Annual Report

Po s i t i o n e d f o r g r o w t h 2003
Certain conventions Annual Report, any discrepancies in any table Any industry data used in this Annual Report
between the total and the sums of the amounts was obtained from industry publications.
In this Annual Report, the terms "we", "us", "our",
listed are due to rounding. Industry publications generally state that the
"the Company", "our Company", "the group" or
information contained in them has been
"Patni", unless the context otherwise indicates or In this Annual Report, all references to "Rupees"
obtained from sources believed to be reliable
implies, refer to Patni Computer Systems Limited and "Rs" are to the legal currency of India, all
but that their accuracy and completeness are
and its subsidiaries. Unless stated otherwise, the references to "US Dollars", "USD", "US$" and "$"
not guaranteed and their reliability cannot be
financial data in this Annual Report is derived are to the legal currency of the United States,
assured. Although we believe industry data used
from consolidated financial statements prepared all references to "Pounds", "£" and "UK Pound"
in this Annual Report is reliable, it has not been
in accordance with generally accepted are to the legal currency of the United Kingdom
independently verified.
accounting principles in the United States ("US and all references to "Euro" and
GAAP"). Our fiscal year commences on "€ " are to the legal currency of the
1 January and ends on 31 December. In this European Union.

Contents

This is Patni Computer Systems Limited 1 Consolidated Financials

Highlights 2003 2 under Indian GAAP 93

Five-Year Performance Highlights 3 Management’s Discussion and Analysis

of the Consolidated Financials
Letter to Shareholders 4
under US GAAP 118
Profile of Directors 10
Consolidated Financials
Blueprint: Patni 12 under US GAAP 127
Customer Speak 16 Subsidiary Information
Corporate Review 18
Patni Computer Systems, Inc. and Subsidiary 155
Directors’ Report 30 Patni Computer Systems (UK) Limited 165
Report on Corporate Governance 38 Patni Computer Systems GmbH 172

Standalone Financials Risk Management 180

under Indian GAAP 55
Patni World-wide 186
Management’s Discussion and
Corporate Information 188
Analysis of the Consolidated Financials
under Indian GAAP 82
 This is Patni
Computer
Systems
Limited

Patni Computer Systems Limited (Patni) is one of India’s leading global IT

Who services companies. The Company commenced operations as a provider of

hardware and software services, gradually evolving its core competence into a
we are
pure IT services company since 1999. Today, it provides a wide range of IT
services to a large number of customers that include several Global 1000
companies. The Company had 7096 employees as on 31 December 2003.

What
we do
Patni focuses on delivering an integrated set of IT services in industries like
insurance, financial services and manufacturing. We deliver a full range of
service offerings covering the software services and BPO spectrum:
application development and maintenance, enterprise application systems,
enterprise systems management, research and development as well as
business process outsourcing. Over the years, the Company has built a
reputation as a highly dependable top-tier service provider in its chosen
industry segments.

Where
we are located
Patni is headquartered in Mumbai, India, supported by multiple development
centres across six locations in India and 22 sales offices in North America,
Europe, Japan and the Asia-Pacific region. A number of its senior executives
are based in customer geographies with the express purpose of creating and
nurturing customer relationships.

1
 Highlights
2003
The year in retrospect

Revenues increased 33.3% to US$ 251.0 million in

2003 from US$ 188.3 million in 2002.

Net profit saw a rise of 17.2% to US$ 42.2 million

from US$ 36.0 million during the same period.

Verticalisation of the North American sales

organisation was completed.

New customers were added across all of Patni’s

target geographies, increasing the total number of
active customers to 174.

1,526 employees were added, increasing the total

people resources to 7,096 worldwide.

Acquisition of the US-based ‘The Reference Inc.’ was

made to strengthen the financial services vertical.

Preparations were made for the IPO launch: the IPO

was oversubscribed 22 times in February 2004.

2
 Five-Year
Performance
Highlights
Raising the bar

Operating Income Earnings after Tax

Revenues USD (millions) USD (millions) USD (millions)
400
70.0 70.0
62.6

101.2

142.6

188.3

251.0

12.7

25.0

31.4

44.0

47.3

10.3

22.2

26.3

36.0

42.2
300
52.5 52.5
%
.0
39

200 %
.5 35.0 35.0 2%
R

41 2.
G
CA

G
R R4
G
CA CA
100
17.5 17.5

0
1999 2000 2001 2002 2003 0.0 0.0
1999 2000 2001 2002 2003 1999 2000 2001 2002 2003

Basic & Diluted

Earnings per share (USD) Book Value per Share (USD) Number of Employees

3.00 9000
0.51

0.8
0.38

0.78

1.14

1.56

2363

3365

4900

5570

7096
0.11

0.24

0.25

0.27

0.38

2.25 6750
0.6
%
.6
31
R
G

1.50 4500
CA

0.4
% %
3 .3
3 6. 42
R R
G
CA
G CA
0.75 2250
0.2

0.00 0
0.0 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003
1999 2000 2001 2002 2003

3
 Letter to
Shareholders
T h e C h a i r m a n’ s r e v i e w

It is my pleasure to present our first public

Annual Report. I would like to thank you
all for having reposed your confidence in
Patni by making our maiden IPO hugely
successful. This is an emphatic reflection of
your trust in Patni’s business model and
prospects. It is now up to us to live up to
your expectations.
Our vision is to achieve global IT services
leadership by providing value-added and
high quality IT solutions to our customers
in selected vertical segments. This is being
accomplished by combining technology
skills, domain expertise, process focus and
a commitment to long-term customer
relationships. Over the years, we have
emerged as one of the largest software
solution providers in India, as the country
itself has emerged as the world’s premier
outsourcing destination for IT services.

4
Corporate performance strengthening their offshore delivery capabilities, which is
The year 2003 was very successful at Patni. The Company going to increase competitive pressures in the offshore IT
reported a sharp revenue growth of 33% from US$ 188.3 services space.
million in 2002 to US$ 251.0 million in 2003. Net profit A paradigm shift in the customer acquisition process is
strengthened 17.2% from US$ 36.0 million to US$ 42.2 becoming evident. The customer wants to be accessed and
million during the period. These numbers represent a serviced through domain or vertical expertise rather than
continuation of the excellent performance achieved by Patni commoditised horizontal or technical expertise. Customers
over the last few years resulting in revenue expansion at a are demanding solutions based on domain familiarity that
compound annual growth rate (CAGR) of over 41% since extend beyond technology services and enhance their
1999. During this period, Patni consistently achieved strong business competitiveness.
growth numbers while global markets were impacted by
conditions of uncertainty. Going forward, as a listed company, Customer engagement models are also becoming

we are changing our focus from beating the industry averages progressively complex as customers are moving up the

to constantly challenging our own levels of growth and setting ‘Contract value chain’, demanding fixed price and fixed
our own benchmarks. price-SLA type models. Simpler time and material contracts
are not the preferred choice.
Industry environment Global customers are showing an increasing preference for
India has become the premier destination for IT services large and global IT service providers for sourcing their IT
outsourcing and is acquiring a disproportionate share of the needs.
global shift to outsourcing. We are optimistic that this trend will
We believe that IT service providers who can scale their
continue, in line with the NASSCOM-McKinsey estimate that
operations and retain flexibility without compromising quality
India’s IT services industry will grow at a CAGR of 34% till
will be better equipped to sustain their long-term growth.
2008. However, optimism notwithstanding, the industry faces
significant challenges. In 2003, we launched a number of initiatives, which I believe
will allow us to meet these challenges adequately.
While volumes are increasing, so is competition.
Multinational customers are integrating backwards to set up
IT extensions of their global operations in India, becoming Patni business model
increasingly self-sufficient with regard to their own Our stated vision of becoming ‘the preferred integrated IT
requirements. Multinational IT service providers are also solutions provider in the selected industry verticals’ sustains and

5
 The Financial Services vertical grew rapidly last year, closing with
16% of the Company’s revenues and a strong customer base. The
acquisition of The Reference Inc. elevated Patni into a leading IT solutions
provider in this vertical. The domain expertise and senior management
experience obtained through this acquisition, supported by our global
delivery model, greatly enhanced our ability to deliver end-to-end
investment management solutions in the financial services segment.

is appropriate. In response to the demanding industry expertise and senior management experience obtained
environment, we have reinforced our business model by through this acquisition, supported by our global delivery
developing domain expertise in selected industries (namely model, greatly enhanced our ability to deliver end-to-end
insurance, manufacturing and financial services) and investment management solutions in the financial services
providing integrated service offerings. Over time, we expect to segment. It has also added several premium investment
broaden our vertical capabilities along with the delivery of a management customers, including global asset management
full-spectrum of horizontal services. We plan to strengthen our firms and hedge funds.
vertical and horizontal capabilities both organically and
through acquisitions. The acquisition of the US-based The Sales strategy
Reference Inc. - a highly specialised financial services
Last year, our sales force was reoriented along the verticals
company, was a step in that direction.
from its earlier alignment as per geographical divisions. To
Last year, more than 78% of our revenues were derived from begin with, the US sales force was recast into National
these three industry verticals. Insurance and manufacturing are Industry Sales Groups (NISGs) to target the Fortune 1000
our strongest verticals and provide stable, ongoing revenues accounts and other large strategic opportunities. Four NISGs
through application development and maintenance. Enterprise have been created for the insurance, financial services,
systems management and embedded technologies were the manufacturing and diversified industries.
growth leaders and we are focused on developing them
The focus of Patni sales strategy is on penetrating and growing
further. Our Product and Technology Innovation group (PTI)
strategic accounts. The effectiveness of this strategy is based
continues to support the growth of the organisation. This
on the direct presence of the sales force and domain
group develops cutting-edge technology solutions that help
experts/business analysts in the customer geographies, to
our customers enhance their competitive market positioning.
continuously cross-leverage our competencies and provide
PTI’s contribution in the area of embedded technologies,
superior integrated services to the customers. During 2003, a
security practice, HIPPA tools and RFID is a testimony of the
significant number of customer additions resulted in the
group•s ability to continuously invigorate our technology
number of active customers growing to 174 from 149 at the
practices.
close of 2002. Similarly, the number of ‘million dollar’
The financial services vertical grew rapidly last year, closing relationships expanded to 26 in 2003 from 15 in 2002. We
with 16% of the Company’s revenues and a strong customer also strengthened our presence in the Asia-Pacific region
base. The acquisition of The Reference Inc. elevated Patni into through a direct sales presence in Australia and opened
a leading IT solutions provider in this vertical. The domain offices in Sydney and Melbourne.

6
Global delivery and knowledge management
At the heart of the organisation is our mature delivery
organisation. Our proven processes and methodologies are key
elements of our mature global delivery model. These allow us to
seamlessly deliver high quality and cost-effective IT services from De-risking
multiple locations across six cities in India, with more locations
being added. Over the years, we have developed expertise in A vertical focus to establish
managing large multi-year engagements. We are a rare IT long-term relationships with
services Company in India which has a single $100 million
strategic customers.
customer. We are also an industry leader in fixed price and fixed
price-SLA based engagement models. Last year over 48% of our
revenues were derived from such engagement models.
Focus on acquisitions and
In 2003, we invested heavily in creating a Knowledge alliances to increase and
Management infrastructure. Efficient knowledge exploitation leads
strengthen service offerings.
to faster response times, builds a competent organisation,
identifies areas for expansion and leads to greater customer
satisfaction. Through a framework of knowledge acquisition,
Customer diversification to
retention and augmentation, we have ensured that best practices
are institutionalised and leveraged to deliver value to the
reduce concentration risk.
customer. In recognition of our innovative approach towards
Knowledge Management, Patni was awarded the coveted ‘Best
Strong focus on developing
Knowledge Management Solution’ award from Open Text
Corporation, at LivelinkUp 2003 in Paris. The Award, which technology intensive and
recognises and showcases organisations dedicated to achieving innovative solutions.
real business value through innovative knowledge management
solutions, was won in the face of global competition.
Diversified geographic spread
Infrastructure from the geography de-risking
Patni currently has 6,80,000 sq.ft. of developed office space for
perspective.
offshore software development across six locations in India.
During 2003, we added 1,12,000 sq.ft., creating workspace for
over 1,300 developers at various locations … 52,000 sq.ft. in
Continuous attention to business
Pune; 29,000 sq.ft. in Chennai; 16,000 sq.ft. in Akruti, Mumbai;
and 15,000 sq.ft. in Navi Mumbai. continuity and disaster recovery
To meet our requirements, we plan to add substantial office space
planning.

7
 in 2004 and start operating from several other locations. We
are committed to working from many locations. We strongly
believe in ‘bringing jobs to the people’ rather than ‘bringing
people to the jobs’.
The focus of the Patni sales strategy As a long-term measure we have decided to build large
campuses at some of our locations. This will not only allow
is on penetrating and growing us to consolidate many development centers we may have
in the same city, but also allow us to expand in the future in
strategic accounts. The effectiveness a contiguous manner. To start with, we have acquired
50acres of land at Airoli in Navi Mumbai which will allow
of this strategy is based on the us to build, in a phased manner, a modern IT campus for
software development, training, customer care and
direct presence of the sales force employee recreation facilities. The first phase of this project,
which will be able to accommodate 5,000 professionals, will
and domain experts/business be ready in early 2005. The ‘Patni Knowledge Park’ in Navi
Mumbai will give us the capability to expand to 17,000
analysts in the customer persons in the Mumbai region, in a graduated manner.

geographies, to continuously The Patni brand

In 2003, we were able to bring about a noticeable
cross-leverage competencies and perception change in the minds of our target audience. Be it
the analyst community, customers, media or public at large,
provide superior integrated services Patni is today recognised as a key player in the Indian
software services industry. We have been able to successfully
to the customers. communicate the strong, vibrant and dynamic nature of the
Company. We leveraged our long-standing presence in

Milestones 1999 2000

Patni was incorporated in 1978. The first Patni’s Japan office commences SEI-CMM Level 5 assessed, the Germany
ODC was established in 1986 and the first operations, the Gandhinagar office starts, the Chennai/Noida facilities
large account, GE, was started in 1990. facility starts, the Company commence operations, revenues grow to
The Company’s UK office was grows to 2000 employees. US$ 100 mn, GE makes a strategic
commissioned in 1994. investment.
 Strengths
Deep technology skills
Balanced portfolio of services
Strong customer base
Large global footprint
World-class people
Strong financial base

Customers’ geographies to understand their business needs Excellence At Patni’ (LEAP) programme globally. This leadership
better and deliver customised solutions. Towards this end, we framework sets the Gold Standard for leadership at Patni. The
initiated a series of marketing programmes, including webinars, comprehensive performance and potential based talent review
trade shows and breakfast meets which have been well and evaluation process carried out under the LEAP programme
received and have considerably enhanced our visibility. helps to identify fast track performers at an early stage and
ensures that Patni has a strong, deep leadership pipeline.
Our public relations efforts have enhanced the media•s interest
in us and have generated positive images about the Company. The Patni management team is among the best in the industry.
We have also had a successful analyst outreach programme. I am proud of our team and thankful to it for its dedication and
Today, Patni is much on the radar of key technology analysts. In commitment.
a recently conducted survey of buyers and influencers of IT
services by Gartner, Patni received a strong recall rating, Going forward
reflecting a major step forward from where we were a year At Patni, we have established a strong foundation to drive
ago. growth. We provide quality business solutions to address
customer needs. Our processes are benchmarked against the
The Patni team best in the world.
Patni has one of the strongest management teams in the
We expect that this foundation will enhance our corporate
industry, and we aim to attract and retain the best human
value and benefit our shareholders, as the Company
resources globally to manage the growth ahead. We have
progresses towards emerging as an outstanding Indian
implemented a strong, adaptive and mature management
multinational software services provider.
structure built around global end-to-end Strategic Business
Units (SBUs). This structure can be scaled aggressively without
Regards
compromising flexibility and responsiveness to customers and
without disturbing the existing hierarchy in the Company.

Patni added 1,526 employees during 2003 and closed the

year at a figure of 7,096 world-wide. We greatly rationalised
our compensation structure and launched the ‘Leadership Narendra K Patni

2001 2002 2003 2004

ISO 9001:2000 General Atlantic affiliation The Reference Inc. acquired, IPO oversubscribed 22
certification is received, starts, opened offices in Sweden vertically reorganised, times, SEI-CMMi Level 5
Company is reorganised and Canada, 5000 employees 7000+ employees. assessed.
into SBUs, organisation on rolls.
grows to 4000 employees.
 Profile of
Directors
At the helm

Mr. Narendra K Patni, 62, Chairman and CEO,

has a Master’s degree in Electrical Engineering from the
Massachusetts Institute of Technology (MIT) and a
Master’s degree in Management from the Sloan School
of Management at MIT. He is a founder promoter of the
Company and has over 35 years of experience in the
software industry. Prior to founding Patni, he was
President and Director of the Forrester Consulting
Group and previously with US Trust Company of New
York and was a Consultant to Arthur D. Little Inc.

Mr. Gajendra K Patni, 63, Executive Director, is one

of the founder promoters of the Company. A chemical
engineer, he has over 34 years of experience in finance,
banking, legal and personnel functions. He is a Joint
Managing Director of PCS Industries Limited.

Mr. Ashok K Patni, 52, Executive Director, is one of

the founder promoters of the Company. He is a
Mechanical Engineer from IIT, Mumbai, with over 21
years of experience in computer hardware and systems
software. He is a Joint Managing Director of PCS
Industries Limited.

Mr. William O Grabe, 66, has a BS degree in

Engineering from New York University and an MBA from
the University of California, Los Angeles. He is a Managing
Member at General Atlantic Partners, LLC, a worldwide
private equity fund, where he has worked since 1992.

10
Dr. Michael A. Cusumano, 49, is the Sloan Management Review Distinguished
Professor at the Massachusetts Institute of Technology’s Sloan School of Management.
He has consulted for major companies around the world, including Alcatel, AOL, AT&T,
Ericsson, Fiat and Ford, among others. Professor Cusumano has published six books.

Mr. Arun Duggal, 57, has a Bachelor’s degree in Mechanical Engineering from IIT,
Delhi, and a post-graduate diploma in Management from IIM, Ahmedabad. He was
most recently Chief Financial Officer of HCL Technologies Limited.

Mr. Anupam Puri, 58, has an M.Phil and a Master of Arts in Economics from
Oxford University and a Bachelor of Arts in Economics from Delhi University.
He was previously a director and elected member of the board of directors of
McKinsey & Company.

Mr. Pradip Shah, 51, a Chartered Accountant, has a Master’s degree in Business
Administration from the Harvard Graduate School of Business and a degree from The
Institute of Cost & Works Accountants of India. He was responsible for introducing credit
ratings in India and is a founder of CRISIL.

Mr. Ramesh Venkateswaran, 51, has a Bachelor’s degree in Mechanical

Engineering from IIT, Mumbai, and a post-graduate diploma in Management from IIM,
Bangalore. He is a management consultant and the Managing Director of Almak
Management Services Private Limited.

Mr. Abhay Havaldar, 43, is an Alternate Director to Mr. William O Grabe. He holds
a Bachelor’s degree in Electrical Engineering from the University of Bombay and a
Master’s degree in Management from the Sloan Fellow Program at the London Business
School. Presently, he is a Principal at General Atlantic Partners, LLC.

11
 Blueprint:
Patni
Charting the future strategy

In the rapidly evolving IT industry, service

providers have to continously enhance their
capabilities and strengthen existing
competencies. Patni has a clear vision of the
future - to provide world-class technology
services by constantly exploring and
implementing innovative solutions that drive
long-term value for our customers. Patni has
at the forefront of ushering proactive change
and will continue to do so in the future.

Building a value-creative business

model. The Company has built a value-
creating business model to enable it to
achieve its vision. The business model is
pivoted around the addition of new service
lines, development of vertical expertise and
the strengthening of skills-sets across the
company’s multiple business units. The model
empowers the company to optimally manage
resources between high-cost onsite locations
and low-cost development centers. This
model enhances Patni’s capabilities, making it
responsive and flexible, while delivering costs-
effective solutions to customers.

12
 Business Model

Application Developement

Industry Experts (a)

Application Maintenance

(b)
e-Biz

(b)
EAS

(b)
ESM

(b)
BPO

Financial Service
Insurance
Manufacturing

Off-Shore Transient O/L On Location

(a) Industry Experts, Buisness Analyst, Solutions Architect

(b) e-Biz: eBusiness; EAS: Enterprise Application Systems; ESM: Enterprise Systems Management; BPO: Business Process Outsourcing
Note: The coloured areas are for illustrative purpose only

Penetrating and growing strategic accounts. We Customers’ needs by offering IT services that best suit their
intend to continue to grow our business by diversifying our specific requirements.
existing customer base with addition of new strategic customers
and enhancing our existing relationships. We plan to focus on Strengthening and effectively leveraging our sales
adding large customers, which offer us the potential to scale and marketing teams. We intend to continue strengthening
our relationship with them to US$ 4.0 million or higher in our sales and marketing teams. We address our larger
annual revenues over a 24 to 30 month period. We aim to responsibility for increasing the size and scope of our services
achieve this effectively the scope of our engagements through offerings with such customers. We are increasingly aligning our
our delivery excellence, innovative engagements models, sales and marketing teams to focus on specific industries.
industry experience and breadth of services.
Enhancing our service offerings. We aim to deepen our
Enhancing industry expertise. We intend to continue to existing customer relationships and enter into new customer
enhance our understanding of select industries by adding relationships through new and enhanced service offerings. We
industry experts, business analysts and solutions architects as have recently commenced offering Business Processing
well as considering select acquisitions. We believe that such Outsourcing services and have enhanced our capabilities in
industry expertise will help us proactively address our Enterprise System Management and Research and Development
services.
 Focusing on brand building. We continue to invest in faced by our customers in these industries. With the
developing the ‘Patni’ brand in our customer markets, within convergence of IT and corporate strategy, customers will
selected industries and in India. We seek to achieve this increasingly demand in-depth industry experience. Patni is
through targeted analyst outreach programs, trade shows, convinced that it can strengthen its core competence through a
white papers, events, workshops, road shows, speaking disciplined focus on a few select domains. A strong focus on a
engagements and global public relations management. We select few verticals is expected to translate into a distinctive
believe that a strong brand will contribute to attracting and competitive differentiation vis-à-vis others.
retaining talented manpower and enhancing our lead
Delivery excellence. Our proven processes and
generation and customer acquisition processes.
methodologies are important elements of our mature global
Pursuing selective strategic acquisitions.We seek to delivery model. These allow us to seamlessly deliver high
pursue strategic acquisition opportunities to enhance our quality and cost-effective IT services from multiple locations in
capabilities and address gaps in industry expertise, technical a reduced timeframe. We seek to approach delivery from a
expertise and geographic coverage. We intend to focus on process perspective rather than an employee resource
strategic acquisitions that are of an appropriate size and that perspective. As a result, in certain of our contracts, we have
minimise our integration risk. flexibility in structuring the composition of our employee
resource pool, in terms of seniority and location, to maximise
Our competitive strengths productivity and efficiency in our customer engagements. The
processes and methodologies that we use at our delivery
We believe that the following aspects of our business help
centres in six offshore locations in India conform to ISO 9001
differentiate us from some of our competitors:
standards and are assessed at SEI-CMM Level 5. This helps us
Ability to manage large customer relationships. We deliver services in a timely, consistent and accurate manner,
have successfully demonstrated the ability to manage large maintain a high level of customer satisfaction and focus on
client relationships. This is reflected in the long duration of our continuous improvements in all aspects of delivery.
relationships with some of our large customers and in the joint
Engagement models. We have demonstrated the ability to
development of engagement models that have been mutually
successfully work with our customers to develop engagement
beneficial. For example, we have a 13-year relationship with
models that tie into their business objectives. We deliver
our largest client, the GE group. In our customer engagements,
services on a range of fixed-price and time-and-material-driven
we leverage our industry experience with our high quality
engagement models, through short-term as well as multi-year
processes, project management capabilities and breadth of
contracts. Our ability to manage projects on a fixed-price and
technical expertise. Our ability to rapidly service customer
fixed-price SLA basis to achieve our clients’ business objectives
requirements, both onsite in customer geographies and
is an important differentiator in our long-term customer
offshore in India, enables us to respond effectively to the
relationships. We are one of the leading Indian providers of
demands of our large customers. Our senior executives and
fixed-price and fixed-price SLA engagements and believe that
dedicated account managers continuously maintain and
customers with large outsourcing requirements will increasingly
develop these relationships through multiple contacts at
demand services on a fixed-price and fixed-price SLA basis.
different levels in the customer organisation. In addition, for
strategic customers, an identified senior executive has the Broad range of services. We provide a broad range of IT
responsibility for the overall customer relationship and leads services, including Application Development and Maintenance,
periodic reviews with the customer. Enterprise Application Systems, Enterprise Systems
Management, Research and Development, and Business
Industry knowledge and experience. We have extensive Process Outsourcing. We have developed knowledge and
experience in the insurance, manufacturing and financial experience across multiple systems and technologies that
services industries. This allows us to accurately define and allows us to address a range of business needs and functions
deliver customised services that address the business challenges as a virtual extension of our customers’ IT departments.

14
Investment in a sales organisation. We have invested in solution architecture skills and delivery processes in an
developing a strong customer-centric sales approach. Our integrated, flexible and responsive manner. It combines the
sales team comprises focused sales personnel responsible for benefits of a large organisation with the flexibility and speed of
accounts in specific industries and service offerings, regional a small one, and has been a key enabler of our rapid growth
sales experts responsible for accounts in specified geographies, over the past three years. The SBUs are supported by global
account managers responsible for mature accounts and sales sales, marketing and delivery co-ordination and shared
specialists that support focused pre-sales and sales efforts in services. Our industry-specific SBU heads and domain experts
specific industry and service offerings. We believe that by are located primarily in customer geographies and maintain
moving towards an industry-led go-to-market strategy, we will their own sales force on a dedicated basis. Our SBUs are
be able to expand our share of our customers’ outsourcing designed to drive growth in selected areas on an integrated
budgets. and global basis. This structure also enables us to incubate
Scalable organisational structure. Our SBU structure new industries or service offerings without disrupting the rest of
enables us to assemble the necessary industry experience, the organisation.

15
 “Outsourcing our requirements to Patni offers us not only
cost savings, but also a single point technology and

Customer business process outsourcing partner. Patni was evaluated

on various parameters including quality processes, domain

Speak expertise and onsite-offshore capabilities to service the US

market; their experience in the Life and Annuity business
was a clear differentiator.”
What our clients have to say
… Dennis Callahan (Executive VP and CIO, Guardian)

16
 Patni is a treasured partner to us. Its world-class talent, sound knowledge
of our products, robust project management methodologies, tools and
framework have all been valuable assets to Hitachi’s products success.
We see this long relationship continuing to grow into a more rewarding
partnership over the years.
- Chiaki Harada, Manager, Global Software Outsourcing Information & Telecommunication
Systems, Hitachi Ltd.

“I wanted to take this opportunity to thank each of “Patni is doing a marvellous job in
you for all your hard work in making this release Korea. Considering the late start that you
“Our partnership with possible. What is impressive is that this release was got, you have shown exceptional
Patni is clearly a win- tested 100 per cent offsite by the Patni CM SQE commitment and results, and have
win. Patni’s flexible team. This is a tremendous success.” gained the respect of one and all!”
approach and - John Petsch, Manager, Software Quality Engineering, Telelogic - Ramkumar Ganesan, IT Manager, MetLife
partnering spirit in Technologies North America International
providing offshore
services in application “Patni has exceeded every goal of the Betterment Projects. Their part was done on time, within
support and budget, has exceeded performance expectations, has had practically no defects reported in our
development are testing thus far... just really a superb performance.”
showing results. We
- Client’s Senior Manager, largest Utility Company in California
can see our
relationship growing
with Patni, adding “I am particularly impressed with the quality of
“Your final deliverables were definitely
value in service PAtni’s people, processes and the ability to remain
satisfactory. They are very useful in
delivery to our flexible in working with the structure at
constructing a CMM Level 3
business and reducing MedSynergies. I must say that the
organisation. We would like to put this
our operational price/performance balance achieved by an
output to practical use for promoting SPI
Costs.” organisation like Patni to meet our needs is thus far
activities based on CMM in Toshiba.”
- Stephan Carlquist, unsurpassed. I have the confidence today to state
- Hideto Ogasawara, CMM Lead, Toshiba Research
President, Electrolux IT that Patni is a partner in our growth.”
& Development Center
Solutions
- Jeff Hutchinson, Customer Integration, MedSynergies Inc.

“Patni provided invaluable assistance with both application development and data loads, which were particularly challenging.
Throughout the engagement, Patni has demonstrated project commitment, technical expertise and flexibility in both scale and
schedule. Patni’s project management capabilities and its focus on quality contributed a great deal to the success of the proje ct. The
implementations have been nearly flawless. We are very pleased with our relationship with the Patni team.”
- Victoria Bragg, Manager - SAP Application Development, McCormick & Co Inc.

17
 Corporate
Review
Delivering the cutting-edge

Industry overview much higher rate.

Over the past few years, the role of IT has evolved from a According to the Gartner Dataquest (December 2003), the
support function into a strategic necessity for businesses. As it financial services (including insurance, banking, securities and
assumes a central role in an enterprise’s ability to respond to other financial services industries) and manufacturing (including
changing market trends, drive productivity across the value process and discrete manufacturing) industries account for
chain and increase competitiveness, IT decisions will approximately 37 per cent of global IT spending in 2002, a
increasingly be looked upon as a means to achieve business feature that is likely to continue. Patni, pursuing a customised
objectives. The growing importance of IT as a strategic tool will vertical strategy, has selected Insurance, Manufacturing and
result in good growth opportunities for IT service providers. Financial Services segments as its mainstay verticals. Through
Overall, worldwide IT services market is expected to grow from this focused effort and a large addressable market, we are
US$ 535.9 billion in 2002 to US$ 727.7 billion in 2007 a optimistic of generating sustainable growth in the future.
compound annual growth rate (CAGR) of 6.3 per cent,
according to Gartner Dataquest. India and the importance of offshore
Another structural change in the IT services landscape is the India has consolidated its position as the destination of choice
growing polarisation of global IT service providers as for corporations seeking offshore IT services. India’s National
customers are increasingly demanding value-creating business Association of Software and Service Companies (NASSCOM)
solutions as opposed to pure technology services. This is estimates that export revenues generated from the software and
resulting in large and business-critical deals being decided in services industry in India were approximately US$ 7.5 billion in
favour of IT service vendors with strong domain expertise. the year ended 31 March 2003 and expects these revenues to
In addition to domain expertise, customers are also taking reach US$ 28-30 billion in the year ended 31 March 2008.
other factors like large and stable operations, financial India is also an emerging destination for global IT-enabled
soundness, high level of process maturity and flawless delivery services and Business Process Outsourcing. NASSCOM
into account before the finalisation of their IT service partners. estimates that export revenues from the Indian IT enabled
In short, vendors are increasingly being evaluated by customers services industry were US$ 2.4 billion in the year ended
for their suitability to become long-term strategic partners. 31 March 2003 and expects revenues to reach
US$ 21-24 billion in the year ended 31 March 2008.
In the past few years, global corporations have reduced their IT
budgets due to the economic slowdown and focused on a The key factors contributing to this rapid growth include the
tighter management of their discretionary spending. Customers availability of skilled resources, lower personnel costs and high
have increasingly become cost-conscious and value discerning. quality processes. Select offshore vendors have created the
IT budgets have been directed towards improving returns on process expertise necessary to quickly ramp up operations
past IT investments and outsourcing. This facilitated offshore while maintaining quality levels. They have also demonstrated
outsourcing becoming mainstream. So even as the broad IT the ability to manage global delivery processes, which are
services market is growing only in the single-digit scale, strong important to competing in the global IT services outsourcing
offshore outsourcing companies like Patni are growing at a market.

18
 Vertical
Practices

Insurance. We offer a range of integrated services to global

insurance companies through a focused insurance SBU. Our
offerings include complete life-cycle services to life and health,
property and casualty and reinsurance carriers. The IT services we
provide span the entire insurance business chain such as sales and
marketing, distribution, policy services, claims, compliance,
accounting and reinsurance functions.

Our core services include: systems consolidation and integration of

mergers and acquisitions, policy administration conversions,
developing frameworks that reduce the cycle time and cost for
policy issue and claim handling, new product (life and retirement)
introductions, batch system optimisation, data mining and
development of business intelligence applications as well as legacy
support of several applications. We employ a strong group of
insurance industry experts who possess deep domain knowledge,
helping us create an enviable position in this vertical.

We are a member of insurance industry organisations such as Life

Office Management Association (LOMA), ACORD and the Revenue split by way of verticals
Insurance and Accounting Systems Association (IASA). Several of
our business analysts are LOMA- and INS-certified.

Our insurance clients include Fireman’s Fund Insurance Company, Others

Fortis Benefits Insurance Company, the GE Group and Guardian 21.7% Insurance
Life Insurance Company of America, among others. 33.7%
Financial
Manufacturing. We offer a range of services in manufacturing Services
16.1%
applications, product design and engineering, and embedded
Manufacturing
systems. We possess a rich experience in the consumer goods and 28.5%
durables, electronics, engineering, food processing and product

19
 industries. We provide full-lifecycle services targeted at various stages of the
manufacturing cycle such as core manufacturing systems (including packaged
applications), supply chain, demand chain and business intelligence. Our R&D service
offerings are geared towards the product design and engineering requirements of the
automotive, consumer electronics and wireless telecommunications sectors.

We possess an expertise in industrial automation and control systems, based on

embedded technologies. Our manufacturing clients include Electrolux IT Solutions, the
GE Group, HP, Schindler Elevator Ltd. and VF Corporation.

Financial services. Our financial services group possesses a wide array of offerings
targeted at the banking, financial services and securities segments. We focus on major
financial service areas like: retail and consumer banking, corporate and investment
banking, treasury and risk management, banking operations and process
management, card business solutions, mutual funds and capital market solutions, stock
exchange and brokerage house solutions. Our financial services practice is supported
by a team of experienced sales specialists and solution architects. In April 2003, we
acquired The Reference Inc., a US corporation with 44 personnel, to strengthen our
financial services industry practice. Our financial services clients include ABN AMRO
Services Company, the GE Group and several other leading US financial services
companies.

Patni also delivers solutions to a few other select verticals like energy & utilities and
retail, in which it has acquired significant domain knowledge over the years.

Energy and utilities. Our experience in the energy and utilities industry includes
product development support, concept-to-implementation project expertise and
automated mapping/facility mapping/geographic information systems services.

Retail. Our experience in the retail practice includes speciality and national chains, as
well as catalogue and Internet retailing. We also offer standard services such as global
trade item number assessment and redemption.

20
 Service
Offerings

Application development and maintenance. We custom design, develop and

install software for a variety of customer needs. Our projects range from single-platform,
single-site systems to multi-platform, multiple-site systems and typically include new
development and/or functional enhancements to existing software applications. We have
developed an expertise in mainframe, client-server and Internet technologies and on
emerging platforms such as .NET and J2EE. We offer services across the full development
lifecycle, including requirements analysis, design, implementation, integration and testing
for our projects. In specific situations, we may work jointly with our customers’ teams. We
perform application design, implementation and testing primarily in our offshore delivery
centres located in India, while requirements analysis, transition planning, user training and
deployment are performed at our clients’sites.

Our application maintenance services include optimising performance and modifying our
Customers’ systems, product and system support, preventive maintenance and migration to
newer technologies and platforms. We perform diagnostics to assess offshore outsourcing
potential and prepare a customised offshore roadmap. We share the benefits of our
continuous improvement initiatives to reduce the recurring maintenance cost for our
Revenue split by way of services
customers. Our application maintenance projects are typically long-term in nature. We
perform most of our maintenance and re-engineering assignments at our offshore delivery
3.7% 1.1%
centers located in India. In addition, we maintain small teams at our customers’ premises 4.7%
to co-ordinate support functions.

Enterprise application systems. We assess, evaluate, implement and maintain 12.9%

packaged software developed by global vendors in the areas of enterprise resource
planning (ERP), customer relationship management (CRM), supply chain management Application
(SCM), business intelligence and enterprise application integration. Our offerings comprise: development
and maintenance
consulting services, which include functional and technical assessment, architecture and 77.6%
technology consulting and training;
implementation services which include product implementation and rollout;
Enterprise application systems
application care services, which include post-implementation support, product Enterprise systems management
customisation, interface development and version upgrade; and Embedded technology services
Others, including Business Process
functional extensions and integration of diverse enterprise applications. Outsourcing

21
 We possess an expertise in ERP packages from BaaN, JD Edwards, Oracle, PeopleSoft
and SAP; CRM packages from Siebel; SCM packages from Manugistics, Oracle and
SAP; business intelligence packages including COGNOS, Business Objects, Oracle
Express and SAP BW; and enterprise application integration packages including IBM
MQ Series, TIBCO and Webmethods.

Enterprise systems management. We offer a comprehensive range of support

services for managing the IT infrastructure of our customers. We specialise in mainframe
and client-server operating systems, a wide range of data and voice networks, enterprise
management systems, infrastructure products from vendors like IBM, Sun, HP, Cisco,
3Com and Lucent, web-server products, network security products, disaster recovery and
business continuity management. These services are delivered from our offshore facilities
located in India and onsite locations. We intend to create service offerings for several
managed services configurations such as traditional, integrated and automated remote
monitoring, as well as management and reporting for enterprise wide infrastructure
environments that include servers, desktops, routers, other network equipment and
software applications.

Embedded technology services. We currently offer embedded technology services

to customers in industries comprising automation and instrumentation, consumer
electronics, information automation, automotive, mobile applications, software tools
and semiconductors. Our services include product development and sustenance, re-
engineering, verification, validation and testing, migration and porting. Our technology
expertise spans multiple-computing languages, including assembly language for various
micro-controllers and processors, real-time operating systems and digital signal
processing.

Business process outsourcing. We commenced our BPO service offering in 2002.

Our strategy is initially to enhance our domain expertise and concentrate on transaction
processing for our insurance and financial services clients and business processes in the
areas of finance and accounting, payment processing, human resources and technical
help-desks. We have invested in the following facilities: a 544-seat state-of-the-art
facility in Noida that serves as our primary delivery centre, a nascent centre in Woburn,
(MA, US) and a mail room and imaging centre in Hounslow, London (UK).

22
 Research
and
Development

Patni continuously strives to provide customers with superior solutions. It is

able to do this by developing technology-intensive and innovative solutions.
The Company’s solution and technology edge is being sharpened through
the Company’s Product and Technology Initiatives and Delivery Innovation teams.

Product and technology initiatives. The Product and Technology

Initiatives (PTI) group is focused on applied research and development
initiatives. It is responsible for identifying new opportunities and developing
solutions to address these opportunities. The group tracks on a regular basis
new technologies and market trends to identify such offerings. These offerings
can be targeted solutions or intellectual property that can be leveraged by
existing service offerings to deliver a superior solution. Focus groups are set
up in PTI which act as ‘Seeds for Centres of Excellence’ in a particular
technology domain or market segment.

Apart from R&D initiatives within the group, PTI has also established systems
and created a framework to harness talent among all our employees by
enabling them to participate in the innovation process of ideation,
evaluation and development of products or solutions.

The PTI group comprises software professionals supported by specialists from

industry practices and service offerings.

Delivery innovation. The Delivery Innovation group is focused on

operational excellence and serving customers in the most efficient manner.
This group’s activities include developing and refining methodologies, tools
and techniques, implementing metrics, improving estimation processes and
adopting new technologies. The Delivery Innovation group also acts as a
resource centre for two nascent service offerings: process consulting practice
and validation, verification and testing services. This group consists of experts
in process improvement and automation.

23
 Quality

The existence of a strong quality culture, facilitated by appropriate systems and frameworks,
is the backbone of any software solutions company. This translates into consistent, error-free
delivery and facilitates the achievement of a high customer satisfaction rate.

A quality-respecting culture also translates into a number of additional benefits:

_
It helps customers absorb technologies with speed.
_
It enhances employee skills.
_
It assists in the delivery of frontline solutions.
_ It rationalises business risks.
_
It drives brand value and enhances competitiveness through reduced costs and
enhanced revenues and margins.

PAtni’s quality certifications. A strict quality assurance and control programme drives
PAtni’s delivery model. In its journey towards delivery excellence, the Company has achieved
PAtni’s quality practices and
a number of milestones:
certifications will make it possible for
1995 ISO 9001: 1994
the Company to migrate to projects
1998 ISO 9001:1994 re-certification
of larger size and value-addition, and
1999 SEI-CMM Level 4
competently address the challenges
2000 SEI-CMM Level 5
arising out of a greater verticalisation.
2001 ISO 9001:2000
2002 P-CMM Level 3
Quality standards followed: Process frameworks for:
• SEI CMM Level 5 • Application maintenance 2003 SEI-CMMi Level 5 (Staged) SW/Ver 1.1
• Six Sigma • Conversion and migration
• ISO-9001:2000 • Custom application developmen
PAtni’s quality management system covers the following: a review and continuous
improvement of software development and allied processes, validation and verification of
Institutionalised Mature yet
work products as well as regular internal and external quality audits.
Quality initiatives flexible
Process frameworks
Over time, the development and application of sophisticated project management
methodologies have translated into a timely, consistent and accurate delivery of IT services.
This framework of structured methodologies, tools and techniques is further reinforced and
Proven Metrics based
Methodologies Performance strengthened by the Six Sigma programme embarked upon by the Company six years ago.
Continuous tracking of all the key metrices, such as effort variance, schedule variance, defect
density, defect removal efficiency and customer satisfaction surveys enable the Company to
Methodologies for:
• Offshore transition monitor its progress on the quality front. The historic trends of these metrices show significant
• Iterative & Interactive development
• Development progress, which validates the Company•s continuous quality improvement framework.
• Maintenance

24
 Marketing

Patni’s focused marketing initiative has to a large extent been assisted by its vertical
strategy. It has helped increase the Company’s share of the IT outsourcing budgets of
its existing customers as well as accelerated customer acquisitions.

Marketing strategy. The Company conducts a detailed analysis of its customers’

profiles: their existing and prospective businesses and the scope for relevant solutions.
This helps to strengthen customer retention, tightening the relevancy of deliverables
and scaling the account in line with the customer’s growth.

The Company has selected to focus on Global 1000 companies which have the
potential to generate for it annual revenues of US$ 4.0 million or higher, over a 24-30
month period.

The Company does not just market solutions: it aims to evolve one-off transactions
into long-term partnerships through a collaborative understanding of needs leading to
innovative and value-for-money solutions.

The Company expects to execute an offshore-driven outsourcing strategy, implement

fixed price and fixed price-SLA engagement models and explore new service offerings
to enhance its returns.

Sales execution. PAtni’s sales teams service the needs of select industries,
geographies and customers in tandem with its highly experienced set of industry
experts, sales specialists and solution architects.

The senior management and dedicated account managers own responsibility for
customer relationships and business development. This is facilitated through targeted
interaction with multiple contacts at different levels in the customer’s organisation. In
addition, for strategic and important customers, an identified senior executive holds the
responsibility for overall customer development and periodic reviews. Patni has an
incentive structure in place for its marketing team.

The Company also aggressively invests in the development of the Patni brand in its
Customers’ markets.

25
 People

Patni believes that growth over time is a function of employee attraction, training,
motivation and retention. In view of this, the Company has instituted strong human
relation practices and continuously strengthened the facets of human resource
management. This has manifested in the Company achieving a P-CMM Level 3 rating,
a strong endorsement of progressive people practices.

Recruitment. The Company recruits a large number of professionals from such

premier universities, colleges and institutes in India as the Indian Institutes of
Technology (IITs), regional engineering colleges (RECs) and the Indian Institutes of
Management (IIMs). The Company’s recruiting team visited over 50 campuses in
2003. New recruits were inducted into the organisation through a structured
programme, which involved extensive training and mentoring.

Training and Development. Patni has always focused on employee competency

enhancements and has been continuously making significant investments to meet the
growing requirements. For example the infrastructure addition in e-Learning space
Skill matrix facilitated learning for its employees ‘anytime-anywhere’ in the true sense.

At Patni, there are 11 dedicated classrooms (capacity 319 persons), eight computer
8.3% labs and nine online classrooms (total lab capacity of 418 computers). Apart from the
physical infrastructure, there is a vast array of software available to cater to the wide
27.8%
range of subjects. Its technical training comprises courses in over 100 subjects,
covering areas like Java Technologies, Microsoft Technologies, Oracle, Oracle
47.9% Applications, Application servers, ABAP, Mainframe, Data Warehousing and others. The
7.1%
behavioural training comprises about 32 courses in various areas like personal
8.9% development, communications, team development, leadership and mentoring.

With newer modes of course delivery available, like Virtual Classroom, the Company is
Graduate engineers able to deliver Instructor Led Training (ILT) programs even for onsite employees. In
Others
MBAs and equivalent
2003, 347 person days of training was imparted for participants from the US, Canada,
MCA/MCM UK and others using Virtual Classroom (apart from the 6258 person-days for the
Post-graduate engineers offshore population). This exercise was backed by 29 dedicated faculty members. The

26
Company plans 10 working days of training annually for each of its software
professionals.

Patni has developed a leadership framework called LEAP (Leadership Excellence At

Patni). This leadership framework sets the Gold Standard for leadership at Patni. It
embodies the organisation’s aspirations to emerge as a global leader in the software
industry and the consequent need to groom high calibre individuals to sustain and
drive this growth. The comprehensive performance and potential-based talent review
and evaluation process, carried out under the ‘LEAP’ programme, helps identify
individuals early for the fast track and ensures that Patni has a strong leadership
pipeline and depth.

Compensation. The Company believes that its software professionals are

competitively valued for salaries and perks. This compensation package is adjusted
annually, based on the industry salary correction, compensation surveys and individual
performance. The compensation also includes a variable component that is linked to
the corporate performance. Senior employees are eligible for variable compensation,
depending upon the attainment of pre-defined quarterly objectives. Patni’s employees
are also eligible for company stock option grants.

Retention. The Company provides a challenging entrepreneurial work environment

with multiple growth opportunities. Through the various programmes described above,
the Company seeks to identify and develop high-performers early in their careers. The
following measures were undertaken by the Company to contain attrition:
increase in the remuneration of offshore employees;
increase in contact programmes with employees;
implementation of the LEAP program;
introduction of skill-related bonuses;
creation of an on-line grievance redressal mechanism; and
adoption of an employee stock option plan in June 2003.

27
 Profile
of Key
Managers

Mr. Narendra K Patni, The Chairman and

Chief Executive Officer (described in Profile of
Directors)

Mr. Vijay P Khare, 46, Senior Vice President,

has a Bachelor’s degree in Engineering from the
Regional Engineering College, Nagpur, and a
Master’s degree in Computer Science from IIT,
Mumbai. He has been employed with Patni for 23
years.

Mr. Mrinal Sattawala, 49, Senior Vice

President, has a Bachelor’s degree in Electrical
Engineering from IIT, Mumbai, and a Master’s
degree in Business Administration from MacMaster
University, Canada. He has been employed with
Patni for 18 years.

Mr. Satish M Joshi, 48, Senior Vice President

and Chief Technology Officer, has a Bachelor’s
degree in Electrical Engineering from IIT, Mumbai,
and a Master’s degree in Computer Science. He
has been employed with Patni for 21 years.

Mr. Deepak Sogani, 38, Chief Financial Officer,

has a Bachelor’s degree in Electrical Engineering
from IIT, Delhi, and a post graduate diploma in
Management from IIM Ahmedabad. He is a CFA
charterholder from AIMR, USA. He has been
employed with Patni for six years.

Mr. Ajay Chamania, 41, Head of the Embedded

Technology Solutions business unit, has a
Bachelor’s degree in Electronics and
Telecommunications from REC, Bhopal. He has
been employed with Patni for 17 years.

