limited, (Firstsource or Parent or the Company) was incorporated on 6 December 2001 and was promoted by ICICI Bank Limited. The Company is engaged in the business of providing contact center, transaction processing and debt collection services including revenue cycle management in the healthcare industry.

During the year the Company has carried out restructuring exercise in USA. The company set up Firstsource Group USA Inc. (FG-US) and Firstsource Business Process Services LLC (FBPS) as its wholly-owned subsidiary in USA.

On 31 December 2009 FirstRing Inc. (FR-US) has been merged with FBPS. In consequence of merger FG-US has issued 29,088 shares to Firstsource Solutions Limited India in exchange of shares of FR-US.

Effective 31 March 2010 Firstsource Solutions USA Inc. has been merged with FG-US. In consequence of merger FG-US has issued 189,394 shares and debt instrument of Rs. 6,735,000 (equivalent to USD 150 million) to Firstsource Solutions Limited India in exchange of shares of FSL USA.

2. Business acquisitions

Acquisition of Business Process Management, Inc. (BPM)

Pursuant to Share Purchase agreement (SPA) dated 21 December 2006 entered into between the Company, FSL-USA and the erstwhile shareholders of BPM, on 29 December 2006, the Company through its wholly-owned subsidiary FSL-USA acquired 100% of the common stock of BPM, a Delaware Corporation, including its 100% owned US-based subsidiaries MedPlans 2000 Inc. ("MP2") and MedPlans Partners ("MPP") for a purchase consideration of Rs. 1,597,680 (equivalent to USD 31.5 million). BPM, and its two subsidiary companies, MP2 and MPP are BPO companies providing services principally to customers in the Healthcare industry in transaction processing and claims adjudication. The Company incurred direct expenses related to the acquisition aggregating to Rs. 57,802 which has been considered as part of cost of investment in BPM. The excess of cost of investment over the value of net assets acquired has been recorded as goodwill amounting to Rs. 1,541,288.

Further, as stipulated in the SPA, based on performance criterion to be achieved by BPM by way of Earnings before interest, tax, depreciation and amortization (EBIDTA) targets for the year ending 31 December 2007, the Company was liable to compensate the erstwhile members of BPM. During the year ended 31 March 2009 the payment has been crystalised at Rs. 196,110 (equivalent to USD 3.9 million). Goodwill has been restated accordingly.

Total goodwill of BPM restated at exchange rate on balance sheet date is Rs 1,538,035.

Acquisition of Firstsource Advantage LLC (ASG)

On 22 September 2004, the Company through its subsidiary, FR-US acquired 100% voting right in ASG, a limited liability company in New York, USA. The Company paid Rs. 1,333,214 (equivalent of USD 29.08 million) upfront on that date. Excess of cost of investment over the value of net assets acquired was Rs. 1,260,590 including direct expenses relating to the acquisition aggregating to Rs. 68,114.

Upto 31 March 2007 additional compensation of Rs. 272,411 was paid to the erstwhile members of ASG based on the EBIDTA earnings of year 2004 and 2005. Further direct expenses of Rs. 17,789 were incurred relating to acquisition.

In 2007-2008, additional amount of Rs. 53,288 was crystalised on fnalisation of arbitration with the erstwhile members of ASG and direct expenses amounting to Rs. 13,555 were paid.

Total goodwill of ASG as on 31 March 2010 is Rs. 1,617,633.

Acquisition of RevIT Systems Private Limited (RevIT)

Pursuant to Share Purchase and Sale agreement (SPA) dated 25 March 2005 entered into between the Company and the Promoters, promoter affliates, employees and erstwhile shareholders of RevIT Systems Private Limited (and its 100% owned US-based subsidiary Sherpa Solutions Inc.), on 31 March 2005, the Company acquired 100% equity interest in RevIT for a purchase consideration aggregating Rs. 936,524 (equivalent of USD 22,318,897) and preference shares at par for Rs. 5,160. As a result of this acquisition, RevIT became a subsidiary of the Company effective 31 March 2005 and has been consolidated as such. The Company incurred direct expenses related to acquisition aggregating Rs. 5,082 which have been considered as part of the cost of investment in RevIT.

Rs. 970,768 being the excess of cost of investment over the value of net assets acquired, has been recorded as goodwill in these consolidated fnancial statements.

