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Infosys
BSE: 500209|NSE: INFY|ISIN: INE009A01021|SECTOR: Computers - Software
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« Mar 13
Notes to Accounts Year End : Mar '14
1. Company overview
 
 Infosys Limited (''Infosys'' or ''the Company'') along with its controlled
 trust, Infosys Science Foundation, majority-owned and controlled
 subsidiary, Infosys BPO Limited and its controlled subsidiaries
 (''Infosys BPO'') and wholly-owned and controlled subsidiaries, Infosys
 Technologies Australia Pty. Limited (''Infosys Australia''), Infosys
 Technologies (China) Co. Limited (''Infosys China''), Infosys
 Technologies S. de R. L. de C. V. (''Infosys Mexico''), Infosys
 Technologies (Sweden) AB (''Infosys Sweden''), Infosys Tecnologia do
 Brasil Ltda (''Infosys Brasil''), Infosys Public Services, Inc. (''Infosys
 Public Services''), Infosys Consulting India Limited, Infosys Americas,
 Inc. (''Infosys Americas''), Edgeverve Systems Limited (''Edgeverve''),
 Infosys Technologies (Shanghai) Co. Limited (''Infosys Shanghai'') and
 Lodestone Holding AG and its controlled subsidiaries (''Infosys
 Lodestone'') is a leading global services corporation. The Company
 provides business consulting, technology, engineering and outsourcing
 services to help clients build tomorrow''s enterprise. In addition, the
 Company offers software products and platforms.
 
 2 Notes to accounts for the year ended March 31, 2014
 
 Amounts in the financial statements are presented in Rs. crore, except
 for per share data and as otherwise stated. All exact amounts are
 stated with the suffix ''/-''. One crore equals 10 million.
 
 The previous period figures have been regrouped / reclassified,
 wherever necessary to conform to the current period presentation.
 
 The Company has only one class of shares referred to as equity shares
 having a par value of Rs. 5/-. Each holder of equity shares is entitled
 to one vote per share.
 
 The Company declares and pays dividends in Indian rupees.  The dividend
 proposed by the Board of Directors is subject to the approval of the
 shareholders in the ensuing Annual General Meeting.
 
 During the year ended March 31, 2013, the amount of per share dividend
 recognized as distributions to equity shareholders was Rs. 42/-.  The
 dividend for the year ended March 31, 2013 includes Rs. 27/- per share of
 final dividend. The total dividend appropriation amounted to Rs. 2,815
 crore including corporate dividend tax of Rs. 403 crore.
 
 The Board of Directors, in their meeting on October 11, 2013 declared
 an interim dividend of Rs. 20/- per equity share.
 
 Further the Board of directors, in their meeting on April 15, 2014
 proposed a final dividend of Rs. 43/- per equity share. The proposal is
 subject to the approval of shareholders at the Annual General Meeting
 to be held on June 14, 2014. The total dividend appropriation for the
 year ended March 31, 2014 amounted to Rs. 4,233 crore including corporate
 dividend tax of Rs. 615 crore.
 
 In the event of liquidation of the Company, the holders of equity
 shares will be entitled to receive any of the remaining assets of the
 Company, after distribution of all preferential amounts. However, no
 such preferential amounts exist currently. The distribution will be in
 proportion to the number of equity shares held by the shareholders.
 
 Stock option plans
 
 The Company had two Stock Option Plans.
 
 1998 Stock Option Plan (''the 1998 Plan'')
 
 The 1998 Plan was approved by the Board of Directors in December 1997
 and by the shareholders in January 1998, and is for issue of
 1,17,60,000 ADSs representing 1,17,60,000 equity shares. All options
 under the 1998 Plan are exercisable for ADSs representing equity
 shares. The 1998 Plan is administered by a compensation committee (now
 known as the management development and compensation committee), all of
 whom are independent members of the Board of Directors and through the
 Infosys Limited Employees'' Welfare Trust (the Trust). All options had
 been granted at 100% of fair market value.  The 1998 Plan lapsed on
 January 6, 2008, and consequently no further shares will be issued to
 employees under this plan.
 