28
Mr. Sunil Chitale, 40, Head of GE business unit, J. B. Institute of Management Studies, Mumbai. He
has a Bachelor’s degree in Electronics Engineering has been employed with Patni for around one year.
from the Institute of Technology, Benares Hindu
University. He has been employed with Patni for Mr. Kiran Patwardhan, 50, VP-Japan Regional
18years. Office, has a Bachelor’s degree in Chemical
Engineering from IIT, Mumbai, and a post graduate
Mr. Sanjiv Kapur, 44, Head of the BPO business diploma in Management from IIM, Kolkata. He has
unit, is a graduate from the University of Bombay. been employed with Patni for over four years.
Sanjiv has more than 20 years of experience in the IT,
Telecom and BPO industries and has been with Patni Mr. Milind Jadhav, 45, VP-Human Resources, is a
for over two years. Post-graduate in Personnel Management and Industrial
Relations from the Tata Institute of Social Sciences,
Mr. Sumedh Mehta, 39, Vice President responsible Mumbai. He has been employed with Patni for over
for financial services consulting practice, has a two years.
Bachelor’s degree in Electronics Engineering from
Southampton University, UK; a Master’s degree in Mr. Douglas W Fallon, 40, Head of Enterprise
Computer Science from Columbia University, NY, and Systems Management business unit, has a BS in
is an MBA from Babson College, US. He was Business Administration from Plymouth State College.
president and CEO of The Reference, Inc. Douglas has over 16 years’ experience in IT
consulting.
Mr. Milind S Padalkar, 46, Head of the Enterprise
Application Systems business unit, has a Bachelor’s Mr. Sukumar G Namjoshi, 55, Vice President
degree in Engineering from IIT, Delhi, and a post- Sales and Marketing, Europe and UK, has a
graduate diploma in management from IIM, Bachelor’s degree in Computer Science from IIT,
Ahmedabad. He has been employed with Patni for Mumbai and post-graduate qualifications in Business,
15 years. Industrial Management and International Marketing.
His experience spans over three decades during which
Mr. C R Krishna Shastri, 44, Head of the eBusiness he has handled international sales and marketing,
business unit, has a Bachelor’s degree in Electrical business development and manufacturing
Engineering from IIT, Kharagpur, and a Master’s degree assignments, including starting new ventures and
in Computer Science from IIT, Madras. He has been building a delivery infrastructure.
employed with Patni for 18 years.
Mr. Parag S Patel, 37, Head of Mergers &
Mr. Nand Kumar S Pradhan, 47, VP-Sales and Acquisitions and Alliances, has an MBA from Harvard
Marketing, Asia Pacific, South Africa and the Middle University, and a BAS in Electrical Engineering and
East, has a Bachelor’s degree in Electrical Engineering History from Stanford University. Parag manages
from the College of Engineering, Pune, and a PAtni’s inorganic growth and aligns the organisation
Master’s degree in Marketing Management from the strategically with industry partners.

29
 Directors'
Report

The Members,
Patni Computer Systems Limited
Your Directors have pleasure in presenting their Twenty Sixth Annual
Report together with audited statements of accounts for the year ended
31 December 2003:

Financial Results
31 Dec 2003 31 Dec 2002
(Rs In Lacs) (Rs In Lacs)

Sales and service income 53,701.06 44,821.48

Resulting in Profit Before Tax 19,287.16 19,097.75
Profit After Tax 16,605.56 16,414.74
Profit available for appropriation after adding
to it previous year’s brought forward 52,088.25 37,653.01
Appropriated as under:
Transfer to General Reserve 1,660.56 1,641.47
Dividend on Preference Shares (Previous Year @ 12.90%) NIL 79.52
Final Proposed Dividend on Equity Shares @ 50%
(Previous Year @ 30 %) 1,248.36 391.11
Corporate Tax on above Dividend 159.95 58.22
Balance Carried to Balance Sheet 49,019.38 35,482.69
52,088.25 37,653.01

Business Performance
Sales and service income
Sales and service income for the year ended 31 December 2003 amounted to Rs 53,701.06 Lacs
as against Rs 44,821.48 Lacs for the corresponding period last year registering a growth of
19.81 per cent.

Profits
The Company has posted the Profits after tax of Rs 16,605.56 Lacs for the year ended 31
December 2003 as against Rs 16,414.74 Lacs for the corresponding period last year registering a
growth of 1.16 per cent.

30
Dividend
The Board of Directors is pleased to recommend the payment of dividend of Re. one per
Equity Share of Rs 2/- (50 per cent) on the expanded capital. The dividend will absorb a sum
of Rs1408.31 Lacs including tax on dividend.

Business Overview
Your Company is one of the leading Indian providers of Integrated IT services, led by an
experienced management team. The Company’s mature global delivery model has enabled
it to acquire and develop long-term relationships with several clients, many of which are
Fortune 1000 clients. Your Company’s ability to manage large client relationships, strong
vertical expertise, delivery excellence, innovative engagement models and broad range of
technical services are some of its key differentiators.

Business Segments
Over the years, your Company has evolved in response to changing customer demands and
aspirations. Anticipating the need for vertical industry expertise, Patni focused on building
practices in various vertical industries including Insurance, Manufacturing and Financial
services. Pursuing this Verticalisation strategy, Patni has become a partner of choice for
providing business solutions with many of its strategic clients.

Your Company also has strong technical capabilities and its horizontal service offerings cover
a wide spectrum of IT services. These include services such as application development &
maintenance services, enterprise application systems, enterprise systems management,
research & development and business process outsourcing services. Your Company believes
that the company’s investment in developing vertical industry expertise and developing
multiple service offerings will help in achieving good business growth in the years to come.

Customer Relationships
Your Company believes that strengthening the relationships with its existing clients is as
important as adding new names to its clientele. The Company has been exploring new
opportunities with its existing clients and has also added 77 new clients during the Year
2003.

Personnel & Performance

Your Company has been able to develop an environment, which is conducive to high growth
and performance, a work culture that encourages meritocracy and rewards high performers
in an adequate and fair manner.

31
 In its endeavor to provide world-class environment, conducive for development and growth, to all its
employees, your Company has further refined its People Practices and Processes spreading in the
gamut of Recruitment, Performance Appraisal, Employee Development, etc. To achieve the objective
of right people for right jobs, an organisation wide competency mapping and development exercise
has been carried out. Your Company has also developed a leadership framework called ‘LEAP’
(Leadership Excellence at Patni) which helps in identification and development of leadership at Patni.
The LEAP framework lays down the competencies required at different levels of leadership and
facilitates the assessment and development of these competencies. It also provides a framework for
planning alternative career path for employees. The LEAP framework will ensure that Patni continues
to have strong leadership depth as business scales up.

Your Company aims to attract and retain the best human resources globally and manage the
growth of your organisation by implementing a strong, adaptive business model and a mature
management structure, to be able to scale aggressively without compromising flexibility,
responsiveness and reliability as a service partner.

Your Company had 7,096 employees as of 31 December 2003, which represents an increase of
1,526 employees over previous year ended 31 December 2002. The Company has made
attempts to augment its Senior Management team and set-up stronger business review and
customer review processes. It took significant steps to further enhance its sales organisation and
sales processes to enable it to compete effectively in the coming years.

Facility Expansion
During the year, your Company continued to invest in its facilities in order to keep up with its growth
requirements. Your Company acquired/leased new facilities in Mumbai and Pune admeasuring
70,042 sq.ft. The Company completed the civil and interiors work in its facilities in Chennai. The
Company has bought land in Airoli, Navi Mumbai with the intention to set-up ‘Patni Knowledge
PArk’ to meet its long-term needs of software development space in Mumbai. This will be one of the
city’s largest software parks. The campus will include world-class facilities for software development,
training, customer care, employee recreation, among others and would be a showcase for Patni’s
delivery capabilities. Upon completion, the Knowledge Park will be able to accommodate 17,000
professionals. Your Company is also in the process of setting up a facility at Bangalore.

New Initiatives
Your Company is continuously looking for ways to improve the industry knowledge so as to
provide customised and complex business solutions to its clients. The Company’s recent initiative
in this direction has been the acquisition of The Reference Inc., an entity with strong domain
capabilities in Financial services segment. Your Company is also strengthening its infrastructure

32
and delivery capabilities. All its development centers in Mumbai and Navi Mumbai were assessed at
level 5 of the Capability Maturity Model Integration (CMMi SE/SW version 1.1) by KPMG, which is
an endorsement of the robust processes it follows.

The Product Technology Group of the Company looks at new potential areas for service offerings.
Its existing focus areas include VLSI design services, enterprise integration and middleware, business
intelligence, web services, security and wireless telecommunications.

Your Company also intends to expand its footprint in various other geographies and has taken some
steps in this direction. Patni’s presence in Japan, Australia, Germany and Sweden in the recent
years has started showing encouraging results. Your Company is in the process of establishing its
operations in Canada, Singapore and is evaluating certain other countries for setting up of o ffices.

The Company has added infrastructure in the eLearning space to facilitate learning for its
employees. Using virtual classrooms for course delivery, Patni is able to deliver Instructor Led
Training (ILT) programs even for onsite employees. In 2003, 347 person days of training was
imparted for participants from the US, Canada, UK, and others using this mode of course delivery.

Accolades
Your Company bagged the coveted ‘The Best Knowledge Management Solution’ award, instituted by
Open Textra Corporation, a leading global supplier of collaboration and knowledge management
software. Your Company won the award in competition with some of the reputed names in the
industry such as British Telecom, T-mobile, Siemens Financial Services and Hutchison 3G.

Acquisitions
Your Company has completed its first acquisition in April 2003. Your Company acquired The
Reference Inc., a company incorporated in Massachusetts, USA for a consideration of about US$
7.5 million, through its wholly owned US subsidiary, Patni Computer Systems Inc. The Reference Inc.
has provided your Company with specialised skills and domain expertise in the financial services
industry segment.

Your Company shall continue to pursue its inorganic strategy to acquire the domain expertise in
chosen verticals and to acquire technical expertise in identified areas.

The operations of The Reference Inc. have been integrated with those of your Company. The
Reference Inc. forms the core of the Company’s new Financial Services Business Unit.

Initial Public Offer

In February 2004, your Company completed its Initial Public Offer (IPO) in India and listed its
shares on the National Stock Exchange of India Limited (NSE) and The Stock Exchange, Mumbai
(BSE). The IPO was made through a 100 per cent Book Building method and consiste d of a fresh

33
 issue of 13,415,200 equity shares of Rs 2/- each and Offer for Sale of 5,324,000 equity shares
of Rs2/- each by the existing shareholders at an Offer Price of Rs 230/- each.

The IPO received an overwhelming response from the investors. The issue was subscribed to about
22 times.

Share Capital
Patni ESOP 2003
The Shareholders of the Company had approved its Employee Stock Option Plan (Patni ESOP
2003) in June 2003. The Patni ESOP 2003 is administered by the Compensation Committee of
the Board. In terms of the Plan, the Company has granted Options to eligible e mployees from
time to time.

Details of the grants as on 31 December 2003

a. Total no. of options covered under the Plan 11,142,085

b. Total no. of options granted 2,743,400
c. Pricing formula The Company was not publicly listed
as on the date of grant of stock
options. The stock options were
granted at the Fair Market Value as
determined by an independent agency.
d. Exercise price Rs 145/- being the Fair value as on
the date of the grant.
e. Vesting schedule 25% each on completion of 12, 24,
36 and 48 months respectively from
the date of grant of options
f. Options vested Nil
g. Options exercised Nil
h. Options lapsed 9,700
i. Variation of terms of options Nil
j. Money realised by exercise of options Nil
k. Total number of options in force 2,733,700
l. Person-wise details of options granted to:
i. directors Nil
ii. key managerial employees 528,900

34
 iii. any other employee who received a grant
in any one year of options amounting to 5%
or more of option granted during that year Nil

iv. identified employees who are granted options,

during any one year equal to or exceeding 1%
of the issued capital (excluding outstanding
warrants and conversions) of the Company
at the time of grant Nil

m.Diluted Earning Per Share (EPS) pursuant to issue

of shares on exercise of options Rs 14.90 (for the fiscal year 2003)

Subsidiary Companies
The Company has three wholly owned subsidiaries viz. Patni Computer Systems (UK) Limited, Patni
Computer Systems GmbH and Patni Computer Systems, Inc.

By virtue of provisions of Section 4 of the Companies Act, 1956, The Reference Inc. is also a
subsidiary of the Company, as it is wholly owned by Patni Computer Systems, Inc, a wholly owned
subsidiary of the Company.

The reports and accounts of the Subsidiary Companies along with the statement pursuant to
Section 212 of the Companies Act, 1956 are annexed.

Directors
In line with requirements of Corporate Governance, Mr. Anupam Puri, Mr. Arun Duggal,
Mr. Pradip Shah, Mr. Ramesh Venkateswaran and Ms. Susan Esserman, Independent Directors,
were appointed as Additional Directors of the Company on 12 November 2003 under Section
260 of the Companies Act, 1956 to hold office until the ensuing Annual General Meeting of the
Company. On 5 April 2004, Mr. Michael Cusumano was appointed as an Additional Director of
the Company. The Company has received the notices in writing from members proposing the
candidatures of Mr. Anupam Puri, Mr. Arun Duggal, Mr. Pradip Shah, Mr. Ramesh Venkateswaran
and Dr. Michael Cusumano as directors of the Company in terms of Section 257 of the
Companies Act, 1956. The brief profile of each director is given in the notice convening the
Annual General Meeting.

Mr. William Grabe is retiring by rotation and is eligible for reappointment and offers himself for
the reappointment.

35
 During the year, Mr. Scott Bayman and Mr. John Wong resigned as directors of the Company w.e.f
12 November 2003. Ms. Susan Esserman resigned as director of the Company w.e.f. 27 April 2004. The
Board places its appreciation of services rendered by them during their tenure of directorship.

Corporate Governance
Your Company follows the principles of effective corporate governance practices. The Company has taken
steps to comply with the requirements of Clause 49 of the Listing Agreement with the S tock Exchanges. A
report on Corporate Governance has been given under separate section titled ‘Report on Corporate
Governance’ and forms a part of the Annual Report.

Insider Trading Regulations

The Securities Exchange Board of India (SEBI) has framed the Insider Trading Regulations, 1992 as amended
till date, which aims at prevention of insider trading. As required under these Regulations, the Company has
framed the Code of Conduct for prevention of insider trading and code for corporate disclosures in February
2004.

Particulars of Employees
Particulars of employees as required under 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 being sent to all the
shareholders of the Company excluding the aforesaid information and the said particulars are made available
at the registered office of the Company. The members interested in 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 Bharat S. Raut & Co., Chartered Accountants, the present auditors of the Company, retire at the
conclusion of the ensuing Annual General Meeting and have confirmed their eligibility and willingness to
accept the office of the Auditors, if reappointed.

Directors’ Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm that in the preparation of
the annual accounts, the accounting standards issued by the Institute of Chartered Accountants of India and
requirements of the Companies Act, 1956, have been followed; appropriate accounting policies have been
selected and applied consistently, and have 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 2003 and the

36
Profit of the Company for the period 1 January 2003 to 31 December 2003. Proper and sufficient care has
been taken 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. The annual accounts have been prepared 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) TechnologyAbsorption
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) ForeignExchangeEarnings/Outgo
(Rs in Lacs)
Earnings in Foreign Currency on account of:
Export Sale 53,474.43
Others 57.84
Total Earnings 53,532.27
Expenditure in Foreign Currency on account of:
Stores & Spares 21.88
Capital Goods 1,057.85
Travelling Expenses 649.33
Overseas Employment Expenses 1,490.75
Professional Fees & Consultancy Charges 207.87
Subscription & Registration Fees 17.22
Other Matters 228.29
Net Earnings 49,859.08

For and on behalf of the Board of Directors

Narendra K Patni
Dated 27 April 2004 Chairman & CEO

37
 Report on Corporate
Governance

Philosophy on Corporate Governance

The Company’s philosophy on corporate governance encompasses achieving the balance between shareholders’
interests and corporate goals through the efficient conduct of its business and meeting its stakeholder obligations in
a manner that is guided by transparency, accountability and integrity.

At Patni Computer Systems Limited, our endeavour is to adopt best governance and disclosure practices, which in
our view are critical to enhance shareholders’ trust in the Company. The Company is in compliance with the norms
and disclosures that have to be made on corporate governance under the Listing Agreement with the Stock
Exchanges on which shares of the Company are listed.

Board of Directors
Composition of Directors
The Board of Directors of the Company has an optimum mix of executive and non executive directors with the
majority being independent directors to maintain the independence of the Board.

At present the Company’s Board consists of nine members, of whom, two are executive directors and six are
non executive directors, headed by an executive chairman.

Other details relating to the Board are as follows:

Name of the Director Position/Category Number of Directorships
in other Companies
Mr. Narendra K Patni* Chairman & CEO 4
Mr. Gajendra K Patni* Executive Director 3
Mr. Ashok K Patni* Executive Director 6
Mr. William Grabe Non Executive Director 11
Mr. Anupam Puri Independent Director 6
Mr. Arun Duggal Independent Director 5
Mr. Pradip Shah Independent Director 17
Mr. Ramesh Venkateswaran Independent Director 1
Dr. Michael Cusumano Independent Director 2
Mr. Abhay Havaldar Alternate Director to Mr. William Grabe 2
*Promoter
Notes:
1. During the year 2003, Mr. John Wong and Mr. Scott Bayman resigned as directors w.e.f. 12 November 2003.
2. Ms. Susan Esserman was appointed as an additional director w.e.f. 12 November 2003. Ms. Esserman resigned as a director w.e. f. 27 April 2004.
3. Dr. Michael Cusumano was appointed as an additional director w.e.f. 5 April 2004.

38
Number of Board Committees of the Company and other companies in which Director is a
member or chairman

Name of the Director Number of Number of Board Number of memberships/

Board Committees Committees on chairmanships in committees
on which Member which Chairman of other companies
Mr. Narendra K Patni 2 NIL NIL
Mr. Gajendra K Patni NIL NIL 1
Mr. Ashok K Patni NIL NIL 2
Mr. William Grabe 4 NIL NIL
Mr. Anupam Puri 2 2 5
Mr. Arun Duggal 2 2 1
Mr. Pradip Shah 1 NIL 10
Mr. Ramesh Venkateswaran 2 NIL NIL
Dr. Michael Cusumano 1 NIL NIL
Note: The Committee memberships/chairmanships held by the directors in other companies are in compliance with the requirements of clause 49 of
the Listing Agreement. For this purpose, Audit Committee, Remuneration Committee and Shareholders/Investors Grievance Committee have been
considered.

Number of Board Meetings held and the dates on which such meetings were held
Six board meetings were held from 1 January 2003 till date with a time gap of not more than four months between
any two meetings and the required information as stipulated under clause 49 of the Listing Agreement was made
available to the members of the Board.

Attendance of each director at the Board Meetings and the last AGM

Attendance of each director at the Board Meetings and the Last Annual General Meeting

Name of the Director Board Meetings Annual General

Feb10 Jun 6 Aug 12 Dec 8 Mar 2 Apr 27 Meeting
2003 2003 2003 2003 2004 2004 June 30, 2003

Mr. Narendra K Patni X

Mr. Gajendra K Patni

Mr. Ashok K Patni

39
 Attendance of each director at the Board Meetings and the Last Annual General Meeting

Name of the Director Board Meetings Annual General

Feb10 Jun 6 Aug 12 Dec 8 Mar 2 Apr 27 Meeting
2003 2003 2003 2003 2004 2004 June 30, 2003

Mr. William Grabe 1 1 1

X
Mr. John Wong 2
NA NA NA X
Mr. Scott Bayman 2
NA NA NA X
Mr. Anupam Puri 3
NA NA NA AC AC X NA
3
Mr. Arun Duggal NA NA NA NA
3
Mr. Pradip Shah NA NA NA NA
Ms. Susan Esserman 4
NA NA NA AC X NA NA
3
Mr. Ramesh Venkateswaran NA NA NA NA
Dr. Michael Cusumano 5
NA NA NA NA NA X NA

1. Mr. Abhay Havaldar, alternate director to Mr. William Grabe, attended the Meeting.
2. Resigned w.e.f. 12 November 2003.
3. Appointed as an additional director w.e.f. 12 November 2003.
4. Appointed as an additional director w.e.f. 12 November 2003 and resigned w.e.f. 27 April 2004.
5. Appointed as an additional director w.e.f. 5 April 2004.

- Attended the meeting.

X … Did not attend the meeting.
NA - Not applicable, as was not director on the date of the meeting.
AC - Attended via audio/video conferencing.

Audit Committee
Brief description of terms of reference
The Audit Committee was set up on 19 December 2001 and reconstituted on 12 November 2003 in line with
corporate governance norms. The Audit Committee has three non executive members with the majority of them
being independent. The chairman of the committee is an independent director.

The Audit Committee was duly constituted on the following terms of reference:

a) Overview of the Company’s financial reporting process and the disclosure of its financial information to ensure
that the financial statement is correct, sufficient and credible.

b) Recommending the appointment and removal of external auditor, fixation of audit fee and also approval of
payment for any other services.

c) Reviewing with management the annual financial statements before submission to the Board, focusing primarily
on …

40
 Any changes in accounting policies and practices.

Major accounting entries based on exercise of judgment by management.

Qualifications in draft audit report.

Significant adjustments arising out of audit.

The going concern assumption.

Compliance with accounting standards.

Compliance with stock exchange and legal requirements concerning financial statements.

Any related party transactions i.e. transactions of the Company of material nature, with promoters or the
management, their subsidiaries or relatives etc. that may have potential conflict with the interests of the
Company at large.

d) Reviewing with the management, external and internal auditors, and the adequacy of internal control systems.

e) Reviewing the adequacy of the internal audit function, including the structure of the internal audit department,
staffing and seniority of the official heading the department, reporting structure coverage and frequency of
internal audit.

f) Discussion with internal auditors on any significant findings and follow up thereon.

g) Reviewing the findings of any internal investigations by the internal auditors into matters where there is
suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the
matter to the Board.

h) Discussion with external auditors before the audit commences, about the nature and scope of audit as well as
post-audit discussion to ascertain any area of concern.

i) Reviewing the Company’s financial and risk management policies.

j) To look into the reasons for substantial defaults in payment to depositors, debenture holders, shareholders (in
case of non-payment of declared dividends) and creditors.

Powers assigned to the Audit Committee

The following powers are vested with the Audit Committee:
a) To investigate any activity within its terms of reference.
b) To seek information from any employee.
c) To obtain outside or other professional advice.
d) To secure attendance of outsiders with relevant expertise, if it considers necessary.

41
 Review of information by the Audit Committee
As per the requirement of clause 49, the Audit Committee is responsible for reviewing the following information:

a) Financial statements and draft audit report, including quarterly / half-yearly financial information.
b) Management’s discussion and analysis of financial condition and results of operation.
c) Reports relating to compliance with laws and to risk management.
d) Management’s letters / letters of internal control weaknesses issued by statutory / internal auditors.
e) Records of related party transactions; and
f) The appointment, removal and terms of remuneration of the chief internal auditor shall be subject to review by
the Audit Committee.

Composition, names of members and Chairman

Name of the Member Designation Category

Mr. Arun Duggal* Chairman Independent, Non Executive Director
Mr. Pradip Shah* Member Independent, Non Executive Director
Mr. William Grabe*# Member Non Executive Director
*Appointed on 12 November 2003.
# Mr. Abhay Havaldar as an alternate director to Mr. William Grabe.

Meetings and attendance

Five meetings were held from 1 January 2003 to till date.

Name of the Member Audit Committee Meetings

Jun 5, 2003 Aug 12, 20 03 Dec 8, 20 03 Mar 2, 2004 Apr 27, 2004

Mr Arun Duggal 1 NA NA
Mr. Pradip Shah 1 NA NA
1 2 2
Mr. William Grabe NA NA
3
Mr. Scott Bayman NA NA NA
3
Mr. Gajendra K Patni NA NA NA
Mr. Narendra K Patni 3 NA NA NA
3
Mr. John Wong NA NA NA

1. Appointed as a member of the Audit Committee w.e.f. 12 November 2003.

2. Mr. Abhay Havaldar, an alternate director to Mr. William Grabe, attended the meeting.
3. Ceased to be a member of the Audit Committee w.e.f. 12 November 2003.

- Attended the meeting.

X … Did not attend the meeting.
NA - Not applicable, as was not director on the date of the meeting.

42
Remuneration Committee
Brief description of terms of reference
The Remuneration Committee was set up on 12 November 2003. The main function of the committee is to
determine on behalf of the Board and the shareholders, the Company’s policy on specific package for executive
directors including pension rights and any compensation payment.

The committee has three non executive members with the majority of them being independent. The chairman of the
committee is an independent director.
Composition, names of members and Chairman
Name of the Member Designation Category
Mr. Anupam Puri Chairman Independent, Non Executive Director
Mr. Ramesh Venkateswaran Member Independent, Non Executive Director
Mr. William Grabe* Member Non Executive Director
*Mr. Abhay Havaldar as an alternate director to Mr. William Grabe.

Remuneration policy
The Remuneration Committee and the Compensation Committee are responsible for devising the compensation
package to the Executive Directors and the Independent Directors of the Company.

The details of remuneration payable to Directors are set out below:

Details of remuneration to Directors

A)Remuneration
Details of remuneration payable to Mr. G K Patni and Mr. A K Patni, the Executive Directors of the Company, are
summarised below:

Name Remuneration (in Rs)*

Mr. Gajendra K Patni 19,462,729.03
Mr. Ashok K Patni 19,413,315.02

* The remuneration mentioned above includes salary & allowances, perquisites, contribution to provident fund and pension.

B)Commission
The details of commission payable for the period 12 November 2003 to 31 March 2004 are as under:

Name of Director Commission (In US$)

Mr. Anupam Puri 4,400
Mr. Arun Duggal 8,620
Mr. Pradip Shah 8,620
Mr. Ramesh Venkateswaran 6,510
Ms. Susan Esserman 4,400

43
 These payments are subject to the approval of the members of the Company by way of Special Resolution at the
ensuing Annual General Meeting.

It is also proposed to revise, with effect from 1 April 2004, the commission payable from US$ 3000 per quarter to
US$ 5000 per quarter.

C) Sitting Fees
The Independent Directors are paid a sitting fee of Rs 20,000, being the maximum amount permissible under the
present regulations, for attending the Board /Committee meetings.

D) Stock Options to the Independent Directors

The Company had introduced its Employee Stock Option Plan (Patni ESOP 2003) for employees of the Company/
subsidiaries including the working and Non Executive Directors of the Company in terms of SEBI Guidelines on
ESOP. In pursuance of Patni ESOP 2003, the Company has already issued Grants to certain eligible employees as
approved by the Compensation Committee. The Board at its meeting held on 27 April 2004 has approved the
proposal to issue such Grants to the Independent Directors under the said Patni ESOP 2003 as under:

One time initial grant of 20,000 Options on joining the Board of the Company, and
5,000 Options every year at the anniversary date of joining.

Accordingly, it is proposed to grant the Options to the following Independent Directors:

Name of Director No. of Options

Mr. Anupam Puri 20,000

Mr. Arun Duggal 20,000
Dr. Michael Cusumano 20,000
Mr. Pradip Shah 20,000
Mr. Ramesh Venkateswaran 20,000

These Options are proposed to be granted on 1 July 2004 (Grant date) at the fair market valu e as of that date.

Shareholders’/Investors Grievance Committee

Shareholders’ / Investors Grievance Committee was set up on 12 November 2003. The committee consists of three
directors, the majority being non executive directors. The chairman of the committee is an independent director.

Composition, names of the members and Chairman

Name of Member Designation Category

Mr. Arun Duggal Chairman Independent, Non Executive Director
Mr. Narendra K Patni Member Chairman & CEO

Mr. William Grabe* Member Non Executive Director

*Mr. Abhay Havaldar as an alternate director to Mr. William Grabe.

44
Name and Designation of Compliance Officer
Mr. Arun Kanakal, Company Secretary
Akruti, MIDC Cross Road No.21,
MIDC, Andheri (East),
Mumbai - 400 093.
Tel No. 91 022 56930500
Fax No. 91 022 28321750
E-mail: arun.kanakal@patni.com

Details of investors’ queries/complaints received and resolved from 21 February 2004 to

30 April 2004
The above has been provided under Shareholders’ Information.

Compensation Committee
The Compensation Committee was set up on 30 July 2001 and reconstituted on 12 November 2003. The
Compensation Committee consists of five directors, the majority being Non Executive Directors. The chairman of
the committee is an Independent Director.
The main function of the Compensation Committee is to administer Employee Stock Option Plan (ESOP).
Composition, names of members and Chairman

Name of Member Designation Category

Mr. Anupam Puri Chairman Independent, Non Executive Director
Mr. Narendra K Patni Member Chairman & CEO
Mr. William Grabe* Member Non Executive Director
Dr. Michael Cusumano Member Independent, Non Executive Director
Mr. Ramesh Venkateswaran Member Independent, Non Executive Director
*Mr. Abhay Havaldar as an alternate director to Mr. William Grabe.
Note: Ms. Susan Esserman, member of the compensation committee, resigned w.e.f. 27 April 2004.

General Body Meetings

Details of last three Annual General Meetings of the Company
Annual General Meetings for last three years
Date 30 June 2003 27 June 2002 29 June 2001
Location Registered Office: Registered Office: Registered Office:
S-1A, F-1, S-1A, F-1, S-1A, F-1,
Irani Market Compound, Irani Market Compound, Irani Market Compound,
Yerawada, Pune-411 006 Yerawada, Pune-411 006 Yerawada, Pune-411 006
Time 11.30 am 11.30 am 3.30 pm

45
 Whether any special resolution was passed in the previous three AGMs?
Yes.

Whether any special resolution was passed last year through postal ballot … details of voting
pattern?
Not applicable.

Who conducted the postal ballot?

Not applicable.

Whether any special resolution is proposed to be conducted through postal ballot?

Not required.

What was the procedure for postal ballot?

Not applicable.

Disclosures
Disclosures on materially significant related party transactions that may have potential conflict
with the interests of the Company
These Disclosures have been made under ‘Related Party Transactions’ in notes to financial statements of the
Company, which form part of this Annual Report.

Disclosure of accounting treatment, if different from that prescribed in accounting standards

with explanation
Not applicable.

Details of non-compliance by the Company, penalties and strictures imposed on the Company
by the stock exchange or SEBI or any statutory authority, on any matter related to capital
markets, during the last three years
The shares of the Company were listed on 25 February 2004. No penalties and strictures have been imposed on
the Company by any stock exchange, SEBI or any statutory authority on any matter related to capital markets during
the last three years as there was no non-compliance by the Company in general.

Shareholders Information
Date and time of AGM : 29 June 2004 at 11.30 a.m.

Venue : Hotel Le Meridien, R.B.M.Road, Opposite Pune Railway Station, Pune - 411001.

Financial year : 1 January 2003 to 31 December 2003.

Book closure dates : 24 June 2004 to 29 June 2004 (both days inclusive).

46
 Registered office : S-1A, Irani Market Compound, Yerawada, Pune … 411 006.

Dividend payment date : On or after 5 July 2004, but within the statutory time limit of 30 days.

Compliance officer : Mr. Arun Kanakal, Company Secretary is the Compliance Officer of the Company.

Website address : www.patni.com

Means of Communication
Under the Investors’ section, the Company’s website www.patni.com contains:

Financials …
1.The audited quarterly results and annual financial statements i.e. Balance Sheet, Profit & Loss Account including
schedules and notes under US GAAP and Indian GAAP (consolidated).

2.Quarterly Fact sheet.

3.Transcript of conference calls held every quarter.

Current shareholding pattern - The shareholding pattern as on the last day of last quarter.

Shareholder information - It contains details on process to be adopted in case of routine investor queries like
share transfer system, dematerialisation of shares, transmission, address change, name change, transposition of
name in shares, etc.

News and events The

- Investors section contains the press releases and transcripts of conference calls.

As a matter of good corporate disclosure, the Company sends all news to both stock exchanges before they are
published. This appears under ‘News and Events’ sub-section in Investors section.

The Company is registered with Electronic Data Information Filing and Retrieval System (EDIFAR) website maintained
by National Informatics Centre (NIC) Delhi. The Company is sharing the relevant information in that website.

All the press releases and events can be accessed under the heading ‘News and Events’in Investors section on the
Company’s website.

The quarterly and annual audited financial results are generally published in Economic Times, Business Standard,
Free Press Journal (the National newspapers) and Loksatta (Vernacular newspaper).

Listing of shares
The Company came out with a Public Issue of 18,739,200 equity shares comprising fresh issue of 13,415,200
equity shares of Rs 2 each at a price of Rs 230 for cash aggregating R s 3085.5 million and offer for sale of
5,324,000 equity shares of Rs 2 each at a price of Rs 230 for cash aggregating Rs 1224.5 million, throu gh a 100
per cent book-building mechanism. The offer constitutes 15 per cent of the fully diluted post offer paid up capital of
the Company. The offer was open from 27 January 2004 to 5 February 2004. The shares of the Company were
listed on 25 February 2004. The share price opened at Rs 305.0 in BSE and Rs 255.1 in NSE .

47
 As on 31 March 2004, there were 85,937 shareholders of our equity shares.

The Company’s shares fall under category B1 of scrip in BSE and are listed on the following stock
exchanges:

1. The Stock Exchange, Mumbai

Phiroze Jeejeebhoy Towers
Dalal Street, Fort
Mumbai … 400 001.
Tel.No. +91-22-22721233 / 1234
Fax No. +91-22-22723719
E-Mail : listing@bseindia.com
Website: www.bseindia.com

2. National Stock Exchange of India Limited

Exchange Plaza, 5th Floor
Plot No.C/1, G Block,
Bandra Kurla Complex, Bandra (E)
Mumbai … 400 051.
Tel.No.+91-22-26598235 / 36
Fax No. +91-22-26598237 / 38
E-Mail : cmlist@nse.co.in
Website : www.nseindia.com

Listing fees for the year 2004-05 have been paid to both the stock exchanges where the Company •s shares are
listed.

Stock code :
BSE : 532517
NSE : PATNI
ISIN nos. in NSDL and CDSL : INE660F01012
Index scrip : BSE 500, BSE IT

Dematerialisation of equity shares

The Company’s shares are under compulsory dematerialisation list and can be transferred through depository
system. The Company has entered into a tripartite agreement with National Securities Depository Ltd (NSDL) and
Central Depository Services (India) Limited (CDSL) to facilitate the dematerialisation of shares. As on 31 March
2004, 83.92 per cent shares are held in electronic form.

48
Kindly address your investor queries to:

Karvy Computershare Private Limited

(Formerly Karvy Consultants Limited)
Unit: Patni Computer Systems Limited
Karvy House
46 Avenue 4, Street No.1
Banjara Hills,
Hyderabad … 500 034.
Tel.No. +91-40-2331 2454
Fax No. : +91-40-2331 1968
E-mail : patni@karvy.com OR mailmanager@karvy.com
www.karvycomputershare.com

OR

Ms. Vaishali Kariya

Manager-Investor Relations
Patni Computer Systems Limited
Akruti, MIDC Cross Road No.21
Andheri (East)
Mumbai … 400 093.
Tel.No.+91-22-5693 0500
Fax No.+91-22-2832 1750
E-Mail : investors@patni.com

Financial calendar (estimated)

Q1FY 2004 - 27 April 2004
AGM for 2003 - 29 June 2004
Q2FY 2004 - 27 July 2004
Q3FY 2004 - 27 October 2004
Q4FY 2004 - 27 January 2005

Dividend
As per the recommendation of the Board of Directors, the Company has declared dividend @5 0 per cent on post
issue capital. This dividend, if approved at the Annual General Meeting, shall be paid to all members whose names
appear on the Register of Members as on 24 June 2004.

49
 Dividend through Electronic Clearing Service (ECS)
The Company shall provide the facility of ECS to those shareholders residing in the following locations:

Ahmedabad, Bangalore, Bhubaneshwar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kolkata, Mumbai,
Nagpur, New Delhi, Pune and Thiruvananthapuram.

In the balance locations, the Company shall issue dividend warrants. These warrants will be valid for a period of 90
days i.e. upto expiry of 3 October 2004. On the expiry of the validity period of the dividend warrants, these may be
sent back to our Registrars and Transfer Agents for issue of demand drafts in lieu of the same at:

Karvy Computershare Private Limited

(Formerly Karvy Consultants Limited)
Unit: Patni Computer Systems Limited
Karvy House
46 Avenue 4, Street No.1
Banjara Hills,
Hyderabad … 500 034.
Tel.No. +91-40-2331 2454
Fax No. : +91-40-2331 1968

Patni Insider Trading Policy

The Company strictly observes the Patni Insider Trading Policy adopted by it. The Company announces quiet period
when no trading is allowed by a select group of employees, holding key information about the Company.

The Company has a policy of observing quiet period from 15 days before the end of the quarter till two trading
days after the results are published.

The Company is in the process of implementing strict monitoring of insider trading system and shall be strict on
employees who violate the said rules.

Details of queries/complaints received and resolved from 21 February 2004 to 30 April 2004

Investor Complaints from 21 Feb ‘04 to 30 April ‘04 Received Attended to Pending
Non Receipt of Refund Order 652 652 0
Receipt of Refund Orders for corrections 106 106 0
Complaints Received from SEBI 24 24 0
Complaints Received from Stock Exchanges 6 6 0
Total 788 788 0

50
Shareholding Pattern as on 31 March 2004

Distribution of Share Holding (Quarter ending) as on 31.03.2004

Category No. of % of
Shares Held Holding

A Promoters Holding
1 Promoters
Indian Promoters 18,153,000 14.54
Foreign Promoters 20,364,198 16.31
2 Persons acting in Concert 25,475,604 20.41
Sub Total 63,992,802 51.26
B Non Promoters Holding
C Institutional Investors
1 Mutual Funds and UTI 1,901,445 1.52
2 Banks, Financial Institutions, Insurance Companies
(Central/State Govt. Institutions/Non Govt. Institutions) 483,435 0.39
3 Foreign Institutional Investors 7,019,877 5.62
Sub Total 9,404,757 7.53
D Others
1 Private Corporate Bodies 1,782,746 1.43
2 Indian Public 7,187,128 5.76
3 NRIs/OCBs 140,462 0.11
4 Any Other :
a) Trust 2,700 0.00
b) Clearing Members 221,407 0.18
c) Other Bodies Corporates 42,104,047 33.73
Sub Total 51,438,490 41.21
Grand Total 124,836,049 100.00

51
 Distribution Schedule as on 31 March 2004
No. of shares No. of shareholders % of shareholders No. of shares % of shares
1- 5000 84,176 97.95 5,320,536 4.26
5001 -10000 813 0.95 630,959 0.51
10001 - 20000 430 0.50 596,105 0.48
20001 -30000 148 0.17 372,657 0.30
30001 -40000 90 0.10 310,637 0.25
40001 -50000 41 0.05 189,992 0.15
50001 -100000 98 0.11 666,941 0.53
100001 And Above 141 0.16 116,748,222 93.52
Total 85,937 100.00 124,836,049 100.00

Stock Market data relating to shares listed in India from 25 February to 30 April 2004
Sensex Share price At BSE S & P CNX Nifty Share price At NSE
Month High Low High Low Volume Value High low High Low Volume Value
(Nos.mn.) (Rs mn.) (Nos.mn.) (Rs mn.)
Feb -04 5747 5552 305 232 5 1256 1834 1761 301 231 9 2335
Mar-04 5951 5325 260 200 6 1511 1899 1670 259 198 13 2936
Apr-04 5979 5599 243 202 4 940 1912 1771 244 201 9 1944

Source: Data pertaining to BSE is obtained from www.bseindia.com and pertaining to NSE is obtained from www.nseindia.com.

Patni Share price Vs. Sensex from 25 February to 30 April 2004

120

100

80
BSE price
60
Sensex
40

20

0
25 Feb 04

1 Mar 04

6 Mar 04

16 Mar 04

21 Mar 04

26 Mar 04

31 Mar 04

10 Apr 04

15 Apr 04

20 Apr 04

25 Apr 04

30 Apr 04
11 Mar 04

5 Apr 04

52
Market capitalisation
As on 31 March 2004, at The Stock Exchange, Mumbai (BSE), the closing price was Rs 214.95 and the market
capitalisation was Rs 26, 833.51 million.
Outstanding ADR / GDR - Nil.

The addresses of offices / locations are given elsewhere in this Annual Report

Key Ratios (As per US GAAP)

2001 2002 2003
combined consolidated consolidated
Ratios - growth
Revenues 40.9% 32.1% 33.3%
Operating profit 25.5% 40.1% 7.4%
PAT 18.7% 36.8% 17.2%
Basic and Diluted EPS 4.2% 8.0% 40.7%
Ratios - financial performance
Cost of revenues / Revenues 57.6% 53.8% 59.4%
Selling, general and administrative expenses / Revenues 20.1% 22.0% 21.7%
Operating profit / Revenues 22.0% 23.4% 18.8%
PBT / Revenues 21.6% 23.7% 20.0%
Taxation / Revenues 3.1% 4.6% 3.2%
PAT / Revenues 18.5% 19.1% 16.8%
Return on capital employed (ROCE) (PBIT / Average Capital employed) 44.1% 42.2% 33.4%
Return on average networth (RONW) (PAT / Average Networth) 43.5% 36.0% 28.1%
Ratios - Balance Sheet
Debt Equity Ratio 0.2 0.0 0.0
Debtors Turnover (days) 84 90 82
Fixed assets turnover (days) 71 66 60
Current Ratio 4.0 4.3 4.5
Cash and Cash equivalents / Total Assets 25.5% 42.7% 44.2%
Cash and Cash equivalents / Revenues 18.3% 36.2% 38.7%
Per share data
Basic and Diluted EPS ($) 0.25 0.27 0.38
Book value per share ($) 0.78 1.14 1.56

53
 Certification by Chief Executive Officer (CEO) and Chief
Financial Officer (CFO) of the Company

WE, NARENDRA K PATNI, CHAIRMAN & CHIEF EXECUTIVE OFFICER AND DEEPAK SOGANI,
CHIEF FINANCIAL OFFICER, OF PATNI COMPUTER SYSTEMS LIMITED, TO THE BEST OF OUR
KNOWLEDGE AND BELIEF, CERTIFY THAT:

1. We have reviewed the balance sheet and profit and loss account and all its schedules and
notes on accounts, as well as the cash flow statements and the Directors’ Report;

2. These statements do not contain any materially untrue statement or omit any material fact nor
do they contain statements that might be misleading;

3. These statements together present a true and fair view of the Company, and are in compliance
with the existing accounting standards and / or applicable laws / regulations;

4. We are responsible for establishing and maintaining internal controls and have evaluated the
effectiveness of internal control systems of the Company; and we have also disclosed to the
auditors and the Audit Committee, deficiencies in the design or operation of internal controls,
if any, and what we have done or propose to do to rectify these;

5. We have also disclosed to the auditors as well as to the Audit Committee, instances of
significant fraud, if any, that involves management or employees having a significant role in
the Company•s internal control systems; and

6. We have indicated to the auditors, the Audit Committee and in the notes on accounts, whether
or not there were significant changes in internal control and / or of accounting policies during
the year.

Mumbai Narendra K Patni Deepak Sogani

Date: 27 April 2004 Chairman & Chief Executive Officer Chief Financial Officer

54
 PATNI COMPUTER SYSTEMS LIMITED
STANDALONE FINANCIALS UNDER INDIAN GAAP

Auditors’ Report

To the Members of
Patni Computer Systems Limited

We have audited the attached Balance Sheet of Patni Computer c) the Balance Sheet, Profit and Loss Account and Cash Flow
Systems Limited (’the Company’) as at 31 December 2003 and Statement dealt with by this report are in agreement with the
the Profit and Loss Account and the Cash Flow Statement of the books of account;
Company for the year ended on that date, annexed thereto.
d) in our opinion, the Balance Sheet, Profit and Loss Account
These financial statements are the responsibility of the
and Cash Flow Statement comply with the Accounting
Company’s management. Our responsibility is to express an
Standards referred to in sub-section (3C) of Section 211 of
opinion on these financial statements based on our audit.
the Companies Act, 1956, to the extent applicable;
We conducted our audit in accordance with auditing standards
e) on the basis of written representations received from the
generally accepted in India. Those standards require that we
directors of the Company as at 31 December 2003 and
plan and perform the audit to obtain reasonable assurance
taken on record by the Board of Directors, we report that
about whether the financial statements are free of material
none of the directors are disqualified as on 31 December
misstatement. An audit includes examining, on a test basis,
2003 from being appointed as a director under clause (g) of
evidence supporting the amounts and disclosures in the financial
sub-section (1) of Section 274 of the Companies Act, 1956;
statements. An audit also includes assessing the accounting
and
principles used and significant estimates made by management,
as well as evaluating the overall financial statement f) in our opinion, and to the best of our information and
presentation. We believe that our audit provides a reasonable according to the explanations given to us, the said accounts,
basis for our opinion. give the information required by the Companies Act, 1956
in the manner so required and give a true and fair view in
In terms of General circular number 32/2003 dated
conformity with the accounting principles generally accepted
10 November 2003 issued by the Department of Company
in India:
Affairs and as required by the Manufacturing and Other
Companies (Auditor’s Report) Order, 1988 issued by the Central i) in case of the Balance Sheet, of the state of affairs of the
Government of India in terms of sub-section (4A) of section 227 Company as at 31 December 2003;
of the Companies Act, 1956 (’the Act‘), we enclose in the ii) in case of the Profit and Loss Account, of the profit of the
Annexure, a statement on the matters specified in paragraphs 4 Company for the year ended on that date; and
and 5 of the said Order.
iii) in case of the Cash Flow Statement, of the cash flows for
Further to our comments in the Annexure referred above, we the year ended on that date.
report that:

a) we have obtained all the information and explanations,

which to the best of our knowledge and belief were necessary
For Bharat S Raut & Co.
for the purposes of the audit;
Chartered Accountants
b) in our opinion, proper books of account as required by law
Akeel Master
have been kept by the Company so far as appears from our
Mumbai Partner
examination of these books; Date: 2 March 2004 Membership No.46768

55
 PATNI COMPUTER SYSTEMS LIMITED

Annexure to Auditors’ Report … 31 December 2003

1. The Company has maintained proper records showing full raw materials including components and sale of goods.
particulars including quantitative details and situation of 7. In our opinion and according to the information and
fixed assets. During the current year, as part of a cyclical explanations given to us, the transactions of sale of services
plan, the Company has carried out physical verification made in pursuance of the contracts or arrangements
of certain fixed assets. No material discrepancies were entered in the register maintained under Section 301 of the
noticed on such verification. In our opinion, the periodicity Companies Act, 1956 and aggregating during the year to
of physical verification is reasonable having regard to the Rs 50,000 or more in respect of each party, have been
size of the Company and the nature of its assets. made at prices which are reasonable having regard to
2. None of the fixed assets of the Company have been prevailing market prices as available with the Company for
revalued during the year. such services or prices at which transactions for similar
3. According to the information and explanations given to us, services are made with other parties. According to the
the Company has not taken any loans, secured or information and explanations given to us, the Company
unsecured, from companies, firms or other parties listed in does not have any transaction of purchase or sale of goods
the register maintained under Section 301 of the and materials made in pursuance of above mentioned
Companies Act, 1956 or from companies under the same contracts or arrangements.
management within the meaning of Section 370 (1B) of the 8. According to the information and explanations given to us,
Companies Act, 1956. the Company has not accepted any deposits from the
4. According to the information and explanations given to us, public to which the directives issued by the Reserve Bank of
the Company has not granted any loan, secured or India and the provisions of Section 58A of the Companies
unsecured to companies, firms or other parties listed in the Act, 1956 and the rules framed thereunder apply.
register maintained under section 301 of the Companies 9. In our opinion, the Company has an internal audit system
Act, 1956, or to companies under the same management commensurate with its size and nature of its business.
within the meaning of section 370(1B) of the Companies
10.We are informed that the Central Government has not
Act, 1956.
prescribed maintenance of cost records under Section
5. The parties to whom loans or advances in the nature of
209(1)(d) of the Companies Act, 1956.
loans have been given by the Company are regular in
11.Provident Fund and Employees’ State Insurance dues have
repaying the principal amounts and interest as stipulated.
been regularly deposited during the year with the
In specific cases, where repayment of principal amounts
appropriate authorities.
and interest is doubtful, adequate provision has been made
in the financial statements. 12. According to the information and explanations given to us,

6. In our opinion, and according to the information and there are no undisputed amounts payable in respect of

explanations given to us, there are adequate internal income tax, wealth tax, sales tax, customs duty and excise

control procedures commensurate with the size of the duty which are outstanding as at 31 December 2003 for a

Company and the nature of its business, for the purchase period of more than six months from the date they became

of plant and machinery, equipment and other assets. The payable.

activities of the Company do not involve purchase of stores, 13. On the basis of our examination of the books of account,

56
 PATNI COMPUTER SYSTEMS LIMITED

and according to the information and explanations given to (vi) (xii) and (xiv) of paragraph 4A and clause (ii) of
us, no personal expenses of employees or directors have paragraph 4B of the Order are not applicable to the
been charged to the Profit and Loss Account other than Company. Further, paragraph 4C and paragraph 4D of the
those payable under contractual obligations or in Order are also not applicable to the Company.
accordance with generally accepted business practice.
14. The Company is not a sick industrial Company within the
meaning of clause (o) of sub-section (1) of Section 3 of the
Sick Industrial Companies (Special Provisions) Act, 1985.
15. With respect to the service activities of the Company, in our
opinion, the Company has a reasonable system,
commensurate with its size and the nature of its business,
for:
allocating man-hours utilised to each job; and For Bharat S Raut & Co.
authorisation at proper levels and control over the Chartered Accountants

allocation of labour to each job.