Acquisition of Pipal Research Corporation, USA (Pipal)

On 26 July 2004, the Company subscribed to 136,093 equity shares of Pipal aggregating to Rs. 151,798 thereby acquiring 51% voting interest in Pipal. The Company incurred direct expenses related to the acquisition aggregating to Rs. 5,462 which have been considered as part of the cost of investment in Pipal.

Rs. 90,510 being the excess of cost of investment over the value of net assets acquired, has been recorded as goodwill in these consolidated fnancial statements.

Acquisition of Firstring Inc., USA (FR-US)

On 3 September 2003, the Company subscribed to 23,842,970 Series F convertible preference shares of FR-US, aggregating to Rs. 596,862. Firstsource acquired 99.8 % voting interest in FR-US on a fully diluted basis. The Company incurred direct expenses related to the acquisition aggregating to Rs. 20,357 which have been considered as part of the cost of investment in FR-US.

Networth of FR-US on the date of acquisition representing the residual interest in the assets of FR-US afiter deducting its liabilities aggregated Rs. 111,617. Firstsources cost of investment in FR-US in excess of FR-USs equity on the date of investment aggregating Rs. 728,896 has been recorded as goodwill in the consolidated fnancial statements.

Acquisition of Customer Asset India Limited (CAST India)

Pursuant to Share Purchase and Sale agreement dated 22 April 2002 entered into between the Company, Customer Asset Mauritius and the Promoters and investors of Customer Asset Mauritius, on 27 May 2002 the Company acquired 100% equity interest in CAST India for cash purchase consideration aggregating Rs. 947,727. As a result of this acquisition, CAST India became a wholly-owned subsidiary of the Company. The Company incurred direct expenses related to acquisition aggregating Rs. 11,796 which have been considered as part of the cost of investment in CAST India.

Equity of CAST India on the date of acquisition representing the residual interest in the assets of CAST India afiter deducting its liabilities aggregated Rs. 225,916. Firstsources cost of investment in CAST India in excess of CAST Indias equity on the date of investment aggregating Rs. 733,607 has been recorded as goodwill in the consolidated fnancial statements.

3. Leases

The Group is obligated under non-cancelable operating leases for offce space and offce equipments which are renewable on a periodic basis at the option of both the lesser and lessee. Rental expenses under non-cancelable operating leases for the year ended 31 March 2010 aggregated to Rs. 610,999 (31 March 2009: Rs. 469,918). Of these expenses, Rs. 3,518 (31 March 2009: Rs. 22,868) and Rs. 13,394 (31 March 2009: Nil) has been attributed to expenses prior to the related asset being ready to use and, accordingly, has been included as part of the related fxed assets and capital work in progress respectively.

4. Employee Stock Option Plan

Stock Option Scheme 2002 (Scheme 2002)

In September 2002, the Board of the Company approved the ICICI OneSource Stock Option Scheme 2002 ("the Scheme"), which covers the employees and directors of the Company including its holding company and subsidiaries. The Scheme is administered and supervised by the members of the Compensation cum Board Governance Committee (the Committee).

5. Related party transactions

Details of related parties including summary of transactions entered into during the year ended 31 March 2010 are summarized below:

Parties with substantial interests

- ICICI Bank Limited*

- Metavante Investments (Mauritius) Limited

- Aranda Investments (Mauritius) Pte Limited

Subsidiaries wherein control exists

- The related parties where control exists are subsidiaries as referred to in Schedule 1 to the Consolidated Financial Statements.

Companies in which directors are interested - ICICI Prudential Life Insurance Company Limited (I-Prudential)#

Key Managerial Personnel including relatives

- Ananda Mukerji

- A. M. Vallance

- Carl Saldanha

Non-Executive Directors

- Dr. Ashok S. Ganguly

- Charles Miller Smith

- K. P. Balaraj

- Shikha Sharma**

- Dr. Shailesh Mehta

- Mohit Bhandari***

- Y. H. Malegam

- Donald Layden, Jr.

