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Infosys

BSE: 500209|NSE: INFY|ISIN: INE009A01021|SECTOR: Computers - Software
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Notes to Accounts Year End : Mar '17

1.1 First-time adoption of Ind AS

These standalone financial statements of Infosys Limited for the year ended March 31, 2017 have been prepared in accordance with Ind AS. For the purposes of transition to Ind AS, the Company has followed the guidance prescribed in Ind AS 101, First-Time Adoption of Indian Accounting Standards, with April 1, 2015 as the transition date and IGAAP as the previous GAAP.

The transition to Ind AS has resulted in changes in the presentation of the financial statements, disclosures in the notes thereto and accounting policies and principles. The accounting policies set out in Note 1 have been applied in preparing the standalone financial statements for the year ended March 31, 2017 and the comparative information. An explanation of how the transition from previous GAAP to Ind AS has affected the Company’s Balance Sheet and Statement of Profit and Loss, is set out in Notes 2.2 and 2.2.2. Exemptions on the first-time adoption of Ind AS availed in accordance with Ind AS 101 have been set out in Note 2.1.1.

2.1.1 Exemptions availed on first-time adoption of Ind AS 101

Ind AS 101 allows first-time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has accordingly applied the following exemptions.

(a) Share-based payment

The Company is allowed to apply Ind AS 102, Share-Based Payment, to equity instruments that remain unvested as of transition date. The Company has elected to avail itself of this exemption and apply the requirements of Ind AS 102 to all such grants under the 2015 Plan (formerly ‘the 2011 Plan’). Accordingly, these options have been measured at fair value as against intrinsic value previously under IGAAP The excess of stock compensation expense measured using fair value over the cost recognized under IGAAP using intrinsic value has been adjusted in ‘Share Option Outstanding Account’, with the corresponding impact taken to the retained earnings as on the transition date.

(b) Designation of previously recognized financial instruments Under Ind AS 109, at initial recognition of a financial asset, an entity may make an irrevocable election to present subsequent changes in the fair value of an investment in an equity instrument in other comprehensive income. Ind AS 101 allows such designation of previously recognized financial assets, as ‘fair value through other comprehensive income’ on the basis of the facts and circumstances that existed at the date of transition to Ind AS.

Accordingly, the Company has designated its investments in certain equity instruments at fair value through other comprehensive income on the basis of the facts and circumstances that existed at the date of transition to Ind AS.

2.2 Reconciliations

The following reconciliations provide the effect of transition to Ind AS from IGAAP in accordance with Ind AS 101 :

1. Equity as at April 1, 2015 and March 31, 2016

2. Net profit for the year ended March 31, 2016

Explanations for reconciliation of Balance Sheet as previously reported under IGAAP to Ind AS :

A. Investment

a) Tax-free bonds are carried at amortized cost under Ind AS and IGAAP. Investment in equity instruments are carried at fair value through OCI in Ind AS, as compared to being carried at cost under IGAAP

b) Investments include discounted value of contingent consideration payable on acquisition of business under Ind AS, as compared to undiscounted value of contingent consideration under IGAAP

B. Other financial liabilities

Adjustments include the impact of discounting the deferred and contingent consideration payable for acquisitions under Ind AS.

C. Other liabilities

Adjustments reflect unamortized negative past service cost arising on modification of the gratuity plan in an earlier

period. Ind AS 19 requires such gains and losses to be

adjusted to retained earnings.

D. Provisions

Adjustments reflect dividend (including corporate dividend

tax), declared and approved post reporting period.

E. Other equity

a) Adjustments to retained earnings and other comprehensive income have been made in accordance with Ind AS for the above-mentioned line items.

b) In addition, as per Ind AS 19, actuarial gains and losses are recognized in other comprehensive income as compared to being recognized in the Statement of Profit and Loss under IGAAP

c) Profit on transfer of business between entities under common control, which were earlier recognized in Statement of Profit and Loss under IGAAP, are adjusted to reserves on transition to Ind AS.

Explanations for reconciliation of Statement of Profit and loss as previously reported under IGAAP to Ind AS :

F. Employee benefit expenses

a) As per Ind AS 19, Employee Benefits, actuarial gains and losses are recognized in other comprehensive income and not reclassified to profit and loss in a subsequent period.

b) Adjustments reflect unamortized negative past service cost arising on modification of the gratuity plan in an earlier period. Ind AS 19 requires such gains and losses to be adjusted to retained earnings.

G. Deferred and contingent consideration pertaining to acquisition

Adjustments reflect impact of discounting pertaining to deferred consideration and contingent consideration payable for business combinations.

H. Reversal of exceptional item

Profit on transfer of business between entities under common control has been reversed and taken to business transfer reserve on account of transition to Ind AS.

I. Current tax

The tax component on actuarial gains and losses which are transferred to other comprehensive income under Ind AS.

2.2.3 Cash flow statement

There were no significant reconciliation items between cash flows prepared under Indian GAAP and those prepared under Ind AS.