 1999 Stock Option Plan (''the 1999 Plan'')
 
 In fiscal year 2000, the Company instituted the 1999 Plan.  The
 shareholders and the Board of Directors approved the plan in September
 1999, which provides for the issue of 5,28,00,000 equity shares to the
 employees. The 1999 Plan is administered by a compensation committee
 (now known as the management development and compensation committee),
 all of whom are independent members of the Board of Directors and
 through the Trust.  Options were issued to employees at an exercise
 price that is not less than the fair market value. The 1999 Plan lapsed
 on September 11, 2009, and consequently no further shares will be
 issued to employees under this plan.
 
 There were no share options outstanding and exercisable as of March 31,
 2014 and March 31, 2013.
 
 The weighted average share price of options exercised under the 1999
 Plan during the year ended March 31, 2013 was Rs. 2,374/-
 
 Deferred tax assets and deferred tax liabilities have been offset
 wherever the Company has a legally enforceable right to set off current
 tax assets against current tax liabilities and where the deferred tax
 assets and deferred tax liabilities relate to income taxes levied by
 the same taxation authority.
 
 As at March 31, 2014 and March 31, 2013, the Company has provided for
 branch profit tax of Rs. 303 crore and Rs. 315 crore, respectively, for its
 overseas branches, as the Company estimates that these branch profits
 would be distributed in the foreseeable future. The change in provision
 for branch profit tax includes Rs. 35 crore movement on account of
 exchange rate during the year ended March 31, 2014.
 
 Profit on disposal of fixed assets during the year ended March 31, 2014
 is Rs. 1 crore (less than Rs. 1 crore for the year ended March 31, 2013).
 
 The Company has entered into lease-cum-sale agreements to acquire
 certain properties. In accordance with the terms of some of these
 agreements, the Company has the option to purchase the properties on
 expiry of the lease period. The Company has already paid 99% of the
 value of the properties at the time of entering into the lease-cum-sale
 agreements with the balance payable at the time of purchase. These
 amounts are disclosed as ''Land – leasehold'' under ''Tangible assets'' in
 the financial statements
 
 The aggregate depreciation charged on the above assets during the year
 ended March 31, 2014 amounted to Rs. 3 crore (Rs. 4 crore for the year
 ended March 31, 2013).
 
 The rental income from Infosys BPO for the year ended March 31, 2014
 amounted to Rs. 17 crore (Rs. 17 crore for the year ended March 31, 2013).
 
 3. Leases
 
 Obligations on long-term, non-cancelable operating leases
 
 The operating lease arrangements, are renewable on a periodic basis and
 for most of the leases extend up to a maximum of ten years from their
 respective dates of inception and relates to rented premises.  Some of
 these lease agreements have price escalation clauses.
 
 4. Investment in Lodestone Holding AG
 
 On October 22, 2012, Infosys acquired 100% of the outstanding share
 capital of Lodestone Holding AG, a global management consultancy firm
 headquartered in Zurich, Switzerland. The acquisition was executed
 through a share purchase agreement for an upfront cash consideration of
 Rs. 1,187 crore and a deferred consideration of up to Rs. 608 crore.
 
 The deferred consideration is payable to the selling shareholders of
 Lodestone on the third anniversary of the acquisition date and is
 contingent upon their continued employment for a period of three years.
 The investment in Lodestone has been recorded at the acquisition cost
 and the deferred consideration is being recognized on a proportionate
 basis over a period of three years from the date of acquisition. An
 amount of Rs. 228 crore and Rs. 85 crore representing the proportionate
 charge of the deferred consideration has been recognized as an expense
 during the years ended March 31, 2014 and March 31, 2013 respectively.
 
 5. Investment in Edgeverve Systems Limited
 
 On February 14, 2014, Infosys incorporated a wholly-owned subsidiary
 called Edgeverve Systems Limited (Edgeverve). Edgeverve would focus on
 developing and selling products and platforms. On April 15, 2014, the
 Board of Directors of Infosys has authorized the Company to execute a
 Business Transfer Agreement and related documents with Edgeverve,
 subject to securing the requisite approval from shareholders in the
 ensuing Annual General Meeting scheduled on June 14, 2014.
 