Akeel Master
16. The Company does not have any inventories of materials, Mumbai Partner
stores, components etc. Accordingly, clauses (iii), (iv), (v) Date: 2 March 2004 Membership No.46768

57
 PATNI COMPUTER SYSTEMS LIMITED

Balance Sheet as at 31 December 2003

(Currency : in thousands of Indian Rupees except share data)
Note 2003 2002
SOURCES OF FUNDS
Shareholders’ funds
Share capital 3 222,842 148,561
Reserves and surplus 4 8,247,719 6,821,379
8,470,561 6,969,940
Loan funds
Secured loans 5 24,609 19,697
Deferred tax liability 18 88,150 …
8,583,320 6,989,637
APPLICATION OF FUNDS
Fixed assets
Gross block 6 2,978,497 2,414,707
Less: Accumulated depreciation 1,189,069 822,777
Net block 1,789,428 1,591,930
Capital work-in-progress 43,566 28,900
1,832,994 1,620,830
Investments 7 4,221,159 3,645,102
Current assets, loans and advances
Sundry debtors 8 3,154,149 2,371,469
Cash and bank balances 9 193,189 138,876
Costs and estimated earnings in excess of billings 116,543 55,101
Loans and advances 10 166,819 115,050
3,630,700 2,680,496
Less: Current liabilities and provisions
Current liabilities 11 622,929 591,999
Provisions 12 478,604 364,792
1,101,533 956,791
Net current assets 2,529,167 1,723,705
8,583,320 6,989,637

The accompanying notes form an integral part of this balance sheet.

As per attached report of even date.
For Bharat S Raut & Co. F or and on behalf of the Board of Directors
Chartered Accountants

N K Patni A K Patni G K Patni Pradip Shah

Chairman and CEO Executive Director Executive Director Director

Akeel Master
Partner Arun Duggal Abhay Havaldar Arun Kanakal
Membership No: 46768 Director Alternate Director Company Secretary
Mumbai Mumbai
2 March 2004 2 March 2004

58
 PATNI COMPUTER SYSTEMS LIMITED

Profit and Loss Account for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
Note 2003 2002
Income
Sales and service income 5,370,106 4,482,148
Other income 14 165,949 46,748
5,536,055 4,528,896
Expenditure
Personnel costs 15 2,333,033 1,666,975
Selling, general and administration costs 16 880,862 635,554
Depreciation 6 392,219 297,419
Less: Transfer from revaluation reserve 4 81 81
Interest costs 17 1,306 19,254
3,607,339 2,619,121
Profit for the period before taxation 1,928,716 1,909,775
Provision for taxation 18 239,856 268,301
Prior period tax adjustment 18 28,304 …
Profit for the period after taxation 1,660,556 1,641,474
Profit and loss account, brought forward 3,548,269 2,123,827
Amount available for appropriation 5,208,825 3,765,301
Dividend on equity shares 124,836 39,111
Dividend on preference shares … 7,952
Dividend tax 15,995 5,822
Transfer to general reserve 166,056 164,147
Profit and loss account, carried forward 4,901,938 3,548,269
Basic and diluted earnings per share (Rs per equity share of Rs 2 each) 22 14.90 16.48

The accompanying notes form an integral part of this profit and loss account.
As per attached report of even date.
For Bharat S Raut & Co. For and on behalf of the Board of Directors
Chartered Accountants

N K Patni A K Patni G K Patni Pradip Shah

Chairman and CEO Executive Director Executive Director Director

Akeel Master
Partner Arun Duggal Abhay Havaldar Arun Kanakal
Membership No: 46768 Director Alternate Director Company Secretary
Mumbai Mumbai
2 March 2004 2 March 2004

59
 PATNI COMPUTER SYSTEMS LIMITED

Cash Flow Statement for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)
2003 2002
Cash flows from operating activities
Profit for the period before taxation 1,928,716 1,909,775
Adjustments:
Depreciation 392,138 297,338
Loss/ (profit) on sale of fixed assets 403 (195)
Profit on sale of investments (59,485) (18,961)
Provision for decline in the fair value of investments 318 …
Dividend income (59,042) (6,392)
Interest income (2,261) (6,678)
Incentive on investment received … (194)
Interest expense 1,306 19,254
Preliminary expenses written off … 4,579
Provision for doubtful debts and advances 2,494 2,388
Unrealised foreign exchange (gain)/loss (19,296) 16,127
Operating cash flows before working capital changes 2,185,291 2,217,041
Increase in sundry debtors (770,753) (580,771)
(Increase)/decrease in cost and estimated earnings in excess of billings (61,442) 150,845
(Increase )/decrease in loans and advances (48,782) 26,279
Increase/(decrease) in billings in excess of cost and estimated earnings 12,097 (934)
(Decrease)/increase in sundry creditors (22,082) 43,952
Increase/(decrease) in advance from customers 136 (322)
(Decrease)/increase in payables to subsidiary companies (44,445) 113,745
Increase in other liabilities 87,039 109,425
Increase in provision for retirement benefits 83,158 61,755
Cash generated from operations 1,420 ,217 2,141,015
Income taxes paid (265,088) (112,898)
Net cash provided by operating activities (A) 1,155,129 2,028,117
Cash flows from investing activities
Purchase of fixed assets (608,049) (599,630)
Sale of fixed assets 3,263 1,050
Purchase of non trade investments (7,160,459) (3,691,769)
Sale of non trade investments 6,643,569 2,077,315
Investments in subsidiary - (1,492,144)
Dividend received 59,042 6,392
Interest received 2,261 16,336
Incentive on investment received 73 152
Net cash used in investing activities (B) (1,060,300) (3,682,298)

60
 PATNI COMPUTER SYSTEMS LIMITED

Cash Flow Statement (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
2003 2002

Cash flow from financing activities

Increase in finance lease obligations, net 4,912 15,050
Dividend paid (44,122) (67,998)
Interest paid (1,306) (19,341)
Issue of equity shares(net of share issue expense) - 2,683,443
Buyback of equity shares - (339,528)
Repayment of long term borrowings - (398,056)
Repayment of preference shares - (250,000)
Net cash (used in) /generated from financing activities (C) (40,516) 16,23,570
Net increase/(decrease) in cash and cash equivalents
during the year (A+B+C) 54,313 (30,611)
Cash and cash equivalents at the beginning of the year 138,876 169,487
Cash and cash equivalents at the end of the year 193,189 138,876

Notes to the Cash flow statement

Cash and cash equivalents consist of cash on hand and balances with banks. Cash and cash
equivalents included in the cash flow statements comprise the following balance sheet amounts.
Cash on hand 6,771 2,804
Balance with banks:
… Current accounts 142,123 126,521
… Exchange earners foreign currency account 41,884 9616
… Effect of exchange rate changes 2,411 (65)
193,189 138,876

For Bharat S Raut & Co. F or and on behalf of the Board of Directors
Chartered Accountants

N K Patni A K Patni G K Patni Pradip Shah

Chairman and CEO Executive Director Executive Director Director

Akeel Master
Partner Arun Duggal Abhay Havaldar Arun Kanakal
Membership No: 46768 Director Alternate Director Company Secretary
Mumbai Mumbai
2 March 2004 2 March 2004

61
 PATNICOMPUTER SYSTEMS LIMITED

Notes to the Financial Statements for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)

1 Background
Patni Computer Systems Limited (’Patni’ or ‘the Company’) was incorporated on February 10, 1978 under the Indian
Companies Act, 1956. On 18 September 2003, the Company converted itself from a Private Limited Company into a Public
Limited Company.
In February 2004, Patni completed initial public offering of its equity shares in India comprising fresh issue of 13,400,000 shares
and sale of 53,24,000 equity shares by the existing shareholders.
Patni owns 100% equity interest in Patni Computer Systems (UK) Limited, a Company incorporated in UK and Patni Computer
Systems GmbH, a Company incorporated in Germany. In November 2000, the Company acquired 25% equity in Patni
Computer Systems, Inc. USA. (formerly known as Data Conversion Inc). Subsequently, in September 2002, the Company
acquired the balance 75% equity in Patni Computer Systems, Inc. USA thereby making it a 100% subsidiary. In April 2003,
Patni Computer Systems, Inc. acquired 100% equity interest in The Reference Inc, a Company incorporated in USA. Patni also
has foreign branch offices in USA, Japan, Sweden and Australia.
Patni is primarily engaged in the business of IT consulting and software development. Most of the business of Patni is
subcontracted from its subsidiary companies in the USA, UK and Germany. The Company provides multiple service offerings
to its clients across various industries comprising financial services, insurance services, manufacturing companies and others
such as energy and utilities, retail and hospitality companies. The various service offerings comprise application development
and maintenance, enterprise application systems, enterprise system management, research and development services and
business process outsourcing services.
2 Principal accounting policies
2.1 Basis of preparation of financial statements
The accompanying financial statements have been prepared under the historical cost convention with the exception of land and
buildings, which have been revalued, on the accrual basis of accounting , in accordance with the relevant provisions of the
Companies Act, 1956 and comply with the Accounting Standards (’AS’) issued by the Institute of Chartered Accountants of India
(’ICAI’), to the extent applicable.
The preparation of the financial statements in accordance with generally accepted accounting principles requires that
management makes estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of
contingent liabilities as of the date of financial statements and the reported amounts of revenue and expenses during the
reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and
reasonable. Actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in
current and future periods.
2.2 Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation, except for items of land and buildings, which were revalued in
March 1995. Cost includes inward freight, duties, taxes and incidental expenses related to acquisition and installation of the
asset. Depreciation is provided on the Straight Line Method (SLM) based on the estimated useful lives of the assets as determined
by the management. For additions and disposals, depreciation is provided pro-rata for the period of use.
The rates of depreciation based on the estimated useful lives of fixed assets are higher than those prescribed under Schedule
XIV to the Companies Act, 1956. The useful lives of fixed assets are stated below:
Asset Useful life (in years)
Leasehold land and improvements Over the lease period or the useful life of
the assets, which ever is shorter
Buildings 40
Electrical installations 8
Computers, computer software and other service equipments 3
Furniture and fixtures 8
Office equipments 5
Vehicles 5
2.3 Leases
In accordance with Accounting Standard 19 "Accounting for leases" issued by the ICAI, assets acquired on finance leases, have

62
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)

been recognised as an asset and a liability at the inception of the lease, at an amount equal to the lower of the fair value of
the leased asset or the present value of the future minimum lease payments. Such leased assets are depreciated over the lease
term or its estimated useful life, whichever is shorter. Further, the payment of minimum lease payments have been apportioned
between finance charges, which are debited to the profit and loss account, and reduction in lease obligations recorded at the
inception of the lease.
2.4 Revenue and cost recognition
The Company derives its revenues primarily from software development activities. Revenue from time-and-material contracts is
recognised as related services are rendered. Revenue from fixed-price contracts is recognised on a percentage of completion
basis, measured by the percentage of costs incurred to-date to estimated total costs for each contract. This method is used
because management considers costs to be the best available measure of progress on these contracts.
Contract costs include all direct costs such as direct labour and those indirect costs related to contract performance, such as
depreciation and satellite link costs. Selling, general, and administrative costs are charged to expense as incurred. Provisions
for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract settlements may result in revision to costs and income and
are recognised in the period in which the revisions are determined.
The asset "Cost and estimated earnings in excess of billings" represents revenues recognised in excess of amounts billed. These
amounts are billed after the milestones specified in the agreement are achieved and the customer acceptance for the same is
received. The liability "Billings in excess of costs and estimated earnings" represents billings in excess of revenues recognised.
Warranty costs on sale of services are accrued based on management‘S estimates and historical data at the time related
revenues are recorded.
Direct and incremental contract origination and set up costs incurred in connection with support/maintenance service
arrangements are charged to expense as incurred. These costs are deferred only in situations where there is a contractual
arrangement establishing a customer relationship for a specified period. The costs to be deferred are limited to the extent of
future contractual revenues. Further, revenue attributable to set up activities is deferred and recognised systematically over the
periods that the related fees are earned, as services performed during set up period do not result in the culmination of a
separate earnings process.
Revenue on maintenance contracts is recognised on a straight-line basis over the period of the contract.
Revenue recognition is postponed in instances wherein the conditions for revenue recognition are not met. Related costs are
also deferred in such instances, subject to management’s assessment of realisability.
Dividend income is recognised when the Company’s right to receive dividend is established. Interest income is recognised on
the time proportion basis.
2.5 Employee retirement and other benefits
Contributions to the provident fund, which is a defined contribution scheme, are charged to the profit and loss account in the
period in which the contributions are incurred.
Gratuity, pension and leave encashment costs, which are defined benefits, are based on actuarial valuations carried out by an
independent actuary at the balance sheet date.
The Company provides compensatory-offs to its employees, which entitle the employees to avail paid leave in future periods for
services already rendered. These entitlements are not encashable by the employees. The Company makes provision for such
compensated absences by estimating the likely salary payable to the employees availing such leave based on historical data of
such entitlements availed in the past.
2.6 Foreign currency transactions
India operations
Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transaction. Foreign currencies
denominated current assets and current liabilities at the balance sheet date are translated at the exchange rate prevailing on
the date of the balance sheet. Exchange rate differences resulting from foreign exchange transactions settled during the year,
including year-end translation of current assets and liabilities are recognised in the profit and loss account other than those
exchange differences arising in relation to liabilities incurred for acquisition of fixed assets, which are adjusted to the carrying
value of the underlying fixed assets.
The Company has entered into forward exchange contracts for a portion of its foreign exchange receivables. The difference

63
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
between the forward rate and the exchange rate at the inception of the forward exchange contracts is recognised as
income/expense over the life of the contract.
Foreign branch office operations
Revenue items other than depreciation costs are translated into the reporting currency at monthly average exchange rates.
Foreign currency denominated current assets and current liabilities at balance sheet date are translated at exchange rates
prevailing on the date of the balance sheet. Fixed assets are translated at exchange rates on the date of the transaction and
depreciation on fixed assets is translated at the exchange rates used for translation of the underlying fixed assets. Net exchange
difference resulting from translation of items in the financial statements of the foreign branch offices is recognised in the profit
and loss account.
2.7 Investments
Long-term investments are stated at cost, and provision is made when in the management‘s opinion there is a decline, other
than temporary, in the carrying value of such investments.
Current investments are carried at lower of cost and fair value, and provision is made to recognise any decline in the carrying
value.
2.8 Taxation
AS-22 "Accounting for Taxes on Income" issued by the ICAI is mandatory for the Company in respect of accounting periods
commencing on or after 1 April 2002. The Company has adopted this standard in the current year. In accordance with para
33 on transitional provisions of AS 22, the net deferred tax liability aggregating Rs 19,023 that accumulated prior to the
adoption of this standard as at 1 January 2003 has been charged to general reserves (Refer note 4). Due to the above change
in the accounting policy, the profit for the year is lower by Rs 69,127 and the reserves are lower by Rs 88,150.
Income tax expense comprises current tax expense and deferred tax expense or credit. Provision for current taxes is recognised
under the taxes payable method based on the estimated tax liability computed after taking credit for allowances and exemptions
in accordance with the Indian Income-tax Act,1961. In case of matters under appeal, full provision is made in the financial
statements when the Company accepts the liabilities.
Deferred tax assets and liabilities are recognised for the future tax consequences attributable to timing differences that result
between the profits offered for income taxes and the profits as per the financial statements of the Company. Deferred tax assets
and liabilities are measured using the tax rates and the tax laws that have been enacted or substantively enacted by the balance
sheet date. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the period that includes the
enactment date. Deferred tax assets in respect of carry forward losses are recognised only to the extent that there is virtual
certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Other
deferred tax assets are recognised only if there is a reasonable certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised. Deferred tax assets are reassessed for the appropriateness of their
respective carrying values at each balance sheet date.
Substantial portion of the profits of the Company are exempted from income tax, being profits from undertakings situated at
Software Technology Parks. Under the tax holiday the Company can utilise exemption of profits from income taxes for a period
of ten consecutive years. The Company has opted for this exemption for its undertakings situated in Software Technology Parks
and these exemptions expire on various dates between years 2005 and 2010. In this regard, the Company recognises deferred
taxes in respect of those originating timing differences, which reverse after the tax holiday period resulting in tax consequences.
Timing differences, which originate and reverse within the tax holiday period do not result in tax consequence and therefore no
deferred taxes are recognised in respect of the same. For this purpose, the timing differences, which originate first are considered
to reverse first.
2.9 Miscellaneous expenditure
Miscellaneous expenditure represented costs incurred in relation to issue of shares, debentures, etc, which were being amortised
to the profit and loss account over a period of three to five years.
In the year 2002, the Company has changed its accounting policy in relation to amortisation of such miscellaneous expenditure
and accordingly, the unamortised miscellaneous expenditure balance as at 1 January 2002 aggregating
Rs 4,579 was debited to the profit and loss account.
Further, the share premium account was utilised to write-off expenditure aggregating Rs 81,313 incurred in relation to issue of
shares during the year 2002.

64
 PATNICOMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
2.10 Earnings per share
The basic earnings per share is computed by dividing the net profit attributable to the equity shareholders for the year by the
weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed using the
weighted average number of equity shares and also the weighted average number of equity shares that could have been issued
on the conversion of all dilutive potential equity shares. The dilutive potential equity shares are adjusted for the proceeds
receivable, had the shares been actually issued at fair value. Dilutive potential equity shares are deemed converted as of the
beginning of the year, unless they have been issued at a later date. The number of shares and potentially dilutive equity shares
are adjusted for stock splits and bonus shares, as appropriate.
3 Share capital
2003 2002
Authorised
250,000,000 (2002: 125,000,000) equity shares of Rs 2 each 500,000 250,000
Nil (2002: 2,500,000 )12.9% cumulative redeemable preference shares of Rs 100 each - 250,000
500,000 500,000
Issued, subscribed and paid … up
111,420,849 (2002: 74,280,566) equity shares of Rs 2 each fully paid 222,842 148,561

Of the above, 14,500,000 equity shares of Rs 2 each were allotted as fully paid bonus shares in March 1995 by capitalisation
of general reserve aggregating Rs. 29,000.
On 26 June 2001, the Company’s Board of Directors approved a sub division of existing equity shares of Rs 10 each into 5
equity shares of Rs 2 each.
The above also includes 46,867,500 equity shares of Rs. 2 each allotted as fully paid bonus shares in August 2001 by
capitalisation of share premium aggregating Rs 93,735.
In September 2002, the Company made a private placement of its unregistered American Depository Receipt (’ADRs’) to
international investors representing 13,441,245 equity shares having face value of Rs 2 each. The equity shares represented
by ADRs carry equivalent rights with respect to dividends and voting as the other equity shares (Refer note 24 for commitment)
In December 2002, in pursuance of section 77A of the Indian Companies Act, 1956 the Company has completed buyback of
1,650,679 equity shares by utilising the share premium account. In this regard an amount equivalent to the nominal value of
the share capital bought back by the Company aggregating Rs 3,301, has been transferred from general reserve to capital
redemption reserve (Refer note 4)
In 1999, the Company allotted by way of private placement, 2,500,000, 12.9% cumulative redeemable preference shares of
Rs. 100 each at par to Industrial Development Bank of India, Mumbai. These preference shares were redeemable at par in 3
installments in the ratio of 30:30:40 at the end of the 5th, 6th and 7th years from the date of allotment. In April 2002, the
Company redeemed the entire amount of these preference shares and transferred an equivalent amount from general reserve
to capital redemption reserve (Refer note 4)
In June 2003, the Company•s shareholders approved the cancellation of the authorised preference share capital and increased
the authorised equity share capital of the Company by 125,000,000 equity shares of Rs 2 each.
On 30 August 2003, the Company allotted 37,140,283 equity shares of Rs 2 each as fully paid bonus shares by capitalisation
of share premium aggregating Rs 74,281 (Refer note 4)
Refer note 25 for employee stock compensation plans.

65
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)

4 Reserves and surplus

2003 2002
Land revaluation reserve
… Balance carried forward 7,935 7,935
Building revaluation reserve
… Balance brought forward 1,758 1,839
… Transfer to profit and loss account (81) (81)
1,677 1,758
Capital redemption reserve
… Balance brought forward 253,301 -
… Transfer from general reserve (Refer note 3) - 253,301
253,301 253,301
Debenture redemption reserve
… Balance brought forward - 20,000
… Transfer to general reserve - (20,000)
Share premium
… Balance brought forward 2,500,429 180,095
… Share premium received on issue of equity shares (Refer note 3) - 2,737,874
… Share premium utilised for buyback of shares (Refer note 3) - (336,227)
… Share premium utilised in connection with share issue expenses incurred
during the year (Refer note 2.9) - (81,313)
… Share premium utilised for issue of fully paid bonus shares (Refer note 3) (74,281) -
2,426,148 2,500,429
General reserve
… Balance brought forward 509,687 578,841
… Transfer from profit and loss account 166,056 164,147
… Transfer from debenture redemption reserve - 20,000
… Transfer to capital redemption reserve - (253,301)
… Adjustment on account of deferred tax liability as at 1 Jan 2003 (Refer note 2.8) (19,023) -
656,720 509,687
Profit and loss account, balance carried forward 4,901,938 3,548,269
8,247,719 6,821,379

5 Secured loans
2003 2002
From others
Lease obligation in relation to vehicles acquired under finance lease (Refer note 23) 24,609 19,697

Nature of security
Finance lease obligations are secured against the vehicles acquired on lease.

66
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)

6 Fixed assets
Land Land Buildings Computers Electrical Office Furniture Vehicles Total Total
(Freehold) (Leasehold) and computer installations equipments and as at as at
leasehold software Fixtures 31 December 31 December
improvements and other 2003 2002
service
equipments
Gross block
As at 1 January , 2003 9,019 48,305 713,605 888,912 156,727 193,704 343,429 61,006 2,414,707 1,828,513
Additions during the year - 71,685 86,096 312,553 34,992 34,124 35,410 18,523 593,383 601,574
Deletions during the year - - - 21,338 176 662 2,741 4,676 29,593 15,380
As at 31 December 2003 9,019 119,990 799,701 1,180,127 191,543 227,166 376,098 74,853 2,978,497 2,414,707

Accumulated depreciation

As at 1 January , 2003 - 15,321 34,871 545,779 34,092 69,408 100,436 22,870 822,777 539,883
Charge for the year - 569 26,454 245,004 21,216 39,171 45,757 14,048 392,219 297,419
Deletions during the year - - - 19,838 144 532 2,339 3,074 25,927 14,525
As at 31December 2003 - 15,890 61,325 770,945 55,164 108,047 143,854 33,844 1,189,069 822,777
Net block as at
31 December 2003 9,019 104,100 738,376 409,182 136,379 119,119 232,244 41,009 1,789,428 1,591,530
Net block as at
31 December 2002 9,019 32,984 678,734 343,133 122,635 124,296 242,993 38,136 1,591,530 -

Notes:
In respect of leasehold land rights amounting to Rs 40,011 (December 31 2002: Rs 40,011), the Company is required to
complete construction activities within a period of five years from July 23 2001. In absence of this covenant being achieved by
the Company, the transferor has an option to revoke the transfer of such rights. On a fresh assessment of expected realisation on
disposal of this land, instead of utilising for building construction, the Company has provided Rs 14,043 towards impairment in
the value of this land in December 2002.
Gross block of computers, computer software and other service equipments at 31 December 2003 includes exchange loss
capitalised during the period aggregating Rs 271 (2002: 18)
Gross block of vehicles at 31 December 2003 includes assets acquired on lease, refer note 23.
Leasehold land includes amounts aggregating Rs 71,685 (2002: Nil) in respect of which necessary formalities relating to the
transfer of lease hold land rights are in the process of being completed.

7 Investments
2003 2002
Long term(at cost)
Trade
Unquoted
Investment in subsidiary companies

50,000 (2002: 50,000) equity shares of 1 pound each fully paid of

Patni Computer Systems (UK) Limited 2,409 2,409
Contribution of Euro 150,000 (2002: Euro 150,000)
towards Capital of Patni Computer Systems GmbH 6,076 6,076
5,000 (2002: 5000) equity shares fully paid of
Patni Computer Systems, Inc. (no par value) 1,972,599 1,972,599
1,981,084 1,981,084
Non-trade
Quoted
Nil Units (2002: 640,530 Units) of Unit Trust of India scheme 1964 - 9,246
Less: Provision for decline other than temporary in the carrying value of investments - 2,861
- 6,385

67
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
7 Investments (continued)
2003 2002

Short term (at lower of cost or fair value)

Non-trade
Quoted
34,065,827 units (2002: Nil) of J59 JM Short Term Fund …Institutional Plan-Dividend 342,133 -
27,255,940 (2002: Nil) Templeton India Liquid fund … Weekly Dividend 272,596 -
25,312,838 units (2002 : Nil) Deutsche Short Maturity Fund … Monthly Dividend Plan 258,490 -
23,936,605 units (2002: Nil) of HSBC Income Fund … Short term 251,510 -
17,356,330 units (2002: Nil) of P 23 Inf Prudential ICICI Institutional
Short term Plan-Fortnightly 188,246 -
18,274,796 units (2002 : Nil) of GCBW Grindlays Cash Fund …Inst Fund B weekly Dividend 188,247 -
15,219,500 units (2002:Nil) of Kotak Mahindra Liquid Institutional Plan …Dividend 152,547 -
12,644,139 units (2002: Nil) of HDFC Liquid Fund Premium Plus Plan-Dividend 151,188 -
11,012,097 units (2002: Nil) of HDFC Cash Management Fund…Saving
Plan…Weekly Dividend Option. 117,032 -
9,112,525 units (2002: Nil) of Principal Income fund …Short term
Installment plan …Dividend Reinvestments …Monthly 91,557 -
7,526,912 units (2002: Nil) of HDFC Short term Plan Premium Plus …Fortnightly 81,457 -
6,458,490 units (2002: Nil) of DSP Merill Lynch Liquidity Fund …Weekly Dividend 80,096 -
6,528,127 units (2002 : Nil) of Principal Cash Management
Fund Liquid Option …Instl Plan Weekly Dividend 65,294 -
Nil Units (2002: 56,566,659) of Zurich India High Interest Fund - STP … Growth - 600,694
Nil units (2002: 371,888) of Templeton Floating Rate Fund - Short Term Plan … Growth - 400,000
Nil units (2002: 37,549,406) of HDFC Short Term Plan … Growth - 393,216
Nil units (2002: 21,139,211) of J51 JM Short Term Fund - Growth Plan - 220,000
Nil units (2002: 3,741,436) of GSTG GSSIF - Short Term Plan - Growth Option - 43,703
Nil Units (2002: 2,000) of Unit Trust of India … UGS 2000 scheme - 20
2,240,393 1,657,633
Less: Provision for decline in the fair value of investments. 318 -
4,221,159 3,645,102
Aggregate value of quoted investments
(market value Rs 2,244,567 ; 2002: Rs 1,695,316) 2,240,075 1,664,018
Aggregate value of unquoted investments 1,981,084 1,981,084
Refer note 27 for summary of investments purchased and sold during the year.

8 Sundry debtors
2003 2002
(Unsecured)
Debts outstanding for a period exceeding six months
- considered good 377,035 29,105
- considered doubtful 22,503 20,642
399,538 49,747
Other debts
- considered good 2,777,114 2,342,364
2,777,114 2,342,364
Less: Provision for doubtful debts 22,503 20,642
3,154,149 2,371,469
Of the above, debts due from companies under the same management as defined under Section 370(1)(B) of the Companies
Act, 1956 aggregate Rs 2,989,498 (2002: Rs 2,212,229). This consists of debts due from Patni Computer Systems, Inc.
aggregating Rs 2,854,999 (2002: Rs 2,003,121), Patni Computer Systems (UK) Limited aggregating Rs 101,858
(2002: Rs 164,699) and Patni Computer Systems GmbH aggregating Rs 32,641 (2002: Rs 4,409).

68
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
9 Cash and bank balances
2003 2002
Cash on hand 6,771 2,803
Balances with scheduled banks in current account 134,174 67,558
Balances with non scheduled banks in current account (refer note 28) 52,244 68,515
193,189 138,876

10 Loans and advances

2003 2002
(Unsecured)
Advances recoverable in cash or in kind or for value to be received 82,484 33,062
82,484 33,062
Advances to companies under the same management
- PCS Industries Limited 10 -
(Maximum amount outstanding during the year : Rs 19; 2002; Rs 1093)
- Ashoka Computer Systems Private Limited 47 -
(Maximum amount outstanding during the year : Rs 47; 2002; Rs 91)
- PCS Cullinet Private Limited 45 -
(Maximum amount outstanding during the year : Rs 45; 2002: Rs 62)
- PCS Finance Limited 43 -
(Maximum amount outstanding during the year : Rs 43; 2002: Rs 284)
145 -
Security deposits with companies under the same management
- Ashoka Computer Systems Private Limited 3,336 3,336
(Maximum amount outstanding during the year: Rs 3,336; 2002;Rs 3,336)
- PCS Cullinet Private Limited 3,334 3,334
(Maximum amount outstanding during the year: Rs 3,334; 2002;Rs 3,334)
- PCS Finance Limited 3,303 3,303
(Maximum amount outstanding during the year: Rs 3,303; 2002: Rs 3,303)
9,973 9,973
Other deposits 71,721 67,480
Loan to employees 3,773 6,300
Others 183 256
168,279 117,071
Less: Provision for doubtful loans and advances 1,460 2,021
166,819 115,050

11 Current liabilities
2003 2002
Sundry creditors 49,689 71,610
Payable to subsidiary companies 93,556 139,977
Billings in excess of cost and estimated earnings 14,614 2,517
Advance from customers 248 112
Other liabilities 464,822 377,783
622,929 591,999

69
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
12Provisions
2003 2002
Provision for taxation (net of advance tax Rs 503,484 ; 2002: Rs 238,396) 89,040 155,095
Provision for retirement benefits 248,733 165,575
Proposed dividend on equity shares 124,836 39,111
Dividend tax 15,995 5,011
478,604 364,792

The amount of proposed dividend includes dividend of Rs 13,415 on 13,415,200 shares issued by the Company in February
2004 on completion of its initial public offering.
13Miscellaneous expenditure
(to the extent not written off or adjusted)
2003 2002
Preliminary expenses - 4,579
Less: Written off during the year (refer note 2.9) - 4,579
- -

14Other income
2003 2002
Foreign exchange gain, net 36,739 11,124
Dividend on non-trade investments 59,042 6,392
Profit on sale of non-trade investments, net 59,485 18,961
Incentive on non-trade investments - 194
Interest from:
… Inter corporate deposit (tax deducted at source Rs Nil : 2002:Rs 1,225) - 5,876
… Loan to employees 474 714
… Bank deposits (tax deducted at source: Rs Nil ; 2002:Rs 1,166) 108 88
… Others 1,679 -
Miscellaneous income 8,422 3,399
165,949 46,748

15Personnel costs
2003 2002
Salaries, bonus and allowances, including overseas employee expenses 1,997,277 1,438,528
Contribution to provident and other funds 88,937 67,337
Staff welfare 99,035 69,909
Pension, gratuity and leave encashment costs 147,784 91,201
2,333,033 1,666,975

16Selling, general and administration costs

2003 2002
Travel and conveyance 196,305 114,302
Legal and professional fees 188,668 102,810
Rent 95,632 84,768
Postage and communication 88,301 69,585
Electricity 81,847 67,352
Advertisement and publicity 29,774 10,701
Software consumables 16,711 21,196

70
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
16Selling, general and administration costs (continued)
2003 2002
Rates and taxes 5,258 29,968
Recruitment charges 12,510 10,485
Insurance 14,505 10,957
Training fees 8,893 4,999
Printing and stationery 12,574 11,333
Subscription, registration and license fees 3,952 10,073
Repairs and maintenance
… computers 38,243 13,472
… building 15,635 5,342
… others 10,595 11,441
Provision for decline in the fair value of investment 318 -
Provision for doubtful debts and advances 2,494 2,388
Loss/(profit) on sale of fixed assets, net 403 (195)
Preliminary expenses written off - 4,579
Miscellaneous expenses 58,244 49,998
880,862 635,554

17Interest costs
2003 2002
Interest on finance lease obligations 1,277 783
Interest on loans from banks and financial institutions 29 4,118
Interest on fixed loans
… debentures - 4,327
… other loans - 10,026
1,306 19,254

18Taxes
2003 2002
Provision for tax expense consists of the following:
Current taxes
… Indian 21,273 53,056
… Foreign (Refer note 1 below) 177,760 215,245
199,033 268,301
Deferred tax expense
… Indian 15,732 -
… Foreign 53,395 -
69,127 -
268,160 268,301
Note 1:Prior period tax adjustment of Rs 28,304 represents short provision of foreign current taxes in respect of earlier years .
The significant components of deferred tax asset and liability consists of the following:
Provision for retirement benefits 35,815 -
Provision for bad and doubtful debts 2,485 -
Others 924 -
Total deferred tax asset 39,224 -
Depreciation (48,386) -
US branch profit taxes (78,988) -
Total deferred tax liability (127,374) -
Net deferred tax liability (88,150) -

71
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
19Auditors’ remuneration
2003 2002
Remuneration to auditors consists of the following:
Audit fees 2,000 1,000
Other services (Refer note 1 below) 7,100 -
Out of pocket expenses 361 144
9,461 1,144

Note 1:Other services includes amounts aggregating Rs 1,300 incurred in connection with the proposed listing of equity shares
of the Company, which have been included under loans and advances in the financial statements.

20Segmental Information
In accordance with paragraph 4 of Accounting Standard 17 "Segment Reporting" issued by the ICAI, the Company has presented
segmental information only on the basis of the consolidated financial statements (refer Note 20 of the consolidated financial
statements)

21Related party transactions

(a) Names of related parties and nature of relationship where control exists
Sr. No Category of related parties Names
1 Subsidiaries 1) Patni Computer Systems (UK) Ltd
2) Patni Computer Systems GmbH
3) Patni Computer Systems, Inc., USA
4) The Reference Inc.
2 Associates 1) PCS Industries Ltd.
2) Ashoka Computer Systems Private Ltd.
3) PCS Cullinet Private Ltd.
4) PCS Finance Ltd.
5) PCS International Ltd.
6) Ravi & Ashok Enterprises.
7) i Solutions Inc.
8) Raay Software Pvt Ltd
9) Raay Global Investment Pvt Ltd
3 Key management personnel 1) Mr. N. K. Patni
2) Mr. A. K. Patni
3) Mr. G. K. Patni
4 Parties with substantial interest 1) General Atlantic Mauritius Limited (’GA’)
2) Members of Patni family and their relatives
5 Others 1) Ravindra Patni Family Trust
2) NKP Qualified Annuity Trust

72
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
21Related party transactions (continued)
(b) Transactions and balances with related parties
Nature of the transaction Subsidiaries Associates Key Parties with Others
management substantial
personnel interest
Transactions during the year
ended 31 December 2003
Remuneration - - 83,129 - -
Sales and service income 4,642,345 - - - -
Professional fees 9,268 - - - -
Donations - - - - 2,500
Reimbursement of expenses by subsidiaries/associates 169,694 154 - -
Rent and other expenses - 11,869 - 193 -
Amounts incurred by subsidiary
on behalf of the Company 286,702 - - - -
Amounts repaid to subsidiary 333,132
Balances at 31 December 2003
Investments 1,981,084 - - - -
Security deposits - 9,973 - 3,000 -
Debtors 2,989,498 - - - -
Amount recoverable - 145 - - -
Amounts payable 93,556 - - -
Proposed Dividend - 18,255 20,262 60,847
Remuneration payable to the directors - - 930 - -
Cost and estimated earnings in excess of billing 14,817 - - -
Provision for pension benefits - - 74,228 - -
Guarantees given - 150,000 - - -
Refer note 30 for Managerial remuneration
Transactions during the year
ended 31 December 2002
Remuneration - … 36,485 - -
Sales and service income 4,065,225 - - - -
Professional fees 9,707 - - - -
Donations - - - - 2,500
Reimbursement of expenses by subsidiaries/associates 129,599 - - - -
Rent and other expenses - 13,755 - 192 -
Amounts incurred by subsidiary
on behalf of the Company 113,565 - - - -
Buyback of shares - - - 339,528 -
Interest income received. - 5,876 - - -
Amounts paid in connection with investment in subsidiary - - 500,962 373,633 617,549
Loans and advances returned during the year - 1,530 - - -
Inter Corporate deposits returned during
the year including accrued interest - 49,657 - - -
Rent received - 288 - - -
Dividend - 8,151 9,602 18,882 -
Balances at 31 December 2002
Investments 1,981,084 - - - -
Security deposits - 9,973 - 3,000 -
Debtors 2,212,229 - - - -
Amounts payable 139,977 - - - -
Proposed Dividend - 8,151 9,602 18,882 -
Provision for pension benefits - - 56,234 - -
Guarantees given - 150,000 - - -

73
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)

22Earnings per share

2003 2002
Profit available for equity shareholders 1,660,556 1,641,474
Less : Dividend on preference shares - 7,952
Less :Dividend tax on above - 811
1,660,556 1,632,711
Weighted average number of equity shares outstanding during the year 111,420,849 99,059,168
Basic and diluted earnings per share (Rs) 14.90 16.48
Face value per share (Rs) 2.00 2.00

As mentioned in note 25 of the financial statements the Company has granted 2,743,400 options to eligible employees on 1
September 2003. These options did not have a dilutive effect on the weighted average number of equity shares outstanding
during the period.

23Leases
The Company has acquired certain vehicles under finance lease for a non-cancellable period of 4 years. At the inception of the
lease, fair value of such vehicles has been recorded as an asset under gross block of vehicles with a corresponding lease rental
obligation recorded under secured loans. As per the lease agreement, the ownership of these vehicles would not transfer to the
Company, however it contains a renewal clause. Fixed assets include the following amounts in relation to the above leased assets:

2003 2002
Gross block of vehicles 34,041 22,745
Less: Accumulated depreciation 9,726 3,332
Net block 24,315 19,413

Future minimum lease payments in respect of the above assets as at 31 December 2003 are summarised below:

Minimum lease Finance Present value

payments charge of minimum
lease payments
Amount due within one year from the balance sheet date 9,528 1,211 8,317
Amount due in the period between one year and five years 17,239 947 16,292
26,767 2,158 24,609

The Company has entered into operating lease arrangements, primarily for leasing office space and residential premises for its
employees. Most of the lease agreements provide for cancellation by either party with a notice period ranging from 30 days to
120 days and also contain a clause for renewal of the lease agreement at the option of the Company. Additionally, the
Company has taken certain office premises under non-cancellable operating lease arrangements, which are renewable at the
option of the Company.

The future minimum lease payments in respect of such non-cancellable operating leases as at 31 December 2003 are
summarised below:
Amount due within one year from the balance sheet date 60,875
Amount due in the period between one year and five years 13,904
74,779

74
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31December 2003
(Currency : in thousands of Indian Rupees except share data)

24 Capital and other commitments

On 24 October 2000, the Company issued 124,500 equity shares of Rs 10 each to GE Capital Mauritius Equity Investment (’GE’).
Simultaneously, certain shareholders of the Company also sold 187,500 equity shares of Rs10 each of the Company to GE on
consistent terms. Pursuant to the shareholders’ agreement, the Company was required to make an initial public offering (’IPO’) of
its equity shares for the purposes of being listed on a recognised stock exchange within a period of 18 months from the date of
allotment of shares to GE. In the event the IPO did not occur within such period, GE had a right requiring either the Company, the
other shareholders or a third party to buy back its shares at the higher of the fair market value of the shares or at a price based on
an assured rate of return ranging between 18% to 21 % on Ge’s initial investment.
On 15 July 2002, the Company entered into a new shareholders agreement ("new SHA") with General Atlantic Mauritius Limited
(’GA’), GE and promoter shareholders. In accordance with the new SHA, Patni was required to make an IPO of its equity shares
within a period of 36 months from the date of issue of shares to GA. In the event an IPO did not occur within such period, GE and
GA had a right to require the Company to buy back their equity shares and those of the other members of each of their Group
(43,684,048 shares and 27,677,830 shares as at 31 December 2003 and 31 December 2002 respectively) at a price which would
have been higher of the price at which shares were issued to GA or at such price as would be determined by the Board of Directors
of the Company.
In case the Company did not or could not buy back all of GE and GA’s equity shares and those of the members of their Group, then
GE and GA had other exit options, as specified in the new SHA.
As per the new SHA, the price at which the Company was required to buy back the shares was to be the higher of the price at which
the shares were issued to GA or such price as determined by the Board of Directors of the Company at the time of such buy back.
However, there was no defined measurement method specified in the new SHA in relation to the redemption amount and accordingly
the Company did not remeasure the shares issued to GA and GE at each reporting period.
In February 2004, Patni completed initial public offering of its equity shares in India comprising fresh issue of 13,400,000 shares
and sale of 5,324,000 equity shares by the existing shareholders. Accordingly, the Company would not be required to buyback the
shares mentioned above.
The estimated amount of contracts remaining to be executed on capital account and not provided for as at 31 December 2003
aggregate Rs 19,829 (2002: Rs77,223).
Outstanding forward contracts as at 31 December 2003 aggregate Rs3,486,870 (2002: Nil). Unamortised income in respect of
forward exchange contract to be recognised in subsequent period aggregate Rs6,459 as at 31 December 2003 ( 2002: Nil).
25 Employee Stock compensation plans
On 30 June 2003, Patni established the ’Patni ESOP 2003’ plan (’the plan’). Under the plan, the Company is authorised to issue
up to 11,142,085 equity shares to eligible employees. Employees covered by the Plan are granted an option to purchase shares of
the Company subject to the requirements of vesting. A compensation committee constituted by the Board of Directors of the
Company administers the plan.
On 1 September 2003 the Company has granted 2,743,400 options at an exercise price of Rs 145 per share. These options vest
rateably over a period of 4 years, whereby 25% of the options vest at the end of each year from the date of grant. Further, the option
expires 5 years from the date of vesting.
Of the above options granted by the Company, 9,700 options were forfeited and none of the options were exercisable as at 31
December 2003.
Pursuant to the plan, if Patni did not complete an Initial Public Offering (’IPO’) within a period of 6 months and one day afte r
allotment of shares to an option grantee, then subject to compliance with applicable laws, the Articles of the Company and obtaining
necessary shareholders and board of Directors’ consent, Patni could have offered to purchase such shares issued to the option
grantees. The option grantees would thereupon of their own free will and volition have had the option to sell all their shar es to
Patni at the fair market value, within a period of three months from the date of such offer by Patni.
The exercise price of the grant approximated the fair value of the underlying equity shares at the date of the grant.
26 Amounts due to small scale industrial undertakings
Based on the information and records available with the Company, no amounts are payable to small scale industrial undertakings
at 31 December 2003 which are outstanding for more than 30 days ( 2002: Nil).

75
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)

27Summary of investments purchased and sold during the period

Investments purchased during the year ended 31 December 2003 (non-trade)

Year ended 31 December 2003

Bond Fund Units Cost of purchase

Templeton India Income Builder Account … Institutional Plan 28,568,390 306,634

Deutsche Premier Bond Fund … Institutional Plan … Dividend 19,786,528 204,740
48,354,918 511,374
Liquidity Fund
HDFC Short Term Plan … Growth 13,862,895 150,000
HDFC Liquid Fund … Dividend 43,664,407 444,426
HDFC Liquid Fund … Premium Plus Plan … Dividend 51,834,953 617,947
HDFC Cash Management Fund … Saving Plan … Weekly Dividend Option 60,823,793 646,326
HDFC High Interest Fund … Short Term Plan … Dividend Option 24,064,198 253,071
Kotak Mahindra Liquid Institutional Plan … Dividend 15,219,500 152,547
Zurich India High Interest Fund STP … Growth 4,586,230 50,000
Templeton India Liquid Fund … Growth Plan 4,543,160 67,500
J51 JM Short Term Fund … Growth Plan 19,440,199 205,000
J59 JM Short Term Fund … Institutional Plan … Dividend 64,221,118 644,121
K Bond Short Term Plan … Growth 9,412,888 100,000
DSP Merrill Lynch Short Term Fund … Growth 9,682,666 100,000
DSP Merrill Lynch Short Term Fund … Weekly Dividend 29,889,419 300,756
Gmbd Gssif Medium Term Inst.Plan B …Monthly Dividend 30,108,944 302,916
HDFC Short Term Plan-Premium Plus Plan …Fortnightly Dividend Reinvestments 27,926,654 302,220
HSBC Income Fund-Short term Institutional-Fortnightly Dividend 23,936,505 251,510
Prudential ICICI Institutional Short term Plan-Fortnightly 28,017,205 303,874
Principal Income Fund Short Term Institutional Plan … Dividend Reinvestments …Monthly 9,112,525 91,557
Principal Cash Management Fund Liquid Option -Instl.Plan Weekly Dividend 6,528,127 65,294
Birla Cash Plus Instl.Plan Dividend … Daily 17,731,949 191,236
Deutsche Short Maturity Fund - Monthly Dividend Plan 25,312,838 258,490
GCFW Grindlays Cash Fund - Weekly Dividend 24,865,906 253,468
IL&FS Liquid Account - Dividend Plan Daily 10,030,837 100,308
Templeton India Liquid Fund- Weekly Dividend 36,753,536 367,585
D50 DSP Merrill Lynch Liquidity Fund - Weekly Dividend 6,458,490 80,096
GCBW Grindlays Cash Fund -Inst.Plan B Weekly Dividend 24,641,812 253,833
622,670,754 6,554,081
Gilt Fund
Birla Gilt Plus Liquid Plan … Annual Dividend 8,887,953 95,004
Total 679,913,625 7,160,459

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 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)

27Summary of investments purchased and sold during the period (continued)

Investments sold during the year (non-trade)

Year ended 31 December 2003

Units Sale Value Cost of Purchase

Quoted
Units 1964 640,530 6,425 9,246
UGS 2000 2,000 … 20
642,530 6,425 9,266
Liquidity Fund
HDFC Short Term Plan … Growth 51,412,301 557,777 543,216
HDFC Liquid Fund … Dividend 43,664,407 439,002 444,426
HDFC Liquid Fund … Premium Plus Plan … Dividend 39,190,814 467,500 466,759
HDFC Cash Management Fund … Saving Plan …
Weekly Dividend Option 49,811,696 529,500 529,294
HDFC High Interest Fund … Short Term Plan … Dividend Option 24,064,198 253,856 253,071
Zurich India High Interest Fund STP … Growth 61,152,889 669,284 650,694
GSTG GSSIF … Short Term Plan … Growth Option 3,741,436 44,522 43,703
Templeton Floating Rate Fund Short Term Plan Growth 371,888 412,727 400,000
Templeton India Liquid Fund … Growth Plan 4,543,160 68,228 67,500
J51 JM Short Term Fund … Growth Plan 40,579,410 436,263 425,000
J59 JM Short Term Fund … Institutional Plan … Dividend 30,155,291 302,501 301,988
K Bond Short Term Plan … Growth 9,412,888 100,525 100,000
DSP Merrill Lynch Short Term Fund … Growth 9,682,666 101,049 100,000
DSP Merrill Lynch Short Term Fund … Weekly Dividend 29,889,419 301,202 300,756
Gmbd Gssif Medium Term Inst.Plan B - Monthly Dividend 30,108,944 303,048 302,916
HDFCShort Term Plan - Premium Plus Plan -
Fortnightly Dividend Reinvestments 20,399,742 221,000 220,763
P23Inf Prudential Icici Institutional Short Term Plan -Dr-Fortnightly 10,660,875 115,600 115,628
Birla Cash Plus Instl.Plan Dividend … Daily 17,731,949 191,240 191,236
GCFW Grindlays Cash Fund - Weekly Dividend 24,865,906 253,503 253,468
IL&FS Liquid Account - Dividend Plan Daily 10,030,837 100,308 100,308
Templeton India Liquid Fund- Weekly Dividend 9,497,596 95,000 94,989
GCBW Grindlays Cash Fund -Inst.Plan B Weekly Dividend 6,367,016 65,600 65,586
527,335,328 6,029,235 5,971,301
Bond Fund
Templeton India Income Builder Account - Institutional Plan 28,568,390 309,096 306,634
Deutsche Premier Bond Fund - Institutional Plan … Dividend 19,786,528 208,111 204,740
48,354,918 517,207 511,374
Gilt Fund
Birla Gilt Plus Liquid Plan - Annual Dividend 8,887,953 90,702 95,004
8,887,953 90,702 95,004
Total 585,220,729 6,643,569 6,586,945

77
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
28 Names of non-scheduled banks, balances at period end and maximum amount outstanding during the
period.