Gross carrying value of leasehold land represents amounts paid under certain lease-cum-sale agreements to acquire land including agreements where the Company has an option to purchase or renew the properties on expiry of the lease period.

The aggregate depreciation has been included under depreciation and amortization expense in the Statement of Profit and Loss.

Tangible assets provided on operating lease to subsidiaries as at March 31, 2017 and March 31, 2016 are as follows :

The aggregate depreciation charged on the above assets during the years ended March 31, 2017 and March 31, 2016 amounted to '' 19 crore each.

The rental income from subsidiaries for the years ended March 31, 2017 and March 31, 2016 amounted to Rs, 65 crore and Rs, 51 crore, respectively.

Research and development expense recognized in net profit in the Statement of Profit and Loss for the years ended March 31, 2017 and March 31, 2016 is Rs, 351 crore and Rs, 384 crore, respectively

2.3 Investment in Noah Consulting LLC

On November 16, 2015, Infosys acquired 100% membership interest in Noah Consulting, LLC (Noah), a leading provider of advanced information management consulting services for the oil and gas industry. The business acquisition was conducted by entering into a share purchase agreement for cash consideration of US million (approximately Rs, 216 crore), contingent consideration up to US million (approximately Rs, 33 crore on acquisition date) and retention bonus up to US million (approximately Rs, 212 crore on acquisition date). The payment of contingent consideration to the sellers of Noah was dependent upon the achievement of certain financial targets by Noah for the years ended December 31, 2015 and December 31, 2016. During the year ended March 31, 2016, based on the assessment of Noah achieving the targets for the respective periods, the entire contingent consideration was reversed.

2.4 Investment in Kallidus Inc. and Skava Systems Pvt. Ltd.

On June 2, 2015, Infosys acquired 100% of the voting interests in Kallidus Inc. (d.b.a Skava) (Kallidus), a leading provider of digital experience solutions, including mobile commerce and in-store shopping experiences to large retail clients and 100% of the voting interests of Skava Systems Private Limited, India, an affiliate of Kallidus. The business acquisition was conducted by entering into a share purchase agreement for a cash consideration of US million (approximately Rs, 578 crore) and a contingent consideration of up to US $ 20 million (approximately Rs, 128 crore on acquisition date), the payment of which is dependent upon the achievement of certain financial targets by Kallidus over a period of three years ending on December 31, 2017. During the year ended March 31, 2017, a contingent consideration of Rs, 40 crore was paid to the sellers of Kallidus on the achievement of certain financial targets.

2.5 Investment in EdgeVerve Systems Limited

On February 14, 2014, a wholly-owned subsidiary EdgeVerve Systems Limited (‘EdgeVerve’) was incorporated. EdgeVerve was created to focus on developing and selling products and platforms. The Company has undertaken an enterprise valuation by an independent valuer and accordingly. the business has been transferred for a consideration of Rs, 421 crore with effect from July 1, 2014. Net assets amounting to Rs, 9 crore were transferred and accordingly a gain of Rs, 412 crore was recorded as an exceptional item under previous GAAP. On adoption of Ind AS, the same has been reversed from retained earnings and transferred to ‘Business Transfer Adjustment Reserve’, in accordance with Ind AS 103, which requires common control transactions to be recorded at book values. The consideration has been settled through the issue of fully-paid-up equity shares in EdgeVerve.

On April 24, 2015, the Board of Directors of Infosys authorized the Company to execute a Business Transfer Agreement and related documents with EdgeVerve, to transfer the business of Finacle and Edge Services. Post the requisite approval from shareholders through a postal ballot on June 4, 2015, a Business Transfer Agreement and other related documents were executed with EdgeVerve to transfer the business with effect from August 1, 2015. The Company has undertaken an enterprise valuation by an independent valuer and accordingly. the businesses were transferred for a consideration of Rs, 3,222 crore and Rs, 177 crore for Finacle and Edge Services, respectively. Net assets amounting to Rs, 363 crore, (including working capital amounting to Rs, 337 crore) were transferred and accordingly, a gain of Rs, 3,036 crore had been recorded as an exceptional item under previous GAAP. On adoption of Ind AS, the same has been recorded in business transfer adjustment reserve, in accordance with Ind AS 103, which requires common control transactions to be recorded at book values.

The consideration was settled through the issue of 85.00.00.000 equity shares amounting to Rs,850 crore and 25.49.00.000 non-convertible redeemable debentures amounting to Rs, 2,549 crore in EdgeVerve, post the requisite approval from shareholders on December 11, 2015. During the year ended March 31, 2017, EdgeVerve had repaid Rs, 420 crore by redeeming proportionate number of debentures.

2.6 Investment in Infosys Consulting Holding AG (Formerly Lodestone Holding AG)

On October 22, 2012, Infosys acquired 100% of the outstanding share capital of Infosys Consulting 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 was payable to the selling shareholders of Lodestone on the third anniversary of the acquisition date and was contingent upon their continued employment for a period of three years. The investment in Lodestone was recorded at the acquisition cost and the deferred consideration was being recognized on a proportionate basis over a period of three years from the date of acquisition. During the year ended March 31, 2016, the liability towards deferred consideration was settled.