 Provision for doubtful debts
 
 Periodically, the Company evaluates all customer dues to the Company
 for collectability. The need for provisions is assessed based on
 various factors including collectability of specific dues, risk
 perceptions of the industry in which the customer operates, general
 economic factors, which could affect the customer''s ability to settle.
 The Company normally provides for debtor dues outstanding for six
 months or longer from the invoice date, as at the Balance Sheet date.
 The Company pursues the recovery of the dues, in part or full.
 
 6. Cash and cash equivalents
 
 Cash and cash equivalents as of March 31, 2014 and March 31, 2013
 include restricted cash and bank balances of Rs. 203 crore and Rs. 192
 crore, respectively. The restrictions are primarily on account of cash
 and bank balances held as margin money deposits against guarantees and
 unclaimed dividends.
 
 Income taxes
 
 The provision for taxation includes tax liabilities in India on the
 Company''s global income as reduced by exempt incomes and any tax
 liabilities arising overseas on income sourced from those countries.
 Infosys'' operations are conducted through Software Technology Parks
 (''STPs'') and Special Economic Zones (''SEZs''). Income from STPs were tax
 exempt for the earlier of 10 years commencing from the fiscal year in
 which the unit commences software development, or March 31, 2011.
 Income from SEZs is fully tax exempt for the first five years, 50%
 exempt for the next five years and 50% exempt for another five years
 subject to fulfilling certain conditions.
 
 7. Contingent liabilities and commitments (To the extent not provided
 for)
 
                                                 in Rs. crore
 
 Particulars                     As at March 31,
                                 2014                      2013
 
 Contingent liabilities
 
 Outstanding guarantees and 
 counter guarantees to various 
 banks, in respect of the 
 guarantees given by those 
 banks in favor of various
 government authorities and 
 others                                        24                   19
 
 Claims against the Company, 
 not acknowledged as debts (1)                169                  535
 [Net of amount paid to 
 statutory authorities Rs. 
 1,716 crore (Rs. 1,114 crore)]
 
 Commitments
 
 Estimated amount of 
 unexecuted capital contracts
 (net of advances and deposits)               827                1,139
 
                                 in million  in Rs. 
                                             crore    in million in Rs.
                                                                 crore
 
 Forward contracts outstanding
 
 In USD                               724     4,338      814     4,419
 
 In Euro                               49       405       50       348
 
 In GBP                                73       732       55       453
 
 In AUD                                75       415       70       396
 
 Option outstanding
 
 In USD                                20       120       -         -
 
                                              6,010               5,616
 
 (1) Claims against the Company not acknowledged as debts include
 demands from the Indian Income tax authorities for payment of
 additional tax of Rs. 1,548 crore (Rs. 1,088 crore), including interest of
 Rs. 430 crore (Rs. 313 crore) upon completion of their tax review for
 fiscal years 2006, 2007, 2008 and 2009. These income tax demands are
 mainly on account of disallowance of a portion of the deduction claimed
 by the Company under Section 10A of the Income Tax Act. The deductible
 amount is determined by the ratio of export turnover to total turnover.
 The disallowance arose from certain expenses incurred in foreign
 currency being reduced from export turnover but not reduced from total
 turnover. The tax demand for fiscal years 2007, 2008 and 2009 also
 includes disallowance of portion of profit earned outside India from
 the STP units and disallowance of profits earned from SEZ units. The
 matter for fiscal years 2006, 2007, 2008 and 2009 are pending before
 the Commissioner of Income tax (Appeals), Bangalore. The company is
 contesting the demand and the Management including its tax advisors
 believes that its position will likely be upheld in the appellate
 process. The Management believes that the ultimate outcome of these
 proceedings will not have a material adverse effect on the Company''s
 financial position and results of operations.
 