2003 2002
Fleet Bank, Boston, USA (formerly Bank Boston … USA)
416 10,081
(Maximum balance outstanding during the year: Rs 188,392; 2002: Rs 47,366)
Bank of Tokyo Mitsubishi Limited … Japan
18,915 33,441
(Maximum balance outstanding during the year: Rs 48,082; 2002: Rs 33,441)
ANZ Bank Australia … Australia
013-030-1982-72801 849 824
(Maximum balance outstanding during the year Rs 4,066; 2002: Rs 2,989)
ANZ Bank Australia … Australia
013-030-1982-72828 28,127 23,527
(Maximum balance outstanding during the year Rs 49,034; 2002: Rs 23,528)
Handels Bank … Kista Sweden
585-341-338 1,534 642
(Maximum balance outstanding during the year Rs 2,817; 2002: Rs 2,102)
Handels Bank … Kista Sweden
585-130-558 2,403 -
(Maximum balance outstanding during the year Rs 7,262; 2002: Nil)
52,244 68,515

29 Contingent liabilities
2003 2002
Corporate guarantee 150,000 150,000
Bank guarantees 11,384 10,223
Letters of credit - 8,562
161,384 168,875

30 Supplementary statutory information

2003 2002
(i) Managerial remuneration:
Salaries and allowances 46,632 16,584
Perquisites 2,551 753
Contribution to provident fund 1,775 1,614
Provision for pension benefit 32,171 17,534
83,129 36,485

(1) Provisions for gratuity and leave encashment in respect of Directors are not included above, as actuarial valuation is done
on an overall Company basis.
(2) Computation of net profit in accordance with Section 349 of the Companies Act, 1956 has not been given, as commission
by way of percentage of profits is not payable for the year to the Directors.
(3) Managerial remuneration includes Rs 44,253 paid to a manager by the subsidiary Company during the year.

78
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
30Supplementary statutory information (continued)

(ii) Value of imported and indigenous software consumables:

2003 2002
Imported 13.10% 2,188 44.43% 9,068
Indigenous 86.90% 14,523 55.57% 12,128
100.00% 16,711 100.00% 21,196

2003 2002

(iii) Value of imports calculated on C.I.F. basis:

Capital goods 105,785 85,024
Software consumables 2,188 9,068
Others 4,094 555
112,067 94,647
(iv) Expenditure in foreign currency:
Overseas employee expenses 149,075 98,351
Travelling 64,933 116,526
Professional fees and consultancy charges 20,787 26,591
Subscription and registration fees 1,722 5,422
Others 25,017 20,512
261,534 267,402
(v) Earnings in foreign currency:
Sales and services income (on FOB basis) 5,347,443 4,403,499
Others 5,784 83
5,353,227 4,403,582
(vi) Dividend remitted in foreign exchange:
Number of non-resident shareholders 5 2
Number of equity shares held on which dividend was due
(paid up value of Rs 2 each) 29,227,585 1,062,000

Period to which dividend relates 1 January 2002 to 1 January 2001 to

31 December 2002 to 31 December 2001

- Final dividend 17,537 …

- Interim dividend … 12,744

31 Prior period comparatives

Previous year figures have been appropriately reclassified to conform to the current year’s presentations.

79
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Financial Statements (Contd.) for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)

32Balance Sheet Abstract and Company’s General Business Profile

I. Registration Details
Registration No. 2 0 1 2 7 State Code 1 1
Balance Sheet Date 3 1 1 2 2 0 0 3
II. Capital raised during the year (Amount in Rupees thousand)
Public issue Right issue
N I L N I L
Bonus issue Private placement
7 4 2 8 1 N I L
III. Position of mobilisation and deployment of funds (Amount in Rupees thousand)
Total liabilities Total assets
8 5 8 3 3 2 0 8 5 8 3 3 2 0
Sources of funds
Paid-up capital Reserves and surplus
2 2 2 8 4 2 8 2 4 7 7 1 9
Secured loans Unsecured loans
2 4 6 0 9 N I L
Deferred Tax Liability
8 8 1 5 0
Application of funds
Net fixed assets Investments
1 8 3 2 9 9 4 4 2 2 1 1 5 9
Net current assets Miscellaneous expenditure
2 5 2 9 1 6 7 N I L
Accumulated losses
N I L
IV. Performance of Company (Amount in Rupees thousand)
Turnover Total expenditure
5 5 3 6 0 5 5 3 6 0 7 3 3 9
+/- Profit / loss before tax + /- Profit / loss after tax
+ 1 9 2 8 7 1 6 + 1 6 6 0 5 5 6
Earning per share in Rs Dividend @ %
1 4 . 9 0 5 0 %
V. Generic names of three principal products/services of Company (As per monetary terms)
Item no ITC code NIL Product description Computer Software and Services
Item code no (ITC code) NIL Product description NIL
Item code no (ITC code) NIL Product description NIL

For Bharat S Raut & Co. For and on behalf of the Board of Directors
Chartered Accountants

N K Patni A K Patni G K Patni Pradip Shah

Chairman and CEO Executive Director Executive Director Director

Akeel Master
Partner Arun Duggal Abhay Havaldar Arun Kanakal
Membership No: 46768 Director Alternate Director Company Secretary
Mumbai Mumbai
2 March 2004 2 March 2004

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 PATNI COMPUTER SYSTEMS LIMITED

Annexure to the Balance Sheet for the year ended 31 December 2003

Statement pursuant to section 212 of the Company Act, 1956

1 Name of the Subsidiary Company Patni Computer Patni Computer Patni Computer
Systems, Inc Systems (UK) Ltd. Systems GmbH

2 Financial Year of the Subsidiary Company 31 December, 2003 31 December, 2003 31 December, 2003
3 Date from which it became subsidiary 9 September, 2002 1 October, 1993 7 November, 2000
4 Extent of the Holding Company’s 100% 100% 100%
Interest in the Subsidiary Company at
the end of the financial year of the
Subsidiary Company
5 Net aggregate amount of the profit/(loss)
of the Subsidiary Company not dealt with
in the Holding Company’s Account
(concerning the members of the
Holding Company)
i) For the Current Year US Dollar 4,695,036 (*) UK Pound 322,271 Euro (183,964)
ii) For the previous years since it
became a Subsidiary US Dollar 756,778 UK Pound 1,564,491 Euro (24,965)
6 Net aggregate amount of the profit of
the Subsidiary Company dealt with in the
Holding Company’s Accounts.
i) For the Current Year Nil Nil Nil
ii) For the previous year since it became
a Subsidiary Not Applicable Not Applicable Not Applicable

(*) Includes the results of The Reference Inc, wholly owned subsidiary of Patni Computer Systems, Inc

For and on behalf of the Board of Directors

N K Patni G K Patni A K Patni

Chairman and CEO Executive Director Executive Director

Mumbai Pradip Shah Arun Duggal Abhay Havaldar Arun Kanakal

2 March, 2004 Director Director Alternate Director Company Secretary

81
 INDIAN GAAP

Management’s
Discussion and
Analysis
of the Consolidated Financials under Indian GAAP

Industry Structure and Developments

Please refer to our discussions under the section titled ‘Industry Overview’ of this report.

Opportunities and Threats

Please refer to our discussions under the section titled ‘Risk Management’ of this report.

Segment-wise or Product-wise Performance

Please refer to the section ‘Segmental Information’ in the Notes to the Consolidated Financial
Statements of this report.

Outlook
Please refer to our discussions under the sections titled ‘Blueprint: Patni’ and ‘Risk Management’ of
this report.

Risks and Concerns

Please refer to our discussions under the section titled ‘Risk Management’ of this report.

Internal Control Systems and their Adequacy

Please refer to our discussions under the section titled ‘Risk Management’ of this report.

Discussion on Financial Performance

The financial statements have been prepared in compliance with the requirements of the
Companies Act, 1956 and Generally Accepted Accounting Principles in India. The management
of Patni accepts responsibility for the integrity and objectivity of these financial statements, as well
for various estimates and judgements used therein.

In November 2000, Patni Computer Systems Limited acquired 25 per cent equity in Patni
Computer Systems Inc (Patni USA, formerly known as Data Conversion Inc.). Thereafter, in
September 2002, Patni Computer Systems Limited acquired the balance 75 per cent equity in
Patni USA, thereby making it a 100 per cent subsidiary. For the year ended 31 December 2002,
the consolidated financial statements include the results of operations of Patni USA for the period
from September to December 2002, from when it became a 100 per cent subsidiary of Patni
Computer Systems Limited. Consequently, the year ended 31 December 2003 is the first full year
in which the results of operations of Patni USA is consolidated with the financial statements of the
group. Hence, the consolidated results of operation for the year ended 31 December 2003 are
not comparable with that for the year ended 31 December 2002.

82
 INDIAN GAAP

Financial Condition

Share capital
(Rs in thousands)
Year ended Year ended
31 December 2003 31 December 2002
Balance at the beginning of the year 148,561 124,980
Shares issued during the year
- Private placement of unregistered American
Depository Receipt to international investors … 26,882
- Buy back of shares … (3,301)
- Bonus shares issued by capitalisation
of share premium 74,281 …
Balance at the close of the year 222,842 148,561
During the year the Company allotted 37,140,283 equity shares of Rs 2 each as fully paid bonus
shares by capitalisation of share premium aggregating to Rs 74.3 million.

Reserves and surplus

Capital redemption reserve of Rs 253.3 million represents reserves of Rs 250.0 million created on
redemption of preference share capital in April 2002 and Rs 3.3 million created on buy back of
shares in December 2002.
During the year ended 31 December 2003, the Company allotted 37,140,283 equity shares of Rs 2
each as fully paid bonus shares by capitalisation of share premium aggregating to Rs 74.3 million.
Consequent to the standard on accounting for taxes on income becoming mandatory effective 1
April 2002, the Company recorded the cumulative net deferred tax liability of Rs 19.0 million that
accumulated prior to the adoption of this standard as at 1 January 2003, as a charge to the
general reserve.

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 88.2 million as of 31 December
2003. This liability relates to the parent company. The deferred tax liability represents timing
differences arising out of provisions for retirement benefits, provision for bad and doubtful debts,
depreciation, and US branch profit taxes.

83
 INDIAN GAAP

Goodwill
The excess of cost to the parent company of its investment in subsidiaries over the parent company’s
portion of equity in the subsidiaries, at the respective dates on which investments in subsidiaries were
made, is recognised in the consolidated financial statements as goodwill. Goodwill recorded in the
consolidated financial statements has not been amortised, but evaluated for impairment.

The aggregate goodwill recorded in the financial statements comprise the following:

(Rs in thousands)
ear
Y ended Year ended
31 December 2003 31 December 2002
Balance at the beginning of the year 1,263,767 337,597
Acquisition of 75% equity interest in
Patni USA … 926,170
Acquisition of 100% equity interest in
The Reference Inc 135,174 …
Balance at the end of the year 1,398,941 1,263,767

Fixed assets
(Rs in thousands)
Year ended Year ended
31 December 2003 31 December 2002 Increase %
Gross block
Land … freehold 9,019 9,019 -
… leasehold 119,990 48,305 148.4
Buildings and leasehold improvements 823,427 717,059 14.8
Computers, software and other
service equipment 1,348,888 978,394 37.9
Electrical installations 191,543 156,728 22.2
Office equipments 247,836 199,897 24.0
Furniture and fixtures 418,761 352,460 18.8
Vehicles 82,415 68,569 20.2
Total 3,241,879 2,530,431 28.1
Less: Accumulated depreciation 1,357,099 882,959 53.7
Net block 1,884,780 1,647,472 14.4
Add: Capital work-in-progress 43,566 29,150 49.5
Net fixed assets 1,928,346 1,676,622 15.0

84
 INDIAN GAAP

During the year, the Company added Rs 741.0 million to its gross block of assets of which
Rs 97.8 million was on account of fixed assets added through a business acquisition. During the
year, the Company invested Rs 71.7 million on acquisition of approximately 10 acres of land in
Airoli, Maharashtra, for its software development centre. The Company operationalised several
development centres in India during the year, as a result of which investments in building and
leasehold improvements, computers, electrical installations, office equipment and furniture and
fixtures increased by Rs 553.0 million.

The capital work-in-progress as at 31 December 2003 and 2002 represents advances paid
towards acquisition of fixed assets and the cost of assets yet to be put to use.

Investments
Surplus cash generated from operations are invested in short-term money market instruments.
Investments in short term and liquid mutual funds increased to Rs 2,240.1 million as of 31
December 2003 compared to Rs 1,664.0 million as of 31 December 2002.

Deferred tax asset (net)

The Company recorded cumulative net deferred tax asset (net) of Rs 261.7 million as of 31
December 2003. This relates to the subsidiary companies, Patni USA and Patni Computer Systems
(UK) Limited. The deferred tax asset represents timing differences arising out of provisions for
retirement benefits, provision for bad and doubtful debts, depreciation, deferred revenues and
billings in excess of cost and estimated earnings.

Sundry debtors
Sundry debtors of Rs 2,588.5 million (net of provision for doubtful debts amounting to
Rs 147.0 million) represents 22.2 per cent of revenues for the year ended 31 December 2003.

The age profile of debtors is given below:

Period in days Year ended Year ended

31 December 2003 31 December 2002
0-180 92.5% 86.3%
More than 180 7.5% 13.7%
Total 100.0% 100.0%

Cash and bank balances

The Company recorded cash and bank balances of Rs 2,184.2 million and Rs 1,573.8 million as of
31 December 2003 and 2002, respectively. Bank balances include balances maintained both in India
and overseas. Bank balances in India include both rupee accounts and foreign currency accounts.

85
 INDIAN GAAP

As of 31 December 2003 and 2002, the Company had cash and cash equivalents (cash and
bank balances including short term investments) of Rs 4,424.3 million and Rs 3,231.5 million,
respectively. Cash and cash equivalents represent 39.4 per cent and 37.1 per cent of total assets
as of 31 December 2003 and 2002, respectively.

Cost and estimated earnings in excess of billings

Costs and estimated earnings in excess of billings represents revenues recognised 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. Cost and estimated earnings
in excess of billings increased to Rs 265.8 million during the year ended 31 December 2003 as
compared to Rs 160.3 million in the year ended 31 December 2002 due to the increase in fixed
price projects executed by the Company.

Loans and advances

During the year ended 31 December 2003 advances recoverable in cash or kind increased to
Rs 170.9 million from Rs 47.0 million in the year ended 31 December 2002. This increase was
primarily on account of deferred costs relating to revenue, which is postponed either because it
pertains to set up activities and is recognised over the period in which the fees are earned, or
since the conditions for revenue recognition were not met in the reporting period. Advances
recoverable in cash or kind also include advances paid towards lease rentals, professional fees,
and other services.

Security deposits increased to Rs 94.8 million for the year ended 31 December 2003 from
Rs 83.5 million in the year ended 31 December 2002 primarily on account of increase in rental
deposits placed for office premises in the US and India.

Certificate of deposits of Rs 26.0 million represent deposits placed with foreign banks.

Current liabilities
Current liabilities primarily include creditors for goods and expenses of Rs 90.2 million, which
represent amounts payable to vendors for goods or services rendered. Billings in excess of cost and
estimated earnings of Rs 96.0 million denotes billings in excess of revenues recognised. Advances
received from customers of Rs 12.1 million include amounts received from customers for the delivery
of future services. Deferred revenues of Rs 123.6 million relate to revenues for set up activities that
are deferred and recognised over the period in which the fees are earned. Related costs are also
deferred in such instances and are grouped under ‘advances recoverable in cash or kind’. Other

86
 INDIAN GAAP

liabilities of Rs 867.4 million include provisions made towards employee and other costs.
Provisions
Provision for taxation represents estimated income tax liabilities, both in India and overseas.
Provision for taxation as of 31 December 2003 was Rs 217.6 million, net of advance tax of
Rs753.2 million.

As of 31 December 2003, provision for retirement benefits increased to Rs 571.3 million from
Rs425.0 million as of 31 December 2002 primarily on account of increase in salaries and an
increase in manpower.

Dividend on equity shares of Rs 124.8 million represents dividend payable to shareholders of the
Company recommended by the Board of Directors and will be paid on approval by the
shareholders at the annual general meeting. Dividend tax denotes taxes payable on the proposed
dividend for 2003.

Results of Operations
The following table sets forth certain financial information for the year ended 31 December 2003
as a percentage of revenues, calculated from the consolidated financial statements:
(Rs in thousands)

Amount % of total income

Sales and service income 11,648,493 98.8%
Other income 142,090 1.2%
Total income 11,790,583 100.0%
Personnel costs 6,812,033 57.8%
Selling, general and administration expenses 2,267,074 19.2%
Depreciation 430,122 3.7%
Transfer from revaluation reserves (81) …
Interest costs 1,695 …
Total expenses 9,510,843 80.7%
Profit before taxation 2,279,740 19.3%
Provision for taxation 408,519 3.5%
Prior period tax adjustment 28,304 0.2%
Net profit 1,842,917 15.6%

87
 INDIAN GAAP

Income
The Company’s sales and service income was Rs 11,648.5 million in the year ended 31 December
2003 representing 98.8 per cent of total income. Clients from the insurance, manufacturing and
financial services industries contribute a large proportion of our sales and service income. In the year
ended 31 December 2003, revenues from these clients together contributed 78.2 per cent of our
revenues. The Company derives a significant proportion of its revenues from clients located in the
US. In the year ended 31 December 2003, Patni derived 88.7 per cent of its revenues, from clients
located in the US. We added 77 new clients during the year ended 31 December 2003.

Other income was Rs 142.1 million representing 1.2 per cent of total income. Other income
comprised interest and dividend income of Rs 73.3 million, gain of Rs 59.5 million on the sale of
investments and other miscellaneous income of Rs 9.3 million in the year ended 31 December 2003.

Personnel costs
Personnel costs were Rs 6,812.0 million in the year ended 31 December 2003. These costs
represent 57.8 per cent of the Company’s total income in the year ended 31 December 2003.
Personnel costs comprise salaries paid to employees in India and overseas staff expenses. In the
year ended 31 December 2003 there was an increase in offshore salaries with effect from April
2003. The Company aims to maintain salaries as per industry trends. The Company added 1,526
employees (net) during the year ended 31 December 2003.

Selling, general and administration expenses

The Company incurred selling, general and administration expenses of Rs 2,267.1 million,
representing 19.2 per cent of total income in the year ended 31 December 2003. 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
The Company provided Rs 430.1 million towards depreciation for the year ended 31 December
2003. Depreciation as a percentage of gross block of fixed assets is 13.3 per cent for the year
ended 31 December 2003.

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 INDIAN GAAP

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)
ear
Y ended 31 December 2003

Current taxes
- Indian 21,273
- Foreign 379,436
400,709
Deferred taxes
- Indian 15,732
- Foreign (7,922)
7,810
Total 408,519
Prior period tax adjustment 28,304

The Company benefits from a tax holiday given by the Government of India for the export of
information technology services from specially designated software technology parks and special
economic zones in India. As a result of these tax incentives, a substantial portion of our pre -tax
income has not been subject to significant tax in recent years.

The Finance Act, 2000 phases out the 10-year tax holiday over a 10-year period from 2000
through 2009. Accordingly, facilities set up in India on or before 31 March 2000 have a 10-year
tax holiday, new facilities set up on or before 31 March 2001 have a nine -year tax holiday and so
forth until 31 March 2009. As per the prevailing tax laws, the tax holiday will no longer be available
to new facilities after 31 March 2009. Patni’s current tax holidays expire in stages by 2009. For
companies opting for the partial taxable income deduction for profits derived from exported IT
services, the Finance Act, 2000 phases out the deduction over five years beginning 1 April 2000.

The Company recorded net deferred tax expense of Rs 7.8 million in the year ended 31 December
2003.

Net Profit
Net profit was Rs 1,842.9 million in the year ended 31 December 2003. Net profit as a percentage
of total income is 15.6 per cent in the year ended 31 December 2003.

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 INDIAN GAAP

Reconciliation of Indian GAAP (Consolidated) and US GAAP financial statements

The material differences between US GAAP and Indian GAAP (Consolidated) financial statements
arise due to the provision for income taxes, provision for depreciation, acquisition of entities under
common control, foreign currency differences and employee retirement benefits. The reconciliation
of profits as per Indian GAAP (Consolidated) and US GAAP financial statements is given below.
(Rs in thousands)
Year ended Year ended
31 December 2003 31 December 2002

Consolidated net income as per Indian GAAP 1,842,917 1,636,162

Acquisition of entity under common control … 116,984
Income taxes 34,114 21,988
Fixed assets and depreciation 2,995 (6,818)
Amortisation of miscellaneous expenditure … 4,579
Foreign currency differences 49,162 2,321
Employee retirement benefits (1,735) 664
Short provision for branch profit taxes in
earlier years under Indian GAAP 28,304 (20,179)
Provision for decline in fair value of investment 318 …
Business acquisition 2,443 …
Preference dividend … (8,764)
Consolidated net income as per US GAAP 1,958,518 1,746,937

Acquisition of entity under common control

Under US GAAP, combined financial statements were prepared for Patni and its subsidiaries and
Patni USA, as all these entities were under common control of the Patni family. Accordingly, the
results of operations of Patni USA were combined for all the years presented in the US GAAP
financial statements.

The consolidated financial statements under Indian GAAP include the results of operations of Patni
USA only from the date it became a 100 per cent subsidiary, which is September 2002.
Accordingly, the net income of Patni USA for the period prior to it becoming a subsidiary of Patni
has been reflected above as a reconciling item.

Income taxes
Until 31 December 2002, under Indian GAAP, income taxes were recorded as per the taxes
payable method. Under US GAAP, income taxes were recorded based on the asset and liability

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 INDIAN GAAP

method, whereby deferred tax assets and liabilities were recognised for the future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Accordingly, for the year ended 31
December 2002, deferred tax credit recorded in the US GAAP financial statements has been
reflected above as a reconciling item.

Effective 1 January 2003, Patni adopted Accounting Standard Number 22 for Taxes on Income in
preparation of its consolidated Indian GAAP financial statements. Accordingly, for the year ended
31 December 2003, the reconciliation represents deferred tax impact of significant differences
between Indian GAAP and US GAAP.

Fixed assets and depreciation

Under Indian GAAP, certain indirect expenses incurred during the construction period are
capitalised, whereas such costs are expensed as incurred under US GAAP. Further, under Indian
GAAP, borrowing costs have been capitalised to fixed assets, only effective 1 April 2001, when the
Accounting Standard for Borrowing Costs became mandatory. These differences in carrying value
of fixed assets have consequently resulted in differences in depreciation charge, which is reflected
above, as a reconciling item.

Amortisation of miscellaneous expenditure

Under Indian GAAP, miscellaneous expenditure comprising costs incurred in relation to issue of
shares, debentures etc were being amortised to the income statement over a period of three to five
years, whereas these costs were expensed as incurred under US GAAP. In the year ended 31
December 2002, the Company changed its accounting policy and the unamortised miscellaneous
expenditure balance as at 1 January 2002 aggregating Rs 4.6 million was charged to the income
statement under Indian GAAP. This is reflected above, as a reconciling item.

Foreign currency differences

Under Indian GAAP, net exchange difference resulting from translation of financial statements of
foreign subsidiaries is recognised in the consolidated income statement. Under US GAAP, this
exchange difference is reported in the statement of shareholders’ equity and other comprehensive
income.

Additionally, the Company had booked forward foreign exchange contracts to hedge its export
proceeds. Under Indian GAAP, premium on forward contract is recognised as income or
expenditure over the life of the related contract. Whereas, under US GAAP, the same is marked-to-
market as on the reporting date and the resultant gain/loss is recognised immediately in the
income statement. These foreign currency differences are reported above, as a reconciling item.

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 INDIAN GAAP

Employee retirement benefits

This represents the difference in recording pension, gratuity and leave encashment costs.

Provision for decline in fair value of investments

Under Indian GAAP, current investments are carried at the lower end of cost and fair value, and
provision is made in the income statement to recognise any decline in the carrying value of such
investments. Under US GAAP, such investments are designated as available for sale and are
carried at fair value with unrealised gains or losses being separately reported in the statement of
Shareholders’ equity and other comprehensive income.

Business acquisition
Under US GAAP, the assets and liabilities acquired on acquisition of The Reference Inc have been
recorded at fair values assigned to them, whereas under Indian GAAP these have been recorded
at respective book values.

Further, under US GAAP, a portion of the purchase consideration has been allocated to intangible
assets meeting the criteria for being recognised as an asset, apart from goodwill. These intangible
assets are being amortised over its useful life, in proportion to the economic benefits consumed
during each reporting period. Under Indian GAAP, the entire difference between the purchase
consideration and the book value of assets acquired has been recorded as goodwill, which is
subject to impairment testing.

Accordingly, the impact of the above differences on the income statement has been reflected as a
reconciling item.

Preference dividend
Under US GAAP, dividend paid on preference shares has been recorded as interest expense in the
income statement, whereas under Indian GAAP the same has been recorded as an appropriation
from the profit and loss account.

Material Developments in Human Resources

Please refer to our discussions under the section titled ‘People’ of this report.

Transactions in which The Management is interested in their Personal

Capacity
Please refer to the section ‘Related Party Transactions’ in the Notes to the Consolidated Financial
Statements of this report.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIALS UNDER INDIAN GAAP

Auditors’ Report

To the Board of Directors

Patni Computer Systems Limited on the Consolidated financial statements of Patni Computer
Systems Limited and its subsidiaries

We have audited the attached Consolidated Balance Sheet of We report that the consolidated financial statements have been
Patni Computer Systems Limited ("Patni" or "the Company" or "the prepared by the Company‘S management in accordance with
Parent Company") and its subsidiaries (as per the list appearing the requirements of Accounting Standard 21 - ‘Consolidated
in Note 2.2 to the consolidated financial statements) [collectively Financial Statements’ issued by the Institute of Chartered
referred to as the "Patni Group" or "the Group"] as at Accountants of India (’ICAI’).
31 December 2003, the Consolidated Profit and Loss Account
In our opinion and on the basis of information and explanation
and the Consolidated Cash Flow Statement for the year ended
given to us, the consolidated financial statements give a true and
on that date annexed thereto. The audit was conducted in
fair view in conformity with the accounting principles generally
accordance with the terms of engagement as specified by the
accepted in India:
Board of Directors of the Parent Company.
i. in the case of the Consolidated Balance Sheet, of the
These financial statements are the responsibility of the
state of affairs of the Patni Group as at 31 December
Company’s management. Our responsibility is to express an
2003;
opinion on these financial statements based on our audit. We
conducted our audit in accordance with generally accepted ii. in the case of the Consolidated Profit and Loss Account,
auditing standards in India. Those standards require that we plan of the profit for the year ended 31 December 2003; and
and perform the audit to obtain reasonable assurance about iii. in the case of the Consolidated Cash Flow statement, of
whether the financial statements are free of material the cash flows for the year ended 31 December 2003.
misstatement. An audit includes, examining on a test basis,
For Bharat S Raut & Co.
evidence supporting the amounts and disclosures in the financial
Chartered Accountants
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
Akeel Master
as well as evaluating the overall financial statement
Mumbai Partner
presentation. We believe that our audit provide a reasonable
Date: 2 March 2004 Membership No.46768
basis for our opinion.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Consolidated Balance Sheet as at 31 December 2003

(Currency : in thousands of Indian Rupees except share data)
Note 2003 2002
SOURCES OF FUNDS
Shareholders’ funds
Share capital 3 222,842 148,561
Reserves and surplus 4 8,761,959 6,952,197
8,984,801 7,100,758
Loan funds
Secured loans 5 24,609 19,697
Deferred tax liability, net 18 88,150 -
9,097,560 7,120,455
APPLICATION OF FUNDS
Goodwill 19 1,398,941 1,263,767
Fixed assets
Gross block 6 3,241,879 2,530,431
Less: Accumulated depreciation 1,357,099 882,959
Net block 1,884,780 1,647,472
Capital work-in-progress 43,566 29,150
1,928,346 1,676,622
Investments 7 2,240,075 1,664,018
Deferred tax asset, net 18 261,731 -
Current assets, loans and advances
Sundry debtors 8 2,588,483 2,216,763
Cash and bank balances 9 2,184,212 1,573,835
Costs and estimated earnings in excess of billings 265,804 160,270
Loans and advances 10 348,975 165,961
5,387,474 4,116,829
Less: Current liabilities and provisions
Current liabilities 11 1,189,315 885,290
Provisions 12 929,692 715,491
2,119,007 1,600,781
Net current assets 3,268,467 2,516,048
9,097,560 7,120,455

The accompanying notes form an integral part of this consolidated balance sheet.
As per attached report of even date.
Bharat
For S Raut & Co. For Patni Computer Systems Limited and its subsidiaries
Chartered Accountants

N K Patni A K Patni G K Patni Pradip Shah

Chairman and CEO Executive Director Executive Director Director

Akeel Master
Partner Arun Duggal Abhay Havaldar Arun Kanakal
Membership No: 46768 Director Alternate Director Company Secretary
Mumbai Mumbai
2 March 2004 2 March 2004

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Consolidated Profit and Loss Account for the year ended 31 December 2003
(Currency : in thousands of Indian Rupees except share data)
Note 2003 2002
Income
Sales and service income 11,648,493 6,256,155
Other income 14 142,090 44,818
11,790,583 6,300,973
Expenditure
Personnel costs 15 6,812,033 3,030,201
Selling, general and administration costs 16 2,267,074 970,217
Depreciation 6 430,122 305,391
Less: Transfer from revaluation reserve 4 81 81
Interest costs 17 1,695 19,256
9,510,843 4,324,984
Profit for the period before taxation 2,279,740 1,975,989
Provision for taxation 18 408,519 339,827
Prior period tax adjustment 18 28,304 -
Profit for the period after taxation 1,842,917 1,636,162
Profit and loss account, brought forward 3,679,087 2,214,157
Equity in earning of affiliate 19 - 45,800
Add: Adjustment on account of deferred tax asset as at 1 January 2003 2.11 203,763
Amount available for appropriation 5,725,767 3,896,119
Proposed dividend on equity shares 124,836 39,111
Dividend on preference shares - 7,952
Dividend on equity shares of subsidiary 2,702 -
Dividend tax 15,995 5,822
Transfer to general reserve 166,056 164,147
Profit and loss account, carried forward 5,416,178 3,679,087
Basic and diluted earning per share (Rs per equity share of Rs 2 each) 22 16.52 16.43

The accompanying notes form an integral part of this consolidated profit and loss account.
As per attached report of even date.
Bharat S Raut & Co.
For For Patni Computer Systems Limited and its subsidiaries
Chartered Accountants

N K Patni A K Patni G K Patni Pradip Shah

Chairman and CEO Executive Director Executive Director Director

Akeel Master
Partner Arun Duggal Abhay Havaldar Arun Kanakal
Membership No: 46768 Director Alternate Director Company Secretary
Mumbai Mumbai
2 March 2004 2 March 2004

95
 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Consolidated Cash Flow Statement for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

2003 2002
Cash flows from operating activities
Profit before taxation 2,279,740 1,975,989
Adjustments:
Depreciation 430,041 305,310
Loss / (profit) on sale of fixed assets, net 346 (195)
Profit on sale of investments, net (59,485) (18,961)
Provision for decline in the fair value of investment 318 -
Dividend income (59,042) (6,392)
Interest income (14,220) (12,471)
Interest expense 1,695 19,256
Incentive on investment - (194)
Preliminary expenses written off - 4,579
Provision for doubtful debts and advances 14,531 24,748
Unrealised foreign exchange (gain)/loss (13,704) 412
Operating cash flows before working capital changes 2,580,220 2,292,081
(Increase) / decrease in sundry debtors (434,991) 207,347
Increase in cost and estimated earnings in excess of billings (112,177) (438,107)
(Increase) / decrease in loans and advances (142,378) 259,466
Increase in billings in excess of cost and estimated earnings 35,121 1,656
Increase in sundry creditors 4,132 24,861
Increase in advance from customers 11,676 7,882
Increase in other liabilities 169,860 100,704
Increase in provision for retirement benefits 160,451 82,672
Cash generated from operations 2,271,914 2,538,562
Income taxes paid (459,862) (167,517)
Net cash provided by operating activities (A) 1,812,052 2,371,045
Cash flows from investing activities
Purchase of fixed assets (657,670) (612,160)
Sale of fixed assets 3,321 9,411
Purchase of non trade investments (7,160,459) (3,691,769)
Investment in subsidiary, net of cash acquired (143,855) (533,406)
Sale of non trade investments 6,643,569 2,077,315
Dividend received 59,042 6,392
Interest received 15,188 56,169
Incentive on investment received 73 152
Net cash used in investing activities (B) (1,240,791) (2,687,896)

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Consolidated Cash Flow Statement (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

2003 2002

Cash flow from financing activities

Issue of equity shares (net of shares issue expenses) - 2,683,443
Buyback of equity shares - (339,528)
Repayment of preference shares - (250,000)
Repayment of long term borrowings - (383,006)
Dividend paid (44,122) (67,998)
Increase in finance lease obligations , net 4,912 -
Dividend on equity shares of subsidiary (2,702) -
Interest paid (1,695) (19,342)
Net cash (used in) /generated from financing activities (C) (43,607) 1,623,569
Effect of changes in exchange rates (D) 82,723 923
Net increase in cash and cash equivalents during the year (A+B+C+D) 610,377 1,307,641
Cash and cash equivalents at the beginning of the year 1,573,835 266,194
Cash and cash equivalents at the end of the year 2,184,212 1,573,835

Notes to the Cash flow statement

Cash and cash equivalents consist of cash on hand and balances with banks. Cash and cash equivalents included in the cash
flow statements comprise the following balance sheet amounts.
Cash in hand 6,841 2,855
Balance with banks:
- Current accounts 2,133,076 1,561,429
- Exchange earners foreign currency account 41,884 9,616
- Effect of changes in exchange rate 2,411 (65)
2,184,212 1,573,835

For Bharat S Raut & Co. For Patni Computer Systems Limited and its subsidiaries
Chartered Accountants

N K Patni A K Patni G K Patni Pradip Shah

Chairman and CEO Executive Director Executive Director Director

Akeel Master
Partner Arun Duggal Abhay Havaldar Arun Kanakal
Membership No: 46768 Director Alternate Director Company Secretary
Mumbai Mumbai
2 March 2004 2 March 2004

97
 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

1 Background

Patni Computer Systems Limited ( Patni or the Company or the Parent Company ) was incorporated on 10 February 1978 under
the Indian Companies Act, 1956. On 18 September, 2003, the Company converted itself from a Private Limited Company into
a Public Limited Company. In February 2004, Patni completed initial public offering of its equity shares in India comprising fresh
issue of 13,400,000 shares and sale of 53,24,000 equity shares by the existing shareholders.
Patni owns 100% of equity in Patni Computer Systems (UK) Limited ( Patni UK ), a Company incorporated in UK and Patni
Computer Systems GmbH, ( Patni GmbH ), a Company incorporated in Germany.
In November 2000, Patni acquired 25 % equity in Patni Computer Systems, Inc., USA, ( Patni USA , formerly known as Data
Conversion Inc ). In September 2002, Patni acquired the balance 75% equity in Patni USA thereby making it a 100% subsidiary.
In April 2003, Patni USA, acquired 100% equity in The Reference Inc. ( TRI ), a Company incorporated in Massachusetts, USA,
for consideration in cash. These companies are collectively referred to as the Patni Group or the Group . Further, Patni also has
foreign branch offices in USA, Japan, Sweden and Australia.
The Group is engaged in IT consulting and software development. The Group provides multiple service offerings to its clients
across various industries comprising financial services, insurance services, manufacturing companies and others such as energy
and utilities, retail and hospitality companies. The various service offerings comprise application development and maintenance,
enterprise application systems, enterprise system management, research and development services and business process
outsourcing services.

2 Principal accounting policies

2.1 Basis of preparation of consolidated financial statements

These consolidated financial statements of the Group have been prepared under the historical cost convention with the
exception of certain land and buildings of Patni which have been revalued, on the accrual basis of accounting and comply
with the Accounting Standards ( AS ) issued by the Institute of Chartered Accountants of India ( ICAI ), to the extent
applicable.
The preparation of the consolidated financial statements in accordance with generally accepted accounting principles
requires that management makes estimates and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent liabilities as of the date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Management believes that the estimates used in the preparation of the
consolidated financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision
to accounting estimates is recognised prospectively in current and future periods.

2.2 Basis of consolidation

These consolidated financial statements include the financial statements of Patni Computer Systems Limited and its
subsidiaries. The subsidiaries considered in the consolidated financial statements as at 31 December 2003 are
summarised below:
Name of the subsidiary Country of incorporation % shareholding
Patni Computer Systems, Inc. USA USA 100
Patni Computer Systems (UK) Limited UK 100
Patni Computer Systems GmbH Germany 100
The Reference Inc. USA 100

These consolidated financial statements are prepared in accordance with the principles and procedures prescribed by
AS 21-"Consolidated Financial Statements" ( AS-21 ) issued by the ICAI for the purpose of preparation and presentation
of consolidated financial statements.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

The financial statements of the Parent Company and its subsidiaries have been combined on a line-by-line basis by adding
together the book values of like items of assets, liabilities, income and expenses after eliminating intra-group
balances/transactions and resulting unrealised profits in full. Unrealised losses resulting from intra-group transactions have
also been eliminated unless cost cannot be recovered in full. The amounts shown in respect of accumulated reserves
comprises the amount of the relevant reserves as per the balance sheet of the Parent Company and its share in the post
acquisition increase/decrease in the relevant reserves/accumulated deficit of its subsidiaries.
Consolidated financials statements are prepared using uniform accounting policies across the Group.

2.3 Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation, except for items of land and buildings of Patni, which were
revalued in March 1995. Cost includes inward freight, duties, taxes and incidental expenses related to acquisition and
installation of the asset. Depreciation is provided on the Straight Line Method (SLM) based on the estimated useful lives of
the assets as determined by the management. For additions and disposals, depreciation is provided pro-rata for the period
of use.
The rates of depreciation based on the estimated useful lives of fixed assets are higher than those prescribed under
Schedule XIV to the Companies Act, 1956. The useful lives of fixed assets are stated below:

Asset Useful life (in years)

Leasehold land and improvements Over the lease period or the useful life
of the assets, which ever is shorter
Buildings 40
Electrical installations 8
Computers, computer software and other service equipments 3
Furniture and fixtures 3-8
Office equipments 5
Vehicles 4-5

2.4 Goodwill
The excess of cost to the Parent Company of its investment in subsidiaries over the Parent CompanY’s portion of equity in
the subsidiaries, at the respective dates on which investments in subsidiaries were made, is recognised in the consolidated
financial statements as goodwill. The ParenT Company’s portion of equity in the subsidiaries is determined on the basis of
the book value of assets and liabilities as per the financials statements of the subsidiaries as on the date of investment.
The Goodwill recorded in these consolidated financial statements has not been amortised, but instead evaluated for
impairment. The Group evaluates the carrying amount of its goodwill whenever events or changes in circumstances
indicate that its carrying amount may be impaired.

2.5 Leases
In accordance with Accounting Standard 19 "Accounting for leases" issued by the ICAI, assets acquired on finance leases,
have been recognised as an asset and a liability at the inception of the lease, at an amount equal to the lower of the fair
value of the leased asset or the present value of the future minimum lease payments. Such leased assets are depreciated
over the lease term or its estimated useful life, whichever is shorter. Further, the payment of minimum lease payments have
been apportioned between finance charges, which are debited to the consolidated profit and loss account, and reduction
in lease obligations recorded at the inception of the lease.

2.6 Revenue and cost recognition

The Group derives its revenues primarily from software development activities. Revenue from time-and-material contracts
is recognised as related services are rendered. Revenue from fixed-price contracts is recognised on a percentage of
completion basis, measured by the percentage of costs incurred to-date to estimated total costs for each contract. This

99
 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

method is used because management considers costs to be the best available measure of progress on these contracts.
Contract costs include all direct costs such as direct labour and those indirect costs related to contract performance, such
as depreciation and satellite link costs. Selling, general, and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revision to
costs and income and are recognised in the period in which the revisions are determined.
The asset "Cost and estimated earnings in excess of billings" represents revenues recognised in excess of amounts billed.
These amounts are billed after the milestones specified in the agreement are achieved and the customer acceptance for
the same is received. The liability "Billings in excess of costs and estimated earnings" represents billings in excess of
revenues recognised.
Warranty costs on sale of services are accrued based on management•s estimates and historical data at the time related
revenues are recorded.
Revenue from maintenance contracts is recognised on a straight-line basis over the period of the contract.
Direct and incremental contract origination and set up costs incurred in connection with support/maintenance service
arrangements are charged to expense as incurred. These costs are deferred only in situations where there is a contractual
arrangement establishing a customer relationship for a specified period. The costs to be deferred are limited to the extent
of future contractual revenues. Further, revenue attributable to set up activities is deferred and recognised systematically
over the periods that the related fees are earned, as services performed during set up period do not result in the
culmination of a separate earnings process.
Revenue recognition is postponed in instances wherein the conditions for revenue recognition are not met. Related costs
are also deferred in such instances, subject to management‘s assessment of realisability.
The Group grants volume discounts to customers in the form of free services in future. The Group accounts for such volume
discounts by allocating a portion of the revenue on the related transactions to the service that will be delivered in future.
Further, other volume discounts and rebates are also deducted from revenue.
Dividend income is recognised when the Group‘s right to receive dividend is established. Interest income is recognised on
the time proportion basis.

2.7 Employee retirement and other benefits

Provident fund
In accordance with Indian regulations, all employees of Patni receive benefits from a provident fund, which is a defined
contribution retirement plan. Contributions to the provident fund are charged to the consolidated profit and loss account
in the period in which the contributions are incurred.

Gratuity
In accordance with the Payment of Gratuity Act, 1972, Patni provides for gratuity, a defined retirement plan covering all
employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based
on the respective employee‘s defined portion of last salary and the years of employment with the Company. Patni
contributes each year to a gratuity fund administered by Patni through a trust set up for the purpose.
The liability for gratuity at the end of each financial year is determined based on valuation carried out by an independent
actuary. The difference between such actuarially determined liability and contributions made to the fund is recognised as
an asset/liability, as the case may be.

Pension
Certain directors of the Group are entitled to receive pension benefit upon retirement or on termination from employment
@ 50% of their last drawn monthly salary. The pension is payable from the time the eligible director reaches the age of
sixty-five and is payable to the director or the surviving spouse. The liability for pension is actuarially determined by an

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

independent actuary at the end of each financial year and periodically recognised by Patni in the consolidated financial
statements. The plan is not funded.

Others
Patni USA adopted a 401(k) salary deferral profit sharing plan, which enables employees to make pre-tax contributions.
Patni USA does not match employee contributions to the plan.
Patni provides compensatory-offs to its employees, which entitle the employees to avail paid leave in future periods for
services already rendered. These entitlements are not encashable by the employees. Patni makes provision for such
compensated absences by estimating the likely salary payable to the employees availing such leave based on historical
data of such entitlements availed in the past.
Provision for leave encashment costs is based on actuarial valuations carried out by an independent actuary at the balance
sheet date.

2.8 Foreign currency transactions

Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transaction. Foreign
currency denominated current assets and current liabilities at the year-end are translated at the year-end exchange rate.
Exchange rate differences resulting from foreign exchange transactions settled during the year, including year-end
translation of current assets and liabilities are recognised in the consolidated profit and loss account other than those
exchange differences arising in relation to liabilities incurred for acquisition of fixed assets, which are adjusted to the
carrying value of the underlying fixed assets.
Patni has entered into forward exchange contracts for a portion of its foreign exchange receivables. The difference between
the forward rate and the exchange rate at the inception of the forward exchange contracts has been recognised as
income/expense over the life of the contract.

2.9 Foreign currency translation

The consolidated financial statements are reported in Indian rupees. The translation of the local currency of each foreign
subsidiary and foreign branches within the Group into Indian rupees is performed in respect of assets and liabilities other
than fixed assets using the exchange rate in effect at the balance sheet date and for revenue and expense items other than
depreciation costs using a monthly simple average exchange rate for the period. Fixed Assets are translated at the
exchange rates on the date of transaction and depreciation on fixed assets is translated at the exchange rates used for
translation of the underlying fixed assets.
Net exchange difference resulting from the above translation of financial statements of foreign subsidiaries and foreign
branches is recognised in the consolidated profit and loss account.

2.10 Investments
Long-term investments are stated at cost, and provision is made when in the managemenT’s opinion there is a decline,
other than temporary, in the carrying value of such investments.
Current investments are carried at lower of cost and fair value, and provision is made to recognise any decline in the
carrying value.

2.11 Taxation
Accounting Standard-22 "Accounting for Taxes on Income" ("AS-22") issued by the ICAI is mandatory for the Company in
respect of accounting periods commencing on or after 1 April 2002. The Company adopted this standard in preparing
the consolidated financial statements effective 1 January 2003.
In accordance with paragraph 33 on transitional provisions of AS 22, the net deferred tax liability of Patni aggregating Rs
19,023 that accumulated prior to the adoption of this standard as at 1 January 2003 has been charged to general
reserves (Refer note 4). In case of Patni USA and Patni UK, deferred tax asset aggregating Rs 203,763 that accumulated

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

prior to the adoption of this standard has been recorded as a credit to the profit and loss account brought forward, as
these companies do not have a separate general reserve account. Due to the above change in accounting policy, the profit
for the year ended 31 December 2003 is lower by Rs 7,810 and the reserves at period end are higher by Rs 173,581.
Provision for current income tax is recognised under the taxes payable method for each Company within the Group, based
on the estimated tax liability computed after taking credit for allowances and exemptions in accordance with the local tax
laws existing in the respective countries. In case of matters under appeal, full provision is made in the financial statements
when the Company accepts the liabilities.
Deferred tax assets and liabilities are recognised for the future tax consequences attributable to timing differences that
result between the profits offered for income taxes and the profits as per the financial statements. Deferred tax assets and
liabilities are measured using the tax rates and the tax laws that have been enacted or substantively enacted by the balance
sheet date. The effect on deferred tax assets and liabilities of a change in tax rate is recognised in the period that includes
the enactment date. Deferred tax assets in respect of carry forward losses are recognised only to the extent that there is
virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be
realised. Other deferred tax assets are recognised only if there is a reasonable certainty that sufficient future taxable income
will be available against which such deferred tax assets can be realised. Deferred tax assets are reassessed for the
appropriateness of their respective carrying values at each balance sheet date.
Substantial portion of the profits of Patni are exempted from income tax, being profits from undertakings situated at
Software Technology Parks. Under the tax holiday, Patni can utilise exemption of profits from income taxes for a period of
ten consecutive years. Patni has opted for this exemption for its undertakings situated in Software Technology Parks and
these exemptions expire on various dates between years 2005 and 2010. In this regard, Patni recognises deferred taxes
in respect of those originating timing differences, which reverse after the tax holiday period resulting in tax consequences.
Timing differences, which originate and reverse within the tax holiday period do not result in tax consequence and therefore
no deferred taxes are recognised in respect of the same. For the above purposes, the timing differences, which originate
first are considered to reverse first.

2.12 Miscellaneous expenditure

Miscellaneous expenditure represented costs incurred in relation to issue of shares, debentures, etc, which were being
amortised over a period of three to five years. In the year ended 31 December 2002, the Company has changed its
accounting policy in relation to amortisation of such miscellaneous expenditure and accordingly, the unamortised
miscellaneous expenditure balance as at 1 January 2002 aggregating Rs 4,579 has been debited to the consolidated
profit and loss account.
Further, share premium account has been utilised to write-off expenditure incurred in relation to fresh issue of shares during
the year 2002 aggregating Rs 81,313.

2.13 Earnings per share

The basic earnings per share is computed by dividing the net profit attributable to the equity shareholders for the period
by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed
using the weighted average number of equity shares and also the weighted average number of equity shares that could
have been issued on the conversion of all dilutive potential equity shares. The dilutive potential equity shares are adjusted
for the proceeds receivable, had the shares been actually issued at fair value. Dilutive potential equity shares are deemed
converted as of the beginning of the year, unless they have been issued at a later date. The number of shares and
potentially dilutive equity shares are adjusted for stock splits and bonus shares, as appropriate.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

3 Share capital

2003 2002
Authorised
250,000,000 (2002:125,000,000) equity shares of Rs 2 each 500,000 250,000
Nil (2002: 2,500,000) 12.9% cumulative redeemable preference shares of Rs 100 each. - 250,000
500,000 500,000
Issued, subscribed and paid - up
111,420,849 (2002:74,280,566) equity shares of Rs 2 each fully paid 222,842 148,561

Of the above, 14,500,000 equity shares of Rs 2 each were allotted as fully paid bonus shares in March 1995 by capitalisation
of general reserve aggregating Rs 29,000.

On June 26, 2001, Patni’s Board of Directors approved a sub division of existing equity shares of Rs 10 each into 5 equity shares
of Rs 2 each.

The above also includes 46,867,500 equity shares of Rs 2 each allotted as fully paid bonus shares in August 2001 by
capitalisation of share premium aggregating Rs 93,735.