A one percentage point change in the unobservable inputs used in fair valuation of Level 3 assets and liabilities does not have a significant impact in its value.

The movement in contingent consideration as of March 31, 2017 from March 31, 2016 is on account of settlement of contingent consideration of Rs, 40 crore and change in discount rates and passage of time.

The movement in Level 3 investments from fiscal 2016 to fiscal 2017 is on account of purchase of additional investments during the year and change in fair value.

The fair value of liquid mutual funds is based on quoted price. The fair value of tax-free bonds and government bonds is based on quoted prices and market observable inputs. The fair value of non-convertible debentures is based on quoted prices and market observable inputs. The fair value of fixed maturity plan securities and certificates of deposit is based on market observable inputs. Derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the marketplace.

The amount invested and fair value of unquoted equity and preference securities of March 31, 2017 is Rs, 134 crore and Rs, 132 crore, respectively. The fair value is determined using Level 3 inputs like Discounted cash flows, Market multiple method, Option pricing model, etc.

Financial risk management

Financial risk factors : The Company’s activities expose it to a variety of financial risks : market risk, credit risk and liquidity risk. The Company’s focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. The Company’s exposure to credit risk is influenced mainly by the individual characteristic of each customer and the concentration of risk from the top few customers.

Market risk

The Company operates internationally and a major portion of the business is transacted in several currencies. Consequently, the Company is exposed to foreign exchange risk through its sales and services in the United States and elsewhere, and purchases from overseas suppliers in various foreign currencies. The Company holds derivative financial instruments such as foreign exchange forward and options contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The exchange rate between the rupee and foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. Consequently, the results of the Company’s operations are adversely affected as the rupee appreciates / depreciates against these currencies.

For each of the years ended March 31, 2017 and March 31, 2016, every percentage point depreciation / appreciation in the exchange rate between the Indian rupee and US dollar, has affected the Company’s incremental operating margins by approximately 0.52%.

Sensitivity analysis is computed based on the changes in the income and expenses in foreign currency upon conversion into functional currency, due to exchange rate fluctuations between the previous reporting period and the current reporting period.

Derivative financial instruments

The Company holds derivative financial instruments such as foreign currency forward and options contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank or a financial institution. These derivative financial instruments are valued based on quoted prices for similar assets and liabilities in active markets or inputs that are directly or indirectly observable in the marketplace.

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 :

During the year ended March 31, 2017, the Company has designated certain foreign exchange forward contracts as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions. The related hedge transactions for balance in cash flow hedging reserve are expected to occur and reclassified to revenue in the Statement of Profit and Loss within three months.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument, including whether the hedging instrument is expected to offset changes in cash flows of hedged items.

If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in profit or loss at the time of the hedge relationship rebalancing.

The Company offsets a financial asset and a financial liability when it currently has a legally enforceable right to set off the recognized amounts and the Company intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Credit risk

Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial loss. The maximum exposure to the credit risk at the reporting date is primarily from trade receivables amounting to Rs, 10,960 crore and Rs, 9,798 crore as of March 31, 2017 and March 31, 2016, respectively and unbilled revenue amounting to Rs, 3,200 crore and Rs, 2,673 crore as of March 31, 2017 and March 31, 2016, respectively. Trade receivables and unbilled revenue are typically unsecured and are derived from revenue earned from customers primarily located in the United States. Credit risk has always been managed by the Group through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Group grants credit terms in the normal course of business. On account of the adoption of Ind AS 109, the Group uses ECL model to assess the impairment loss or gain. The Group uses a provision matrix to compute the ECL allowance for trade receivables and unbilled revenues. The provision matrix takes into account available external and internal credit risk factors such as credit default swap quotes, credit ratings from international credit rating agencies and the Group’s historical experience for customers.

Credit risk exposure

The allowance for lifetime ECL on customer balances for the year ended March 31, 2017 was Rs, 135 crore. The reversal for lifetime ECL on customer balances for the year ended March 31, 2016 was Rs, 48 crore.

Credit risk on cash and cash equivalents is limited as we generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies. Investments primarily include investment in liquid mutual fund units, quoted bonds issued by government and quasi-government organizations, non-convertible debentures issued by government-aided institutions and certificates of deposit which are marketable securities of banks and eligible financial institutions for a specified time period with high credit rating given by domestic credit rating agencies.

Liquidity risk

The Company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated

(1) Refer to Note 2.23 for details of basic and diluted shares.

(2) Represents number of shares as of March 31, 2016

The authorized equity shares were 1,20,00,00,000 and the issued, subscribed and paid-up shares were 1,14,84,72,332 as of April 1, 2015. Forfeited shares amounted to Rs, 1,500 (Rs, 1,500).

from operations. The Company has no outstanding bank borrowings. The Company believes that the working capital is sufficient to meet its current requirements.