 As of the Balance Sheet date, the Company''s net foreign currency
 exposures that are not hedged by a derivative instrument or otherwise
 is Nil (Rs. 1,189 crore as at March 31, 2013).
 
 The foreign exchange forward and options contracts mature within 12
 months. The table below analyzes the derivative financial instruments
 into relevant maturity groupings based on the remaining period as of
 the Balance Sheet date :
 
 The Company recognized a gain on derivative financial instruments of Rs.
 217 crore and Rs. 68 crore during the years ended March 31, 2014 and
 March 31, 2013, respectively, which is included in other income.
 
 8. Quantitative details
 
 The Company is primarily engaged in the development and maintenance of
 computer software. The production and sale of such software cannot be
 expressed in any generic unit. Hence, it is not possible to give the
 quantitative details of sales and certain information as required under
 paragraphs 5 (viii)(c) of general instructions for preparation of the
 Statement of Profit and Loss as per revised Schedule VI to the
 Companies Act, 1956.
 
 9. Dividends remitted in foreign currencies
 
 The Company remits the equivalent of the dividends payable to equity
 shareholders and holders of ADS. For ADS holders the dividend is
 remitted in Indian rupees to the depository bank, which is the
 registered shareholder on record for all owners of the Company''s ADSs.
 The depository bank purchases the foreign currencies and remits
 dividends to the ADS holders.
 
 10. Merger of Infosys Consulting India Limited
 
 The Honorable High Court of Karnataka sanctioned the scheme of
 amalgamation of Infosys Consulting India Limited (ICIL) with Infosys
 Limited with an effective date of August 23, 2013 and an appointed date
 of January 12, 2012. ICIL was a wholly-owned subsidiary of Infosys
 Limited and was engaged in software-related consultancy services. The
 merger of ICIL into Infosys Limited has been accounted for under
 pooling of interest method referred to in Accounting Standard 14,
 Accounting for Amalgamation (AS-14).
 
 All the assets and liabilities of ICIL on and after the appointed date
 and prior to the effective date have been transferred to Infosys
 Limited on a going concern basis. As ICIL was a wholly-owned subsidiary
 of Infosys Limited, no shares have been allotted to the shareholders
 upon the scheme becoming effective.
 
 11. Segment reporting
 
 The Company''s operations predominantly relate to providing end-to-end
 business solutions to enable clients to enhance business performance.
 Effective quarter ended March 31, 2014, the Company reorganized its
 business to strengthen its focus on growing existing client
 relationships and increasing market share through service
 differentiation and operational agility. Consequent to the internal
 reorganization there were changes effected in the reportable industry
 segments based on the ''management approach'' as laid down in AS 17,
 Segment reporting and an additional segment, Life Sciences and
 Healthcare was identified. The Chief Executive Officer evaluates the
 Company''s performance and allocates resources based on an analysis of
 various performance indicators by industry classes and geographic
 segmentation of customers. Accordingly, segment information has been
 presented both along industry classes and geographic segmentation of
 customers, industry being the primary segment. The accounting
 principles used in the preparation of the financial statements are
 consistently applied to record revenue and expenditure in individual
 segments, and are as set out in the significant accounting policies.
 
 Industry segments for the Company are primarily enterprises in
 Financial Services and Insurance (FSI), enterprises in Manufacturing
 (MFG), enterprises in the Energy and utilities, Communication and
 Services (ECS) and enterprises in Retail, Consumer packaged goods and
 Logistics (RCL), enterprises in Life Sciences and Healthcare (LSH).
 Geographic segmentation is based on business sourced from that
 geographic region and delivered from both on-site and off-shore.  North
 America comprises the United States of America, Canada and Mexico;
 Europe includes continental Europe (both the east and the west),
 Ireland and the United Kingdom; and the Rest of the World comprising
 all other places except those mentioned above and India.  Consequent to
 the above change in the composition of reportable industry segments,
 the prior year comparatives have been restated.
 