In September 2002, Patni made a private placement of its unregistered American Depository Receipt (’ADRs’) to international
investors representing 13,441,245 equity shares having face value of Rs 2 each. The equity shares represented by ADRs carry
equivalent rights with respect to dividends and voting as the other equity shares. (Refer note 24 for commitment)

In December 2002, in pursuance of section 77A of the Indian Companies Act, 1956, Patni has completed buyback of 1,650,679
equity shares by utilising the share premium account. In this regard, an amount equivalent to the nominal value of the share
capital bought back by the Company aggregating Rs 3,301 has been transf erred from general reserve to capital redemption
reserve (Refer note 4)

In 1999, Patni allotted by way of private placement, 2,500,000, 12.9% cumulative redeemable preference shares of Rs 100
each at par to Industrial Development Bank of India, Mumbai. These preference shares were redeemable at par in 3 installments
in the ratio of 30:30:40 at the end of the 5, 6th and 7th years from the date of allotment. In April 2002, Patni redeemed the
entire amount of these preference shares and transferred an equivalent amount from general reserve to capital redemption
reserve (Refer note 4).

In June 2003, the Company’s shareholders approved the cancellation of the authorised preference share capital and increased
the authorised equity share capital of the Company by 125,000,000 equity shares of Rs 2 each.

On 30 August 2003, the Company allotted 37,140,283 equity shares of Rs 2 each as fully paid bonus shares by capitalisation
of share premium aggregating Rs 74,281.

Refer note 25 for employee stock compensation plans.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

4 Reserves and surplus

2003 2002
Land revaluation reserve
Balance carried forward 7,935 7,935

Building revaluation reserve

Balance brought forward 1,758 1,839
Transfer to profit and loss account (81) (81)
1,677 1,758
Capital redemption reserve
Balance brought forward 253,301 -
Transfer from general reserve (Refer note 3) - 253,301
253,301 253,301
Debenture redemption reserve
Balance brought forward - 20,000
Transfer to general reserve - (20,000)
- -
Share premium
Balance brought forward 2,500,429 180,095
Share premium received on issue of equity shares - 2,737,874
Share premium utilised for buyback of shares - (336,227)
Share premium utilised in connection with share issue expenses incurred during the year. - (81,313)
Share premium utilised for issue of fully paid bonus shares (Refer note 3) (74,281)
2,426,148 2,500,429
General reserve
Balance brought forward 509,687 578,841
Transfer from profit and loss account 166,056 164,147
Transfer from debenture redemption reserve - 20,000
Transfer to capital redemption reserve - (253,301)
Adjustment on account of deferred tax liability as at January 1 2003 (Refer note 2.11) (19,023) -
656,720 509,687
Profit and loss account, balance carried forward 5,416,178 3,679,087
8,761,959 6,952,197

5 Secured loans

2003 2002
Lease obligation in relation to vehicles acquired under finance lease (Refer note 23) 24,609 19,697

Finance lease obligations are secured against the vehicles acquired on lease.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

6 Fixed assets

Land Land Buildings Computers Electrical Office Furniture Vehicles Total Total
(Freehold) (Leasehold) and computer installations equipments and as at as at
leasehold software fixtures 31 December 31 December
improvements and other 2003 2002
service
equipments
Gross block
As at 1 January 2003 9,019 48,305 717,059 978,394 156,728 199,897 352,460 68,569 2,530,431 1,832,060
Additions on account of
business acquisition - - 19,863 46,388 - - 31,537 - 97,788 109,175
Additions during the year - 71,685 86,505 345,444 34,992 48,601 37,505 18,522 643,254 614,105
Deletions during the year - - - 21,338 177 662 2,741 4,676 29,594 24,909
As at 31 December 2003 9,019 119,990 823,427 1,348,888 191,543 247,836 418,761 82,415 3,241,879 2,530,431
Accumulated depreciation

As at 1 January 2003 - 15,321 36,360 594,294 34,092 71,192 104,188 27,512 882,959 541,013
Accumulated depreciation on
-
account of business acquisition - 10,197 44,997 - - 14,751 - 69,945 52,248
Charge for the year - 569 29,877 269,506 21,217 42,271 51,748 14,934 430,122 305,391
Deletions during the year - - - 19,838 144 532 2,339 3,074 25,927 15,693
As at 31December 2003 - 15,890 76,434 888,959 55,165 112,931 168,348 39,372 1,357,099 882,959
Net block as at
31 December
Net block as at 2003 9,019 104,100 746,993 459,929 136,378 134,905 250,413 43,043 1,884,780 1,647,472

31 December 2002 9,019 32,984 680,699 384,100 122,636 128,705 248,272 41,057 1,647,472

Notes:
In respect of leasehold land rights aggregating Rs 40,011, the Company is required to complete construction activities within a
period of five years from July 23, 2001. In absence of this covenant being achieved by the Company, the transferor has an
option to revoke the transfer of such rights. On a fresh assessment of expected realisation on disposal of this land, instead of
utilising for building construction, the Company has provided Rs 14,043 towards impairment in the value of this land in
December 2002.
Gross block of computers, computer software and other service equipments at 31 December 2003 includes exchange loss
capitalised during the year aggregating Rs 271 ( 2002: 18).
Gross block of vehicles as of 31 December 2003 includes assets acquired on lease, r efer note 23.
Leasehold land includes amounts aggregating Rs 71,685 (2002: Nil) in respect of which necessary formalities relating to the
transfer of lease hold land rights are in the process of being completed.

7 Investments

2003 2002
Long term (at cost)
Non-trade
Quoted
Nil Units (2002: 640,530 Units) of Unit Trust of India scheme 1964 - 9,246
Less: Provision for decline other than temporary in the carrying value of investments - 2,861
- 6,385

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

7 Investments (contd.)

2003 2002
Short term (at lower of cost or fair value)
Non-trade
Quoted
34,065,827 units (2002: Nil) of J59 JM Short Term Fund -Institutional Plan-Dividend 342,133 -
27,255,940 (2002: Nil) Templeton India Liquid fund … Weekly Dividend 272,596 -
25,312,838 units (2002 : Nil) Deutsche Short Maturity Fund … Monthly Dividend Plan 258,490 -
23,936,605 units (2002: Nil) of HSBC Income Fund …Short term 251,510 -
17,356,330 units (2002: Nil) of P 23 Inf Prudential ICICI Institutional Short term
-
Plan-Fortnightly 188,246
18,274,796 units (2002 : Nil) of GCBW Grindlays Cash Fund …Inst Fund B weekly Dividend 188,247 -
15,219,500 units (2002:Nil) of Kotak Mahindra Liquid Institutional Plan …Dividend 152,547 -
12,644,139 units (2002: Nil) of HDFC Liquid Fund Premium Plus Plan-Dividend 151,188 -
11,012,097 units (2002: Nil) of HDFC Cash Management Fund…Saving
9,112,525 units (2002: Nil) of Principal Income fund …Short term Installment plan 117,032
Plan…Weekly Dividend Option.
…Dividend Reinvestments …Monthly 91,557 -
7,526,912 units (2002: Nil) of HDFC Short term Plan Premium Plus …Fortnightly 81,457 -
6,458,490 units (2002: Nil) of DSP Merill Lynch Liquidity Fund …Weekly Dividend 80,096 -
6,528,127 units (2002 : Nil) of Principal Cash Management Fund Liquid Option
…Instl Plan Weekly Dividend 65,294 -
Nil Units (2002: 56,566,659) of Zurich India High Interest Fund - STP … Growth - 600,694
49,908 units (2002: 371,888) of Templeton Floating Rate Fund - Short Term Plan … Growth - 400,000
Nil units (2002: 37,549,406) of HDFC Short Term Plan … Growth - 393,216
Nil units (2002: 21,139,211) of J51 JM Short Term Fund - Growth Plan - 220,000
Nil units (2002: 3,741,436) of GSTG GSSIF - Short Term Plan - Growth Option - 43,703
Nil Units (2002: 2,000) of Unit Trust of India … UGS 2000 scheme - 20
2,240,393 1,657,633
Less: Provision for decline in the fair value of investments. (318) -
Total 2,240,075 1,664,018
Market value of quoted investments 2,244,567 1,695,316

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

8 Sundry debtors

2003 2002
(Unsecured)
Debts outstanding for a period exceeding six months
considered good 58,894 169,931
considered doubtful 146,205 155,518
205,099 325,449
Other debts
considered good 2,529,589 2,046,832
considered doubtful 768 -
2,530,357 2,046,832
Less: Provision for doubtful debts 146,973 155,518
2,588,483 2,216,763

9 Cash and bank balances

2003 2002
Cash on hand 6,841 2,855
Balances with scheduled banks in current account 134,914 718,955
Balances with non scheduled banks in current account 2,042,457 852,025
2,184,212 1,573,835

10 Loans and advances

2003 2002
(Unsecured)
Advances recoverable in cash or in kind or for value to be received (Refer note below) 170,861 46,961
Security deposits 94,844 83,479
Certificates of deposit with foreign banks 25,960 -
Loan to employees 35,859 35,719
Others 25,209 3,402
352,733 169,561
Less: Provision for doubtful loans and advances 3,758 3,600
348,975 165,961

Advances recoverable in cash or in kind or for value to be received at 31 D ecember 2003 includes auditors’ remuneration of
Rs 3,986 incurred in connection with proposed listing of equity shares of the Company.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

11 Current liabilities

2003 2002
Sundry creditors 90,174 76,421
Billings in excess of cost and estimated earnings 95,992 66,755
Advance from customers 12,147 112
Deferred revenue 123,572 92,981
Other liabilities 867,430 649,021
1,189,315 885,290

12 Provisions

2003 2002
Provision for taxation (net of advance tax: Rs 753,167 ; 2002:Rs 312,402) 217,561 246,354
Provision for retirement benefits 571,300 425,015
Dividend on equity shares 124,836 39,111
Dividend tax 15,995 5,011
929,692 715,491

The amount of proposed dividend includes dividend of Rs 13,415 on 13,415,200 shares issued by the Company in February
2004 on completion of its initial public offering.

13 Miscellaneous expenditure (to the extent not written off or adjusted)

2003 2002
Preliminary expenses - 4,579
Less: Written off during the year (Refer note 2.12) - 4,579
- -

14 Other income

2003 2002
Dividend on non-trade investments 59,042 6,392
Incentive on non-trade investments - 194
Profit on sale of non-trade investments, net 59,485 18,961
Interest from:
Inter corporate deposits - 5,876
Loan to employees 474 714
Bank deposits 12,001 5,881
Others 1,745 -
Miscellaneous income 9,343 6,800
142,090 44,818

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

15 Personnel costs

2003 2002
Salaries, bonus and allowances, including overseas employee expenses 6,228,049 2,733,193
Contribution to provident and other funds 115,011 79,453
Staff welfare 216,247 94,435
Pension, gratuity and leave encashment costs 252,726 123,120
6,812,033 3,030,201

16 Selling, general and administration costs

2003 2002
Outsourced service charges 492,885 61,061
Travel and conveyance 424,169 209,264
Legal and professional fees 364,503 146,379
Postage and communication 255,578 127,703
Rent 182,613 103,550
Foreign exchange loss/(gain), net 32,399 (23,489)
Electricity 82,474 67,352
Rates and taxes 20,149 29,985
Software consumables 16,844 21,700
Advertisement and publicity 50,004 21,788
Insurance 41,993 13,747
Recruitment charges 27,916 13,614
Repairs and maintenance
- computers 43,313 15,793
- building 15,635 5,342
- others 18,463 18,069
Printing and stationery 23,153 15,537
Provision for decline in the fair value of investment 318 -
Provision for doubtful debts and advances 14,531 24,748
Training fees 14,422 7,446
Commission 35,253 6,975
Subscription, registration and license fee 5,475 11,334
Auditors’ remuneration (Refer note below) 17,138 5,866
Preliminary expenses written off - 4,579
Loss/(gain) on sale of fixed assets 346 (195)
Miscellaneous expenses 87,500 62,069
2,267,074 970,217

Note: Auditors’ remuneration includes remuneration of subsidiary companies’ auditors.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

17 Interest costs

2003 2002
Interest on finance lease obligations 1,294 783
Interest on fixed loans
- debentures - 4,327
- other loans - 10,028
Interest on loans from banks and financial institutions 401 4,118
1,695 19,256

18 Taxes

2003 2002
Provision for tax expense consists of the following:
Current taxes
Indian 21,273 53,057
Foreign (Refer note 1 below) 407,740 286,770
429,013 339,827
Deferred tax expense / (credit)
Indian 15,732 -
Foreign (7,922) -
7,810 -
436,823 339,827

The significant components of deferred tax asset and liability consists of the following:

Provision for retirement benefits 161,740 -

Provision for bad and doubtful debts 48,255 -
Provisions 45,750
Deferred revenue, net 46,819 -
Billings in excess of cost and estimated earnings 25,986 -
Others 5,952
Total deferred tax asset 334,502
Cost and estimated earnings in excess of billings 35,143 -
Depreciation 46,790 -
US branch profit taxes 78,988 -
Total deferred tax liability 160,921 -
Net deferred tax asset 173,581

Note 1: Prior period tax adjustment of Rs 28,304 represents short provision of foreign current taxes in respect of earlier years.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

19 Business acquisitions

Pursuant to the shareholders agreement dated 28 September 2000 entered into between Patni, the promoter shareholders of
the Company and GE Capital Mauritius Equity Investment (’GE’) on 24 November 2000, the Company acquired 25 % equity
interest in Patni USA for cash purchase consideration aggregating Rs 480,455 (equivalent to US$10,250,000).

The equity of Patni USA on the date of investment, representing the proportionate residual interest in the assets of Patni USA after
deducting the liabilities, aggregated Rs 142,858. The Company’s cost of investment in Patni USA in excess of Patni USA’s equity
on the date of investment aggregating Rs 337,597 has been classified as goodwill in the consolidated financials statements. The
goodwill arising on the above-mentioned investment has been determined as follows:

Purchase consideration 480,455

Less
Fixed assets, net 4,499
Net current assets 138,359
142,858
Goodwill 337,597

On 9 September 2002, the Company acquired the balance 75 % equity interest in Patni USA for cash purchase consideration
aggregating Rs 1,492,144 (equivalent of US$ 30,750,000). As a result of this acquisition, P atni USA became a wholly owned
subsidiary of the Company. The equity of Patni USA on this date representing the Company‘S proportionate residual interest
aggregated Rs 565,974. The goodwill arising on this acquisition has been determined as follows:

Purchase consideration 1,492,144

Less
Fixed assets, net 42,695
Cash and bank balances 719,054
Net current liabilities (195,775)
565,974
Goodwill 926,170

AS-23 … "Accounting for Investment in Associates in Consolidated Financial Statements" issued by the ICAI was applicable in
respect of accounting period beginning on or after 1 April 2002 and hence was not applicable for preparation of the
consolidated financial statements for the year ended 31December 2002. Accordingly, the Parent Company’s share in the profits
of Patni USA for the period following the acquisition of 25% equity interest until the date Patni USA became a wholly owned
subsidiary, aggregating Rs 45,800 has been credited to revenue reserves in the consolidated financial statements for the year
ended 31 December 2002.

In April 2003 Patni USA acquired 100% equity interest in TRI, which is engaged in providing IT services to clients in the financial
services sector. These consolidated financial statements include the operating results of TRI from the date of acquisition. The
purchase price of Rs 288,467 (including direct expenses of Rs 7,978) has been paid in cash. Further, the purchase agreement
provides for payment of additional consideration not exceeding Rs 68,625 (equivalent of US$1,500,000) in cash through 30
April 2005 which is contingent upon achievement of the operating performance of the acquired business as specified in the
agreement. The payment of the contingent consideration will increase the amount of goodwill recorded in the financial
statements.

The equity of TRI on the date of investment, representing the proportionate residual interest in the assets of TRI after deducting
the liabilities aggregated Rs 153,293. Patni USA’s cost of investment in TRI in excess of TRI’s equity on the date of investment
aggregating Rs 135,174 has been classified as goodwill in the consolidated financials statements. The goodwill arising on the
above-mentioned investment has been determined as follows:

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 PA TNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

19 Business acquisitions (contd.)

Purchase consideration 288,467

Less
Cash and bank balances 144,612
Fixed assets, net 27,843
Deferred tax asset 7,480
Net current liabilities (26,642)
153,293
Goodwill 135,174

The aggregate goodwill recorded in these consolidated financial statements comprise the following:

Total
Goodwill arising on acquisition of 25 % equity interest in Patni USA 337,597
Goodwill arising on acquisition of balance 75 % equity interest in Patni USA 926,170
Balance as at 31 December 2002 1.263,767
Goodwill arising on acquisition of 100 % equity interest in TRI. 135,174
Balance as at 31 December 2003 1,398,941

20 Segmental information

The Group’s operations relate to providing IT services and solutions, delivered to customers, operating in various industry
segments. Accordingly, revenues represented along industry classes comprise the primary basis of segmental information set
out in these consolidated financial statements. Secondary segmental reporting is performed on the basis of the geographical
segmentation.
Industry segments of the Group comprise customers providing financial services, insurance services, manufacturing
companies, and Others such as energy and utilities, retail and hospitality companies.
The Group evaluates segment performance and allocates resources based on revenue growth. Revenue in relation to
segments is categorised based on items that are individually identifiable to that segment. Costs are not specifically allocable
to individual segments as the underlying resources and services are used interchangeably. Fixed assets used in Group•s
business or liabilities contracted have not been identified to any of the reportable segments, as the fixed assets and services
are used interchangeably between segments.
The Group’s geographic segmentation is based on location of the customers and comprises United States of America, Europe,
Japan and Others, which include Rest of Asia Pacific and Rest of the World. 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 includes both onsite and offshore services. Categorisation of customer related assets
and liabilities in relation to geographical segments is based on the location of the specific customer entity which is billed for
the services.
The accounting policies consistently used in the preparation of the consolidated financial statements are also consistently
applied to individual segment information. There are no inter-segment sales.

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PA TNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian R upees except share data)

20 Segmental information (contd.)

Business segments

As at 31 December 2003 and for the year then ended.

Particulars Financial Insurance Manu- Others Total

services services facturing
Sales and service income 1,860,123 3,930,460 3,313,869 2,544,041 11,648,493
Sundry debtors 365,180 652,472 919,510 651,321 2,588,483
Cost and estimated earnings in excess of billings 13,929 41,497 82,058 128,320 265,804
Billings in excess of cost and estimated earnings (7,136) (20,529) (31,487) (36,840) 95,992
Advance from customers (11,229) - (670) (248) 12,147

As at 31 December 2002 and for the year then ended

Particulars Financial Insurance Manu- Others Reconciling Total

services services facturing item (Refer
note below)
Sales and service income 1,264,390 3,473,393 2,445,439 1,919,065 (2,846,132) 6,256,155
Sundry debtors 462,303 489,611 668,129 596,720 - 2,216,763
Cost and estimated earnings in excess of billings 9,460 9,042 55,621 86,147 - 160,270
Billings in excess of cost and estimated earnings (1,925) (5,022) (34,994) (24,814) - (66,755)
Advance from customers - - - (112) - (112)

Geographic segments

As at 31 December 2003 and for the year then ended.

Particulars USA Europe Japan Others Total
Sales and service income 10,332,470 859,658 332,500 123,865 11,648,493
Sundry debtors 2,209,573 321,720 1,754 55,436 2,588,483
Cost and estimated earnings in excess of billings 153,759 42,909 62,944 6,192 265,804
Billings in excess of cost and estimated earnings (81,700) (6,473) (4,498) (3,321) 95,992
Advance from customers - (11,899) - (248) 12,147

As at 31 December 2002 and for the year then ended

Particulars USA Europe Japan Others Reconciling Total
item (Refer
note below)
Sales and service income 7,971,385 659,188 324,366 147,348 (2,846,132) 6,256,155
Sundry debtors 1,921,795 220,364 5,257 69,347 - 2,216,763
Cost and estimated earnings in excess of billings 85,091 26,915 5,437 42,827 - 160,270
Billings in excess of cost and estimated earnings (57,625) (6,825) (1,336) (969) - (66,755)
Advance from customers - - - (112) - (112)

Note: For the year 2002, industry and geographical segment revenues, include revenues of Patni USA from 1 January 2002
though it became a subsidiary of the Company in September 2002. The Group believes that this is a mo re meaningful
presentation of segment information considering Patni USA was an equity affiliate until September 2002 and thereafter became
a subsidiary. Accordingly, the reconciling item represents incremental revenue earned by P atni USA for the period prior to it
becoming a subsidiary of Patni.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

(a) Names of related parties and nature of relationship where control exists

Sr. No Category of related parties Names

1. Associates 1) Patni Computer Systems, Inc. (until September 2002
and thereafter it became a 100% subsidiary)
2) PCS Industries Ltd.
3) Ashoka Computer Systems Private Ltd.
4) PCS Cullinet Private Ltd.
5) PCS Finance Ltd.
6) PCS International Ltd.
7) Ravi & Ashok Enterprises.
8) iSolutions Inc.
9) Raay Software Pvt Limited
10) Raay Global Investment Pvt Limited
2. Key management personnel 1) Mr N. K. Patni
2) Mr A. K. Patni
3) Mr G. K. Patni
4) Mr Sukumar Namjoshi
5) Mr Russell Boekenkroeger
6) Mr Mrinal Sattawala
3. Parties with substantial interest 1) Members of Patni family and their relatives
2) General Atlantic Mauritius Limited (’GA’)
4. Others 1) Ravindra Patni Family Trust
2) NKP Qualified Annuity Trust

(b) Transactions and balances with related parties

Nature of the transaction Associates Key Parties with Others
management substantial
personnel interest
Transactions during the year ended 31 December 2003
Remuneration (Refer note below) 117,793
Donations 2,500
Reimbursement of expenses by associates 154 - - -
Rent and other expenses 11,869 - 193 -
Dividend on equity shares of subsidiary - 883 677 1,142
Balances at 31 December 2003
Security deposits 9,973 - 3,000 -
Amounts recoverable 145 - - -
Proposed dividend 18,255 20,262 60,847 -
Remuneration payable to directors - 1,675 - -
Provision for pension benefits - 229,287 - -
Guarantees given 150,000 - - -

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements

(Currency : in thousands of Indian Rupees except share data)

(b) Transactions and balances with related parties

Nature of the transaction Associates Key Parties
With
Management Substantial Others
Personnel Interest
Transactions during the year ended December 31 2002
Purchase of shares in Patni Computer Systems, Inc. 500,962 373,633 617,549
Buyback of shares 339,528
Interest income received during the period 5,876 - - -
Sales and service income 2,469,894 - - -
Remuneration (Refer note below) - 112,714 - -
Professional fees 7,035
Proposed dividend 8,151 9,602 18,882
Loan and advances returned during the period 1,530 - - -
Inter corporate deposit returned during the year
including accrued interest 49,657
Donations - - - 2,500
Rent and other expenses 13,755 - 192 -
Rent received
Balances at December 31 2002
Security deposits 9,973 - 3,000 -
Advances 4,679 - -
Proposed dividend 9,602 188,882 -
Provision for pension benefits - 202,800 - -
Guarantees given 150,000 - - -

Note: Remuneration does not include provisions for gratuity and leave encashment in respect of Directors, as actuarial valuatio
is done on an overall Company basis.

22 Earnings per share

Particulars 2003 2002
Profit for the year after taxation 1,842,917 1,636,162
Less: Dividend on preference shares - 7,952
Less: Dividend tax on above - 811
Less: Dividend on equity shares of subsidiary 2,702 -
Profit available for equity share holders 1,840,215 1,627,399
Weighted average number of equity shares outstanding during the year 111,420,849 99,059,168
Basic and diluted earnings per share (Rs) 16.52 16.43
Face value per share (Rs) 2.00 2.00
As mentioned in note 25 of the financial statements the Company has granted 2,743,400 options to eligible employees on
1 September 2003. These options did not have a dilutive effect on the weighted average number of equity shares outstanding
during the period.

23 Leases
Patni has acquired certain vehicles under finance lease for a non-cancellable period of four years. At the inception of the lea
fair value of such vehicles has been recorded as an asset under gross block of vehicles with a corresponding lease rental
obligation recorded under secured loans. As per the lease agreement, the ownership of these vehicles would not transfer to
Patni. However, it contains a renewal clause.

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements (Contd.) for the year ended 31 December 2003

(Currency : in thousands of Indian Rupees except share data)

Fixed assets include the following amounts in relation to the above leased vehicles:
As a 31 December 2003 2002
Gross black of vehical 34,041 22,745
Less:Accumulated depreciation 9,726 3,332
Net block 24,315 19,413

uture minimum lease payments in respect of the above assets as at 31 December 2003 are summarised below:
Minimum Finance Presentvalue
lease charge of minimum
payments lease payments
Amount due within one year from the balance sheet date 9,528 1,211 8,317
Amount due in the period between one year and five years 17,239 947 16,292
26,767 2,158 24,609
Patni has operating lease agreements, primarily for leasing office space and residential premises for its employees. Most of the
lease agreements provide for cancellation by either party with a notice period ranging from 30 days to 120 days and also
contain a clause for renewal of the lease agreement at the option of the Company.
Patni USA has operating lease agreements, primarily for leasing office space, that expire over the next 1-5 years. These leases
generally require Patni USA to pay certain executory costs such as taxes, maintenance and insurance.
TRI has entered into certain non-cancellable operating lease agreements for leasing office space, which expire through
December 2005. The lease agreements do not give any option for renewal.
The future minimum lease payments in respect of such non-cancellable operating leases are summarised below:
As a 31 December 2003 2002
Amount due within one year from the balance sheet date 170,785 83,383
Amount due in the period between one year and five years 104,237 93,674
275,022 177,057
TRI has also entered into agreements to sub-lease part of its office premises, which expire through December 31, 2005. These
agreements do not provide for renewal option. Future minimum rentals to be received by TRI under such non-cancellable sub-
leases as at 31 December 2003 are summarised below:
Amount due within one year from the balance sheet date 21,160
Amount due in the period between one year and five years 7,002
28,162
Sub lease income recognised in the statement of profit and loss for the year ended 31 December ,2003 aggregated Rs 15,009
(2002:nil)

24 Capital and other commitments

On October 24 2000, the Company issued 124,500 equity shares of Rs10 each to GE Capital Mauritius Equity Investment
(’GE’). Simultaneously, certain shareholders of the Company also sold 187,500 equity shares of Rs 10 each of the Company
To GE on consistent terms .Pursuant to the shareholders’ agreement, the Company was required to make an initial public
offering (’IPO’) of its equity shares for the purposes of being listed on a recognised stock exchange within a period of 18 months
From the date of allotment of shares to GE. In the event the IPO did not occur within such period, GE had a right requiring
either the Company, the other shareholders or a third party to buy back its shares at the higher of the fair market value of the
shares or at a price based on an assured rate of return ranging between 18% to 21 % on Ge’s initial investment
On 15 July 2002, the Company entered into a new shareholders agreement ("new SHA") with General Atlantic Mauritius Limited
(’GA’), GE and promoter shareholders. In September 2002, the Company made a private placement of its unregistered

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 PATNI COMPUTER SYSTEMS LIMITED AND ITS SUBSIDIARIES

Notes to the Consolidated financial statements

(Currency : in thousands of Indian Rupees except share data)
American Depository Receipt (’ADRs’) to international investors representing 13,441,245 equity shares having face value of Rs2
each. The equity shares represented by ADRs carry equivalent rights with respect to dividends and voting as the other equity
shares. In accordance with the new SHA, Patni was required to make an IPO of its equity shares within a period of 36 months
from the date of issue of shares to GA. In the event an IPO did not occur within such period, GE and GA had a right to require
the Company to buy back their equity shares and those of the other members of each of their Group aggregating 43,684,048
shares (2002: 27,677,830 ) at a price which would be higher of the price at which shares were issued to GA or such price as
would be is determined by the Board of Directors of the Company.
In case the Company did not or could not buy back all of GE and GA’s equity shares and those of the members of their Group,
then GE and GA shall have other exit options, as specified in the new SHA.
As per the new SHA, the price at which the Company was required to buy back the shares was to be the higher of the price at
which the shares were issued to GA or such price as determined by the Board of Directors of the Company at the time of such
buy back. However, as there was no defined measurement method specified in the new SHA in relation to the redemption
amount the Company did not remeasure the shares issued to GA and GE at each reporting period.
In February 2004 Patni completed initial public offering of its equity shares in India comprising fresh issue of 13,400,000 sha
and sale of 5,324,000 equity shares by the existing shareholders. Accordingly the company would not be required to buy-back
the shares mentioned above.
The estimated amount of contracts remaining to be executed on capital account and not provided for as at 31December 2003
is Rs 19,829 (2002: Rs 77,223)
Outstanding forward contracts as at 31 December 2003 aggregate Rs 3,486,870 (2002: Nil) Unamortised income in respect
of forward exchange contract to be recognised in subsequent period aggregate Rs 6,459 as at 31 December 2003 (2002:Nil)
25 Employee stock compensation plans
On 30 June 2003 Patni established the ‘Patni ESOP 2003’ plan (’the plan’). Under the plan, the Company is authorised to
issue up to 11,142,085 equity shares to eligible employees. Employees covered by the Plan are granted an option to purchase
shares of the Company subject to the requirements of vesting. A compensation committee constituted by the Board of Directors
of the Company administers the plan.
On 1 September 2003 the Company granted 2,743,400 options at an exercise price of Rs 145 per share. These options vest
rateably over a period of 4 years, whereby 25% of the options vest at the end of each year from the date of grant. F
option expires 5 years from the date of vesting.
Of the above options granted by the Company, 9700 options were forfeited and none of the option was exercisable as at
31December 2003.
Pursuant to the plan, if Patni did not complete an Initial Public Offering (’IPO’) within a period of 6 months and one day afte
allotment of shares to an option grantee, then subject to compliance with applicable laws, the Articles of the Company and
obtaining necessary shareholders and board of Directors’ consent, Patni could have offered to purchase such shares issued to
the option grantees. The option grantees would thereupon of their own free will and volition have had the option to sell all th
shares to Patni at the fair market value, within a period of three months from the date of such offer by P
The exercise price of the grant approximated the fair value of the underlying equity shares at the date of the grant.
26 Contingent liabilities
2003 2002
Corporate guarantee 150,000
Bank guarantees 11,384 10,223
Letters of credit 8,562
161,384
168,785

27 Prior period comparatives

Previous year’s figures have been appropriately reclassified to conform to the current year’s presentations.

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 US GAAP

Management’s
Discussion and
Analysis
of the Consolidated Financials under US GAAP

Investors are cautioned that this discussion contains forward-looking statements that involve risks
and uncertainties. When used in this discussion, the words "aim", "anticipate", "believe", "expect",
"estimate", "intend", "objective", "plan", "project", "shall", "will", "will continue", "will pursue" and other
similar expression as they relate to us or our business are intended to identify such forward-looking
statements. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. Actual results,
performances or achievements could differ materially from those expressed or implied in such
forward-looking statements. Factors that could cause or contribute to such differences include
those described under the heading "Risk management" in this annual report. Readers are
cautioned not to place undue reliance on these forward-looking statements, as they speak only as
at the date of this annual report. The following discussion and analysis should be read in
conjunction with our consolidated audited financial statements prepared in accordance with US
GAAP included elsewhere in this annual report and the notes thereto.

Overview
We are one of the leading Indian providers of integrated IT services. Our service offerings span
the entire software services lifecycle including application development and maintenance,
enterprise application systems, enterprise systems management, embedded technology services,
and recently, research and development services and business process outsourcing. We believe
that our ability to manage large client relationships, deliver complex outsourcing services through
innovative delivery models and maintain high quality standards are some of our important
differentiators.

Our service offerings are delivered through a mix of onsite resources located in the client
geography and offshore resources at our facilities in India. We provide a high proportion of our
services on a fixed-price basis, including fixed-price projects on the basis of service level
agreements.

We derive a significant proportion of our revenues from the insurance, manufacturing and
financial services industries. Also, we are highly dependent on clients located in the US and
expect this trend to continue.

We have experienced substantial growth in revenues in recent years, at a CAGR of 32.7 per cent
over the last three years from US$ 142.6 million in 2001 to US$ 251.0 million in 2003. Our net
income grew at a CAGR of 26.6 per cent over the last three years from US$ 26.3 million in 2001

118
 US GAAP

to US$ 42.2 million in 2003. Our net income margin was 18.5 per cent, 19.1 per cent and 16.8
per cent in 2001, 2002 and 2003, respectively. Our employees grew at a CAGR of 20.3 per
cent, from 4,900 as at 31 December 2001 to 7,096 as at 31 December 2003.

Results of Operations
The financial statements of Patni for the year ended 31 December 2003 and 2002 have been
prepared on a consolidated basis in accordance with accounting principles generally accepted in
the US. For the year ended 31 December 2001, combined financial statements were prepared for
Patni and Patni Computer Systems Inc. (Patni, USA, formerly known as Data Conversion Inc.), as
all these entities were under common control of the Patni family.

The following table sets forth certain financial information as a percentage of revenues, calculated
from the consolidated / combined financial statements under US GAAP prepared in US dollars:

ear Yended Year ended Year ended

31 Dec 2001 31 Dec 2002 31 Dec 2003
(Combined) (Consolidated) (Consolidated)

Revenues 100.0% 100.0% 100.0%

Cost of revenues 57.6% 53.8% 59.4%
Gross profit 42.4% 46.2% 40.6%
Selling, general and administrative expenses 20.1% 22.0% 21.7%
P
rovision for doubtful debts and advances 0.8% 0.9% 0.1%
F
oreign exchange (gain) / loss, net (0.5%) (0.1%) 0.0%
Operating income 22.0% 23.4% 18.8%
Other income (expense)
Interest and dividend income 0.9% 0.4% 0.6%
Interest expense (1.3%) (0.3%) 0.0%
Gain (loss) on sale of investments, net 0.0% 0.2% 0.5%
Other income (expense), net 0.0% 0.0% 0.1%
Income before income taxes 21.6% 23.7% 20.0%
Income taxes 3.1% 4.6% 3.2%
Net income 18.5% 19.1% 16.8%

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 US GAAP

Year ended 31 December 2003 compared to year ended 31

December 2002
Revenues
Our revenues were US$ 251.0 million in the year ended 31 December 2003, representing an
increase of 33.3 per cent from revenues of US$ 188.3 million in the year ended 31 December
2002. This increase was primarily due to an increase in the volume of services delivered by us and
a marginal increase in the pricing of our services. The growth in our revenues in the year ended
31 December 2003 was driven largely by the growth in the size of our engagements with clients
other than our top client. Revenues from these clients grew by 59.1 per cent during the year
ended 31 December 2003. Clients other than our top client represented 58.8 per cent of our
revenues in the year ended 31 December 2003, compared to 49.3 per cent of our revenues in
the year ended 31 December 2002.

Clients from the insurance, manufacturing and financial services industries contribute a large
proportion of our revenues. In the years ended 31 December 2003 and 2002, revenues from
these clients together contributed 78.3 per cent and 79.0 per cent of our revenues, respectively.
We continued to derive a significant proportion of our revenues from clients located in the US. In
the years ended 31 December 2003 and 2002, we derived 88.8 per cent and 87.6 per cent of
our revenues, respectively, from clients located in the US.

We added 77 new clients during the year ended 31 December 2003. The total number of clients
that individually accounted for over US$ 1 million in revenues increased from 15 in the year
ended 31 December 2002, to 26 in the year ended 31 December 2003.

Cost of revenues
Our cost of revenues was US$ 149.1 million and US$ 101.4 million in the years ended 31
December 2003 and 2002, respectively. This represents an increase in cost of revenues of 47.0
per cent over the previous year.

Cost of revenues represented 59.4 per cent and 53.8 per cent of our revenues in the years ended
31 December 2003 and 2002, respectively. This increase in cost of revenues was primarily due to
higher sub-contractor costs, an increase in wages, higher immigration costs, an increase in foreign
travel costs and an increase in the number of employees. This increase in cost of revenues as a
percentage of our revenues was offset partly by an increase in our utilisation rates.

In 2003 and 2002, sub-contractor costs were 8.1 per cent and 2.4 per cent of our cost of
revenues, respectively. We hire sub-contractors on a limited basis from time to time, to principally
service certain requirements of our strategic clients in a timely manner. We expect to continue to

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 US GAAP

incur these sub-contractor costs. The increase in wage costs during the year ended 31 December
2003 was principally due to an increase in offshore salary with effect from April 2003. We aim to
maintain our salaries as per industry trends.

Gross profit
Our gross profit was US$ 101.9 million in the year ended 31 December 2003, representing an
increase of 17.4 per cent, from a gross profit of US$ 86.9 million in the year ended 31 December
2002. Gross profit as a percentage of our revenues decreased to 40.6 per cent in the year ended
31 December 2003, from 46.2 per cent in the year ended 31 December 2002, primarily due to
an increase in the cost of revenues.

Selling, general and administrative expenses

We incurred selling, general and administrative expenses of US$ 54.6 million in the year ended
31 December 2003, compared to US$ 41.5 million in the year ended 31 December 2002. This
represents an increase of 31.6 per cent over the previous year. As a percentage of our revenues,
selling, general and administrative expenses decreased to 21.7 per cent in the year ended 31
December 2003 from 22.0 per cent in the year ended 31 December 2002.

Of the selling, general and administrative expenses of US$ 54.6 million and US$ 41.5 million for
the years ended 31 December 2003 and 2002, respectively, we incurred selling and marketing
expenses of US$ 19.6 million and US$ 16.0 million in the respective years. This represents an
increase of 22.5 per cent over the previous year. Patni continues to invest in the expansion of its
global sales infrastructure as per plan. We believe that our investment in selling and marketing
expenses has contributed to our increased revenues from a larger spectrum of clients.

Our general and administrative expenses were US$ 35.0 million in the year ended 31 December
2003, representing an increase of 37.9 per cent, from general and administrative expenses of
US$ 25.5 million in the year ended 31 December 2002. This increase was primarily due to an
increase in personnel costs, principally due to the increase in salaries and number of support staff,
higher professional fees and an increase in establishment costs.

Provision for doubtful debts and advances

Provision for doubtful debts and advances was US$ 0.3 million and US$ 1.7 million in the year
ended 31 December 2003 and 2002, respectively. This represents 0.1 per cent and 0.9 per cent
of our revenues in the years ended 31 December 2003 and 2002, respectively. The reduction in
the provision for doubtful debts and advances in the year ended 31 December 2003 was primarily
on account of better collection efforts.

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 US GAAP

Foreign exchange gain

Foreign exchange gain was US$ 0.2 million in the year ended 31 December 2003 representing a
decrease of US$ 0.1 million, from a foreign exchange gain of US$ 0.3 million in the year ended
31 December 2002. This reduction was a result of the rupee appreciation against the US dollar.
In the year ended 31 December 2003, we purchased forward foreign exchange contracts to
mitigate the risk of changes in foreign exchange rates.

Operating income
As a result of the foregoing factors, our operating income was US$ 47.2 million in the year ended
31 December 2003 representing an increase of 7.4 per cent from the operating income of US$
44.0 million in the year ended 31 December 2002. As a percentage of our revenues, operating
income was 18.8 per cent in the year ended 31 December 2003 compared to 23.4 per cent in
the year ended 31 December 2002.

Other income
Other income was US$ 3.0 million in the year ended 31 December 2003 compared to US$ 0.6
million in the year ended 31 December 2002. Other income comprised interest and dividend
income of US$ 1.6 million and US$ 0.7 million in the years ended 31 December 2003 and
2002, respectively. Other income also comprised a gain of US$ 1.3 million and US$ 0.4 million
on the sale of investments in the years ended 31 December 2003 and 2002, respectively. Other
income was offset by an interest expense of US$ 0.04 million and US$ 0.6 million in the years
ended 31 December 2003 and 2002, respectively.

Income taxes
Our income taxes were US$ 8.0 million in the year ended 31 December 2003, representing a
decrease of 6.3 per cent, from income taxes of US$ 8.6 million in the year ended 31 December
2002. The effective tax rate decreased to 16.0 per cent in year ended 31 Decemb er 2003 from
19.3 per cent in the year ended 31 December 2002. The decrease in effective tax rate was
primarily due to higher tax exemptions available under Section 10A of the Indian Income Tax Act,
and reduced foreign tax liabilities in the year ended 31 December 2003.

Net income
Our net income was US$ 42.2 million in the year ended 31 December 2003, representing an
increase of 17.2 per cent, from net income of US$ 36.0 million in the year ended 31 December
2002. Net income as a percentage of our revenues decreased to 16.8 per cent in the year ended
31 December 2003 from 19.1 per cent in the year ended 31 December 2002. This decrease in
net income was primarily due to the reasons outlined above.

122
 US GAAP

Year ended 31 December 2002 compared to year ended 31

December 2001
Revenues
Our revenues were US$ 188.3 million in 2002, representing an increase of 32.1 per cent, from
revenues of US$ 142.6 million in 2001. The increase in our revenues was primarily due to higher
realised prices in 2002 as a result of the re-negotiation of a significant master services agreement
and an increase in the volume of services delivered by us to clients other than the top client in
2002. The growth in our revenues in 2002 was driven in part by the growth in the size of our
engagements with clients other than our top client. In 2002, clients other than our top client
represented 49.3 per cent of our revenues, compared to 43.2 per cent of our revenues in 2001.

Clients from the insurance, manufacturing and financial services industries contribute a large
proportion of our revenues. In 2002 and 2001, these clients together comprised 79.0 per cent
and 76.0 per cent of our revenues, respectively. We continued to derive a significant proportion of
our revenues from clients located in the US. In 2002 and 2001, we derived 87.6 per cent and
84.4 per cent of our revenues, respectively, from clients located in the US. We added 59 new
clients during the year ended 31 December 2002.

Cost of revenues
Our cost of revenues was US$ 101.4 million in 2002, representing an increase of 23.5 per cent,
from cost of revenues of US$ 82.1 million in 2001. Cost of revenues represented 53.8 per cent
and 57.6 per cent of our revenues in 2002 and 2001, respectively. The increase in cost of
revenues was primarily due to an increase in wages and an increase in the number of employees.
This increase in cost of revenues as a percentage of revenues was offset partly by an increase in
our utilisation rates, which increased from 59.0 per cent in 2001 to 66.7 per cent in 2002.

Gross profit
Our gross profit was US$ 86.9 million in 2002, representing an increase of 43.8 per cent, from a
gross profit of US$ 60.4 million in 2001. Gross profit as a percentage of our revenues increased
to 46.2 per cent in 2002 from 42.4 per cent in 2001 primarily due to the higher realised prices
and increased utilisation rates.

Selling, general and administrative expenses

Our selling, general and administrative expenses were US$ 41.5 million in 2002, representing an
increase of 45.1 per cent, from selling, general and administrative expenses of US$ 28.6 million
in 2001. As a percentage of our revenues, selling, general and administrative expenses increased

123
 US GAAP

to 22.0 per cent in 2002 from 20.1 per cent in 2001.

Provision for doubtful debts and advances

Provision for doubtful debts and advances were US$ 1.7 million and US$ 1.1 million in 2002 and
2001, respectively. These represented 0.9 per cent and 0.8 per cent of our revenues in the years
ended 31 December 2002 and 2001, respectively. The increase in provision for doubtful debts
and advances in 2002 was primarily on account of some new smaller dotcom customers.

Foreign exchange gain

Our foreign exchange gain was US$ 0.3 million in 2002, representing a decrease of US$ 0.3
million, from a foreign exchange gain of US$ 0.6 million in 2001. The foreign exchange gain in
2001 was primarily on account of the US dollar appreciating against the rupee. In 200 2, the US
dollar appreciated against the rupee in the first half of the year and depreciated in the second half
of 2002. Overall, the US dollar depreciated marginally against the rupee in 2002 over 2001. The
reduction in foreign exchange gain in 2002 was primarily due to the strengthening of the rupee in
the second half of 2002.

Operating income
Our operating income was US$ 44.0 million in 2002, representing an increase of 40.1 per cent,
from an operating income of US$ 31.4 million in 2001. As a percentage of revenues, operating
income increased to 23.4 per cent in 2002 from 22.0 per cent in 2001.

Other income
Other income was US$ 0.6 million in 2002 compared to an expense of US$ 0.7 million in 2001.
In 2002, General Atlantic Mauritius Limited (GA) invested in the Company, and we used a part of
such proceeds to repay our outstanding long-term debts. As a result, we incurred a lower interest
expense of US$ 0.6 million in 2002 compared to an interest expense of US$ 1.8 million in 2001.
Other income also included a gain of US$ 0.4 million on the sale of investments in 2002
compared to a loss of US$ 0.1 million on this account in 2001. This was partly offset by interest
and dividend income of US$ 0.7 million in 2002 compared to interest and dividend i ncome of
US$ 1.2 million in 2001.

Income taxes
Our income taxes were US$ 8.6 million in 2002, representing an increase of 94.5 per cent, from
income taxes of US$ 4.4 million in 2001. This was partly on account of a decrease in the tax
benefit available under Section 10A of the Indian Income Tax Act, from 100 per cent to 90 per
cent for the year ended 31 March 2003, and partly on account of higher foreign taxes.

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 US GAAP

Net income
Our net income was US$ 36.0 million in 2002, representing an increase of 36.8 per cent, from
net income of US$ 26.3 million in 2001. Net income as a percentage of our revenues increased
to 19.1 per cent in 2002 from 18.5 per cent in 2001.

Liquidity and capital resources

Our growth has been financed largely by cash generated from operations and, to a lesser extent,
from the proceeds of the issue of equity shares. In September 2002, General Atlantic Mauriti us
Limited made an equity investment of approximately US$ 57.0 million in the Company.
As at 31 December 2003, we had US$ 97.1 million in liquid assets, which included cash and
cash equivalents of US$ 47.9 million, investments in liquid mutual funds of US$ 22.5 million and
investments in securities of US$ 26.7 million. We had working capital of US$ 132.9 million and
no outstanding bank borrowings or long-term debt.
Net cash provided by operating activities was US$ 41.4 million and US$ 50.2 million in the year
ended 31 December 2003 and 2002, respectively. Net cash provided by operations was lower in
the year ended 31 December 2003 as compared to the year ended 31 December 2002, primarily
due to increases in costs and estimated earnings in excess of billings on uncompleted contracts by
US$ 2.6 million and other current assets by US$ 3.9 million and decreases in taxes payable by
US$ 1.1 million, and other liabilities by US$ 2.8 million. These were partly offset by higher
depreciation and amortisation of US$ 9.1 million and increase in other current liabilities by US$
7.8 million.
Net cash used in investing activities was US$ 28.1 million and US$ 46.1 million for the years
ended 31 December 2003 and 2002, respectively. Net cash used in acquisition of additional
property, plant and equipment for the years ended 31 December 2003 and 2002, was US$ 14.0
million and US$ 12.8 million, respectively. Additionally, we used net cash of US$ 11.1 million and
US$ 33.3 million for purchase of investment securities and liquid mutual fund units during the
years ended 31 December 2003 and 2002, respectively. In April 2003, we acquired The
Reference Inc, a Company incorporated in Massachusetts, USA for consideration of about US$
7.5 million of which a large part was paid out during the year.
Net cash used in financing activities was US$ 0.9 million for the year ended 31 Decembe r 2003
as against net cash provided of US$ 3.1 million for the year ended 31 December 2002. N et cash
of US$ 0.9 million was used to pay dividend on common shares. During the year ended 31
December 2002, US$ 30.7 million was used to acquire Patni USA, US$ 20.9 million was used for
repayment of short-term and long-term borrowings and preferred stock and US$ 0.8 million was
used to pay dividend on common shares. This was offset by net proceeds received from issuance
of redeemable common shares amounting to US$ 55.5 million.