As of March 31, 2017, the Company had a working capital of Rs, 35,896 crore including cash and cash equivalents of Rs, 19,153 crore and current investments of Rs, 9,643 crore. As of March 31, 2016, the Company had a working capital of Rs, 34,509 crore including cash and cash equivalents of Rs, 29,176 crore and current investments of Rs, 2 crore.

As of March 31, 2017 and March 31, 2016, the outstanding compensated absences were Rs, 1,142 crore and Rs, 1,130 crore, respectively, which have been substantially funded. Accordingly, no liquidity risk is perceived.

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 equity shares represented by ADSs carry similar rights to voting and dividends as the other equity shares. Each ADS represents one underlying equity 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. The remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable distribution taxes.

In the period of five years immediately preceding March 31, 2017 :

- The Company has allotted 1,14,84,72,332 and 57,42,36,166 fully paid-up shares of face value Rs,5 each during the quarter ended June 30, 2015 and December 31, 2014, pursuant to bonus issue approved by the shareholders through a postal ballot. For both the bonus issues, a bonus share of one equity share for every equity share held, and a stock dividend of one ADS for every ADS held, respectively, has been allotted. Consequently, the ratio of equity shares underlying the ADSs held by an American Depositary Receipt (ADR) holder remains unchanged. Options granted under the restricted stock unit plan have been adjusted for bonus shares.

The Board has increased the dividend payout ratio from up to 40% to up to 50% of post-tax consolidated profits effective fiscal 2015.

The Board, in its meeting on April 15, 2016, recommended a final dividend of Rs, 14.25 per equity share and the same was approved by the shareholders at the Annual General Meeting held on June 18, 2016. This resulted in a cash outflow of Rs,3,939 crore including corporate dividend tax. (Refer to Note 2.2.1 for impact on transition to Ind AS)

The Board, in its meeting on October 14, 2016, declared an interim dividend of Rs, 11 per equity share, which resulted in a cash outflow of Rs, 3,041 crore, inclusive of corporate dividend tax.

The amount of per share dividend recognized as distributions to equity shareholders for the year ended March 31, 2015 includes final dividend of Rs, 29.50 per equity share

Employee Stock Option Plan (ESOP)

2015 Stock Incentive Compensation Plan (the 2015 Plan) : SEBI issued the Securities and Exchange Board of India (Share-based Employee Benefits) Regulations, 2014 (Rs,SEBI Regulations’) which replaced the SEBI ESOP Guidelines, 1999. The 2011 Plan (as explained below) was required to be amended and restated in accordance with the SEBI Regulations. Consequently, to effect this change and to further introduce stock options / ADRs and other stock incentives, the Company put forth the 2015 Stock Incentive Compensation Plan (‘the 2015 Plan’) for approval to the shareholders of the Company.

Pursuant to the approval by the shareholders through a postal ballot which ended on March 31, 2016, the Board of Directors has been authorized to introduce, offer, issue and allot share-based incentives to eligible employees of the Company and its subsidiaries under the 2015 Plan. The maximum number of shares under the 2015 Plan shall not exceed 2,40,38,883 equity shares (this includes 1,12,23,576 equity shares which were held by the trust towards the 2011 Plan as at March 31, 2016). 1,70,38,883 equity shares will be issued as RSUs at par value and 70,00,000 equity shares will be issued as stock options at market price. These instruments will vest over a period of four years and the Company expects (not adjusted for the June 17, 2015 bonus issue) and an interim dividend of '' 10 per equity share.

The Board, in its meeting on April 13, 2017, has recommended a final dividend of Rs, 14.75 per equity share for the financial year ended March 31, 2017. The proposal is subject to the approval of shareholders at the Annual General Meeting to be held on June 24, 2017 and, if approved, would result in a cash outflow of approximately Rs,4,078 crore including corporate dividend tax.

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 in proportion to the number of equity shares held by the shareholders, after distribution of all preferential amounts.

to grant the instruments under the 2015 Plan over a period of four to seven years.

On August 1, 2016, the Company granted 17,83,615 RSUs (including equity shares and equity shares represented by ADSs) at par value, to employees up to mid-management (excluding grants made to Dr. Vishal Sikka). Further, the Company granted 73,020 incentive units (cash-settled) to eligible employees. These instruments will vest equally over a period of four years and are subject to continued service. On November 1, 2016, the Company granted 9,70,375 RSUs (including equity shares and equity shares represented by ADSs) at par value, 12,05,850 employee stock options (ESOPs) (including equity shares and equity shares represented by ADSs) to be exercised at market price at the time of grant, to certain employees at the senior management level. Further, the Company granted 20,640 incentive units (cash-settled) to certain employees at the senior management level. These instruments will vest equally over a period of four years and are subject to continued service.

On February 1, 2017, the Company granted 18,550 incentive units (cash-settled) to certain employees at the senior management level. These instruments will vest equally over a period of four years and are subject to continued service.