 Revenue and identifiable operating expenses in relation to segments are
 categorized based on items that are individually identifiable to that
 segment. Allocated expenses of segments include expenses incurred for
 rendering services from the Company''s offshore software development
 centers and on-site expenses, which are categorized in relation to the
 associated turnover of the segment. Certain expenses such as
 depreciation, which form a significant component of total expenses, are
 not specifically allocable to specific segments as the underlying
 assets are used interchangeably. Management believes that it is not
 practical to provide segment disclosures relating to those costs and
 expenses, and accordingly these expenses are separately disclosed as
 ''unallocated'' and adjusted against the total income of the Company.
 
 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.
 Accordingly, no disclosure relating to total segment assets and
 liabilities are made. Geographical information on revenue and industry
 revenue information is collated based on individual customers invoiced
 or in relation to which the revenue is otherwise recognized.
 
 During the year ended March 31, 2010, a reimbursement obligation of Rs. 2
 crore has been recognized towards settlement of gratuity liability of
 Infosys Consulting India Limited (ICIL). This has been offset pursuant
 to transfer of all assets and liabilities of ICIL on account of merger.
 
 As at March 31, 2014 and March 31, 2013, the plan assets have been
 primarily invested in government securities. The estimates of future
 salary increases, considered in actuarial valuation, take account of
 inflation, seniority, promotion and other relevant factors such as
 supply and demand factors in the employment market. The Company expects
 to contribute Rs. 110 crore to the gratuity trust during the fiscal year
 2015.
 
 Effective July 1, 2007, the Company revised the employee death benefits
 provided under the gratuity plan, and included all eligible employees
 under a consolidated term insurance cover. Accordingly, the obligations
 under the gratuity plan reduced by Rs. 37 crore, which is being amortized
 on a straight line basis to the Statement of Profit and Loss over 10
 years representing the average future service period of the employees.
 The unamortized liability as at March 31, 2014 and March 31, 2013
 amounts to Rs. 11 crore and Rs. 15 crore, respectively and disclosed under
 ''Other long-term liabilities'' and ''other current liabilities''.
 
 The Company has aligned the gratuity entitlement for majority of its
 employees prospectively to the Payment of Gratuity Act, 1972.  This
 amendment has resulted in a curtailment gain of Rs. 69 crore for the year
 ended March 31, 2013 which has been recognized in the Statement of
 Profit and Loss for the year ended March 31, 2013.
 
 12. Provident fund
 
 The Company contributed Rs. 262 crore towards provident fund during the
 year ended March 31, 2014 (Rs. 240 crore during the year ended March 31,
 2013).
 
 The Guidance on Implementing AS 15, Employee Benefits (revised 2005)
 issued by Accounting Standards Board (ASB) states that benefits
 involving employer established provident funds, which require interest
 shortfalls to be recompensed are to be considered as defined benefit
 plans. The Actuarial Society of India has issued the final guidance for
 measurement of provident fund liabilities during the quarter ended
 December 31, 2011. The actuary has accordingly provided a valuation and
 based on the below provided assumptions there is no shortfall as at
 March 31, 2014, March 31, 2013, March 31, 2012, March 31, 2011 and
 March 31, 2010.
 
 13. Superannuation
 
 The Company contributed Rs. 202 crore to the superannuation trust during
 the year ended March 31, 2014, (Rs. 176 crore during the year ended March
 31, 2013).
 
 14. Restricted deposits
 
 Restricted deposits as at March 31, 2014 include Rs. 977 crore (Rs. 724
 crore as at March 31, 2013) deposited with financial institutions to
 settle employee-related obligations as and when they arise during the
 normal course of business.
 
 15. Dues to micro small and medium enterprises
 
 As at March 31, 2014, Rs. 1 crore is outstanding to micro and small
 enterprises. There are no interests due or outstanding on the same.
 The Company has no dues to micro and small enterprises during the
 quarter and year ended March 31, 2013.
 