125
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 PATNI COMPUTER SYSTEMS LIMITED
CONSOLIDATED FINANCIALS UNDER US GAAP

Independent Auditors’ Report

KPMG
KPMG House
Kamala Mills Compound
448, Senapati Bapat Marg
Lower Parel
Mumbai 400 013

To the Board of Directors and Shareholders of

Patni Computers Systems Limited

We have audited the accompanying consolidated balance statement presentation. We believe that our audits provide a
sheets of Patni Computers Systems Limited and subsidiaries (’the reasonable basis for our opinion.
Company’) as of December 31, 2003 and 2002, and the
In our opinion, the consolidated financial statements referred to
related consolidated statements of income, shareholders’ equity
above present fairly, in all material respects, the financial
and other comprehensive income, and cash flows for each of the
position of Patni Computers Systems Limited and subsidiaries as
years in the three-year period ended December 31, 2003.
of December 31, 2003 and 2002, and the results of their
These consolidated financial statements are the responsibility of
operations and their cash flows for each of the years in the three-
the Company’s management. Our responsibility is to express an
year period ended December 31, 2003 in conformity with
opinion on these consolidated financial statements based on our
accounting principles generally accepted in the United States of
audits.
America.
We conducted our audits in accordance with auditing standards
As discussed in note 1.1.4 to the consolidated financial
generally accepted in the United States of America. Those
statements, acquisition of the Patni Computers Systems Inc.
standards require that we plan and perform the audit to obtain
(formerly known as Data Conversion Inc.) has been accounted
reasonable assurance about whether the financial statements
as combination of entities under common control.
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
KPMG
in the financial statements. An audit also includes assessing the
Date: March 2, 2004
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial Mumbai, India

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 PATNI COMPUTER SYSTEMS LIMITED

Consolidated Balance Sheet

As at December 31, 2002 2003

ASSETS
Current assets
Cash and cash equivalents $ 32,800,850 $ 47,939,550
Investments in liquid mutual fund units … 22,539,753
Investment in securities 35,341,166 26,704,810
Accounts receivable, net 46,211,687 56,614,716
Costs and estimated earnings in excess of billings on uncompleted contracts 3,341,043 5,827,345
Due from employees 772,048 729,385
Due from affiliates … 3,192
Deferred income taxes 3,326,901 5,450,560
Other current assets 857,875 5,096,992
Total current assets 122,651,570 170,906,303
Goodwill … 2,594,374
Intangible assets, net … 780,499
Property, plant and equipment, net 34,170,384 41,505,305
Deferred income taxes … 1,064,950
Security deposits with affiliates 271,094 284,651
Other assets 2,605,387 2,916,707
Total assets $ 159,698,435 $ 220,052,789
Liabilities and shareholders’ equity
Current liabilities
Current instalments of long-term debt including capital lease obligation $109,935 $182,470
Trade accounts payable 1,600,689 1,986,378
Billings in excess of costs and estimated earnings on uncompleted contracts 1,391,483 2,100,982
Income taxes payable 5,837,957 4,887,715
Deferred income taxes 209,155 …
Accrued expenses 11,601,799 15,213,627
Other current liabilities 8,048,944 13,651,117
Total current liabilities 28,799,962 38,022,289
Capital lease obligations excluding current instalments 300,682 357,448
Other liabilities 3,284,982 5,327,272
Deferred income taxes 441,457 2,669,160
Total liabilities 32,827,083 46,376,169
Shareholders’ equity
Redeemable common shares of Patni Computer Systems Limited; 41,516,746 shares
as of December 2002 and 43,684,048 shares as of December 2003. 117,372,776 123,499,996
Common shares of Patni Computer Systems Limited; $0.01 to $0.04 par value;
Authorised 125,000,000 as of December 2002 and 250,000,000 shares as of
December 2003; Issued and outstanding; 69,904,103 as of December 2002 and
67,736,801 shares as of December 2003. 2,246,008 2,990,531
Additional paid-in capital 6,505,213 5,488,352
Retained earnings 7,584,189 42,941,787
Accumulated other comprehensive income (6,836,834) (1,244,046)
Total shareholders’ equity 126,871,352 173,676,620
Total liabilities and shareholders’ equity $159,698,435 $220,052,789

See accompanying notes to the consolidated financial statements.

For Patni Computer Systems Limited

N K Patni A K Patni G K Patni Pradip Shah Arun Duggal Abhay Havaldar Arun Kanakal
Chairman and CEO Executive Executive Director Director Alternate Company
Director Director Secretary

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 PATNI COMPUTER SYSTEMS LIMITED

Consolidated Statements of Income

Year ended December 31, 2001 2002 2003

(Combined)
Revenues $142,562,955 $188,273,762 $251,043,408
Cost of revenues 82,115,235 101,372,240 149,055,347
Gross profit 60,447,720 86,901,522 101,988,061
Selling, general and administrative expenses 28,585,047 41,462,887 54,577,295
Provision for doubtful debts and advances 1,071,198 1,747,877 305,201
Foreign exchange gain, net (616,249) (317,457) (171,574)
Operating income 31,407,724 44,008,215 47,277,139
Other income/(expense)
Interest and dividend income 1,221,210 705,624 1,573,522
Interest expense (1,793,029) (579,308) (36,295)
(Loss)/gain on sale of investments, net (91,592) 390,869 1,278,018
Other (expense)/income, net (12,793) 75,333 163,574
Income before income taxes 30,731,520 44,600,733 50,255,958
Income taxes 4,414,886 8,588,856 8,044,855
Net income $26,316,634 $36,011,877 $42,211,103
Basic and diluted earnings per share $0.25 $0.27 $0.38
Weighted average number of common and redeemable
common shares used in computing earnings per share 93,735,000 99,059,168 111,420,849

See accompanying notes to the consolidated financial statements.

For Patni Computer Systems Limited

N K Patni A K Patni G K Patni Pradip Shah Arun Duggal Abhay Havaldar Arun Kanakal
Chairman and CEO Executive Executive Director Director Alternate Company
Director Director Secretary

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Consolidated Statements of Shareholders’ Equity and Other Comprehensive Income
Common shares Redeemable common shares Accumulated
Patni Computer Systems Patni computer Patni Computer Additional other Total
Limited Systems Inc. Systems Limited Paid-In- Retained Comprehensive Comprehensive Shareholders
Shares Par value Shares Stated Shares Value Capital Earnings Income Income Equity
value

Balance as at January 1, 2001 84,375,000 $885,824 3,750 $3,750 9,360,000 $15,479,465 $557,438 $38,068,663 $(6,841,737) $48,153,403
(Combined)
Cash dividends on common shares (269,244) (269,244)
Stock dividend 1,997,336 (1,997,336) -
Accretion to redeemable common shares 2,694,613 (2,694,613) -
Net income 26,316,634 26,316,634 26,316,634
Other comprehensive income:
Translation adjustment (1,022,565) (1,022,565)
Unrealised gain/(loss) on investments, net (238,088) (238,088)
Other comprehensive income (1,260,653) (1,260,653)
Comprehensive income $25,055,981
Balance as at December 31, 2001 84,375,000 $2,883,160 3750 $3,750 9,360,000 $18,174,078 $557,438 $59,424,104 $(8,102,390) $72,940,140
PATNI COMPUTER SYSTEMS LIMITED

Cash dividend on common shares (850,173) (850,173)

Redeemable common shares issued 20,161,868 57,000,000 57,000,000
Accretion of redeemable common shares 8,287,756 (9,752,506) (1,464,750)
Reclassification of common shares on account
of sale by promoter shareholders (14,103,680) (376,098) 14,103,680 39,872,776 (39,496,678) -
Reclassification of redeemable common shares on
account of sale to promoter shareholders 2,108,802 14,059 (2,108,802) (5,961,834) 5,947,775 -
Acquisition of Patni Computer Systems Inc. shares
from promoter shareholders (3750) (3750) (3750)
Distribution to promoter shareholders on acquisition
of Patni Computer Systems Inc. (30,746,250) (30,746,250)
Repurchase of common shares from promoter shareholders (2,476,019) (275,113) (7,006,185) (7,281,298)
Comprehensive income:
Net income 36,011,877 36,011,877 36,011,877
Other comprehensive income:
Translation adjustment 888,564 888,564
Unrealised gain/(loss) on Investments net 542,842 542,842
Minimum pension liability, net (165,850) (165,850)
Other comprehensive income 1,265,556 1,265,556
Comprehensive income 37,277,433
Balance as at December 31, 2002 69,904,103 $2,246,008 - - 41,516,746 $117,372,776 $6,505,213 $7,584,189 $(6,836,834) $126,871,352
Cash dividend on Patni Computer Systems Inc. shares (56,250) (56,250)
Cash dividend on common shares (942,373) (942,373)
Stock dividend 1,016,861 (1,016,861)
Reclassification of common shares on account
of sale by promoter shareholders (2,167,302) (272,338) 2,167,302 6,127,220 (5,854,882)
Net income 42,211,103 42,211,103 42,211,103
Other comprehensive income:
Translation adjustment 6,456,104 6,456,104
Unrealised gain/(loss) on Investments, net (356,228) (356,228)
Minimum pension liability, net (507,088) (507,088)
Other comprehensive income 5,592,788 5,592,788
Comprehensive income 47,803,891
Balance as at December 31, 2003 67,736,801 $2,990,531 43,684,048 $123,499,996 $5,488,352 42,941,787 (1,244,046) 173,676,620
See accompanying notes to the consolidated financial statements..
 PATNI COMPUTER SYSTEMS LIMITED

Consolidated Cash Flow Statement

Year ended December 31, 2001 2002 2003
Operating activities (Combined)
Net income $26,316,634 $36,011,877 $42,211,103
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortisation 4,588,107 6,457,986 9,127,418
Loss/(gain) on sale of property, plant and equipment, net (13,885) (3,745) 6,175
Loss/(gain) on sale of investments, net 152,314 (390,869) (1,278,018)
Deferred taxes (213,183) (1,838,087) (659,546)
Provision for doubtful debts and advances 1,071,198 1,747,877 305,201
Changes in assets and liabilities
Accounts receivable (4,904,313) (14,735,721) (9,580,494)
Costs and estimated earnings in excess of
billings on uncompleted contracts 259,950 (613,226) (2,558,554)
Dues from affiliates (349,818) 6,247,598 (3,125)
Dues from employees (115,265) (28,653) 90,667
Due to affiliates (82,026) -
Other current assets (559,577) 1,019,417 (3,887,692)
Other assets (469,106) (770,509) (292,911)
Trade accounts payable (321,156) 447,496 200,994
Billings in excess of costs and estimated earnings
on uncompleted contracts 31,728 1,095,958 692,262
Taxes payable (1,937,507) 6,298,724 (1,147,543)
Accrued expenses 4,081,392 4,219,751 2,638,374
Other current liabilities 1,119,513 3,705,620 3,592,235
Other liabilities 616,402 1,287,499 1,925,431
Net cash provided by operating activities $29,271,402 $50,158,993 $41,381,977
Investing activities
Purchase of property, plant and equipment (15,497,427) (12,848,621) (14,014,277)
Proceeds from sales of property, plant and equipment 53,726 17,619 70,105
Purchase of investment securities (10,786,227) (62,650,383) (84,218,119)
Proceeds from sale of investment securities 13,644,294 29,245,538 95,256,878
Purchase of investments in liquid mutual fund units - (13,453,068) (69,622,903)
Proceeds from sale of investments in liquid mutual fund units - 13,576,994 47,478,842
Investment in subsidiary, net of cash acquired - - (3,038,154)
Net cash used in investing activities $(12,585,634)$(46,111,921) $(28,087,628)

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 PATNI COMPUTER SYSTEMS LIMITED

Consolidated Cash Flow Statement (Contd.)

Year ended December 31, 2001 2002 2003

Financing activities
Repayment of short-term borrowings from banks, net $ 2,366,597 $ (5,761,281) $ -
Capital lease obligation, net 754,184 (1,866,180) 105,537
Repayment of long term debt (834,550) (5,942,383)
Dividend on common shares (269,244) (850,173) (942,373)
Dividend on common shares of Patni Computer Systems Inc. (56,250)
Proceeds from issuance of redeemable common shares, net - 55,535,250 -
Repurchase of common shares from promoter shareholders - (7,281,298) -
Acquisition of Patni computer system Inc. shares from shareholders (3,750) -
Distribution to promoter shareholders on acquisition of
Patni Computer Systems Inc. - (30,746,250) -
Net cash provided/(used) in financing activities $2,016,987 $3,083,935 $(893,086)
Effect of exchange rates changes on cash and cash equivalents (621,759) 14,614 2,737,437
Net increase in cash and cash equivalents 18,702,755 7,131,007 12,401,263
Cash and cash equivalents at the beginning of the period 7,574,233 25,655,229 32,800,850
Cash and cash equivalents at end of the period $25,655,229 $32,800,850 $47,939,550
Interest paid $1,734,459 $581,018 $36,295
Income taxes paid $1,970,000 $3,751,080 $9,741,716
Supplemental information of non cash investing
Additions to property, plant and equipment, represented
and financing activities:
by capital lease obligations $1,168,157 $369,425 $275,080
Accretion of redeemable common shares $2,694,613 $9,752,506 -
Reclassification of common shares on account of sale
by promoter shareholders - $39,496,678 $5,854,882
Reclassification of redeemable common shares on
account of sale to promoter shareholders - $5,947,775 -
Stock Dividend $1,997,336 - $1,061,861

See accompanying notes to the consolidated financial statements.

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 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements for the year ended December 31, 2003

1. Organisation and nature of business

1.1.1 Patni Computer Systems Limited ("Patni") is a Company incorporated in India under the Indian Companies Act, 1956. On
September 18, 2003, Patni converted itself from a private limited Company into a public limited Company and changed its
name from Patni Computer Systems (P) Limited to Patni Computer Systems Limited. In February 2004, Patni completed initial
public offering of its equity shares in India, comprising fresh issue of 13,400,000 equity shares and sale of 5,324,000 equity
shares by the existing shareholders.
1.1.2 Patni Computers Systems (UK) Limited ("Patni UK", a Company incorporated in the UK) and Patni Computer Systems GmbH
("Patni GmbH", a Company incorporated in Germany) were incorporated as 100% subsidiaries of Patni. Patni Computer
Systems, Inc. ("Patni USA" formerly known as Data Conversion Inc "DCI"), a Company incorporated in Massachusetts, USA was
an entity under common control of the Patni family. In September 2002, Patni USA became a 100% subsidiary of Patni. In
April 2003, Patni USA, acquired 100% equity in The Reference Inc. ("TRI") a Company incorporated in Massachusetts, USA
for consideration in cash.
1.1.3 Patni together with its subsidiaries (collectively, "Patni Group" or "the Company") is engaged in IT consulting and softwa re
development. The Company provides multiple service offerings to its clients across various industries comprising financial
services, insurance services, manufacturing companies and others such as energy and utilities, retail and hospitality
companies. The various service offerings comprise application development and maintenance, enterprise application systems,
enterprise system management, research and development services and business process outsourcing services.
1.1.4 These financial statements were prepared previously on a combined basis by virtue of Patni and its subsidiaries and Patni USA
being entities under common control of the Patni family. In October 2000, Patni acquired 25% of the outstanding common
stock of Patni USA from members of the Patni family (’Promoter shareholders’) for a consideration of $10,250,000. The
acquired Patni USA stock was recorded earlier as treasury stock at its book value and the excess of the amount paid over the
book value of the acquired stock was charged to retained earnings as distribution to shareholders. In September 2002, Patni
acquired the balance 75% of the outstanding common stock of Patni USA from the promoter shareholders for a consideration
of $30,750,000. In these consolidated financial statements, this acquisition has been accounted as combination of entities
under common control. Accordingly, the excess of the amount paid over the book value of the acquired stock has been
charged to retained earnings as distribution to shareholders. Since, the accounts of these entities were stated at their historical
amounts for all periods presented, no adjustments were required for purposes of restating the financial statements on a
consolidated basis for the period of the combination and for prior periods other than restatement of 25% treasury stock of
Patni USA, which has been adjusted against the outstanding stock of Patni USA for all the prior periods presented in these
financial statements.

2 Summary of significant accounting policies

Basis of preparation of financial statements

2.1.1 These financial statements of Patni have been prepared on a consolidated basis in accordance with accounting principles
generally accepted in the United States (’US GAAP’).All significant inter-Company transactions have been eliminated on
consolidation.

Accounting estimates
2.1.2 The preparation of financial statements in conformity with US GAAP requires that management makes estimates and
assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
Management believes that the estimates used in the preparation of the consolidated financial statements are prudent and
reasonable. The actual results could differ from these estimates.

Revenue and cost recognition

2.1.3 The Company derives its revenues primarily from software services. Revenue with respect to time-and-material contracts is
recognised as related services are performed. Revenue with respect to fixed-price contracts is recognised on a percentage of
completion basis, measured by the percentage of costs incurred to-date to estimated total costs for each contract. Guidance

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 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

has been drawn from paragraph 95 of Statement of Position ("SOP") 97-2 to account for revenue from fixed price
arrangements for software development and related services in conformity with SOP-81-1. The input method has been used
because management considers this to be the best available measure of progress on these contracts as there is a direct
relationship between input and productivity.
2.1.4 Contract costs include all direct costs such as direct labour and those indirect costs related to contract performance, such as
depreciation and satellite link costs. Selling, general, and administrative costs are charged to expense as incurred. Provisions
for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract settlements may result in revision to costs and income
and are recognised in the period in which the revisions are determined, as change in estimates.
2.1.5 The asset, "Cost and estimated earnings in excess of billings on uncompleted contracts", represents revenues recognised in
excess of amounts billed. These amounts are billed after the milestones specified in the agreement are achieved and the
customer acceptance for the same is received. The liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts", represents billings in excess of revenues recognised.
2.1.6 Direct and incremental contract origination and set up costs incurred in connection with support/maintenance service
arrangements are charged to expense as incurred. These costs are deferred only in situations where there is a contractual
arrangement establishing a customer relationship for a specified period. The costs to be deferred are limited to the extent of
future contractual revenues. Further, revenue attributable to set up activities is deferred and recognised systematically over the
periods that the related fees are earned, as services performed during such period do not result in the culmination of a
separate earnings process.
2.1.7 The Company postpones revenue recognition in instances wherein the conditions for revenue recognition are not met. Related
costs are also deferred in such instances, subject to management’s assessment of realisability.
2.1.8 Warranty costs on sale of services are accrued based on managements’estimates and historical data at the time related
revenues are recorded.
2.1.9 The Company grants volume discounts to customers in the form of free services in future. The Company accounts for such
volume discounts by allocating a portion of the revenue on the related transactions to the service that will be delivered in
future. Reimbursement of out of pocket expenses received from customers have been included as part of revenues in
accordance with EITF 01-14 "Income Statement Characterisation of Reimbursements Received for ‘Out of Pocket’ Expenses
Incurred".
2.1.10 In November 2002, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-21, Revenue Arrangements
with Multiple Deliverables applicable for fiscal periods beginning after June 2003. This Issue addresses when and, if so, how
an arrangement involving multiple deliverables should be divided into separate units of accounting, where the deliverable (the
revenue generating activities) are sufficiently separable and have standalone value to the customer. It is also necessary that
there exists sufficient evidence of fair value to separately account for some or all of the deliverables. The Company believes
that the adoption of the consensus did not have a material impact on the Company‘S revenue recognition policies as the
accounting for the revenue from a significant portion of the Company‘S service offerings is governed by higher level GAAP
literature.

Cash and cash equivalents

2.1.11The Company considers investments in highly liquid investments with an original maturity of three months or less at the d ate
of deposit to be cash equivalents. Cash and cash equivalents comprise cash and cash on deposit with banks.

Investments
2.1.12 Management determines the appropriate classification of investment securities at the time of purchase and re-evaluates such
designation at each balance sheet date. At December 31, 2003, all investment securities were classified as available-for-sale
and consisted of units of mutual funds.
2.1.13 Available-for-sale securities are carried at fair market value with unrealised gains and losses, net of deferred income taxes,
reported as a separate component of other comprehensive income in the statement of shareholders’ equity and other

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 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

comprehensive income. Realised gains and losses, and decline in value judged to be other than temporary on available-for-
sale securities are included in the consolidated statements of income. The cost of securities sold or disposed is determined on
‘first in first out’basis.

Business combinations, goodwill and intangible assets

2.1.14In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141
specifies criteria that intangible assets acquired in a business combination must be recognised and reported separately from
goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortised, but
instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires
that intangible assets with estimable useful lives be amortised over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144. "Accounting for the impairment or disposal
of long-lived assets".
2.1.15On the date of adoption of SFAS No. 142, the Company did not have any goodwill or intangible assets.

Property, plant and equipment

2.1.16Property, plant and equipment are stated at cost less accumulated depreciation and amortisation. Assets under capital lea ses
are stated at the present value of minimum lease payments. Gains and losses on disposals are included in the consolidated
statements of income at amounts equal to the difference between the net book value of the disposed assets and the net
proceeds received upon disposal. Expenditures for replacements and improvements are capitalised, whereas the cost of
maintenance and repairs is charged to income when incurred.
2.1.17Property, plant and equipment are depreciated over the estimated useful life of the asset using the straight-line method, once
the asset is ready for its intended use. The cost of software obtained for internal use is capitalised and amortised over the
estimated useful life of the software. The estimated useful lives of assets are as follows:

Buildings 40 years
Leasehold premises and improvements Over the lease period
or the useful lives of the assets,
whichever is shorter
Computer - Hardware and software and other service equipments 3 years
Furniture and fixtures 3-8 years
Other equipment 3-8 years
Vehicles 4-5 years

Impairment of long-lived assets and long-lived assets to be disposed

2.1.18Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever an event or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the impairment to be recognised is measured by the
amount by which the carrying amount of the assets exceeds the fair value of assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less cost to sell.

Foreign currency transactions

2.1.19Transactions in foreign currencies are translated into the functional currency at the rates of exchange prevailing at the date of
the transaction. Resulting gains or losses from settlement of such foreign currency transactions are included in the consolidated
statements of income. Unsettled monetary assets and liabilities denominated in foreign currencies are translated into the
functional currency at the rates of exchange prevailing at the balance sheet date. Transaction gain or loss arising from change
in exchange rates between the date of transaction and period end exchange rates are included in the consolidated statements
of income.

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 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

Foreign currency translation

2.1.20The functional currency for the companies within the Patni Group are the applicable local currencies except that the func tional
currency of Patni’s branch offices in the US, Japan, Sweden and Australia is the Indian Rupee.
2.1.21The accompanying consolidated financial statements are reported in US Dollars. The transla tion of the Indian Rupee, UK
Pound and Euro into US Dollars is performed for balance sheet accounts using the exchange rate in effect at the balance sheet
date and for revenue and expense accounts using an appropriate monthly weighted average exchange rate for the respective
periods. The gains or losses resulting from such translation are reported in other comprehensive income in the statement of
Shareholders’equity and other comprehensive income.

Income taxes
2.1.22Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognised f or the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognised in results of
operations in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by
a valuation allowance for tax benefits whose future realisation is uncertain.

Concentration of credit risk

2.1.23Financial instruments that potentially subject Patni to concentration of credit risks consist principally of cash, cash e quivalents,
investments and accounts receivables. Cash and cash equivalents are invested with corporations, financial institutions and
banks with investment grade credit ratings. To reduce credit risk, investments are made in a diversified portfolio of mutual
funds, which are periodically reviewed. To reduce its credit risk on accounts receivables, Patni transacts with well-known
companies and performs ongoing credit evaluations of customers.

Retirement benefits to employees

2.1.24Contributions to defined contribution plans are charged to income in the period in which they accrue. Current services co sts
for defined benefit plans are accrued in the period to which they relate, based on actuarial valuation performed by an
independent actuary. Prior service costs, if any, resulting from amendments to the plans are recognised and amortised over
the remaining period of service of the employees.

Stock-based compensation
2.1.25The Company uses the intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretation including FASB interpretation 44, Accounting for Certain Transactions involving
Stock Compensation an interpretation of APB Opinion No. 25, issued in March 2000, to account for its employee stock based
compensation plans. Under this method, compensation expense is recorded on the date of the grant, only if the current fair
value of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation,
established accounting and disclosure requirements using a fair value-based employee compensation plans. As allowed by
SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation - Transition
and Disclosure, an amendment of FASB Statement No. 123. All stock options issued to date have been accounted as a fixed
stock option plan.

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Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

2.1.26Had compensation cost been determined in a manner consistent with the fair value approach described in SFAS No. 123, the
Company•s net income and earnings per share as reported would have been reduced to the pro forma amounts indicated
below:

Year ended Year ended Year ended

December 31, December 31, December 31,
2001 2002 2003
Net income, as reported 26,316,634 $36,011,877 $42,211,103
Add: Stock based Employee Compensation
expense included in reported Income - - -
Less: Stock-based employee compensation
expense determined under fair
value based method, net of tax effects - - 158,232
Pro forma net income 26,316,634 36,011,877 42,052,871
Reported basic and diluted earnings per share 0.25 0.27 0.38
Proforma basic and diluted earnings per share 0.25 0.27 0.38

2.1.27 The fair value of each option is estimated on the date of grant using the Black-Scholes model with the following assumptions.

Year ended Year ended Year ended

December 31, December 31, December 31,
2001 2002 2003
Dividend yield - - 0.41%
Expected life - - 2-5 years
Risk free interest rates - - 4.75%-4.9%
Volatility - - 0%

Dividends
2.1.28Dividends on common shares are recorded as a liability on the date of declaration by the shareh olders.

Derivatives and hedge accounting

2.1.29 The Company enters into forward foreign exchange contracts where the counter party is generally a bank. The Company
purchases forward foreign exchange contracts to mitigate the risk of changes in foreign exchange rates on accounts payable,
inter-Company receivables and forecasted cash flows denominated in foreign currencies. Although these contracts are
effective as hedges from an economic perspective, they do not qualify for hedge accounting under SFAS No. 133, as
amended. Any derivative that is either not designated hedge, or is so designated but is ineffective as per SFAS No. 133, is
marked to market and recognised in earnings immediately.

Earnings per share

2.1.30 In accordance with SFAS No. 128, Earnings per Share, basic earnings per share is computed using the weighted average
number of common and redeemable common shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common and redeemable common shares and dilutive common equivalent shares
outstanding during the period using, the treasury stock method for options except where the result would be anti-dilutive.

Reclassifications
2.1.31Certain reclassifications have been made in the financial statements of prior periods to conform to classifications used in the
current year.

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Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

3 Acquisition
3.1.1 On April 17, 2003, Patni USA, acquired 100% equity interest in TRI which is engaged in providing IT services to clients in the
financial services sector. The consolidated financial statements include the operating results of TRI from the date of acquisition.
The purchase price of $6,093,526 (including direct expenses of $113,516) has been paid in cash. Further, the purchase
agreement provides for payment of additional consideration not exceeding $1,500,000 in cash through April 30, 2005, which
is contingent upon achievement of the operating performance of the acquired business as specified in the agreement.
3.1.2 This transaction has been accounted using the purchase method of accounting as required by SFAS No. 141. The purchase
price has been allocated to the acquired assets and liabilities based on management’s estimates and independent appraiser
as follows:

Cash and cash equivalents $3,055,332

Net tangible liabilities (396,180)
Customer related intangibles 840,000
Goodwill 2,594,374
Total $6,093,526

3.1.3 The goodwill recorded above is allocated to the financial services segment. Customer related intangibles are being amortised
over its estimated useful life of 10 years in proportion to the economic benefits consumed in each period.
3.1.4 In accordance with SFAS No. 142 the goodwill recorded above is not being amortised, but instead tested for impairment at
least annually. In this regard, as at December 31, 2003, the Company has tested this goodwill for impairment and has
concluded that there is no impairment in its carrying value.

4 Accounts receivable
4.1.1 Accounts receivable consist of the following:

As at December 31, 2002 2003

Receivables $49,453,677 $59,839,210
Less: Allowances for doubtful accounts 3,241,990 3,224,494
$46,211,687 $56,614,716

4.1.2 The activity in the allowance for doubtful accounts receivable for the years ended December 31, 2002 and 2003 is as
follows:

For the year ended December 31, 2002 2003

Allowance for doubtful accounts as beginning of the period $1,859,269 $3,241,990
Additions charged (net of recoveries) to bad debt expense during the period 1,747,877 296,391
Write-downs charged against the allowance during the period (365,156) (313,887)
Allowance for doubtful accounts at period-end $3,241,990 $3,224,494

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 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

5 Costs and estimated earnings in excess of billings and billings in excess of costs and estimated
earnings on uncompleted contracts

As at December 31, 2002 2003

Costs incurred on uncompleted contracts $6,383,421 $9,193,211
Estimated earnings 8,652,389 12,338,473
15,035,810 21,531,684
Less: Billings to date 13,086,250 17,805,321
$1,949,560 $3,726,363
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts $3,341,043 $5,827,345
Billings in excess of costs and estimated earnings on uncompleted contracts (1,391,483) (2,100,982)
$1,949,560 $3,726,363

6 Other current assets

6.1.1 Other current assets consist of the following:

As at December 31, 2002 2003

Advances $10,052 $264,313
Prepaid expenses 424,044 1,095,637
Prepaid gratuity costs 93,892 380,701
Deposits 224,734 359,362
Deferral of cost in respect of revenue arrangements - 1,731,034
Others 105,153 1,265,945
$857,875 $5,096,992

6.1.2 Advances are net of provision for doubtful advances of $37,916 and $77,521 as at December 31, 2002 and 2003
respectively.

7 Intangible assets

7.1.1 Intangible assets as at December 31, 2002 and 2003 consists of the following:

As at December 31, 2002 2003

Customer related intangibles - $840,000
Less: Amortisation - 59,501
- $780,499

8 Property, plant and equipment

8.1.1 Property, plant and equipment consists of the following:

As at December 31, 2002 2003

Land (Leasehold) $713,942 $2,324,107
Land (Freehold) 22,598 23,783
Building 13,699,893 15,814,456
Leasehold improvements 1,027,663 2,073,588
Computer - Hardware and other service equipment 13,155,372 18,550,125
Computer - Software 5,732,551 9,256,422

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Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

8 Property, plant and equipment (contd.)

As at December 31, 2002 2003

Furniture and fixtures 7,238,007 9,040,252
Other equipment 7,980,006 10,202,618
Vehicles 1,430,784 1,803,884
Capital work-in-progress 111,548 490,908
Capital advances 496,133 464,905
51,608,497 70,045,048
Less: Accumulated depreciation and amortisation 17,438,113 28,539,743
$34,170,384 $41,505,305

8.1.2 Depreciation and amortisation expense on property, plant and equipment was $4,588,107, $6,457,986 and $9,067,917
for the year ended December 31, 2001, 2002 and 2003 respectively. This includes amortisation for computer software of
$775,524, $1,079,378 and $1,955,588 for the year ended December 31, 2001, 2002 and 2003 respectively. Additions to
computer software amounted to $1,713,186 and $3,096,406 during the year ended December 31, 2002 and 2003
respectively. Accumulated amortisation on computer software at December 31, 2002 and 2003 amounted to $3,369,323
and $5,489,966 respectively.
8.1.3 In 2001, Patni acquired leasehold land rights aggregating $832,694 in respect of which it is required to complete construction
activities within a period of five years, commencing July 23, 2001, in absence of which the lessor has an option to revoke the
transfer of such rights without repayment of the lease premium. During 2001, Patni commenced preliminary construction related
activities in relation to this land. In 2002, the Company decided not to pursue construction activities in relation to this land on
account of adverse technical condition of this land. Accordingly, in December 2002, the carrying value was reduced to fair
value of $524,054 based on management’s estimate of future realisations upon sale of such land.
8.1.4 Leasehold land includes amounts aggregating $1,572,729 in respect of which formalities relating to the transfer of leasehold
rights are in the process of being completed.

9 Investments
9.1.1 Investment securities consist of the following:
As at December 31, 2002
Carrying Gross unrealised Gross unrealised Fair value
value holding gains holding losses
Available for sale:
Mutual fund units $34,688,732 $702,640 $(50,206) $35,341,166
$34,688,732 $702,640 $(50,206) $35,341,166
Less: Amount reported as investment in
liquid mutual fund units -
Amount reported as investment securities $35,341,166

As at December 31, 2003

Carrying Gross unrealised Gross unrealised Fair value
value holding gains holding losses
Available for sale:
Mutual fund units $49,153,013 $98,511 $(6,961) $49,244,563
$49,153,013 $98,511 $(6,961) $49,244,563
Less: Amount reported as investment in
liquid mutual fund units 22,539,753
Amount reported as investment securities $26,704,810

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 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

9.1.2 Dividends from securities available for sale, during the year ended December 31, 2001, 2002 and 2003 were $395,415,
$131,772 and $1,268,498. Proceeds from the sale of securities, available for sale were $42,822,532 and $142,735,720
for the year ended December 31, 2002 and 2003, respectively. Gross realised gains on sale of securities, available for sale
was $189,411, $473,750 and $1,488,087 and gross realised losses on sale of securities, available for sale was $281,003,
$82,881 and $271,535 for the year ended December 31, 2001, 2002 and 2003 respectively.

10 Other assets
10.1.1Other assets consist of the following:

As at December 31, 2002 2003

Security deposits $1,250,319 $2,013,703
Due from employees 71,140 32,929
Pension intangibles 1,283,928 870,075
$2,605,387 $2,916,707

11 Accrued expenses
11.1.1Accrued expenses consist of the following:
As at December 31, 2002 2003
Employee costs $8,089,679 $10,999,883
Others 3,512,120 4,213,744
$11,601,799 $15,213,627

12 Other current liabilities

12.1.1Other current liabilities consist of the following:
As at December 31, 2002 2003
Taxes payable $753,739 $1,015,450
Capital expenditure payable 412,741 144,781
Provident fund dues payable 243,621 349,006
Deferred revenue 1,938,315 2,711,122
Provision for leave encashment 4,639,048 7,273,006
Others 61,480 2,157,752
$8,048,944 $13,651,117

13 Leases
13.1.1Patni has acquired certain vehicles under capital lease for a non- cancellable period of 4 years. The gross amount recorded
under such capital lease is $474,152 with accumulated depreciation of $69,456 as at December 31, 2002. The gross
amount recorded under such capital lease is $770,019 with accumulated depreciation of $223,284 as at December 31,
2003. The depreciation expense in respect of these assets aggregated $53,486, $137,034 and $147,079 for the year ended
December 31, 2001, 2002 and 2003, respectively.
13.1.2Patni USA has operating lease agreements, primarily for leasing office space, that expire over the next 1-5 years. These leases
generally require Patni USA to pay certain executory costs such as taxes, maintenance and insurance.
13.1.3Patni has operating lease agreements, primarily for leasing office and residential premises. These agreements provide for
cancellation by either party with a notice period ranging from 30 days to 120 days. Some leases contain a clause for renewal

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 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

of the lease agreement. Some leases provide for annual renewal of the lease payments.
13.1.4TRI has operating lease agreements for leasing office space, which expire through December 2005 The lease agreement do
not give any option for renewal.
13.1.5Future minimum lease payments under non cancellable operating leases (with initial or remaining lease terms in excess of one
year) and future capital lease payments at December 31, 2003 are as follows:

As at December 31, Capital Operating

leases leases
2004 $209,049 $3,746,919
2005 204,742 1,740,026
2006 134,329 344,728
2007 39,163 173,058
Beyond 2007 - 29,085
Total minimum lease payments 587,283 $6,033,816
Less: Amount representing interest 47,365
Present value of net minimum capital lease payments 539,918
Less: Current installments of obligations under capital leases 182,470
Obligations under capital leases, excluding current installments $357,448

13.1.6Rental expense for all operating leases for the year ended December 31, 2001, 2002 and 2003 was $1,870,793,
$2,754,214 and $3,827,294 respectively.
13.1.7TRI has sub leased a portion of its office premises, under agreements which expire through December 2005. These agreement s
do not provide for renewal option. Future minimum rentals to be received under such non-cancellable sub-leases at December
31, 2003 are as follows:

As at December 31,
2004 $466,437
2005 153,616
$620,053

14 Other liabilities
14.1.1Details of other liabilities are set out below.
As at December 31, 2002 2003

Provision for pension benefits 3,234,334 4,991,641

Others 50,648 335,631
$3,284,982 $5,327,272

15 Shareholders’ equity
Common shares
15.1.1For local statutory purposes, the Company has only one class of equi ty shares. However, for accounting purposes, common
shares which can be put back to the Company have been reclassified as redeemable common shares, in the consolidated
financial statements. For all matters submitted to vote in the shareholders’ meeting, every holder of equity shares, as reflected
in the records of the Company on the date of the shareholders meeting shall have one vote in respect of each share held. In
the event of liquidation of the affairs of the Company, all preferential amounts, if any, shall be discharged by the Company.
The remaining assets of the Company after such discharge shall be distributed to the holders of equity shares in proportion to
the number of shares held by them.

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Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

15.1.2 In September 2002, the Company issued 20,161,868 unregistered American Depository Receipts ("ADRs") representing
20,161,868 equity shares aggregating $57,000,000. The equity shares represented by ADRs carry equivalent rights with
respect to dividends and voting as the other equity shares.

Retained earnings and dividends

15.1.3 Retained earnings as of December 31, 2002 and 2003 include profits aggregating $5,214,971, which is not distributable
as dividends under Indian Companies law. These relate to earmarking of profits on redemption of preference shares and
purchase of common shares by Patni from promoter shareholders.
15.1.4 The ability of Patni to declare and pay dividend under the Indian Companies Act, 1956 is determined by its distributable
profits as shown by its statutory accounts. When Patni wishes to declare dividends, it is required as per the Indian Companies
Act, 1956 to transfer upto 10% of its net income (after the deduction of any accumulated deficit) computed in accordance
with local regulations to a general reserve before a dividend can be declared. Also, Indian law on foreign exchange governs
the remittance of dividends outside India. Dividend payments are also subject to applicable taxes.
15.1.5 Dividends paid by Patni and Patni USA during the period ended December 31 are as follows:

Patni USA Patni

Year Amount of Dividend per Amount of Dividend per
dividend share $ dividend share $
(in equivalent $) (in equivalent $)

2001 75,000 15 212,994 0.002

2002 75,000 15 850,173 0.008
2003 - - 942,373 0.009

15.1.6 In June, 2003 Patni USA, distributed dividend to the erstwhile shareholders aggregating $56,250.

Stock Split
15.1.7 On June 26, 2001, Patni’s Board of Directors approved a five for one stock split and three for one stock dividend. In line
with legal requirements, the stock dividend was recorded by capitalising $1,997,336 from retained earnings, representing
the par value of shares issued as stock dividend.
15.1.8 On August 30, 2003 Patni has effected a one for two stock split in the form of a stock dividend. In line with legal
requirements, the stock dividend has been recorded by capitalising $ 1,016,861 from additional paid-in-capital representing
the par value of shares issued as stock dividend.
15.1.9 All references in the consolidated financial statements to the number of shares and per share amounts of Patni’s common
shares have been retroactively restated to reflect the increased number of common shares outstanding resulting from the
above changes in the capital structure.

Redeemable common shares

15.1.10On October 24, 2000, P atni issued 3,735,000 equity shares of $ 0.01 to GE aggregating $5,970,073. Further, the
promoter shareholders of Patni i.e. the members of the Patni Family also sold 5,625,000 equity shares to GE aggregating
$9,000,000. Pursuant to the shareholders’agreement dated September 2000, Patni was required to make an initial public
offering (’IPO’) of its equity shares for the purposes of being listed on a recognised stock exc hange within a period of 18
months from the date of allotment of shares to GE.
15.1.11 In the event the IPO did not occur within such period, GE had a right requiring Patni to buy back its shares at the higher of
the fair market value or a price which would guarantee a minimum rate of return of 18% per annum to GE, if the buy back
was concluded between the 18th month and the 30th month from the date of allotment of shares. In case the buy back was
concluded later than 30 months from the date of allotment, the premium payable after the 30th month was to be 21% per
annum.

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Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

15.1.12Since, all the above shares could be put back to Patni, equity shares allotted by the Company aggregating $5,970,073 wer e
reflected as redeemable common shares and in respect of the equity shares sold by the promoter shareholders to GE, Patni
credited $9,000,000 to redeemable common shares by reclassifying the amounts from retained earnings and outstanding
common shares. Patni recorded accretion on these shares aggregating $509,392 and $2,694,613 in the years 2000 and
2001 respectively at the guaranteed rate of return of 18 % from the date of issuance until December 31, 2001. These
amounts were included in the carrying value of redeemable common shares. Subsequently on September 5, 2002, Patni
issued 20,161,868 common shares of $0.04 each to GA aggregating $57,000,000. In this regard, the price at which Patni
issued common shares to GA was considered as fair market value for the purposes of recording accretion in respect of the
above redeemable common shares of GE in the consolidated financial statements during the year 2002 aggregating
$8,287,756.
15.1.13On July 15, 2002, the Company entered into a new shareholders agreement ("new SHA") with GA, GE and promoter
shareholders. In accordance with the new SHA, Patni was required to make an IPO of its equity shares within a period of 36
months from the date of issue of shares to GA. In the event an IPO did not occur within such period, GE and GA had a right
to require the Company to buy back their common shares and those of the other members of each of their Group at a price
which will be higher of the price at which shares were issued to GA or such price as is determined by the Board of Directors
of the Company.
15.1.14In case the Company did not or could not buy back all of GE and Ga’s common shares and those of the members of their
Group and there is a residual shareholding, then GE and GA shall had a right to offer such residual shareholding to the
promoter shareholders on a pro rata basis. In case Patni and/or the promoter shareholders did not yet acquire all of Ge’s
and Ga’s shares, then GE, GA and the promoter shareholders had the right to affect the sale of such residual shares to any
third party reasonably acceptable to the majority of the Board of Directors of the Company. However, in the event that there
was still a residual shareholding after exercising the above options, then GE and GA was entitled to require the promoter
shareholders to affect a strategic sale of such part of their shareholding in Patni, to enable GE and GA to dispose its residual
shareholding.
15.1.15Since, as per the new SHA, GA and GE had a right to put back the shares to Patni, common shares allotted by the Company
to GA aggregating $57,000,000 were reflected as redeemable common shares. Net expenses incurred in connection with
issuance of these redeemable common shares aggregating $1,464,750 were adjusted from the related proceeds and a
corresponding amount was accreted from retained earnings. Similarly, common shares sold to GA by the promoter
shareholders were credited as redeemable common shares (based on the price at which shares were issued by the Company
to GA) by reclassifying the amounts from retained earnings aggregating $39,496,678 and outstanding common shares
aggregating $376,098.
15.1.16As per the new SHA, in September 2002, GE sold certain of its redeemable common shares to promoter shareholders, which
are not subject to redemption. Accordingly, accretion recorded in respect of such shares in earlier periods aggregating
$5,947,775 was credited to additional paid in capital and the paid up value of such shares aggregating $14,059 was
reclassified from outstanding redeemable common shares to outstanding common shares.
15.1.17 Subsequently on August 30, 2003, the promoter shareholders sold 2,167,302 shares to GE for $ 6,127,220. Since, these
shares could be put back to the Company, $ 6,127,220 was credited to redeemable common shares by reclassifying
amounts from retained earnings and outstanding common shares.
15.1.18As per the new SHA, the price at which P atni was required to buy back the shares was to be higher of the price at which
shares were issued to GA or such price as is determined by the Board of Directors of the Company at the time of such buy
back. However, there was no defined measurement method specified in the new SHA in relation to the redemption amount.
In this regard, the Company believes that since the redemption price for such shares could not be considered to be ‘fixed or
Determinable’, in accordance with EITF D-98 on ‘Classification and Measurement of Redeemable Securities’, the Company
did not re-measure the shares issued to GA and GE at each reporting period.
15.1.19In February 2004, Patni completed initial public offering of its equity shares in India, comprising fresh issue of 13,40 0,000

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Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

equity shares and sale of 5,324,000 equity shares by the existing shareholders. Accordingly, the Company would not be
required to redeem these shares.

Repurchase of common shares

15.1.20In December 2002, P atni repurchased 2,476,019 common shares from the promoter shareholders aggregating
$7,281,298.

Adoption of SFAS No. 150

15.1.21On May 15, 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity. The Statement requires issuers to classify as liabilities (or assets in some circumstance) three classes
of freestanding financial instruments that embody obligations for the issuer. The Statement is effective for financial instrume nts
entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning
after June 15, 2003. Patni adopted the provisions of the Statement on July 1, 2003 and believes that on adoption it had no
impact on the classification and measurement of redeemable common shares.

16 Employee stock compensation plans

16.1.1 Patni Employee Stock Option 2003 Plan: On June 30 2003, Patni established the ‘Patni ESOP 2003’ plan (’the plan’). Under
the plan, the Company is authorised to issue up to 11,142,085 equity shares to eligible employees. Employees covered by
the Plan are granted an option to purchase shares of the Company subject to the requirements of vesting. A compensation
committee constituted by the Board of Directors of the Company administers the plan.
16.1.2 On September 1, 2003 the Company granted 2,743,400 options at an exercise price of Rs 145 ($3.18) per share. These
options vest rateably over a period of 4 years, whereby 25% of the options vest at the end of each year from the date of
grant. Further, the option expires 5 years from the date of vesting.
16.1.3 Of the above options granted by the Company, 9700 options were forfeited and none of the option was exercisable as at
December 31, 2003.
16.1.4 Pursuant to the plan, if Patni did not complete an Initial Public Offering (’IPO’) within a period of 6 months and one d ya after
allotment of shares to an option grantee, then subject to compliance with applicable laws, the Articles of the Company and
obtaining necessary shareholders and board of Directors’ consent, P atni may offer to purchase such shares issued to the
option grantees. The option grantees shall thereupon of their free will and volition sell all of their shares to Patni at the fair
market value, within a period of three months from the date of such offer by Patni.
16.1.5 Patni has applied APB No. 25, Accounting for Stock issued to Employees, to account for the employee stock based
compensation plan. Accordingly, since the exercise price approximated the fair value of the underlying equity shares at the
date of grant, no compensation cost has been recorded in these financial statements.

17 Comprehensive income

17.1.1 The accumulated balances for each classification of comprehensive income are as follows:

Translation Unrealised Minimum Accumulated

adjustment gain/(loss) on pension other
investments, net liability, net comprehensive
income
Balance at January 1, 2001 (6,951,913) 110,176 (6,841,737)
Current period change (1,022,565) (238,088) (1,260,653)
Balance at January 1, 2002 (7,974,478) (127,912) - (8,102,390)
Current period change 888,564 542,842 (165,850) 1,265,556
Balance at January 1, 2003 (7,085,914) 414,930 (165,850) (6,836,834)
Current period change 6,456,104 (356,228) (507,088) 5,592,788
Balance at December 31, 2003 $(629,810) $58,702 $(672,938) $(1,244,046)

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Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

18 Income tax

18.1.1 Total income taxes for the year ended December 2001, 2002 and 2003 were allocated as follows:

For the year ended December 31, 2001 2002 2003

Income from continuing operations $4,414,886 $8,588,856 $8,044,855
Shareholders• equity, for
- unrealised holding gain/loss on investment securities
recognised for financial reporting purposes (10,547) 263,068 (204,656)
- minimum pension liability - (9,676) (338,425)
Total 4,404,339 $8,842,248 $7,501,774

18.1.2 Income tax expense attributable to income from continuing operations consists of the following:
For the year ended December 31, 2001 2002 2003
Current taxes
Domestic $91,489 $1,093,733 $457,022
Foreign 4,536,580 9,333,210 8,247,379
$4,628,069 $10,426,943 $8,704,401
Deferred taxes
Domestic (13,111) 214,332 344,748
Foreign (200,072) (2,052,419) (1,004,294)
(213,183) (1,838,087) (659,546)
Total $4,414,886 $8,588,856 $8,044,855

18.1.3 The tax effect of temporary differences that give rise to significant portion of deferred tax assets and liabilities are
presented below:
2002 2003
Deferred tax assets:
Accrued expenses and provisions $3,051,735 4,851,819
Accounts receivable 1,077,387 1,038,399
Other than temporary diminution in the value of available for sale securities 12,524 -
Deferred revenue 674,560
Business loss 78,156
Minimum pension liability 9,676 348,101
Others 154,934
Gross deferred assets 4,151,322 7,145,969
Less: Valuation allowance 74,001 142,857
$4,077,321 7,003,112

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Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

2002 2003
Deferred tax liabilities:
Costs and estimated earnings in excess of billings on uncompleted contracts $(61,259) $(200,898)
Property, plant and equipment (528,197) (875,765)
Undistributed earnings of US branch (533,517) (1,732,944)
Unrealised gain on available for sale securities (237,504) (32,848)
Intangible assets - (314,307)
Others (40,555) -
Total deferred tax liabilities $(1,401,032) $(3,156,762)
Classified as
Deferred tax assets-
Current 3,326,901 5,450,560
Non current - 1,064,950
Deferred tax liabilities
Current (209,155) -
Non current (441,457) (2,669,160)

18.1.4 In assessing the realisability of deferred tax assets, management considers whether it is more likely than not, that some
portion, or all, of the deferred tax assets will not be realised. The ultimate realisation of deferred tax asset is dependent upon
the generation of future taxable income during the periods in which the temporary differences become deductible.
Management considers the projected future taxable income, tax planning strategies and impact of tax exemptions currently
available to the Company, in making this assessment. Based on the level of historical taxable incomes over the periods in
which the deferred tax assets are deductible, management believes that it is more likely than not, the Company will realise
the benefits of those deductible differences, net of existing valuation allowances. Taxable income for the years 2001, 2002
and 2003 aggregated $3,862,810, $13,704,460 and $14,337,576.

18.1.5 Deferred tax liability in respect of undistributed earning of PAtni’s foreign subsidiary as at 2002 and 2003 aggregating
$441,564 and $563,457 respectively has not been recognised in the financial statements, as such earnings are considered
to be indefinitely re-invested.