As of March 31, 2017, 1,12,89,514 shares are held by the trust under the 2015 Plan, out of which 1,00,000 shares have been earmarked for welfare activities for employees. As of March 31, 2017, 1,06,845 incentive units were outstanding (net of forfeitures) and the carrying value of the cash liability is Rs, 3 crore.

Pursuant to the approval from the shareholders through a postal ballot on March 31, 2016, Dr. Vishal Sikka (CEO & MD) is eligible to receive under the 2015 Plan, an annual grant of RSUs of fair value US million which will vest over time, subject to continued service, and an annual grant of performance-based equity and stock options of US million subject to achievement of performance targets set by the Board or its committee, which will vest over time. US million of fair value in RSUs for fiscal 2017 was granted on August 1, 2016 amounting to 1,20,700 RSUs in equity shares represented by ADSs.

The Board, based on the recommendations of the nomination and remuneration committee, approved on April 13, 2017, performance-based equity and stock options for fiscal 2017 comprising RSUs amounting to US .9 million and ESOPs amounting to US {FILE_CONTENT}.96 million. Further, the Board also approved the annual time-based vesting grant for fiscal 2018 amounting to RSUs of US million. These RSUs and ESOPs will be granted w.e.f. May 2, 2017. Though the performance-based RSUs and stock options for fiscal 2017 and time-based RSUs for the remaining employment term have not been granted as of March 31, 2017, in accordance with Ind AS 102, Share-Based Payment, the Company has recorded employee stock-based compensation expense. The Company has recorded employee stock-based compensation expense of Rs, 28 crore and Rs, 7 crore during the years ended March 31, 2017 and March 31, 2016 respectively, towards CEO compensation.

The nomination and remuneration committee, in its meeting held on October 14, 2016, recommended a grant of 27,250 RSUs and 43,000 ESOPs to U. B. Pravin Rao, Chief Operating Officer (COO), under the 2015 Plan and the same was approved by the shareholders through a postal ballot on March 31, 2017. These RSUs and ESOPs will be granted w.e.f. May 2, 2017. These RSUs and stock options would vest over a period of four years and shall be exercisable within the period as approved by the committee. The exercise price of the RSUs will be equal to the par value of the shares and the exercise price of the stock options would be the market price as on the date of grant, as approved by the shareholders. Though these RSUs and ESOPs have not been granted as of March 31, 2017, in accordance with Ind AS 102, Share-Based Payment, the Company has recorded employee stock-based compensation expense for the same during the year ended March 31, 2017. 2011 RSU Plan (‘the 2011 Plan’) now called 2015 Stock Incentive Compensation Plan (‘the 2015 Plan’) : The Company had a 2011 RSU Plan which provided for the grant of RSUs to eligible employees of the Company. The Board of Directors recommended the establishment of the 2011 Plan to the shareholders on August 30, 2011 and the shareholders approved the recommendation of the Board of Directors on October 17, 2011 through a postal ballot. The maximum aggregate number of shares that may be awarded under the plan was 1,13,34,400 as on the date of approval of the plan adjusted for bonus shares, and the plan was expected to continue in effect for a term of 10 years from the date of initial grant under the plan. Awards have been granted to Dr. Vishal Sikka under the 2011 RSU plan as detailed below. Further, the Company has earmarked 1,00,000 equity shares for welfare activities of the employees, approved by the shareholders vide a postal ballot which ended on March 31, 2016. The equity shares as of March 31, 2016 held under this plan, i.e. 1,12,23,576 equity shares (this includes the aggregate number of equity shares that may be awarded under the 2011 Plan as reduced by 10,824 equity shares already exercised by Dr. Vishal Sikka and 1,00,000 equity shares which have been earmarked for welfare activities of the employees) have been subsumed under the 2015 Plan.

During the year ended March 31, 2015, the Company made a grant of 1,08,268 RSUs (adjusted for bonus issues) to Dr. Vishal Sikka, Chief Executive Officer and Managing Director. The Board in its meeting held on June 22, 2015, on recommendation of nomination and remuneration committee, further granted 1,24,061 RSUs to Dr. Vishal Sikka. These RSUs are vesting over a period of four years from the date of the grant in the proportions specified in the award agreement. The RSUs will vest subject to achievement of certain key performance indicators as set forth in the award agreement for each applicable year of the vesting tranche and continued employment through each vesting date.

The award granted to Dr. Vishal Sikka on June 22, 2015 was modified by the nomination and remuneration committee on April 14, 2016. There is no modification or change in the total number of RSUs granted or the vesting period (which is four years). The modifications relate to the criteria of vesting for each of the years. Based on the modification, the first tranche of the RSUs will vest subject to the achievement of certain key performance indicators for the year ended March 31, 2016. Subsequent vesting of RSUs for each of the remaining years would be subject to continued employment.

(1) adjusted for bonus issues (Refer to Note 2.12 above)

During the year ended March 31, 2017, the weighted average share price of options exercised under the 2015 Plan on the date of exercise was '' 1,084. During the year ended March 31, 2016, the weighted average share price of options exercised under the 2015 Plan on the date of exercise was '' 1,088.