- Lalita D. Gupte

- Ram Chary***

6. Employee Benefit (Continued)

Gratuity cost, as disclosed above, is included under Salaries, bonus and other allowances. The Company expects to contribute approximately Rs. 20,000 to the gratuity trust during fscal year 2011.

b) Contribution to Provident Funds

The provident fund charge during the year amounts to Rs. 106,855 (31 March 2009: Rs. 100,450)

7. Segmental reporting

The Group has determined its primary reportable segment as geography identifed on the basis of the location of the customer which, in managements opinion, is the predominant source of risks and rewards. The Group has determined industries serviced i.e., Banking, Financial Services and Insurance and Non-Banking, Financial Services and Insurance as its secondary segment as management perceives risk and rewards to be separate for these different industries.

Geographic segments

The Groups business is organized into four key geographic segments comprising United States of America and Canada, United Kingdom, India and Rest of the world.

Segment revenues and expenses

Revenues are attributable to individual geographic segments based on location of the end customer. Direct expenses in relation to the segments is categorized based on items that are individually identifable to that segment while other costs, wherever allocable, are apportioned to the segments on an appropriate basis.

Un-allocable expenses

Certain expenses are not specifcally allocable to individual segments as the underlying services are used interchangeably. The Group therefore believes that it is not practicable to provide segment disclosures relating to such expenses, and accordingly such expenses are separately disclosed as unallocated and directly charged against total income.

Capital Employed

Capital employed comprises debtors, including unbilled receivables, classifed by reportable segments. As the fxed assets and services are used interchangeably between the segments by the Groups businesses and liabilities contracted have not been identifed to any of the reportable segments, the Group believes that it is currently not practicable to provide segment disclosures relating to these assets and liabilities.

8. Other operating income

Other operating income represents net gain of Rs. 72,611 (31 March 09: net loss of Rs. 77,377) on restatement and settlement of debtor balances and related forward /option contracts and gain of Rs. 96,163 (31 March 2009: gain of Rs. 45,867) on account of Grant income earned by FSL UK.

9. Capital and other commitments and contingent liabilities

2010 2009

The estimated amount of contracts remaining to be executed on capital account and not 73,944 68,918 provided for, net of advances

Claims not acknowledged as debt 45,546 51,450

Guarantees and letters of credit given 1,826,369 1,039,251

Direct tax matters

Income tax demand amounting to Rs. 106,659 (31 March 2009: Rs. 106,659) for the various assessment years are disputed in appeal by the Company in respect of which the company has favourable appellate decisions supporting its stand based on the past assessment and hence, the provision for taxation is considered adequate. The Company has paid Rs.10,381 tax under protest against the demand raised for the assessment year 2004-2005.

Indirect tax matters

The service tax demand amounting to Rs. 23,574 (31 March 2009: Rs. 23,574) in respect of FCCB issue expenses is disputed in appeal by the Company. The Company expects favourable appellate decision in this regard.

Grant

The Companys subsidiary has accrued/ received revenue grants amounting to Rs. 742,646 (GBP 10.93 million) from Northern Ireland. The Company is required inter-alia, to maintain the number of employees at certain levels for a period of fve years from the grant date, failing which grant will be liable to be refunded. Based on the available information, the Company expects to comply with this requirement.

10. Derivatives

As at 31 March 2010, the Company has derivative fnancial instruments to sell USD 25,702,798 (31 March 2009: USD 98,834,044) having fair value gain Rs. 55,246 (31 March 2009: loss of Rs. 497,649) and GBP 35,176,114 (31 March 2009: GBP 21,000,000) having fair gain of Rs. 336,936 (31 March 2009: gain of Rs. 224,340) relating to highly probable forecasted transactions. The company has derivative fnancial instruments to buy CAD 34,337,000 and GBP 5,000,000 (31 March 2009: Nil) which has been taken to hedge the foreign currency loans. These derivative fnancial instruments has fair value gain of Rs. 78,917 (31 March 2009: Nil) and loss of Rs. 192 (31 March 2009: Nil) respectively.

The Company has recognized mark to market gain of Rs. 416,691 (31 March 2009: loss of Rs. 56,726) relating to derivative fnancial instruments that are designated as effective cash flow hedges in the Hedge Reserve account under Shareholders funds (refer Schedule 4) and gain of Rs. 78,917 (31 March 2009: Nil) has been taken to `Profit and loss account.