18.1.6 The reported income tax expense attributable to income from continuing operations differed from amounts computed by
applying the enacted tax rate to income from continuing operations before income-taxes as a result of the following:

2001 2002 2003

Income before income taxes $30,731,520 $44,600,733 $50,255,958
Weighted average enacted tax rate in India 36.66% 36.49% 36.10%
Computed expected income tax expense $11,266,175 $16,274,807 $18,142,401
Effect of:
Income exempt from tax in India (9,153,640) (13,070,268) (14,605,462)
Changes in valuation allowance 12,145 61,843 68,856
Income from India operations charged at other than statutory tax rate (13,441) 44,842 -
Non deductible expenses 360,095 275,742 70,627
US State taxes, net of federal tax benefit 346,232 298,063 503,652
Foreign income taxed at (lower/higher rates) 1,589,198 4,695,155 4,146,525
Change in statutory tax rate on deferred taxes 40,126 9,822 101
Others (32,005) (1,150) (281,845)
Reported income tax expenses $4,414,886 $8,588,856 $8,044,855

147
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

18.1.7 A substantial portion of profits of the group‘S India operations is exempt from Indian income tax, being profit from
undertakings situated at Software Technology Parks. Under the tax holiday, the tax payer can utilise exemption of profits from
income taxes for a period of ten consecutive years. The Company has opted for this exemption for undertakings situated in
Software Technology Parks and these exemptions expire on various dates between years 2005 and 2010. The Company also
avails benefit for Income tax for their export operations. This exemption relating to export operations expires in a phased
manner over a period of five financial years commencing from April 1, 2000. The aggregate effect on net income of the tax
holiday and export incentive scheme were $8,836,634, $13,508,394 and $15,012,027 for 2001, 2002 and 2003
respectively. Further, the per share effect was $0.09, $0.14 and $0.14 for 2001, 2002 and 2003 respectively.

19 Retirement benefits to employees

Gratuity benefits
19.1.1 In accordance with the Payment of Gratuity Act, 1972, Patni provides for gratuity, a defined retirement plan covering all
employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based
on the respective employee’s defined portion of last salary and the years of employment with the Company.
19.1.2 Patni contributes each year to a gratuity fund based upon actuarial valuations performed by an actuary. The fund is
administered by Patni through a trust set up for the purpose. All assets of the plan are owned by the trust and comprise of
approved debt and other securities and deposits with banks. By statute, the trust is required to invest a minimum of 25% of
its corpus in Central Government securities, 15% in State Government securities and 30% in Public Sector / Financial
Institutions / Bank bonds. The trust can invest the remaining 30% of its corpus in any of the above specified categories.
Further, 10% of its corpus can be invested in private sector / bond securities which are rated investment grade from atleast
two rating agencies.
19.1.3 With regard to Patni’s Gratuity Plan, the following table sets forth the plan ‘s funded status and amounts recognised in h
te
Company’s consolidated balance sheets. Measurement dates used to make up fair value of plan assets and benefit
obligation is December 31.

At December 31, 2002 2003

Change in benefit obligation
Projected benefit obligation ("PBO") at January 1, $1,051,661 $1,632,812
Service cost 264,237 395,880
Interest cost 105,647 122,193
Exchange loss 8,202 111,626
Actuarial loss 236,038 620,642
Benefits paid (32,973) (78,484)
PBO at December 31, 1,632,812 2,804,669
Fair value of plan assets as at January 1, 773,481 1,295,935
Actual return on plan assets 257,685 372,791
Employer contributions 290,652 723,028
Benefits paid (32,973) (78,484)
Exchange gain 7,090 89,481
Plan assets at December 31, 1,295,935 2,402,751
Funded status (336,877) (401,918)
Unrecognised actuarial loss 420,091 772,785
Unrecognised transition obligation 10,678 9,834
Net amount recognised $93,892 $380,701
Accumulated benefit obligation 869,976 1,383,767
Amounts recognised in the consolidated balance sheets consists of:
Prepaid benefit cost (included in •other current assets") $(93,892) $(380,701)
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 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

19.1.4 Key assumptions used to determine the benefit obligation were as follows:
2001 2002 2003

Discount rate 10.5% 7.5% 7%

Expected return on assets 10% 7% 6.5%
For the actuarial valuation at December 31, 2003 compensation levels have been assumed to increase at 15% per annum
for the first 2 years, 10% per annum for next 3 years and 6.5% per annum thereafter. For the valuation as on December
2002, compensation levels were assumed to increase at 15% per annum for the 1 year, 10% for 2 years and 7% per annum
thereafter as against 10% per annum used in the 2001 valuation for all future valu ation.

The expected rate of return on assets in future is considered to be 6.5%. This is based on the expectation of the average
long-term rate of return to prevail over the next 15 to 20 years on the type of investments prescribed as per the statutory
pattern of investments.

19.1.5 The composition of plan assets is detailed below:

As at December 31, 2002 % 2003 %
Central Government Securities $158,482 12.2 $170,519 7.1
Investment in Gilt based funds 187,641 14.5 963,668 40.1
State Government securities 49,589 3.8 156,130 6.5
Public Sector / Financial Institutions / Bank bonds 665,778 51.4 759,339 31.6
Others 234,445 18.1 353,095 14.7
Total $1,295,935 100 $2,402,751 100

19.1.6 Net periodic gratuity cost included the following components:

As at December 31, 2001 2002 2003
Service cost $188,564 $264,237 $395,880
Interest cost 84,241 105,647 122,193
Expected return on assets (65,008) (83,369) (100,778)
Amortisation 26,533 28,313 26,641
Net gratuity cost $234,330 $314,828 $443,936

19.1.7 Key assumptions used to determine the net periodic gratuity cost were as follows:
As at December 31, 2001 2002 2003
Discount rate 11.5% 10.5% 7.5%
Expected return on assets 11% 10% 7%
For determining the net periodic cost for the year ended December 31, 2003 compensation levels have been assumed to
increase at 15% per annum for the 1 year, 10% for 2 years and 7% per annum thereafter. For the year ended December
31, 2002 compensation levels were assumed to increase at 10% per annum for all future valuation as against 25% per
annum in the first year, 20% per annum in the second year, 12% per annum for a period of next 5 years and 10% per
annum thereafter for December 31, 2001.

149
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

19.1.8 Patni’s expected contribution to gratuity fund for the calendar year 2004 is $877,578.

Pension benefits
19.1.9 Certain directors of Patni and Patni USA are entitled to receive pension benefits upon retirement or on termination from
employment @ 50% of their last drawn monthly salary. The pension is payable from the time the eligible director reaches
the age of sixty-five and is payable to the directors or the surviving spouse. The liability for pension is actuarially determined
and periodically recognised. The plan is not funded.
19.1.10With regard to Patni’s Pension Plan, the following table sets forth the plan ‘S funded status and amounts recognised in ht e
Company’s consolidated balance sheet. The pension plan of P atni is not funded. Measurement dates used to make up
benefit obligation is December 31.
At December 31, 2002 2003
Change in benefit obligation
Projected benefit obligation ("PBO") at January 1, $805,411 $1,172,295
Service cost 27,376 48,534
Interest cost 83,777 90,623
Exchange loss 5,411 69,650
Actuarial loss 250,320 247,419
PBO at December 31, 1,172,295 1,628,521
Funded status (1,172,295) (1,628,521)
Unrecognised transition obligation 408,651 276,920
Unrecognised actuarial loss 194,100 429,969
Net amount recognised (569,543) (921,632)
Amount recognised in the consolidated balance sheets are as follows:
Accrued benefit liability (included in ‘other liabilities’) $896,852 1,370,491
Intangible assets (included in ‘other assets’) (327,309) (276,920)
Other comprehensive income - (171,939)
Net amount recognised $569,543 921,632
Accumulated benefit obligation $896,852 $1,370,491

19.1.11Assumptions used to determine benefit obligation were as follows:

As at December 31, 2002 2003
Discount rate 7.5% per annum 7% per annum
Increase in compensation levels 10% per annum 10% per annum

19.1.12Net periodic pension cost included the following components:

Year ended December 31, 2001 2002 2003
Service cost 32,559 $27,376 $48,534
Interest cost 85,493 83,777 90,623
Amortisation 148,169 143,909 176,390
Net pension cost $266,221 $255,061 $315,547

19.1.13Assumptions used to determine net periodic pension cost were as follows:

Year ended December 31, 2001 2002 2003
Discount rate 11.5% per annum 10.5% per annum 7.5% per annum
Increase in compensation levels 10% per annum 10% per annum 10% per annum

150
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

19.1.14With regard to Patni USA’s pension plan, the following table sets forth the plan’s funded status and amounts recognised in
the Company’s consolidated balance sheet. The pension plan of the Patni USA is not funded. Measurement dates used to
make up benefit obligation is December 31.

At December 31, 2002 2003

Change in benefit obligation
Projected benefit obligation ("PBO") at January 1, $1,690,323 $3,055,348
Service cost 62,214 104,201
Interest cost 175,799 236,161
Exchange loss 17,980 182,742
Actuarial loss 1,109,032 724,510
PBO at December 31, $3,055,348 $4,302,962
Funded status $(3,055,348) $(4,302,962)
Unrecognised transition obligation 875,277 593,155
Unrecognised actuarial loss 974,734 1,530,912
Net amount recognised $(1,205,337) $(2,178,895)
Amount recognised in the consolidated balance sheets are as follows:
Accrued benefit liability (included in •other liabilities•) $2,337,482 $3,621,150
Intangible assets (included in •other assets•) (956,620) (593,155)
Other comprehensive income (175,525) (849,100)
Net amount recognised $1,205,337 $2,178,895
Accumulated benefit obligation $2,337,482 $3,621,150
19.1.15Assumptions used to determine the benefit obligation were as follows:
Year ended December 31, 2001 2002 2003
Discount rate 10.5% per annum 7.5% per annum 5% per annum
Increase in compensation levels 10% per annum 10% per annum 10% per annum
19.1.16Net periodic pension cost included the following components
Year ended December 31, 2001 2002 2003
Service cost $56,797 $62,214 $104,201
Interest cost 183,975 175,799 236,161
Amortisation 317,330 308,205 555,468
Net pension cost $558,102 $546,218 $895,830
19.1.17Assumptions used to determine the net periodic pension cost were as follows
2001 2002 2003
Discount rate 11.5% per annum 10.5% per annum 7.5% per annum
Increase in compensation levels 10% per annum 10% per annum 10% per annum

19.1.18 As the assumed rates for the above defined benefit plans have a significant effect on the amounts reported, the management
has assessed these rates as comparable with prevalent industry standards and its projected long-term plans of growth.
Provident fund
19.1.19All employees of Patni receive provident fund benefits through a defined contribution plan in which both the employee an d
employer make monthly contributions to the plan @ 12% each of the covered employee’s defined portion of salary . The
Company has no further obligations under the plan beyond monthly contribution. Patni contributes to the Provident Fund
Plan maintained by the Government of India.
19.1.20 Patni contributed, $1,056,933, $1,129,145 and $1,682,111 to the provident Fund Plan in 2001, 2002 and 2003 respectively.
20 Segment Information
20.1.1 SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for the way
enterprises report information about operating segments and related disclosures about products and services, geographic
areas and major customers. The Company’s operations relate to providing IT services and solutions, delivered to customers

151
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

operating in various industry segments. Accordingly, revenues represented along industry classes comprise the principal basis
of segmental information set out in these consolidated financial statements. Secondary segmental reporting is performed on
the basis of the geographical location of the customers. The accounting policies consistently used in the preparation of the
consolidated financial statements are also consistently applied to individual segment information, and are set out in the
summary of significant accounting policies.
20.1.2 Industry segments of the Company comprise financial services, insurance services, manufacturing companies, and others
such as energy and utilities, retail and hospitality companies. The Company evaluates segment performance and allocates
resources based on revenue growth. Revenue in relation to segments is categorised based on items that are individually
identifiable to that segment. Costs are not specifically allocable to individual segment as the underlying resources and
services are used interchangeably. Fixed assets used in the Company’s business or liabilities contracted have not been
identified to any of the reportable segments, as the fixed assets and services are used interchangeably between segments.
20.1.3 Patni’s geographic segmentation is based on location of customers and comprises United States of America (’USA’), Europe,
Japan and Others, which include Rest of Asia Pacific and Rest of the World. 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. Categorisation of customer
related assets and liabilities in relation to geographic segments is based on the location of the specific customer entity which
is billed for the services.
Industry segments
Particulars Financial Insurance Manufacturing Others Total
services services
December 31, 2001
Revenue $21,292,764 $48,703,929 38,368,687 $34,197,575 $142,562,955
December 31, 2002
Revenue $26,068,017 10,206,616 $51,085,770 $39,485,913 $188,273,762
Accounts receivables 9,637,337 $71,634,062 13,928,051 12,439,683 46,211,687
Billings in excess of cost and estimated earnings (40,131) (104,681) (729,504) (517,167) (1,391,483)
Advance from customers - - - (2,309) (2,309)
Cost and estimated earnings in excess of billings 197,210 188,494 1,159,498 1,795,841 3,341,043
December 31, 2003
Revenue 40,548,527 84,506,389 71,587,790 54,400,702 251,043,408
Accounts receivables 7,987,128 14,270,715 20,111,324 14,245,549 56,614,716
Billings in excess of cost and estimated earnings (156,555) (445,360) (690,812) (808,255) (2,100,982)
Advance from customers (246,357) - (14,700) (5,438) (266,495)
Cost and estimated earnings in excess of billings 305,586 906,360 1,800,317 2,815,082 5,827,345

Geographic segments
Particulars USA Europe Japan Others Total
December 31, 2001
Revenue $120,348,872 $12,996,539 $7,056,950 $2,160,594 $142,562,955
December 31, 2002
Revenue $164,891,166 $13,588,710 $6,704,769 $3,089,117 $188,273,762
Accounts receivables 40,062,425 4,593,792 109,598 1,445,872 46,211,687
Billings in excess of cost and estimated earnings (1,201,276) (142,281) (27,860) (20,066) (1,391,483)
Advance from customers - - - (2,309) (2,309)
Cost and estimated earnings in excess of billings 1,773,845 561,071 113,335 892,792 3,341,043
December 31, 2003
Revenue 222,948,060 18,217,653 7,209,171 2,668,524 251,043,408
Accounts receivables 48,301,639 7,058,362 38,487 1,216,228 56,614,716
Billings in excess of cost and estimated earnings (1,787,435) (142,014) (98,674) (72,859) (2,100,982)
Advance from customers (151,476) (83,873) - (31,146) (266,495)
Cost and estimated earnings in excess of billings 3,369,320 941,398 1,380,961 135,666 5,827,345

152
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

20.1.3 One customer group accounted for 57%, 51% and 41% of the total revenues for the year ended December 31, 2001, 2002
and 2003. Receivables from this customer as at December 31, 2002 and 2003 amounted to 56% and 46% of the total
receivables respectively. The revenues from this customer were across all the industry segments of the Company. Another
customer group in the Insurance industry segment accounted for 11%, 16% and 17% of the total revenues for the year ended
December 31 2001, 2002 and 2003. Receivables for this customer as at December 31, 2002 and 2003 amounted to 6%
and 8% of the total receivables respectively.
21 Earnings per share
Particulars Year ended
December December December
31, 2001 31, 2002 31, 2003
Net income $26,316,634 $36,011,877 $42,211,103
Less: Accretion in relation to redeemable common shares 2,694,613 9,752,506 -
Income available to common and redeemable common
Weighted average number of common and redeemable 23,622,021 $26,259,371 $42,211,103
share holders (A)
common shares outstanding during the period (B) 93,735,000 99,059,168 111,420,849
Basic and diluted earnings per share (A)/(B) $0.25 $0.27 $0.38

21.1.1 The outstanding employee stock options at December 31, 2003 did not have a dilutive effect on the common and
redeemable common shares outstanding during the period, under the treasury stock method for the purpose of computing
dilutive earnings per share.
21.1.2 In accordance with SFAS No. 128, Earnings per Share, the accretion recorded through retained earnings due to the existence
of the put option on the redeemable common shares, has been deducted from the net income to compute the income
available to the common and redeemable common shareholders.
22 Related party transactions
22.1.1 Patni has various transactions with related parties, viz. PCS Industries Ltd. (’PCSIL’), PCS Cullinet, PCS F inance, Ashok
a
Computers, (affiliates), PCS International, a subsidiary of PCSIL, various companies of the GE group (’GE’) which is a
shareholder in Patni, directors of Patni and their relatives.
Revenues
22.1.2 Patni USA sells computer hardware to PCSIL. Such sales during the year ended December 31, 2001, 2002 and 2003
amounted to $93,160, $64,242 and $37,729 respectively.
Expenses
22.1.3 Patni has taken certain residential properties under operating leases from certain affiliates and the Patni family. The r entals
and other incidental charges paid for the same were $235,424, $273,636 and $259,138 for the year ended December
31, 2001, 2002 and 2003 respectively. Outstanding security deposits under the operating leases placed by Patni with
affiliates and the Patni family at December 31, 2002 and 2003 were $271,094 and $284,651 respectively.
22.1.4 Patni has given donations to public charitable trusts, the trustees of which are certain directors of the Company and their
relatives. The donations paid during 2001, 2002 and 2003 were $53,062, $51,536 and $53,712 respectively.
22.1.5 Patni has incurred $Nil, $Nil, and $3,192 for the years ended December 31, 2001, 2002 and 2003 respectively towards
rental and other incidental charges on behalf of the PCSIL, Ashoka Computers, PCS Cullinet and PCS Finance, which would
be subsequently reimbursed.
Due from affiliates
22.1.6 Patni placed two deposits with PCSIL during 1999 aggregating $921,234 and $643,363 carrying interest at the rate of 18%
and 12% per annum respectively. During the year 2001, an additional deposit of $208,117 was placed with PCSIL carrying
interest at the rate of 12% per annum. Interest earned on these deposits amounted to $100,351 and $133,557 during the
years ended December 31, 2001 and 2002 respectively. In December 2002, PCSIL has repaid these amounts in full together
with accrued interest
22.1.7 During the year 2000, Patni USA lent a sum of $4,700,000 to two of its shareholders secured by promissory notes. Interest
on both loans accrued at 6.21%. The terms of the loan required repayment of principal and accrued interest on December
31, 2002. However, in September 2002, these loans were repaid in full to Patni USA together with accrued interest. Interest
earned on these notes amounted to $261,853 and $212,362 during the years ended December 31, 2001 and 2002

153
 PATNI COMPUTER SYSTEMS LIMITED

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

respectively.
Due from employees
22.1.8 Patni grants personal loans to employees and officers. Such loans are repayable in equal installments over periods ranging
from 6 - 60 months. Interest on these loans is charged at 7.5%. Loans outstanding at December 31, 2002 and 2003 were
$127,129 and $101,904 respectively.
22.1.9 Patni USA grants personal loans to employees as well as advances to meet initial conveyance and living expenses. Such loans
and advances are repayable over periods ranging upto 60 months and 6 months respectively. Interest charged on these
loans and advances ranged from 0% to 10%. Balance outstanding of such loans and advances at December 31, 2002 and
2003 were $482,825 and $652,358 respectively.
22.1.10Patni UK gives interest free advances to employee for initial conveyance and living expenses. Bala nce outstanding of such
advances at December 31, 2002 and 2003 were $ 97,529 and $6,858 respectively.
22.1.11Patni had given an interest-free advance for educational purposes to an employee who is a shareholder ‘S son. Patni was
amortizing this advance by the straight-line method over a period of five years. The advance outstanding at December 31,
2002 and 2003 was $32,876 and $Nil and is included in amounts due from employees.
Transactions with GE
22.1.12 Patni USA, Patni UK and Patni GmbH sell software services to various companies of the GE group. Sales to GE during the year
ended December 31, 2001, 2002 and 2003 amounted to $80,919,347, $95,857,692 and $103,402,102 respectively. This
amounts to 57%, 51% and 41% of the total revenue for the year ended December 31, 2001, 2002 and 2003 respectively.
Receivables from various GE companies as at December 31, 2002 and 2003 amounted to $25,658,237 and $26,174,095. This
amounts to 56% and 46% of the total receivables as at December 31, 2002 and 2003 respectively.
22.1.13GE charges Patni and Patni USA for data link connections. Data link charges for the year ended December 31, 2001, 2002
and 2003 amounted to $690,601, $543,558 and $615,587 respectively. Outstanding to GE at December 31, 2002 and
2003 on account of data link charges amounted to $80,322 and $168,139 respectively.
Guarantees
22.1.14Patni has issued a counter guarantee on behalf of PCSIL aggregating Rs 150,000,000 ($3,290,917) to a bank. The
guarantee was issued on August 30, 1997 and is a continuing guarantee for the credit limits allowed by the bank to PCSIL.
The amounts under this guarantee are payable on demand. Further, the guarantee provides that until the bank has been
repaid all amounts due therein, Patni will take no steps to enforce any right or claim against PCSIL for any reimbursement
in respect of amounts paid by Patni to the bank.
23 Commitments and contingent liabilities
23.1.1 The Company is obliged under a number of contracts relating to capital expenditure. Estimated amounts remaining to be
executed on such contracts (net of advances), aggregated $1,609,823 and $435,043 at December 31, 2002 and 2003.
23.1.2 Guarantees given by a bank on behalf of Patni amounted $213,113 and $249,755 as at December 31, 2002 and 2003
and letter of credit issued by bank was $178,450 and $Nil as at December 31, 2002 and 2003.
24 Fair value of financial instruments
24.1.1 The fair value of Patni’s current assets and current liabilities approximate their carrying values because of their short-term
maturity. Such financial instruments are classified as current and are expected to be liquidated within the next twelve months.
The fair value of capital lease obligations has been estimated by discounting cash flows based on current rate available to
the Company for similar types of borrowing arrangements. The fair value and carrying value of capital lease obligations is
set out below:

Capital lease obligations Fair value Carrying value

At December 31, 2002 $411,237 $410,617
At December 31, 2003 $530,978 $539,918

24.1.2 As at 31 December 2001, 2002 and 2003, inter-Company receivables aggregating $Nil, $Nil and $76,500,000
respectively were covered by forward contracts. Although these contracts are effective as hedges from an economic
perspective, they do not qualify for hedge accounting under SFAS No. 133, as amended. Accordingly, these forward
contracts have been marked to market and the resultant gain of $Nil, $Nil and $596,090 as at December 31, 2001 2002
and 2003 respectively have been recorded in the income statement as exchange gain.

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 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY

Corporate Information
The Board of Directors Secretary Registered Office Auditors
N K Patni John Ganick 238 Main Street, Gerald T Reilly & Company
John Ganick Cambridge, MA 02142 Certified Public Accountants, Inc
Mrinal Sattawala USA 424 Adams Street, Milton, MA 02186-4358

Director’s Report Period ended December 31, 2003

The directors have pleasure in presenting their report and the The directors have not recommended any dividend.
financial statements of the Company for the period ended
Directors
December 31, 2003.
The directors who served the Company during the period were
Principal activities and business review as follows:
The principal activity of the Company during the year was that of
Mr. N.K. Patni, Mr. John Ganick, and Mr. Mrinal Sattawala.
providing IT services.
The Company is a wholly owned subsidiary and the interests of
Effective January 1, 2003, the Company changed its name from
the group directors are disclosed in the financial statements of
Data Conversion Incorporated to Patni Computer Systems, Inc.
the parent Company.
In April 2003, The Reference, Inc (TRI) was acquired by the
Company through the purchase of 100% of TRI’s outstanding
Registered office:
common and preferred stock. TRI’s principal activity is to provide
238 Main Street
consulting and IT Services to clients in the Financial Service
Cambridge, MA 02142
Industry.
Approved by the directors on February 27, 2004.
Results and dividends
The trading results for the period and the Company‘S financial Signed on behalf of the directors:
position at the end of the period are shown in the attached
financial statements. On acquisition the accounts of TRI have
Mrinal Sattawala John G Ganick Narendra K. Patni
been consolidated with the accounts of the Company.

Independent Auditors’ Report

Board of Directors
Patni Computer Systems, Inc. and Subsidiary

We have audited the accompanying consolidated balance in the financial statements. An audit also includes assessing the
sheets of Patni Computer Systems, Inc. and Subsidiary (formerly accounting principles used and significant estimates made by
Data Conversion, Inc.) as of December 31, 2003, 2002 and management, as well as evaluating the overall financial
2001, and the related statements of income, changes in statement presentation. We believe that our audits provide a
Stockholders’ equity and comprehensive income, and cash flows reasonable basis for our opinion.
for the years then ended. These consolidated financial
In our opinion, the consolidated financial statements referred to
statements are the responsibility of the Company’s management.
above present fairly, in all material respects, the consolidated
Our responsibility is to express an opinion on these financial
financial position of Patni Computer Systems, Inc. and Subsidiary
statements based on our audits.
at December 31, 2003, 2002 and 2001, and the consolidated
We conducted our audits in accordance with auditing standards results of their operations and cash flows for the years then
generally accepted in the United States of America. Those ended; in conformity with accounting principles generally
standards require that we plan and perform the audit to obtain accepted in the United States of America.
reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, Milton, Massachusetts G. T. R eilly & Company
on a test basis, evidence supporting the amounts and disclosures Date: February 27, 2004

155
 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY

Consolidated Balance Sheet

As at December 31, 2003 2002 2001
ASSETS
CurrentAssets
Cash and cash equivalents $40,235,911 $12,488,524 $17,230,638
Accounts receivable, trade (Note 1)‘ 51,262,219 41,216,719 29,099,284
Allowance for doubtful accounts (Note 1) (2,443,207) (2,510,741) (1,266,119)
Accounts receivable, related parties (Note 6) 1,954,820 3,031,615 582,500
Due from employees 652,357 580,367 508,166
Costs and estimated earnings in excess of billings
on uncompleted contracts (Notes 1 & 5) 4,017,955 1,348,849 1,363,841
Prepaid expenses and other advances 524,105 162,858 38,957
Prepaid income taxes … … 1,042,177
Deferred income tax benefits (Notes 1 & 3) 5,766,696 3,703,196 1,457,694
Loans to stockholders (Note 2) … … 5,197,376
Other current assets 59.956 322,860 377,460
Total Current Assets 102,030,812 60,344,247 55,631,974
Property and Equipment (Note 1)
Furniture, fixtures and equipment 5,009,844 2,145,028 1,479,700
Motor vehicles 135,464 135,464 164,427
5,145,308 2,280,492 1,644,127
Less accumulated provisions for depreciation (3,407,645) (1,193,527) (852,013)
1,737,663 1,086,965 792,114
Other Assets
Other long-term assets 921,885 124,013 61,469
Other intangible assets, net (Notes 1 & 9) 780,500 … …
Goodwill (Notes 1 & 9) 2,594,373 … …
Intangible pension asset (Note 7) 593,155 1,165,009 609,325
4,889,913 1,289,022 670,794
$108,658,388 $62,720,234 $57,094,882
LIABILITIES AND STOCKHOLDERS• EQUITY
Current Liabilities
Accounts payable, related party (Note 6) $ 62,953,761 $ 28,479,480 $ 33,206,548
Other accounts payable and accrued expenses 12,040,514 9,171,689 4,379,076
Income taxes payable 2,576,128 1,485,739 …
Sales and payroll taxes payable 47,714 4,892 501,405
Dividend payable … 75,000 …
Billings in excess of costs and estimated earnings
on uncompleted contracts (Notes 1 & 5) 3,090,844 1,196,728 162,203
Total Current Liabilities 80,708,961 40,413,528 38,267,232
Accrued Pension Liability (Note 7) 3,621,150 2,399,657 1,268,618
Other Liabilities Lease Commitments (Note 4) 233,360 … …
Stockholders’ Equity
Common stock, no par value:
Authorised, issued and outstanding 5,000 shares 5,000 5,000 5,000
Retained earnings 24,597,085 19,902,049 17,554,032
Accumulated other comprehensive income/loss (Note 1):
Minimum pension liability adjustment (Note 7) (507,168) … …
24,094,917 19,907,049 17,559,032
$ 108,658,388 $ 62,720,234 $ 57,094,882

The accompanying notes are an integral part of these financial statements.

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 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY
(Formerly Data Conversion Incorporated)

Consolidated Statements of Income

Year ended December 31, 2003 2002 2001

REVENUES $222,215,413 $163,694,124 $122,028,257

Cost of Revenues (Note 6) 187,786,004 138.816.633 105.652.430

Gross Profit 34,429,409 24,877,491 16,375,827
Other Costs (Income) and Expenses
Selling, general and administrative 26,473,343 19,528,976 11,630,110
Bad debts, net of recoveries 329,717 1,539,245 547,809
Interest income, net (229,446) (429,523) (660,925)
26,573,614 20,638,698 11,516,994
Income Before Taxes 7,855,795 4,238,793 4,858,833
Income Taxes (Credits) (Notes 1 & 3)
Current 4,882,327 4,075,931 2,874,636
Deferred (1,721,568) (2,260,155) (899,569)
3,160,759 1,815,776 1,975,067
NET INCOME $ 4,695,036 $ 2,423,017 $ 2,883,766

The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Changes in Stockholders’ Equity and

Comprehensive Income for the year ended December 31, 2003, 2002 and 2001

Accum. Other
Comprehensive Common Stock Retained Comprehensive Total
Income Shares Amount Earnings Income Net

Balance at December 31, 2000 5,000 $ 5,000 $ 14,745,266 $ 0$ 14,750,266

Comprehensive income
Net income $ 2,883,766 2,883,766 2,883,766
Dividends declared, $15 per share (75,000) (75,000)

Balance at December 31, 2001 5,000 5,000 17,554,032 17,559,032

Comprehensive income
Net income $ 2,423,017 2,423,017 2,423,017
Dividends declared, $15 per share (75,000) (75,000)

Balance at December 31, 2002 5,000 5,000 19,902,049 19,907,049

Comprehensive income
Net income $ 4,695,036 4,695,036 4,695,036
Minimum pension liability adjustment,
net of tax of $341,932 (Notes 1 & 7) (507,168) (507,168) (507,168)
Comprehensive income $ 4,187,868

Balance at December 31, 2003 5,000 $ 5,000 $ 24,597,085 $ (507,168) $ 24,094,917

The accompanying notes are an integral part of these financial statements.

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 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY
(Formerly Data Conversion Incorporated)

Consolidated Cash Flow Statement

Year ended December 31, 2003 2002 2001
Cash Flows from operating Activities
Net income $ 4,695,036 $ 2,423,017 $ 2,883,766
Adjustments to reconcile net income to net cash from operations:
Depreciation 736,614 365,614 253,335
Amortisation 59,500 … …
Pension cost 943,030 575,355 551,719
Deferred income taxes (credits) (1,721,568) (2,245,502) (897,825)
Loss (gain) on disposals of equip. & automobiles, net 1,250 … (66,994)
Changes in operating assets and liabilities
Accounts receivable, trade (9,571,242) (12,117,435) 5,317,580)
Allowance for doubtful accounts (117,534) 1,244,622 431,751
Accounts receivable, related parties 1,076,795 (2,449,115) (472,056)
Due from employees (71,990) (72,201) 2,711
Costs and estimated earnings in excess of
billings on uncompleted contracts (2,469,655) 14,992 (549,995)
Prepaid expenses and other advances 235,823 (123,902) 165,065
Prepaid income taxes 49,414 1,042,177 (1,042,177)
Other current assets 262,904 54,600 51,632
Other long-term assets (3,156) (62,544) 7,185
Accounts payable, related party 34,474,281 (4,727,068) 16,162,850
Other accounts payable & accrued expenses 1,828,477 4,774,613 1,848,071
Billings in excess of costs and estimated earnings
on uncompleted contracts 227,116 1,034,525 11,917
Sales and payroll taxes payable 42,822 (496,513) (452,380)
Income taxes payable 1,112,932 1,485,739 (541,912)
Other long-term liabilities (129,856) - -
Net Cash Provided from (used in) Operating Activities 31,660,993 (9279,026) 13,933,843
Cash Flows used in Investing Activities
Additions to property and equipment, net (800,412) (660,464) (599,815)
Acquisition of business, net of cash acquired (Note 9) (3,038,194) - -
Net Cash Used in Investing Activities (3,838,606) (660,464) (599,815)
Cash Flows from Financing Activities
Repayment of loans to stockholders - 5,197,376 -
Loans to stockholders - - (261,853)
Payment of dividends (75,000) - (75,000
Net Cash (used in) Provided from Financing Activities (75,000) 5,197,376 (336,853)
Resulting in a Net Increase (decrease) in Cash 27,747,387 (4,742,114) 12,997,175
Cash and Cash Equivalents at Beginning of Year 12,488,524 17,230,638 4,233,463
Cash and Cash Equivalents at end of year $ 40,235,911 $ 12,488,524 $ 17,230,638

The accompanying notes are an integral part of these financial statements.

158
 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY
(Formerly Data Conversion Incorporated)

Notes to the Consolidated financial statements for the year ended December 31, 2003

Note 1 - Business Activities and Significant Accounting Policies

Business Activities The

- Company provides consulting, software development, maintenance and data conversion services to a
variety of industries and customers located in North America, primarily in the United States. Effective January 1, 2003, the Company
changed its name from Data Conversion Incorporated to Patni Computer Systems, Inc.

In April of 2003, The Reference, Inc. (TRI) was acquired by the Company through the purchase of 100% of TRI’s outstanding common
and preferred stock. TRI’s principal business activity is to provide consulting and information technology services to a variety of clients
in the financial services industry (see Note 9).

Consolidation Policy -The consolidated financial statements include the accounts of Patni Computer Systems, Inc. and its wholly-
owned subsidiary, The Reference, Inc. All significant intercompany accounts and transactions have been eliminated.

Accountina Estimates The

- preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect certain reported amounts and
disclosures. Material estimates that are particularly susceptible to change in the near term are the determination of the allowance for
doubtful accounts, costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and
estimated earnings on uncompleted contracts. Actual results could differ from these estimates.

Reclassification Certain
- reclassifications have been made to the prior year’s balance sheet in order to ensure comparability to the
current year presentation. Such reclassifications had no effect on total assets or stockholders’ equity as previously reported.

Revenue Recognition Revenues

- on long-term fixed price contracts are recognised on the percentage of completion method of
accounting. Profits are recorded on the basis of management’s estimate of the percentage of completion, when progress reaches a
point where experience is sufficient to estimate final results with reasonable accuracy, measured by the percentage of man-days of
service incurred to data to estimated total man-days of service for each contract. Since long-term contracts usually extend over more
than one reporting period, revisions in cost and profit estimates during the course of the work are reflected in the accounting period
in which the facts that require the revision become known.

The asset, "Costs and estimated earnings in excess of billings" represents revenues recognised in excess of amounts billed on
uncompleted contracts. The liability, "Billings in excess of costs and estimated earnings" represents billings in excess of revenues
recognised on uncompleted contracts (see Note 5).

Revenues from long-term service or maintenance contracts are recognised evenly over the course of the contract. When necessary, a
liability is recognised to reflect the amount of billings in excess of revenue recognised. At December 31, 2003 and 2002, this liability
approximated $1,065,000 and $465,000, respectively, and is included in accounts payable and accrued expenses.

Revenues from arrangements with multiple deliverables are considered a single revenue stream with revenues and associated costs
being recognised evenly over the course of the project. When necessary, an asset or liability is recognised to reflect the amount of
gross revenues or costs recognised. At December 31, 2003 and 2002, the asset approximated $240,000 and zero, respectively, and
is contained in Costs and Estimated Earnings in Excess of Billings. The liability approximated $427,000 and zero, respectively, and is
contained in accounts payable and accrued expenses.

Revenue from time and material contracts is recognised as the services are performed.

Comprehensive IncomeFAS
- No. 130 defines "comprehensive income" as the change in equity during a period due to transactions,
events and circumstances arising from non-owner sources. "Comprehensive ‘jncoee" includes net income under accounting principles
generally accepted in the United States of America, as well as "other comprehensive income", which consists of items that are excluded
from net income and reported as changes in separate components of equity as required by other accounting standards. Under current
accounting standards, "other comprehensive income" includes certain foreign currency items, minimum pension liability adjustments,
unrealised gains and losses on certain securities investments and certain unrealised gains and losses on financial derivative
instruments and hedging activities. The Company’s "other comprehensive income" consists of minimum pension liability adjustments

159
 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY
(Formerly Data Conversion Incorporated)

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

as required by FAS 87, "Employees’Accounting for Pensions" (see Note 7).

Under FAS No. 130, all of the components of "comprehensive income" are required to be reported in a basic financial statement. The
Company has elected to present the components of "comprehensive income" in a "statement of changes in stockholders’ equity and
comprehensive income".

Cash and Cash EquivalentsFor

- purposes of balance sheet classification and reporting the statement of cash flows, the Companies
consider all highly-liquid deposits and investments with original maturities of three months or less to be cash equivalents.

Accounts Receivable Accounts

- receivable are stated at face value. An allowance for doubtful accounts is also reported on the face
of the Company’s consolidated balance sheet. The allowance is established via a provision for bad debts charged to operations. On
a periodic basis, management evaluates its accounts receivable and establishes or adjusts its allowance to an amount that it believes
will be adequate to absorb possible losses on accounts that may become uncollectible, based on evaluations of the collectibility of
individual accounts, the Company‘S history of prior loss experience and on current economic conditions. Accounts are charged
against the allowance when management believes that the collectibitity of the specific account is unlikely.

Property and EquipmentProperty

- and equipment are stated at cost. Expenditures for renewals and improvements that significantly
extend the useful life of an asset are capitalised. Expenditures for maintenance and repairs are charged to income as incurred.

Depreciation is recorded on a straight-line basis. The following is a summary of the depreciation periods which approximate the
estimated useful lives of the property and equipment:

Assets Estimated Useful Lives

Furniture, fixtures and equipment 3- 8 years

Motor vehicles 5 years

Intangible AssetsUnder
- Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142),
the excess of cost over the fair value of identifiable net assets obtained ip a 2003 business acquisition (Note 9) is carried at cost
(unamortised). Such goodwill is required to be tested:for impairment at least annually, or more frequently upon the occurrence of an
event or when circumstances indicate that a "reporting unit" carrying amount is greater than its fair value. Impairment testing involve.h
a two-step process that begins with the estimation of the fair value of the related "reporting unit", which is defined as an operating
segment, and results in the measurement of the amount of impairment by the allocation of the fair value to the identifiable assets of
the reporting unit. Management has determined that there has been no impairment of goodwill and, accordingly, no loss has been
recognised as of December 31, 2003.

Other intangible assets consist of customer contracts and relationships acquired in the business acquisition, which are being amortised
on a straight-line basis over their estimated useful lives of ten years.

Impairment of Long-Lived AssetsThe

- Company reviews its long-lived assets, including property and equipment and other
intangibles, for impairment and determines whether an event or change in facts and circumstances indicates that the carrying amount
may not be recoverable under the standards established in FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Management believes that there has been no material impairment of long-lived existing assets and, accordingly, no loss has
been recognised during the reporting periods.

Other Long-Term Assets Other

- long-term assets consist of security deposits, certificates of deposit and cash restrictions in
connection with the rental of various office spaces throughout the United States.

Advertising Costs The

- cost of advertising is charged to expense as incurred. Advertising expense for the year ended December 31,
2003, 2002 and 2001 amounted to approximately $80,000, $37,000 and $4,500, respectively.

160
 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY
(Formerly Data Conversion Incorporated)

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

Income Taxes -The Companies provide for deferred income taxes based on temporary differences between the financial statement
amounts and the tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted
tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected to be realised. Income tax expense is the tax payable
or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities (see Note 3).

Note 2 … Loans to Stockholders

During 2000, the Company loaned a combined $4.7 million to two of its shareholders. The promissory notes called for one payment
of principal and all accrued interest in September, 2002. Interest on both notes accrued at 6.21%. The loans were paid in full during
2002. Loans to stockholders totalled $5,197,376 at December 31, 2001, and consisted of $4.7 million in principal and accrued
interest of $497,376.

Note 3 - Income Taxes

At the balance sheet dates, the tax effects of principal temporary differences are shown in the following table:
Deferred Tax Asset (Liability)
December 31,
2003 2002 2001

Accumulated depreciation $ 34,754 $ (64,000) $ -

Percentage of completion method of accounting for long-term contracts (372,700) (61,000) (480,000)
Other deferred contracts 102,503 (199,000) -
Non-deductible accruals 5,818,511 4,027,196 1,937,694
Minimum pension liability adjustment (Note 7) 341,932 - -
Other differences (158,304) - -
$ 5,766,696 $ 3,703,196 $ 1,457,694
The provisions for income taxes (credits) consist of the foilowing:
Current:
F
ederal $ 3,696,617 $ 3,099,631 $ 2,196,381
State 1,185,710 976,300 678,255
4,882,327 4,075,931 2,874,636
Deferred (1,721,568) (2,260,155) (899,569)
$ 3,160,759 $ 1,815,776 $ 1,975,067

Note 4 - Lease Commitments

The Companies conduct their business from leased facilities under agreements expiring at various dates through 2008. The
Companies are required to pay normal maintenance and a portion of any real estate taxes. The rentals are reported under the
operating method of accounting for leases. Total rent expense for the years ended December 31, 2003, 2002 and 2001 was
$1,816,945, $869,167 and $531,871, respectively.
A summary of the future minimum lease payments required under noncancellable lease agreements is as follows:
Years ending December 31,
2004 $ 2,121,393
2005 1,336,878
2006 336,013
2007 173,059
2008 29.090
$ 3,996,433

161
 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY
(Formerly Data Conversion Incorporated)

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

The Subsidiary subleases certain office space to various parties. Sublease income was approximately $365,000 in 2003, since the
date of acquisition. A summary of the future minimum payments to be received by the Subsidiary under noncancellable operating
subleases is as follows:
Years ending December 31,
2004 $466,437
2005 153.616
$620,053
The Company has accrued a loss to reflect the difference between rental income to be received on subleases and the minimum
payments due on the office space subleased. At December 31, 2003, there remained approximately $209,000 of losses accrued on
the balance sheet.

Note 5 - Costs and Estimated Earnings on Uncompleted Contracts

The following is a summary of costs and estimated earnings related billings on uncompleted contracts in comparison to
December 31
December 31
2003 2002 2001
Costs and estimated earnings on uncompleted contracts $ 20,160,017 $ 48,684,525 $ 14,128,236
Billings to date (18,923,509 (48,091,659) (12,926,598)
Provisions for unbilied receivables (309,397) (440,745) -
Net $ 927,111 $ 152,121 $ 1,201,638
The above amounts are reflected in the accompanying balance sheets as follows:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 4,017,955 $ 1,348,849 $ 1,363,841
Billings in excess of costs and estimated
earnings on uncompleted contracts (3,090,844) (1,196,728) (162,203)
$ 927,111 $ 151,121 $ 1,201,638
The amount of revenue to be realised from work yet to be performed on uncompleted contracts approximates $9,700,000,
$3,350,000 and $1,500,000 at December 31, 2003, 2002 and 2001, respectively.

Note 6 - Related Party Transactions

The Company is a wholly-owned subsidiary of Patni Computer Systems Ltd., a foreign corporation located in India. The Company
purchases a significant amount of software development services from the parent. A summary of such transactions is as follows:

Years Ended December 31

2003 2002 2001
Software development charges $ 98,186,224 $ 77,152,832 $ 57,161,156

At December 31, 2003, $62,953,761 of accounts payable is due to Patni ($28,479,480 and $33,206,548 at December 31, 2002
and 2001, respectively).
The Company has also made cash advances to other Patni-owned companies. At December 31, 2003, $1,954,820 is receivable
from Patni-owned companies ($3,031,615 and $582,500 at December 31, 2002 and 2001, respectively).

Note 7 … Employee Benefit Plans

The Company adopted a 401(k) salary deferral profit sharing plan, which enables employees to make pre-tax contributions. The
Company does not match employee contributions to the plan.

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 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY
(Formerly Data Conversion Incorporated)

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

During the year 2000, the Company committed to a retirement benefit to its president. The benefit payable to the president or his
surviving spouse will equal 50% of his last annual base salary. The benefit will be paid commencing when the president reaches the
age of 65.
The following schedule reflects the funded status of the plan as of the most recent valuation date, December 31.

2003 2002 2001

Funded Status
Projected benefit obligation at end of year $ 4,301,075 $ 3,016,000 $ 1,709,000
Fair vaIue of plan assets - - -
Funded status $ (4,301,075) $ (3,016,000) $ (1,709,000)
Amounts recognised in the balance sheet consist of:
Accrued pension liability $ 3,621,150 $ 2,399,657 $ 1,268,618
Intangible pension asset $ 593,155 $ 1,165,009 $ 609,325
Accumulated other comprehensive income (loss)
Minimum pension liability adjustment, net of
$341,932 of taxes $ (507,168) $ - $ -
Additional Pension Data
Net periodic pension cost $ 945,000 $ 545,000 $ 552,000
Employer contribution $ - $ - $ -
Benefits paid $ - $ - $ -
Weighted average assumptions
Discount rate 5.0% 7.5% 7.5%
Expected return on plan assets N/A N/A N/A
Rate of compensation increase 10.0% 10.0% 10.0%

Note 8 - Financial Instruments and Concentrations of Credit Risk

The Companies‘ financial instruments that are potentially exposed to concentrations of credit risk consist primarily of cash, cash
equivalents and trade accounts receivable.
The Companies‘ cash and cash equivalents are placed with high-quality financial institutions. Based on bank balances at December
31, 2003, approximately $40,400,000 of deposits were in excess of the federal insured limit.
The Company‘ s largest customer, which is composed of several divisions, accounted for approximately 43% of the Company‘ s
revenue for the year ended December 31, 2003 (53% and 65% of revenues for the years ended December 31, 2002 and 2001,
respectively). In addition, the same customer accounted for 45% of the Company‘ s accounts receivable at December 31, 2003 (58%
and 69% of accounts receivable at December 31, 2002 and 2001, respectively).
The Company‘ s second largest customer accounted for approximately 20% of revenue for the year ended December 31, 2003 (18%
and 13% of revenues for the years. ended December 31, 2002 and 2001, respectively) and 9% of accounts receivable at December
31, 2003 (16% and 7% of accounts receivable at December 31, 2002 and 2001, respectively).
The Companies closely monitor the extension of credit to new and existing customers. The Companies have not experienced significant
losses relating to accounts receivable from an individual or group of customers, or from groups of customers in any one industry or
geographic location.
In addition, the Company purchases a significant amount of its software development services from Patni (a foreign affiliate)
(see Note 6).

163
 PATNI COMPUTER SYSTEMS, INC. AND SUBSIDIARY
(Formerly Data Conversion Incorporated)

Notes to the Consolidated financial statements (Contd.) for the year ended December 31, 2003

Note 9 … Business Acquisition

On April 17, 2003, the Company purchased all of the outstanding shares of The Reference, Inc. (TRI) for $6,093,516 (including
direct acquisition costs of approximately $114,000). The purchase agreement also calls for contingent payments not to exceed
$1,500,000 in cash. These contingent payments are dependent on operating performance goals during the period from acquisition
through December 31, 2004. The acquisition has been accounted as a purchase in accordance with SFAS No. 141, "Business
Combinations". The results of TRl’s operations have been included in the Company’s consolidated financial statements since the dkb
of acquisition. The purchase price has been allocated as follows:

Cash and equivalents $3,055,322

Customer contracts and relationships 840,000
Fair value of tangible assets and liabilities, net (396,179)
Goodwill 2.594.373
$6,093,516
Intangible assets consist of the following at December 31, 2003:
Customer contracts and relationships $840,000
Less accumulated amortisation (59.500)
780,500
Excess of costs over net assets acquired - Goodwill 2,594,373
$ 3,374,873

Amortisation expense for the year ended December 31, 2003 was $59,500. Goodwill is not expected to be deductible for tax
purposes.

Note 9 … Business Acquisition

Annual amortisation of customer contracts and relationships approximate the following:
Year Ending December 31,

2004 $84,000
2005 84,000
2006 84,000
2007 84,000
Thereafter 444.500
$780,500

Note 10 - Supplemental Cash Flow Information

The following summarises required supplemental cash flow disclosures:

Years Ended December 31,

2003 2002 2001

Cash paid during the year for income taxes $4,099,157 $2,808,114 $4,487,000
Noncash financing activities:
Stock dividends accrued at December 31 $ - $ 75,000 $ -

164
 PATNI COMPUTER SYSTEMS (UK) LIMITED

Corporate Information
The Board of Directors Secretary Registered Office Auditors
P J Kutar R B Pady Vistacentre Woolford & Co. LLP
A K Patni 50 Salisbury Road Hounslow Chartered Accountants & Registered Auditors
R B Pady Middlesex Hillbrow House Hillbrow Road
S G Namjoshi TW4 6JQ Esher, Surrey KT10 9NW, UK

Directors’ Report Period ended 31 December 2003

The directors have pleasure in presenting their report and the as follows:
financial statements of the Company for the period ended 31
.PJ. K utar
December 2003.
A.K. Patni
Principal activities and business review
R.B. Pady
The principal activity of the Company during the year was that of
providing IT services. S.G. Namjoshi

During the year the Company increased its efforts on sales and The Company is a wholly owned subsidiary and the interests of
increased its sales organisation. The Company also increased its the group directors are disclosed in the financial statements of
focus on sales to other European countries. the parent Company.