The weighted average remaining contractual life of RSUs outstanding as of March 31, 2016 under the 2015 Plan was 1.98 years.

The fair value of each equity-settled RSU is estimated on the date of grant using the Black-Scholes-Merton model, with the following assumptions :

(1) Data for fiscal 2015 is not adjusted for bonus issues.

The expected term of the RSU / ESOP is estimated based on the vesting term and contractual term of the RSU / ESOP. as well as expected exercise behavior of the employee who receives the RSU / ESOP. Expected volatility during the expected term of the RSU / ESOP is based on historical volatility of the observed market prices of the Company’s publicly traded equity shares during a period equivalent to the expected term of the RSU / ESOP During the years ended March 31, 2017 and March 31, 2016, the Company recorded an employee stock compensation expense of Rs, 107 crore and Rs, 7 crore in the Statement of Profit and Loss, which includes cash-settled stock compensation expense of Rs, 1 crore and nil, respectively

Current tax expense for the years ended March 31, 2017 and March 31, 2016 includes reversals (net of provisions) amounting to Rs, 218 crore and Rs, 331 crore respectively pertaining to prior periods.

Entire deferred income tax for the years ended March 31, 2017 and March 31, 2016 relates to origination and reversal of temporary differences.

During the years ended March 31, 2017 and March 31, 2016, a current tax credit of Rs, 8 crore and nil, respectively, have been recorded in other comprehensive income pertaining to remeasurement of defined benefit plan asset.

During the year ended March 31, 2017, a deferred tax liability of Rs, 13 crore has been recorded in other comprehensive income pertaining to unrealized gains on derivatives designated as cash flow hedges.

The applicable Indian statutory tax rate for fiscal 2017 and fiscal 2016 is 34.61%.

The foreign tax expense is due to income taxes payable overseas, principally in the United States. In India, the Company has benefited from certain tax incentives that the Government of India has provided to the export of software for the units registered under the Special Economic Zones (SEZ) Act, 2005. SEZ units which began the provision of services on or after April 1, 2005 are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from the financial year in which the unit commenced the provision of services and 50% of such profits or gains for further five years. Up to 50% of such profits or gains is also available for a further five years subject to the creation of a Special Economic Zone Re-investment Reserve out of the profit of the eligible SEZ units and utilization of such reserve by the Company for acquiring new plant and machinery for the purpose of its business as per the provisions of the Income-tax Act, 1961.

Infosys is subject to a 15% Branch Profit Tax (BPT) in the U.S. to the extent its U.S. branch’s net profit during the year is greater than the increase in the net assets of the U.S. branch during the year, computed in accordance with the Internal Revenue Code. As of March 31, 2017, Infosys’ U.S. branch net assets amounted to approximately Rs, 5,995 crore. As of March 31, 2017, the Company has provided for branch profit tax of Rs, 327 crore for its U.S. branch, as the Company estimates that these branch profits are expected to be distributed in the foreseeable future. The change in provision for branch profit tax includes the Rs, 7 crore movement on account of exchange rate during the year ended March 31, 2017.

Deferred income tax liabilities have not been recognized on temporary differences amounting to Rs,5,309 crore and Rs, 4,195 crore as of March 31, 2017 and March 31, 2016, respectively, associated with investments in subsidiaries and branches as it is probable that the temporary differences will not reverse in the foreseeable future.

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.

In assessing the reliability of deferred income tax assets, the Management considers whether some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. The Management considers the scheduled reversals of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, the Management believes that the Group will realize the benefits of those deductible differences. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

The charge relating to temporary differences during the year ended March 31, 2017 is primarily on account of property, plant and equipment, accrued compensation and compensated absences partially offset by trade receivable. The credits relating to temporary differences during the year ended March 31, 2016 are primarily on account of accrued compensation to employees and compensated absences partially offset by reversal of credits pertaining to property, plant and equipment and trade receivables.

The operating lease arrangements, are renewable on a periodic basis and for most of the leases, extend up to a maximum of 10 years from their respective dates of inception and relates to rented premises. Some of these lease agreements have price escalation clauses.

2.8 Employee benefits

a. Gratuity

The following tables set out the funded status of the gratuity plans and the amounts recognized in the Company’s financial statements as at March 31, 2017 and March 31, 2016 :

Assumptions regarding future mortality experience are set in accordance with the published statistics by the Life Insurance Corporation of India.

The Company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards. The discount rate is based on the government securities yield. As of March 31, 2017, every percentage point increase / decrease in discount rate will affect our gratuity benefit obligation by approximately Rs, 57 crore.

As of March 31, 2017, every percentage point increase / decrease in weighted average rate of increase in compensation levels will affect our gratuity benefit obligation by approximately Rs, 49 crore.

Sensitivity to significant actuarial assumptions is computed by varying one actuarial assumption used for the valuation of the defined benefit obligation by one percentage, keeping all other actuarial assumptions constant.

Gratuity is applicable only to employees drawing salaries in Indian rupees and there are no other significant foreign-defined benefit gratuity plans.