 16. Litigation
 
 On May 23, 2011, the Company received a subpoena from a grand jury in
 the United States District Court for the Eastern District of Texas.
 The subpoena required that the Company provide to the grand jury
 certain documents and records related to its sponsorships for, and uses
 of, B1 business visas. The Company complied with the subpoena.  In
 connection with the subpoena, during a meeting with the United States
 Attorney''s Office for the Eastern District of Texas, the Company was
 advised that it and certain of its employees are targets of the grand
 jury investigation.
 
 In addition, the U.S. Department of Homeland Security (''DHS'') reviewed
 the Company''s employer eligibility verifications on Form I-9 with
 respect to its employees working in the United States.  In connection
 with this review, the Company was advised that the DHS has found errors
 in a significant percentage of its Forms I-9 that the DHS has reviewed,
 and may impose fines and penalties on the Company related to such
 alleged errors.
 
 On October 30, 2013, the Company settled the foregoing matters and
 entered into a Settlement Agreement (''Settlement Agreement'') with the
 U.S. Attorney, the DHS and the United States Department of State
 (''State'', and collectively with the U.S. Attorney and the DHS, the
 United States'').
 
 In the Settlement Agreement, the Company denied and disputed all
 allegations made by the United States, except for the allegation that
 the Company failed to maintain accurate Forms I-9 records for many of
 its foreign nationals in the United States in 2010 and 2011 as required
 by law, and that such failure constituted civil violations of certain
 laws.
 
 Under the Settlement Agreement, the Company agreed, among other things,
 that :
 
 - The company will pay to the United States an aggregate amount equal
 to -213 crore;
 
 - The Company will retain, for a period of two years from the date of
 the Settlement Agreement, an independent third-party auditor or
 auditing firm at its expense which will annually review and report on
 its Forms I-9 compliance, which reports shall be submitted to the U.S.
 Attorney; and Within 60 days after the first anniversary of the
 Settlement Agreement, the Company will furnish a report to the U.S.
 Attorney concerning the Company''s compliance with its internal B-1 visa
 use policies, standards of conduct, internal controls and disciplinary
 procedures.  In return, the United States agreed, among other things,
 that :
 
 - The United States will file a motion to dismiss with prejudice the
 complaint it will file in the United States District Court for the
 Eastern District of Texas relating to allegations made by the United
 States regarding the Company''s compliance with laws regulating H1-B and
 B-1 visas and Forms I-9 (the ''Alleged Conduct'');
 
 - The United States will not use the Alleged Conduct to revoke any
 existing visas or petitions or deny future visas or petitions for the
 Company''s foreign nationals, and will evaluate each visa or petition on
 its own individual merits;
 
 - The United States will not use the Alleged Conduct to debar or
 suspend the Company from any B-1 or H1-B immigration program, and the
 United States will not make any referrals to any government agencies
 for such debarment or suspension proceedings related to the Alleged
 Conduct; and
 
 - The United States will release the Company and each of its current
 and former employees, directors, officers, agents and contractors from
 any civil, administrative or criminal claims the United States has or
 may have arising out of or pertaining to the Alleged Conduct, subject
 to certain exceptions specified in the Settlement Agreement.
 
 Further, separate from, but related to the Settlement Agreement, U.S.
 Immigration and Customs Enforcement has confirmed that it will not
 impose debarment from any B-1 or H1-B immigration program on the
 Company related to the Alleged Conduct.
 
 The Company recorded a charge related to the Settlement Agreement
 including legal costs of Rs. 219 crore in the year ended March 31, 2014
 related to the matters that were the subject of the Settlement
 Agreement. The said amounts were paid prior to December 31, 2013.
 
 In addition, the Company is subject to legal proceedings and claims,
 which have arisen in the ordinary course of business. The Management
 does not reasonably expect that these legal actions, when ultimately
 concluded and determined, will have a material and adverse effect on
 the Company''s results of operations or financial condition.
 
 17. Exceptional item
 
 During the year ended March 31, 2013, the Company received dividend of
 Rs. 83 crore from its wholly-owned subsidiary Infosys Australia. The tax
 on such dividend is Rs. 14 crore.
Source : Dion Global Solutions Limited
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