The increasing focus on sales and business development is likely

Registered office: Signed on behalf of the directors
to result in a healthy revenue growth rate in future.
Vistacentre
Results and dividends
50 Salisbury Road
The trading results for the period, and the Company’s financial
Hounslow
position at the end of the period are shown in the attached
Middlesex S.G. Namjoshi
financial statements.
TW4 6JQ Director
The directors have not recommended a dividend.
Approved by the directors on 27 February 2004
Directors
The directors who served the Company during the period were

Statement of Directors’ Responsibilities Period ended 31 December 2003

Company law requires the directors to prepare financial Company will continue in business.
statements for each financial year which give a true and
The directors are responsible for keeping proper
fair view of the state of affairs of the Company at the end
accounting records which disclose with reasonable
of the period and of the profit or loss for the period then
accuracy at any time the financial position of the
ended. In preparing those financial statements, the
Company and to enable them to ensure that the financial
directors are required to:
statements comply with the Companies Act 1985. The
select suitable accounting policies, as described on page directors are also responsible for safeguarding the assets
8, and then apply them consistently; make judgements of the Company and hence for taking reasonable steps for
and estimates that are reasonable and prudent; and the prevention and detection of fraud and other
prepare the financial statements on the going concern irregularities.
basis unless it is inappropriate to presume that the

165
 PATNI COMPUTER SYSTEMS (UK) LIMITED

Independent Auditors’ Report

To the Shareholders Period ended 31 December 2003

We have audited the financial statements on pages 167 to 171 within it.
which have been prepared under the historical cost convention
Basis of audit opinion
and the accounting policies set out on page 168.
We conducted our audit in accordance with United Kingdom
This report is made solely to the Company’s shareholders, as a
Auditing Standards issued by the Auditing Practices Board. An
body, in accordance with Section 235 of the Companies Act
audit includes examination, on a test basis, of evidence relevant
1985. Our audit work has been undertaken so that we might
to the amounts and disclosures in the financial statements. It also
state to the Company’s shareholders those matters we are
includes an assessment of the significant estimates and
required to state to them in an auditors’ report and for no other
judgements made by the directors in the preparation of the
purpose. To the fullest extent permitted by law, we do not accept
financial statements, and of whether the accounting policies are
or assume responsibility to anyone other than the Company and
appropriate to the Company’s circumstances, consistently
the Company’s shareholders as a body, for our audit work, for
applied and adequately disclosed.
this report, or for the opinions we have formed.
We planned and performed our audit so as to obtain all the
Respective responsibilities of directors and auditors
information and explanations which we considered necessary in
As described in the Statement of Directors’ Responsibilities the order to provide us with sufficient evidence to give reasonable
Company’s directors are responsible for the preparation of the assurance that the financial statements are free from material
financial statements in accordance with applicable law and misstatement, whether caused by fraud or other irregularity or
United Kingdom Accounting Standards. error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial
Our responsibility is to audit the financial statements in
statements.
accordance with relevant legal and regulatory requirements and
United Kingdom Auditing Standards. Opinion

We report to you our opinion as to whether the financial In our opinion the financial statements give a true and fair view
statements give a true and fair view and are properly prepared of the state of the Company’s affairs as at 31 December 2003
in accordance with the Companies Act 1985. We also report to and of its profit for the period then ended, and have been
you if, in our opinion, the Directors’ Report is not consistent with properly prepared in accordance with the Companies Act 1985.
the financial statements, if the Company has not kept proper
accounting records, if we have not received all the information
Hillbrow House WOOLFORD & CO. LLP
and explanations we require for our audit, or if information
Hillbrow Road Chartered Accountants
specified by law regarding directors’ remuneration and
Esher, Surrey & Registered Auditors
transactions with the Company is not disclosed.
KT10 9NW
We read the Directors’ Report and consider the implications for
our report if we become aware of any apparent misstatements 27 February 2004

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 PATNI COMPUTER SYSTEMS (UK) LIMITED

Profit and Loss Account Period Ended 31 December

2003 2002
Note £ £

Turnover 2 7,589,689 7,635,890

Cost of sales 5,127,318 5,367,758
Gross profit 2,462,371 2,268,132
Administrative expenses 2,019,756 1,512,991
Operating profit 3 442,615 755,141
Interest receivable 16,060 67,819
Interest payable 6 (4,971) -
Profit on ordinary activities before taxation 453,704 822,960
Tax on profit on ordinary activities 7 131,433 232,592
Retained profit for the financial period 322,271 590,368

All of the activities of the Company are classed as continuing.

The Company has no recognised gains or losses other than the results for the period as set out above.
The notes on pages 168 to 171 form part of these financial statements.

Balance Sheet 31 December 2003

2003 2002
Note £ £ £ £
Fixed assets
Tangible assets 8 172,112 41,894
Current assets
Debtors 9 2,870,637 3,098,001
Cash at bank and in hand 1,403,373 1,519,884
4,274,010 4,617,885
Creditors: Amounts falling due within one year 10 2,509,360 3,045,288
Net current assets 1,764,650 1,572,597
Total assets less current liabilities 1,936,762 1,614,491
Capital and reserves
Called-up equity share capital 11 50,000 50,000
Profit and loss account 12 1,886,762 1,564,491
Shareholders’ funds 13 1,936,762 1,614,491

These financial statements were approved by the directors on the 27 February 2004 and are signed on their behalf by:

S.G. Namjoshi

The notes on pages 168 to 171 form part of these financial statements.

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 PA TNI COMPUTER SYSTEMS (UK) LIMITED

Notes to the Financial Statements Period Ended 31 December 2003

1. Accounting policies
Basis of accounting
The financial statements have been prepared under the historical cost convention.
Cash flow statement
The directors have taken advantage of the exemption in Financial Reporting Standard No 1 (revised) from including a cash flow
statement in the financial statements on the grounds that the Company is wholly owned and its parent publishes a consolidated
cash flow statement.
Turnover
The Company derives its revenues primarily from software services. Revenue with respect to timeand-material contracts is
recognised as related costs are incurred. Revenue with respect to fixed-price contracts is recognised on a percentage of completion
basis, measured by the percentage of costs incurred to date to estimated total costs for each contract.
Fixed assets
All fixed assets are initially recorded at cost.
Depreciation
Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of
that asset as follows:
Computer Equipment … 25% straight line
Motor Vehicles … 25% straight line
Foreign currencies
Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange
differences are taken into account in arriving at the operating profit.
2. Turnover
The turnover and profit before tax are attributable to the one principal activity of the Company.
An analysis of turnover is given below:
2003 2002
£ £
United Kingdom 4,627,744 4,956,728
European Union 545,002 289,975
Other European 1,803,066 1,461,631
Other 613,877 927,556
7,589,689 7,635,890

3. Operating profit
Operating profit is stated after charging:

2003 2002
£ £
Directors’ emoluments 131,670 122,792
Depreciation of owned fixed assets 34,218 15,061
Auditors’ remuneration
… as auditors 15,000 8,000
… for other services 65,050 55,270

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 PA TNI COMPUTER SYSTEMS (UK) LIMITED

Notes to the Financial Statements Period Ended 31 December 2003

4. Particulars of employees
The average number of staff employed by the Company during the financial period amounted to:
2003 2002
No No
Number of production staff 58 52
Number of administrative staff 7 4
Number of management staff 2 2
Number of marketing staff 12 15
79 73

The aggregate payroll costs of the above were:

2003 2002
£ £
Wages and salaries 2,856,562 2,398,366
Social security costs 229,999 148,867
Refunds of PAYE/NIC - (568,158)
3,086,561 1,979,075

Payroll costs in 2002 included Inland Revenue refunds of £568,158, arising as a result of overpayment of NIC in previous
years and re-grossing up of payroll on an annual basis.
5. Directors’ emoluments
The directors’ aggregate emoluments in respect of qualifying services were:

2003 2002
£ £
Emoluments receivable 131,670 122,792

6. Interest payable

Interest payable on bank borrowing 4,971 -

7. Tax on profit on ordinary activities

(a) Analysis of charge in the period

Current tax:
UK Corporation tax based on the results for the period at 30% (2002 - 30%) 131,433 232,592
Total current tax 131,433 232,592
(b) Factors affecting current tax charge
The tax assessed on the profit on ordinary activities for the period is lower
than the standard rate of corporation tax in the UK of 30% (2002 - 30%).
Profit on ordinary activities before taxation 453,704 822,960
Profit/(loss)on ordinary activities by rate of tax 134,516 246,887
Disallowable expenses 1,924 1,848
Capital allowances for period in excess of depreciation (5,007) 521
Non taxable interest - (16,665)
Sundry tax adjusting items - 1
Total current tax (note 7(a)) 131,433 232,592

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 PATNI COMPUTER SYSTEMS (UK) LIMITED

Notes to the Financial Statements Period Ended 31 December 2003

8. Tangible fixed assets

Computer Motor Total
Equipment Vehicles
£ £ £
Cost
At 1 January 2003 58,442 14,720 73,162
Additions 164,436 - 164,436
At 31 December 2003 222,878 14,720 237,598
Depreciation
At 1 January 2003 22,681 8,587 31,268
Charge for the period 30,538 3,680 34,218
At 31 December 2003 53,219 12,267 65,486
Net book value
At 31 December 2003 169,659 2,453 172,112
At 31 December 2002 35,761 6,133 41,894

9. Debtors
2003 2002
£ £
Trade debtors 2,031,069 2,232,883
Amounts owed by group undertakings 557,124 429,271
Amounts recoverable on contracts 101,925 285,564
Other debtors 7,973 81,927
Prepayments and accrued income 172,546 68,356
2,870,637 3,098,001

10.Creditors: Amounts falling due within one year

2003 2002
£ £
Bank loans and overdrafts 6,801 …
Trade creditors 26,553 4,919
Amounts owed to group undertakings 1,241,740 2,157,666
Other creditors including taxation and social security:
Corporation tax 131,433 232,592
Other taxation and social security 332,407 303,178
Other creditors 155,973 …
1,894,907 2,698,355
Accruals and deferred income 614,453 346,933
2,509,360 3,045,288

11.Share capital
2003 2002
No. £ No. £
Authorised share capital
50,000 Ordinary shares of £1 each 50,000 50,000
Allotted, called up and fully paid
Ordinary shares of £1 each 50,000 50,000 50,000 50,000

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 PATNI COMPUTER SYSTEMS (UK) LIMITED

Notes to the Financial Statements Period Ended 31 December 2003

12. Profit and loss account

2003 2002
£ £
Balance brought forward 1,564,491 974,123
Retained profit for the financial period 322,271 590,368
Balance carried forward 1,886,762 1,564,491

13. Reconciliation of movements in shareholders’ funds

2003 2002
£ £
Profit for the financial period 322,271 590,368
Opening shareholders’ equity funds 1,614,491 1,024,123
Closing shareholders’ equity funds 1,936,762 1,614,491

14.Ultimate parent Company

The Company’s ultimate parent Company, controlling party and ultimate controlling party during both periods was Patni Computer
Systems Limited, a Company incorporated in India.
During the period Patni Computer Systems Limited invoiced Patni Computer Systems (UK) Limited for costs totalling £3,064,851
(2002 - £4,187,639).
The total amount owed by Patni Computer Systems (UK) Limited to group companies at 31 December 2003 was £1,241,740
(2002 - £2,157,666), and owed by group companies to Patni Computer Systems (UK) Limited was £557,124 (2002 - £429,271).
GE Capital Mauritius Equity Investment is a minority shareholder in Patni Computer Systems Limited. During the period Patni
Computer Systems (UK) Limited made sales of £3,542,782 (2002 - £4,917,375) to GE Capital Mauritius Equity Investment and
its associated companies, and as at 31 December 2003 was owed £699,349 (2002 - £1,577,117) by that group.

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 PATNI COMPUTER SYSTEMS GmbH

Corporate Information
The Board of Directors Registered office Auditors
P J Kutar Curiestrasse 2 Audicon AG
S G Namjoshi D-70563, Stuttgart Richard-Strauss-Strasse 69
Germany 81677Muenchen

Directors’ Report Period ended December 31, 2003

The directors have pleasure in presenting their report and the recommended dividend.
financial statements of the Company for the period ended 31 Directors
December 2003. The directors who served the Company during the period were
Principal activities and business review as follows:
The principal activity of the Company during the year was that of .PJ. K utar
providing IT services. S.G. Namjoshi
During the year the Company increased its effort on sales. The Company is a wholly owned subsidiary and the interests of
The increasing focus on sales and business development is likely the group directors are disclosed in the financial statements of
to result in a healthy revenue growth rate in future. the parent Company.
Results and dividends Registered office: Signed on behalf of the directors
The trading results for the period, and the Company‘S financial Curiestrasse 2
position at the end of the period are shown in the attached D-70563, Stuttgart S.G. Namjoshi
financial statements. Germany Director

On account of losses, the directors were unable to Approved by the directors on February 25, 2004

Audit opinion
We have audited the financial statements including the evaluating the overall presentation of the financial statements.
accounting of Patni Computer Systems GmbH, Stuttgart, for the We be-lieve that our audit provides a reasonable basis for our
financial year from January 1 to December 31, 2003. The legal opinion.
repre-sentatives of the Company are responsible for the Our audit did not give any cause for qualification.
accounting and preparation of the financial statements in
In our opinion, the financial statements are in compliance with
compliance with German commercial law (and the
generally accepted accounting principles and present a true and
supplementary regulations in the articles of association). Our
fair view of the assets, liabilities, financial position and results of
responsibility is to express an opinion, based on our audit, on the
the Company.
financial statements, including the accounting. Because of its
classification as a small company the company has pursuant to Without the intention to qualify our opinion we would like to
sec. 264 HGB not to prepare a management report. address that the company has a capital deficit based on book-
values. Therefore the company needs either additional means of
We conducted our audit of the financial statements pursuant to
fi-nancing from the parent company or an increase in share
sec. 317 HGB and in compliance with the german generally
capital from its shareholder.
accepted auditing principles set down by the Institut der
Wirtschaftsprüfer (IDW). Those standards require that we plan To avoid any negative consequences according to §§ 49 and 64
and perform the audit to obtain reasonable assurance that German Commercial Code (over-indebtness, insolvency) the
inaccuracies and violations are recognised which significantly holding company has declared in a letter of comfort that it does
affect the presentation of the assets, liabilities, financial position not intend to divest its stake in the company in the next 12
and results of the Company as con-veyed by the financial months and would continue to support the company financially,
statements, in compliance with generally accepted accounting by either increasing the share capital or grant of long term loan
principles. The scope of the audit was planned taking into or provide financial assistance, as may be required.
account our understanding of business operations, the
Company’s economic and legal environment, and any potential Stuttgart, February 25, 2004
errors anticipated. In the course of the audit, the effectiveness of
the system of internal controls, so far related to the fi-nancial Prof.Dr.Binder, Dr.Dr.Hillebrecht & Partner GmbH
accounting system, has been assessed, and the disclosures Wirtschaftsprüfungsgesellschaft
made in the accounting and the financial statements have been Steuerberatungsgesellschaft
verified, mainly on the basis of spot checks. The audit also
includes assessing the accounting principles used and significant Beuttler Bacher
estimates made by the legal representatives, as well as Auditor Auditor

172
 PATNI COMPUTER SYSTEMS GmbH

Balance Sheet as at December 31, 2003

Assets
business year prior year*
Euro Euro Euro

A. Fixed assets
I. Property, plant and equipment
1. Other equipment, operational and office equipment 1,021.00 3,096.00
B. Current assets
I. Inventories
1. Contracts in progress 111,278.32 0.00
II. Accounts receivable and other assets
1. Accounts receivable, trade 1,178,870.79 765,316.99
2. Other assets 9,327.64 1,188,198.43 3,609.87
III. Cash on hand and cash in banks 290,620.88 1,344,626.82
C. Deferred charges and prepaid expenses 603.00 3,001.47
D. Capital deficit 58,929.42 0.00
1,650,651.05 2,119,651.15

* 31.12.2002

Liabilities and shareholders’ equity

business year prior year*
Euro Euro Euro

A. Shareholders’ equity
I. Capital subscribed 150,000.00 150,000.00
II. Net loss/Net income -183,964.52 123,058.84
III. Accumulated deficit, beginning of year -24,964.90 -148,023.74
Capital deficit 58,929.42 0.00 0.00
B. Reserves and deficit liabilities
1. Other reserves and accrued liabilities 157,314.46 157,314.46 63,852.51
C. Liabilities
1. Accounts payable, trade 142,576.20 83,128.68
2. Accounts due to affiliated companies 1,257,109.05 1,622,120.47
3. Other liabilities 93,651.34 1,493,336.59 225,514.39
- thereof for taxes 58.545,20
( 120.810,93)
- thereof for social security
28.421,50 ( 20.021,48)
1,650,651.05 2,119,651.15

*31.12.2002

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 PATNI COMPUTER SYSTEMS GmbH

Income statement for the period from 01.01.2003 to 31.12.2003

business year prior year*

Euro Euro Euro
1. Sales 2,573,374.03 2,363,672.08
2. Inventory increase 111,278.32 0.00
3. Other operating income
a) Income from reversal of accruals 6,565.74 11,724.68
b) Other operating income 32,225.69 -19,111.34
4. Cost of materials
a) Cost of purchased services 857,796.74 879,366.57
5. Personnel expenses
a) Wages and salaries 1,430,285.06 1,058,666.20
b) Social security, pension and other benefit costs 214,687.01 1,644,972.07 123,553.96
6. Depreciation
a) on intangible assets, and plant and equipment and
on start-up and business expansion costs capitalised 2,075.00 2,080.16
7. Other operating expenses 403,508.71 170,595.86
8. Other interest and similar income 944.22 1,036.17
9. Loss/Profit -183,964.52 123,058.84

* 31.12.2002

Balance Sheet-details as of December 31, 2003

Assets
business year prior year*
Account Description Euro Euro Euro
I. Other equipment, operational and office equipment
0690 Other factory & office equipment 1,021.00 3,096.00
II. Inventories
1095 Contracts in prog. 111,278.32 0.00
III. Accounts receivable, trade
1200 Trade debitors 1,198,199.13 772,116.99
1246 provn on debtors with a term <1 yr -8,428.34
1248 Allowance for doubtful accounts -10,900.00 1,178,870.79 -6,800.00
IV. Other assets
1300 Other assets 3,616.34 1,019.72
1355 Deposits 3,999.12 2,289.12
1340 Due from employees 900.00 0.00
3739 Liabilitie for Travel exp. Stupal 0.00 124.35
1434 Input VAT deductible in following y. 812.18 9,327.64 176.68
V. Cash on hand and cash in banks
1800 Deutsche Bank # 4942512 00 208,857.11 1,261,788.75
1810 Deutsche Bank # 4942512 01 234.60 375.36
1820 Deutsche Bank # 4949012 00 47,307.36 48,626.28
1830 Deutsche Bank # 4942512 20 34,221.81 290,620.88 33,836.43
VI.Deferred charges and prepaid expenses
1900 Prepayments & deferred charges 603.00 3001.47
VII.Capital deficit
0000 Capital deficit 58,929.42 0.00
1,650,651.05 2,119,651.15

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 PATNI COMPUTER SYSTEMS GmbH

Balance Sheet-details as of December 31, 2003

Liabilities and shareholders’ equity

business year prior year*
Account Description Euro Euro Euro

I. Capital subscribed
2900 Capital subscribed 150,000.00 150,000.00
II. Net Loss/Net income
0000 loss/profit -183,964.52 123,058.84
III. Accumulated deficit, beginningof year
2979 Accumulated deficit, beginning of year -24,964.90 148,023.74
IV. Capital deficit
Capital deficit 58,929.42 0.00 0.00
V. Other reserves and accrued liabilities
3070 Other accrued expenses 149,614.46 57,652.51
3095 Accrual for year- end & audit fees 7,700.00 157,314.46 6,200.00
VI.Accounts payables, trade
3300 Trade creditors 142,576.20 83,128.68
VII.Accounts due to affiliated companies
3400 Amounts due to rel. companies
(UK) 674,264.95 688,943.75
3401 Amounts due to rel. companies
(India) 582,844.10 1,257,109.05 933,176.72
VIII. Other liabilities
1401 Offsetable input VAT 7% -118.94 -248.37
1405 Offsetable input VAT 16% -17,956.14 -24,719.49
3720 Liabilities for wages & salaries 2,043.28 83,482.18
3721 Liabilities for travel expenses Sheth 0.00 1,199.80
3722 Liabilities for travel expenses Paranjape 2,198.89 1,298.47
3730 Liabilities for wage & church taxes 41,805.63 50,215.90
3739 Liabilities for travel expenses Stupal 2,442.47
3740 Liabs for social security charges 28,421.50 20,021.48
3805 Turnover tax 16% 341,161.24 350,203.22
3830 Input VAT advance payments 1/11 -29,573.00 -12,716.00
3840 Input VAT current year -276,669.27 -231,184.90
3841 Input VAT prior year -104.32 93,651.34 -12,037.90
1,650,651.05 2,119,651.15

* 31.12.2002

175
 PATNI COMPUTER SYSTEMS GmbH

Income statement for the period from 01.01.2003 to 31.12.2003

business year prior year*

Account Description Euro Euro Euro

Sales
4200 Revenues 0% VAT 438,459.83 174,902.48
4400 Revenues 16% VAT 2,134,914.20 2,573,374.03 2,188,769.60
Stock change
4818 Contracts in prog. 111,278.32 0.00
Other operating income
4920 Inc from red of gen prov n for bad debts 6,020.00 2,800.00
4930 Inc. from reversal of accr. expenses 545.74 8,924.68
4840 Foreign exchange gains 15,032.96 1,519.95
4960 Prior period income 17,192.73 38,791.43 -20,631.29
Cost of purchased services
5900 Cost of services -27,328.60 -879,366.57
5909 Cost of services Patni, UK -67,500.37 0.00
5910 Cost of services India -762,967.77 -857,796.74 0.00
Wages and salaries
6010 Wages -1,428,918.06 -1,057,649.20
6045 Visa permit charges -1,367.00 -1,430,285.06 -1,017.00
Social security, pensionand other benefit costs
6110 Social security charges -200,461.37 -121,292.55
6120 Contribution for accident insurance -14,225.64 -214,687.01 -2,261.41
Depreciation on intangible assets, and plant
and equipment and on start-up and business
expansion costs capitalised
6220 Deprn. of property, plant & equipment -2,075.00 -2,080.16
Office cost
6310 Rent -15,556.65 -8,745.00
Insurance, and other costs
6420 Contribution -5,162.89 -1,968.42
6436 Tax ded. late pay & fine -1,818.60 -6,981.49 0.00
carry-over 196,061.83 281,905,11

176
 PATNI COMPUTER SYSTEMS GmbH

Income statement for the period from 01.01.2003 to 31.12.2003

business year prior year*

Account Description Euro Euro Euro

brought-over 196,061.83 281,905,11

Advertising and Travel expenses
6600 Advertising expense 0.00 -17,637.91
6610 Gifts valued up to € 40,00 -50.80 0.00
6630 Representative expenses 0.00 -135.48
6640 Entertainment expenses (16% VAT) -1,396.61 -939.82
6641 Entertainment expenses (employees) -1,735.03 -695.70
6644 Non-deductible entertmt expenses -1,213.26 -272.39
6650 Employee travel expenses -69,358.68 -73,754.38 -60,459.56
Other operating expenses
6740 Freight out -59.39 -75.20
6770 Producer's commission -23,687.76 -16,650.00
6300 Business Services -11,285.96 -9,683.86
6800 Mailing expense -333.55 -171.10
6805 Telephone -11,116.91 -8,205.16
6815 Office supplies -3,629.74 -1,243.73
6816 Online service -1,440.53 -4,313.24
6820 Magazine, books 0.00 -305.20
6822 Voluntary social contributions -1,259.75 -2,061.07
6825 Legal & consulting costs -8,231.75 -5,235.25
6827 Closing & audit fees -28,666.90 -14,573.85
6830 Accounting expenses -17,132.71 -7,857.21
6855 Bank charges -2,987.68 -1,556.23
6880 Foreign exchange losses -176,178.66 0.00
6920 Increase in general prov -10,120.00 -7,810.48
6923 Trans.to spec. All doubtful debts -8,428.34 0.00
6935 Losses f. debts (standard rate) -2,656.56 -307,216.19 0.00
Other interest and similar income
7100 Other interest and similar income 563.72 1,104.26
7105 Int. Inc. § 233a AO business taxes 380.50 0.00
7310 Interest expense for s-t liabilities 0.00 944.22 -68.09
Net profit/Net loss
0000 profit/loss -183,964.52 123,058.84

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 PATNI COMPUTER SYSTEMS GmbH

Notes to the Financial Statements

for the Period from January 1, 2003 to December 31, 2003

General Disclosures
Patni Computer Systems GmbH, Stuttgart is a small corporation as defined by sec. 267 (2) HGB. The Company did not make use of
the exemptions granted in accordance with sec. 276 HGB when preparing the income statement.
The annual financial statements of Patni Computer Systems GmbH, Stuttgart, for the abbreviated fiscal year from January 1, 2003 to
December 31, 2003 were prepared in accordance with the provisions of the third book of the German Commercial Code (HGB) and
the Limited Liability Companies Law (GmbHG).
The income statement was prepared using the cost summary method.

Accounting and Valuation Principles

Property, plant and equipment are valued at acquisition or manufacturing cost, less scheduled depreciation. Scheduled depreciation
is calculated using the straight-line method based on the tax-allowed depreciation rates.
Low value assets with an acquisition cost of up to EUR 410.00 are fully expensed in the year of acquisition and treated as additions
and disposals.
Receivables and other assets are stated at nominal value. Specific allowances are recorded for individual trade receivables deemed
uncollectible. A general allowance for doubtful accounts not covered by specific allowances is recorded in recognition of the general
credit risk.
Other accruals are created on the basis of prudent commercial judgment to cover all potential losses from pending transactions and
contingent liabilities as of the balance sheet date.
Liabilities are accounted for at their repayment amount.

Principles of Currency Translation

Foreign currency receivables and liabilities are translated at the bid price or offer price respectively prevailing on the date they
originated or at the less favorable exchange rate at the balance sheet date.

Explanations to the Balance Sheet

(1) Property, plant and equipment
Because of the very low value the development of the Company´s fixed assets was not shown separately.

(2) Receivables and other assets

31.12.2003
EUR
Trade receivables 1,178,870.79
Other assets 9,327.64
…of which with a residual term of more than one year (0)
1,188,198.43

(3) Cash and cash equivalents

This item relates to bank balances and cash on hand.

(4) Capital deficit

Because of the net loss of EUR 183.964,52 and the accumulated deficit beginning of the year EUR 24.964,90 the Company
shows a capital deficit/negative equity of EUR 58.929,42.

(5) Other accruals

Other accruals primarily contain accruals for vacation and bonus accrued but not yet taken, termination allowance and
outstanding invoices.

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 PATNI COMPUTER SYSTEMS GmbH

(6) Liabilities
Residual term
31.12.2003 less than 1 to more than
Total 1 year 5 years 5 years
EUR EUR EUR EUR
Trade payables 142,576.20 142,576.20 0 0
Liabilities to affiliated companies 1,257,109.05 1,257,109.05 0 0
… of which to shareholders (582,844.10) (582,844.10) (0) (0)
Other liabilities 93,651.34 93,651.34 0 0
… of which are taxes (58,545.20) (58,545.20) (0) (0 )
… of which related to social security (28,421.50) (28,421.50) (0) (0 )
1,493,336.59 1,493,336.59 0 0

(7) Sales
Sales can be divided by geographic market as follows:

1.01-31.12.2003
EUR
Domestic 2,134,914.20
Foreign 438,459.83
2,573,374.03

(8) Cost of materials

Cost of purchased services 857,796.74
(Therefore from India (EUR 762.967,77))
(9) Personnel expenses
Wages and salaries 1,430,285.06
Social security 214,687.01
1,644,972.07

(10)Interest result
Other interest and similar income 944.22
… of which for taxes (EUR 380,50)

(11)Annual average number of employees

Salaried employees 25

(12)Board of Patni Computer Systems GmbH, Stuttgart

The management of Patni Computer Systems GmbH, Stuttgart in the fiscal year 2003 comprised:
Phiroze J. Kutar, Bombay, India
Sukumar Ganesh Namjoshi, Hounslow/Middlesex, England
The protective clause pursuant to sec. 286 (4) HGB has been applied regarding the disclosure of the remuneration of
management in accordance with sec. 285 (9a) HGB.
(13)Parent Company
100% of the shares are held by Patni Computer Systems Ltd. Bombay, India.
Stuttgart, February 25, 2004

The Management

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 Risk Management

The risk management function is integral to the Company and its objectives
include ensuring that critical risks are identified continuously, monitored and
managed effectively in order to protect the Company’s businesses.
Framework
The risk management framework is designed to address what management believes can be largely quantified
and mitigated. The framework classifies these risks as follows:

Business Risks
Being the driver of the Company’s strategy, the top management is well acquainted with the risks inherent to
the software development business and the risks emerging from its strategic decisions. Therefore, top
management plays a significant role in addressing business risks. These risks can be classified as follows:

Concentration of Service Offerings

We have classified our revenues under four industries. We derive a significant proportion of our revenues from
clients in three of them, comprising insurance, manufacturing and financial services. Others include industries
such as energy and utilities, retail and hospitality. Revenues from certain clients such as the GE group are
represented across various industries. A breakdown of the industries is as follows:

2001 2002 2003

Insurance 34.2% 38.0% 33.7%

Manufacturing 26.9% 27.1% 28.5%
Financial services 14.9% 13.9% 16.1%
Others 24.0% 21.0% 21.7%

The Company intends to build upon its brand by demonstrating strong domain knowledge, a large scalable
operation and a full services capability from multiple service offerings including application development and
maintenance, enterprise application systems, enterprise systems management, embedded technology services
and business process outsourcing.
The Company has been endeavouring to enhance its portfolio of industry segments and service offerings

Client Concentration
A significant proportion of the Company’s revenues are derived from a small number of customers, of which GE
is the largest (US$ 103.4 million in 2003). While continuing to enjoy a strong relationship with GE, the
Company is making continuous efforts to obtain larger business from other customers. Due to these efforts, there
has been a steady fall in the share of business from GE, from 50.7 per cent in 2002 to 41.2 per cent in 2003.

Country Concentration
Patni primarily derives its revenues from the USA. The slowdown in the US economy could negatively impact
the Company’s business. The Company is therefore focused on market expansion in Europe, Asia-Pacific,
Japan and Others which include Rest of Asia-Pacific and Rest of the World. To achieve this, the Company has

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 Risk management

enhanced its sales teams in Europe, Japan and Rest of the World. It has also opened new offices
in Europe and Asia-Pacific.

The following is the geo-wise break-up of revenues:

2001 2002 2003

USA 84.4% 87.6% 88.8%

Europe including UK 9.1% 7.2% 7.2%
Japan 5.0% 3.5% 2.9%
Asia-Pacific 1.4% 1.0% 0.7%
Rest of the World 0.1% 0.7% 0.4%

Scanning the Competitive Environment

Patni strives to provide customers with superior solutions, by continuously developing technology
intensive and innovative solutions. The Product and Technology Initiatives (PTI) group and the
Delivery Innovation group have been established to provide the Company with opportunities to
sharpen its solution and technology edge.

The PTI group is focused on applied research and development initiatives. It is responsible for
identifying new opportunities and developing solutions to address these opportunities. The group
regularly tracks new technologies and market trends to identify such offerings. These offerings can
be targeted solutions or intellectual property that can be leveraged by existing service offerings to
deliver a differentially superior edge. Focus group set up in PTI act as "Seeds for Centres of
Excellence" in a particular technology or market, through these initiatives. The PTI group has also
established systems that encourage all employees to participate in idea generation, evaluation and
development of products or solutions. In addition, the group looks at new potential areas for
service offerings.

The Delivery Innovation group is focused on operational excellence and serving customers in the
most efficient manner. This group’s activities include developing and refining methodologies, tools
and techniques, implementing metrics, improving estimation processes and adopting new
technologies. The Delivery Innovation group also acts as a resource centre for two nascent service
offerings, process consulting practice and validation, verification and testing.

Business Models and Structure

Patni offers a wide spectrum of services in the industry verticals and horizontal service offerings. A
downturn in any domain could significantly affect revenues and overall performance of the
Company. The Company has developed a diversified business portfolio and is continuously
working towards increasing the number of industry segments and horizontal service offerings to
avoid concentration and excessive dependence on any one industry segment or horizontal service
offering.

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 The Company has also moved into the ITeS segment by setting up a Business Process Outsourcing
(BPO) unit at Noida.

The Company currently derives approximately 48.1 per cent of its revenues from fixed price
contracts. It has been executing fixed price projects from a long time with considerable success, due
to its superior project management capabilities. All fixed price contracts are monitored closely to
ensure that all contractual obligations and project deadlines are met. A co-ordination cell is
responsible for monitoring project opening and closures, important milestones, revenue recognition
for fixed price, SLA and T&M contracts, timely billing and project cost overruns. This arrangement
contributes in mitigating the risks associated with fixed price contracts.

The Company faces potential risks arising out of political instability, changes in the currently
favourable policies of the government towards the software sector etc. The Indian government has
recognised the global competitiveness of the Indian software sector and continues to adopt
progressive policies to encourage sustainable growth in the sector.

Accounts Receivable
Patni’s receivables are at about 82 days. The Company primarily has Fortune 1000 customers and
hence these are considered reasonably safe credit risks. In case of non Fortune 1000 customers, the
Company undertakes suitable credit assessments to secure itself from credit defaults and bad debts
on account of such customers. The Company is streamlining its processes to develop a more
focused and aggressive receivables management system to ensure timely collections. The provision
for doubtful debts as a percentage of revenue has declined from 0.9 per cent in 2002 to 0.1 per
cent in 2003.

Existence and adequacy of Internal Controls

The Company has a well defined internal control system that is adequate and commensurate with
the size and nature of its business. Clear roles, responsibilities and authorities, coupled with ro bust
internal information systems, ensures appropriate information flow to facilitate effective monitoring.
Adequate controls are established to ensure that assets of the Company are safeguarded and
transactions are executed in accordance with documented policies.

Compliance with the above policies is monitored through regular internal audits of processes as well
as underlying transactions. The Company has appointed independent audit firms as internal
auditors. The Audit Committee periodically reviews their reports and recommendations. Action plans
are agreed with the process owners to facilitate proper implementation of the recommendations. The
auditors also conduct follow up reviews to report on the efficacy of the implementation pro cess.

The Company has an effective budgetary control mechanism in place to take care of planning,
monitoring and controlling.

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 Risk management

Risks emerging from nature of Financial Operations

Foreign exchange fluctuations
The Company earns revenues in various foreign currencies, with earnings in US dollars comprising
the bulk. Therefore, the Company is exposed to risks arising out of fluctuations in the foreign
exchange rates. The Company seeks to minimise such risks by entering into forward contracts and
other hedging products. A treasury team operates to mitigate foreign exchange volatility risk in
accordance with the policy approved by the Board in this regard.

Liquidity Management
The Company has adequate cash reserves and liquid assets, which are actively managed through
efficient treasury operations. Patni is currently a zero-debt Company apart from small leases for
cars. Its investment policy is driven by the objective of ensuring adequate liquidity to meet any
exigency. Accordingly, all the investible surpluses are deployed in short term liquid instruments in
purely debt funds. The investments are well diversified to mitigate risk and are made in
accordance with the policy approved by the Board in this regard.

Legal and Regulatory Risks

Conformity with Local Laws and Regulation
The Company has transnational operations, with a global workforce. This requires it to ensure that
its diverse workforce is sensitive to and compliant with local laws. The Company has processes to
make the workforce aware of local employment laws and significant legal requirements pertaining
to work practices.

The Company is also suitably represented by competent legal firms at different locations where it
has its operations. These firms advise the Company on various requirements.

Directors and Officers Liability

Directors’ and Officers’(D&O) liabilities are risks arising out of their commitments, statements and
decisions which may result in legal liability to any third party. The Company has appropriately and
sufficiently insured itself to mitigate such risks, apart from internal policies, procedures and
communications that guide the officers to act with proper due diligence.

Contracts
Liabilities can arise out of legal cases pending against the Company in the courts of India. The
Company is consistently following up on all pending legal cases, and has made adequate
provisions for these liabilities.

Contractual risks may arise out of non-performance of contracts or any other breach in the
contracts signed by the Company with its customers or other external entities. The Company has a
centralised contract management cell that reviews all legal customer contracts entered into by the

183
 Company and ensures that it is suitably protected. This legal vetting process is applied to contracts
with the Company’s customers, key suppliers, business partners and associates. Insurance cover has
also been obtained for Errors & Omission and Commercial & General Liability. This adequately
protects the Company from financial risks emanating from non-performance of contractual
obligations.

Fixed asset and employee insurance

The fixed assets and facilities of the Company are comprehensively covered under suitable insurance
policies. The Company covers mediclaim for employees and their dependants. The Company also
covers them for personal accident, permanent disability and critical illness as well as for life cover. In
addition, the Company covers the risks associated with medical illnesses for employees traveling
abroad on deputation onsite.

Intellectual property
The Company has developed a comprehensive approach to protect itself against infringement of
Intellectual Property (IP). The IP may belong to its customers, third parties or even to the Company.
Processes are in place to protect the Company’s IP from misuse by third parties. At the same time, the
Company has controls in place to ensure that it is not exposed to risks associated with the misuse of IP
or technology products owned by third parties. In addition, the Company ensures that only licensed
software is used in all its facilities. Further, the legal cell ensures that IP related issues are given due
consideration while executing agreements with customers or third parties.

Conducive environment for employee retention and development

Employees are exposed to travel risks while traveling abroad. All employees planning to travel are
given an orientation on the various aspects of travel and medical insurance at Company cost. The
Company ensures efficient travel and visa arrangements to ensure that employee productivity and
utilisation are both optimised.

The Company operates in a sector, where human resources are the most critical resources in business.
Its human resources division, the resource management team and the business units work closely with
each other to ensure timely and effective recruitment to support the growing business needs of the
Company. The skills and experience of employees are aligned with the job requirements on a
continuous basis to ensure the most productive and efficient allocation of resources. The Company
also conducts training programmes to continuously enhance technical and behavioural skills of its
employees. In addition, cross functional opportunities are a key feature of our HR endeavours to
promote employee development and growth thereby helping the Company in its pursuit of employee
retention and improved productivity.

The Company operates in a sector where attrition exists. It therefore may face the challenge of
attracting and retaining professional and skilled talent to be able to continuously deliver a superior

184
 Risk management

quality of service. Patni endeavours to attract and retain the best professional talent, by creating a
professional work culture, by offering exciting growth opportunities and by exposing employees to
new technologies through on-going training programmes. The Company also offers ESOPs based
on approved criteria.

Leadership development and continuity

The Company has a strong and competent top management collectively called the Corporate
Centre (CC). The CC mentors the strategic business units and provides overall direction and
leadership to the Company. The Company has embarked on a new initiative called Leadership
Excellence At Patni (LEAP) through which it intends to identify employees with leadership potential
who can lead the Company during challenging and difficult times. A fast track career has been
envisaged for these employees. These initiatives will ensure that all transitions are efficiently
managed for business continuity.

Technology obsolescence, business continuity and disaster

recovery planning
The Company could face problems in its existing infrastructure such as unavailability of internet,
voice and international links, power failures, network systems failures, etc. which could adversely
impact the delivery of services. Each development centre is connected to the national backbone
built with multiple data links from multiple vendors. The national backbone is designed with state -
of-the-art technologies and protocols. The Company has several links to overseas destinations,
using different routes and provided by multiple service providers. Redundancy in data centre and
communications room for air-conditioning, UPS, generators, power supply, fiber optic back bone
for connecting LAN switches, on-site hot spares and a 24x7 tracking and monitoring system
ensures that standby mechanisms take over immediately whenever any mission critical system
breaks down. The core servers of the Company are fault tolerant with high availability built in.
There is also a 24x7 on-site team, which provides online support to the Company infrastructure.
The Company has a very efficient multi tier virus tracking and scanning system to ensure a virus
free environment. Clustered firewalls and intrusion detection systems are in place at all internet
gateways to ensure adequate safety to all the Company’s systems and to prevent hacking.

The Company has reviewed and further strengthened its Disaster Recovery and Business Continuity
Plans (DR/BCP) for all its operations over the last fiscal year. Strict requirement of periodic reviews
is carried out to ensure that all the DR/BCP compliance requirements are met. Mock drills and
audits are conducted to ensure the currency of the DR/BCP plans. The logical security of
information systems is adequate and reviewed regularly since new threats occur every day. The
security audit and architecture organisation was strengthened and the Company adopted the BS
7799 standards for information security. Data backups are taken daily and stored in fireproof
safes. Backups are stored at secured remote locations. The Company has deployed technologies
like Storage Area Network (SAN) to ensure high availability of its own data.

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 Patni
W orld-wide

Corporate office 11260 Chester Road, Suite # 600, 222 West Las Colinas Blvd.,
Spectrum Office Tower, Suite 742 East,
Patni Computer Systems Ltd.,
Cincinnati, OH 45246. Irving, TX 75039.
Akruti, MIDC Cross Road No.21,
Tel: +1 513 772 2072 Tel: +1 972 401 4800
Andheri (E), Mumbai-400 093.
Fax: +1 513 772 5082 Fax: +1 972 401 4801
Tel: + 91 22 5693 0500
patni-oh@patni.com patni-tx@patni.com
Fax: + 91 22 5693 0211

940 South Coast Drive, 10900 NE 8th Street, Suite 900,

North America
Suite 175, Costa Mesa, CA 92626. Bellevue, WA 98004.
Patni Computer Systems, Inc. Tel: +1 714 241 9555 Tel: +1 425 462 5870
238 Main Street, Fax: +1 714 241 9556 Fax: +1 425 462 5890
Cambridge, MA 02142. patni-ca@patni.com patni-ca@patni.com
Tel: +1 617 354 7424
Fax: +1 617 876 4711 2001 Killebrew Drive, 20700 Civic Center Drive.
patni-ma@patni.com Suite 160, Minneapolis, MN 55425. Suite 170,
Tel: +1 952 854 6630 Southfield,
120 Presidential Way,
Fax: +1 952 854 6730 Michigan - 48076.
Woburn, MA 01801.
patni-mn@patni.com Tel: +1 248 663 4098
Tel: +1 781 376 6000
Fax: +1 248 663 4029
Fax: +1 781 932 0936
4390 US Route 1, Suite 230, patni-mi@patni.com
patni-ma@patni.com
Princeton, NJ 08540.
75 Federal Street - 3rd Floor, Tel: +1 609 580 0011
Canada
Boston, MA 02110. Fax: +1 609 580 0017
patni-nj@patni.com 1 Yonge St., Suite 1801,
Tel: +1 617 542 1144
Toronto Star Building,
Fax: +1 617 542 1188
39141 Civic Center Drive, Suite#325, Toronto, Ontario M5E 1W7.
patni-ma@patni.com
Fremont CA 94538. Tel: +1 416 214 7840
5901 Peachtree Dunwoody Road NE, Tel: +1 510 797 6000 Fax: +1 416 369 0515
Suite A-410, Atlanta, GA 30328. Fax: +1 510 797 6002 patni-canada@patni.com
Tel: +1 770 395 0300 patni-ca@patni.com
Fax: +1 770 395 9911
patni-ga@patni.com 101 Merritt 7, 5th Floor,
Main Ave,
1211 W 22nd Street, Suite 620, Norwalk, CT 06851.
Oak Brook, IL 60523. Tel: +1 203 849 0309
Tel: +1 630 990 4585 Fax: +1 203 849 0374
Fax: +1 630 990 4595 patni-ct@patni.com
patni-il@patni.com

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UK Level 40, 140 William Street, A-78/9, GIDC Electronics Estate,
Patni Computer Systems (UK) Ltd., Melbourne, VIC - 3000. Sector 25, Gandhinagar - 382 016.
Vistacentre, 50 Salisbury Road, Office: + 61 3 9607 8371 Tel: +91 79 3240 905
Hounslow, Middlesex, TW4 6JQ, Fax: + 61 3 9607 8282 Fax: +91 79 3242 763
United Kingdom. patni-australia@patni.com patni-gnr@patni.com
Tel: + 44 20 8538 0120
Fax: + 44 20 8538 0276
Japan A-39/40, Sector 16, Noida- 201301.
Patni Computer Systems, Tel: +91 120 2516 880-3
patni-uk@patni.com
Japan Branch, Fax: +91 120 2516 890
4th floor, Aoyagi Building, patni-noida@patni.com
Germany
Chuo 5-39-11, Nakano-ku, Tokyo,
Patni Computer Systems GmbH, Japan 164-0011. C-28, Sector-58,
Curiestrasse 2, D-70563, Stuttgart. Tel: + 81 3 5328 1952/53/54 Noida - 201301.
Tel: + 49 711 6740 0162 Fax: + 81 3 5328 1951 Tel: +91 120 2589 244
Fax:+ 49 711 6740 0200 patni-japan@patni.com Fax: +91 120 2589 711
patni-noida@patni.com
Garmischer Straße 4, India
D-80339, München. Unit 5-8, Electronic Sadan III,
Patni Computer Systems Ltd.,
Tel: +49 89 5405 2451 MIDC, Bhosari, Pune- 411 026.
55, SDF II, SEEPZ,
Fax: +49 89 5405 2109 Tel: + 91 20 2712 1881
Andheri (E), Mumbai- 400 096.
patni-germany@patni.com Fax: + 91 20 2712 1882
Tel: + 91 22 2829 1454
patni-pune@patni.com
Sweden Fax: + 91 22 2829 2764
patni-mumbai@patni.com EL 31/10, "J" Block,
Patni Computer Systems Ltd.,
Indien Filial, MIDC, Bhosari, Pune - 411 026.
Electronic Sadan, No: III,
Knarrarnasgatan 7,164 40 Kista, Tel.: + 91 20 2712 3980
TTC Industrial Area, Mahape,
Sweden. Fax: +91 20 2712 3396
Navi Mumbai - 400 709.
Tel: + 46 8 5229 1845 patni-pune@patni.com
Tel: +91 22 2761 1090/ 2762 2651
Fax: + 46 8 5229 1846 Fax: +91 22 2761 9602 148, Mumbai Pune Highway
patni-sweden@patni.com patni-mumbai@patni.com Pimpri, Pune - 411 018.
Australia Tel: + 91 20 2744 3051
Guna Building,
Fax: + 91 20 2744 3057
Level 20, 99 Walker Street, 304-305 Anna Salai,
North Sydney, Teynampet, Chennai- 600 018.
NSW 2060. Tel: +91 44 2431 3261
Tel: + 61 2 9657 1010 Fax: +91 44 2431 3266
Fax: + 61 2 9657 1011 patni-chennai@patni.com

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 Corporate
Information

Board of Directors Tel : +91 40 2331 2454

Mr. Narendra K Patni, Chairman Fax : +91 40 2331 1968
e-mail : patni@karvy.com
Mr. Gajendra K Patni, Executive Director
Mr. Ashok K Patni, Executive Director
Auditors to the Company
Mr. Arun Duggal
Mr. William O Grabe Bharat S. Raut & Co.
Kamala Mills Compound
Mr. Anupam Puri
448, Senapati Bapat Marg
Mr. Pradip Shah
Lower Parel,
Mr. Ramesh Venkateswaran
Mumbai - 400 013.
Dr. Michael A Cusumano
Tel : +91 22 2491 3131
Mr. Abhay Havaldar (Alternate Director to Fax : +91 22 2491 3132
Mr. William O Grabe)
Registtered Office
Company Secretary
S-1A, Irani Market Compound,
Arun Kanakal
Yerawada, Pune - 411 006.
Tel.: +91 20 2669 3457
Bankers
Fax : +91 20 2669 3859
Standard Chartered Bank,
90 M G Road, Fort,
Corporate Office
Mumbai- 400023.
Akruti, MIDC Cross Road No.21,
Investor Relations Office Andheri (E), Mumbai - 400 093.
Akruti, Tel.: +91 22 5693 0500
MIDC Cross Road No.21, Fax : +91 22 5693 0211
Andheri (E), Mumbai … 400093.
Tel : + 91 22 5693 0500
Fax : +91 22 2832 1750
e-mail : investors@patni.com

Registrars and Transfer Agents

Karvy Computershare Private Limited
Karvy House,
46, Avenue 4, Street No.1, Banjara Hills
Hyderabad - 500 034.

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