The Company contributes all ascertained liabilities towards gratuity to the Infosys Limited Employees’ Gratuity Fund Trust. Trustees administer contributions made to the trust. As of March 31, 2017 and March 31, 2016, the plan assets have been primarily invested in insurer-managed funds. Actual return on assets for the years ended March 31, 2017 and March 31, 2016 was Rs,80 crore and Rs,66 crore, respectively The Company expects to contribute Rs, 85 crore to the gratuity trusts during fiscal 2018.

b. Superannuation

The Company contributed Rs, 151 crore and Rs, 227 crore to the Superannuation Trust during the years ended March 31,2017 and March 31, 2016, respectively and the same has been recognized in the Statement of Profit and Loss under the head employee benefit expense.

c. Provident fund

Infosys has an obligation to fund any shortfall on the yield of the trust’s investments over the administered interest rates on an annual basis. These administered rates are determined annually predominantly considering the social rather than economic factors and in most cases, the actual return earned by the Company has been higher in the past years. The actuary has provided a valuation for provident fund liabilities on the basis of guidance issued by the Actuarial Society of India and based on the assumptions provided below, there is no shortfall as at March 31, 2017 and March 31, 2016 and April 1, 2015, respectively.

The Company contributed Rs,378 crore and Rs,345 crore during the years ended March 31, 2017 and March 31, 2016, respectively, and the same has been recognized in the Statement of Profit and Loss under the head employee benefit expense.

The provident fund plans are applicable only to employees drawing salaries in Indian rupees and there are no other significant foreign-defined benefit plans.

(1) Includes stock compensation expense of Rs, 107 crore for the year ended March 31, 2017 (Rs, 7 crore for the year ended March 31, 2016), refer to Note 2.12.

For the year ended March 31, 2017, 77,942 options to purchase equity shares had an anti-dilutive effect. For the year ended March 31, 2016, no outstanding option to purchase equity shares had an anti-dilutive effect.

(1) Uncalled capital pertaining to investments

(2) Claims against the Company not acknowledged as debts as on March 31, 2017 include demand from the Indian income tax authorities for payment of tax of Rs, 6,122 crore (Rs, 4,135 crore), including interest of Rs, 1,885 crore (Rs, 1,224 crore) upon completion of their tax assessment for fiscals 2007, 2008, 2009, 2010, 2011, 2012 and 2013. Demands were paid to statutory tax authorities in full except for fiscals 2009, 2011, 2012 and 2013.

Demand for fiscals 2007, 2008 and 2009 includes disallowance of a portion of the deduction claimed by the Company under Section 10A of the Income-tax Act as 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. Demand for fiscals 2007, 2008, 2009, 2010 and 2011 also includes disallowance of portion of profit earned outside India from the STP units under Section 10A of the Income-tax Act and disallowance of profits earned from SEZ units under Section 10AA of the Income-tax Act. Demand for fiscals 2012 and 2013 includes disallowance of certain expenses incurred in foreign currency being reduced from export turnover but not reduced from total turnover and disallowance of profits earned from SEZ units which commenced operations before April 1, 2009 under Section 10AA of the Income-tax Act and also others. The matters for fiscals 2007, 2008, 2009 and 2013 are pending before the Commissioner of Income Tax (Appeals), Bengaluru. The matter for fiscals 2010, 2011 and 2012 is pending before the Hon’ble Income Tax Appellate Tribunal (ITAT), Bengaluru.

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.

The Company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The Company’s 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.

(1) Wholly-owned subsidiary of Infosys BPO.

(2) Under liquidation

(3) Wholly-owned subsidiaries of Infosys Consulting Holding AG (formerly Lodestone Holding AG)

(4) Majority-owned and controlled subsidiaries of Infosys Consulting Holding AG (formerly Lodestone Holding AG)

(5) Wholly-owned subsidiary of Portland Group Pty Ltd. Liquidated effective May 14, 2014.

(6) Wholly-owned subsidiary of Infosys Consulting AG (formerly Lodestone Management Consultants AG)

(7) Incorporated effective February 14, 2014 (Refer to Note 2.5.3)

(8) Wholly-owned subsidiary of Infosys Public Services, Inc. Incorporated effective December 19, 2014

(9) Incorporated effective January 23, 2015

(10) On March 5, 2015, Infosys acquired 100% of the voting interest in Panaya Inc.

(11) Wholly-owned subsidiary of Panaya Inc.

(12) On June 2, 2015, Infosys acquired 100% of the voting interest in Skava Systems (Refer to Note 2.5.2)

(13) On June 2, 2015, Infosys acquired 100% of the voting interest in Kallidus Inc. (Refer to Note 2.5.2)

(14) On November 16, 2015, Infosys acquired 100% of the membership interests in Noah (Refer to Note 2.5.1)

(15) Wholly-owned subsidiary of Noah

(16) Incorporated effective November 20, 2015

(17) Liquidated effective March 15, 2016

(18) Liquidated effective October 5, 2016

(19) Liquidated effective November 16, 2016

(20) Liquidated effective December 21, 2016

(21) Wholly-owned subsidiary of Infosys

(1) Includes stock compensation expense of Rs, 36 crore for the year ended March 31, 2017 (Rs, 7 crore for the year ended March 31, 2016) towards key managerial personnel. Refer to Note 2.12.