Foreign currency exposures on loans and receivables that are not hedged by derivative instruments or otherwise are Rs. 349,671 (equivalent to USD 12.2 million, GBP 10 million, AUD 0.2 million, CAD 0.1 million and EUR 0.09 million) (31 March 2009: Rs. 1,747,333).

At 31 March 2009, the Company had undesignated certain derivative fnancial instruments. During the year ended March 2010, it recognised gain of Rs. 124,426 (31 March 2009 mark to market loss of Rs. 236,202) on cancellation of such instruments in the `Profit and loss account. (Refer Schedule 15).

11. Adoption of AS-30

In December 2007, the ICAI issued AS 30, Financials Instruments: Recognition and Measurement which is recommendatory in respect of accounting periods commencing on or afiter 1 April, 2009 and mandatory in respect of accounting periods commencing on or afiter 1 April, 2011 for the Company.

In March 2008, ICAI announced that earlier adoption of AS 30 is encouraged. However, AS 30, along with limited revision to other accounting standards, has currently not been notifed under the Companies (Accounting Standard) Rules, 2006. On 1 July, 2008, effective 1 April, 2008, the Company early adopted AS 30 and the limited revisions to other accounting standards which come into effect upon adoption of AS 30.

In accordance with the announcement dated 27 March, 2008 issued by ICAI, the company adopted AS-30 with effect from March 2008 in so far as it relates to derivatives. Similarly, the Company also adopted AS 30 with respect to hedging transactions with effect from 1 July, 2008. On 1 October, 2008, the Company early adopted AS-30 in its entirety, read with AS 31, effective 1 April, 2008 and the prescribed limited revisions to other accounting standards.

AS 30 states that particular sections of other accounting standards; AS 4, Contingencies and Events Occurring afiter Balance sheet Date, to the extent it deals with contingencies, AS 11(revised 2003), The Effects of Changes in Foreign Exchange Rates, to the extent it deals with the forward exchange contracts and AS 13, Accounting for Investments, except to the extent it relates to accounting for investment properties, would stand withdrawn only from the date AS 30 becomes mandatory (1 April, 2011). In view of the Company, on an early adoption of AS 30, accounting treatment made on the basis of the relevant sections of Accounting Standards referred above viz., AS-4, AS-11 and AS-13 stands withdrawn as it believes that principles of AS 30 has been disclosed as "Unamortized cost" under Loans and Advances, which is more appropriately refect the nature of these transactions.

Pursuant to the early adoption of AS 30, the Company has discounted Non-interest-bearing deposits to their present value and the difference between original amount of deposit and the discounted present value charged to the `Profit and loss account over the period of related lease. Correspondingly, interest income is accrued on these interest free deposits using the implicit rate of return over the period of lease and is recognized under "Interest income".

In accordance with the transition provisions of AS 30, impact on frst time adoption has been accounted in General Reserves.

Had the Company not early adopted AS 30 as stated above, and continued to record Non-interest-bearing deposits at transaction value, `Profit for the year ended 31 March, 2010 would have been higher by Rs. 1,421 (31 March 2009: Rs. 570)

As permitted by AS 30, the Company designated its FCCB along with premium payable on redemption as a hedging instrument to hedge its net investment in the non-integral foreign operations effective 1 July, 2008. Accordingly, the translation gain on FCCB of Rs. 1,440,194 for the year ended 31 March 2010 (31 March 2009: translation loss Rs. 1,778,551) which is determined to be effective hedge of net investment in non integral foreign operations, has been adjusted in Translation Reserve Account. The amounts recognised in Translation Reserve Account would be transferred to `Profit and loss account upon sale or disposal of non-integral foreign operations. If the Company had continued to apply the provisions of AS 11 to the FCCB and not designated it as a cash flow hedge as permitted under AS 30 and the consequent limited revision to other accounting standards, the translation gain on FCCB would have been recorded in the `Profit and loss account.

Further, the Company has accounted for embedded derivative option included in FCCB and revalued the same at the period end. The Company has charged Rs. 115,255 for the year ended 31 March 2010 (31 March 2009: Rs. 113,860) as amortised cost on the fair value of FCCB under "Finance charges, net" towards accretion of FCCB liability using implicit rate of return method over the repayment tenor of FCCB.

12. Prior period comparatives

Previous year figures have been appropriately regrouped/reclassified to conform to current year presentation.



 
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