(2) Year ended March 31, 2017 includes Rs, 6 crore payable under severance agreement to David D. Kennedy, who stepped down as General Counsel and Chief Compliance Officer w.e.f. December 31, 2016.

(3) Year ended March 31, 2016 includes Rs, 17.38 crore payable under severance agreement to Rajiv Bansal who stepped down as Chief Financial Officer w.e.f. October 12, 2015.

(4) The Board, based on the recommendations of the nomination and remuneration committee, approved on April 13, 2017, US $ 0.82 million as variable pay to CEO for the year ended March 31, 2017. The shareholders vide a postal ballot had approved a variable pay of US $ 3 million at target.

Pursuant to the approval from the shareholders through a postal ballot on March 31, 2016, Dr. Vishal Sikka is eligible to receive under the 2015 Plan, an annual grant of RSUs of fair value US million which will vest over time, subject to continued service and an annual grant of performance-based equity and stock options of US million subject to the achievement of performance targets set by the Board or its committee, which will vest over time. The Board, based on the recommendations of the nomination and remuneration committee, approved on April 13, 2017, performance-based equity and stock options for fiscal 2017 comprising RSUs amounting to US .9 million and ESOPs amounting to US {FILE_CONTENT}.96 million. Further, the Board also approved the annual time-based vesting grant for fiscal 2018 amounting to RSUs of US $ 2 million. These RSUs and ESOPs will be granted w.e.f. May 2, 2017.

The year ended March 31, 2016 includes provision for variable pay amounting to US .33 million (approximately Rs, 29 crore) to CEO. The shareholders at the extraordinary general meeting dated July 30, 2014 had approved a variable pay of US .18 million (approximately Rs, 28 crore at current exchange rate) at a target level and also authorized the Board to alter and vary the terms of remuneration. Accordingly, the Board, based on the recommendations of the nomination and remuneration committee, approved on April 15, 2016, US .33 million (approximately Rs, 29 crore) as variable pay for the year ended March 31, 2016.

(5) On March 31, 2017, the shareholders vide a postal ballot approved a revision in the salary of U. B. Pravin Rao, COO and whole-time director, w.e.f. November 1, 2016.

Further, the nomination and remuneration committee, in its meeting held on October 14, 2016, recommended a grant of 27,250 RSUs and 43,000 ESOPs to U. B. Pravin Rao, COO, under the 2015 Plan and the same was approved by the shareholders through a postal ballot on March 31, 2017. These RSUs and ESOPs will be granted w.e.f. May 2, 2017.

2.10 Corporate social responsibility

As per Section 135 of the Companies Act, 2013, a company, meeting the applicability threshold, needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (CSR) activities. The areas for CSR activities are eradication of hunger and malnutrition, promoting education, art and culture, healthcare, destitute care and rehabilitation, environment sustainability, disaster relief and rural development projects. A CSR committee has been formed by the Company as per the Act. The funds were primarily allocated to a corpus and utilized through the year on these activities which are specified in Schedule VII of the Companies Act, 2013.

a) The gross amount required to be spent by the Company during the year is Rs, 287 crore.

(1) For the purposes of this clause, the term ‘Specified Bank Notes’ shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated November 8, 2016.

2.11 Segment reporting

Ind AS 108 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Company’s operations predominantly relate to providing end-to-end business solutions to enable clients to enhance business performance. Based on the ‘management approach’ as defined in Ind AS 108, the Chief Operating Decision Maker (CODM) evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by business segments and geographic segments. Accordingly, information has been presented both along business segments and geographic segments. 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.

Business segments of the Company are primarily enterprises in Financial Services (FS), enterprises in Manufacturing (MFG), enterprises in Retail, Consumer packaged goods and Logistics (RCL), enterprises in Energy & utilities, Communication and Services (ECS), enterprises in Hi-Tech (Hi-Tech), enterprises in Life Sciences, Healthcare and Insurance (HILIFE), and all other segments. All other segments represent the operating segments of businesses in India, Japan and China. Geographic segmentation is based on business sourced from that geographic region and delivered from both onsite and offshore locations. 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 comprises all other places except those mentioned above and India. Revenue and identifiable operating expenses in relation to segments are categorized based on items that are individually identifiable to that segment. Revenue for ‘all other segments’ represents revenue generated from customers located in India, Japan and China. Allocated expenses of segments include expenses incurred for rendering services from the Company’s offshore software development centers and onsite 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. The 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.

Assets and liabilities used in the Company’s business are not identified to any of the reportable segments, as these are used interchangeably between segments. The Management believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.

Geographical information on revenue and business segment revenue information are collated based on individual customers invoiced or in relation to which the revenue is otherwise recognized.

Source : Dion Global Solutions Limited
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