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Infosys
BSE: 500209|NSE: INFY|ISIN: INE009A01021|SECTOR: Computers - Software
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« Mar 14
Notes to Accounts Year End : Mar '15
Company overview
 
 Infosys is a global leader in consulting, technology, outsourcing and
 next-generation services. Along with its subsidiaries, Infosys provides
 Business IT services (comprising application development and
 maintenance, independent validation, infrastructure management,
 engineering services comprising product engineering and life cycle
 solutions and business process management); consulting and systems
 integration services (comprising consulting, enterprise solutions,
 systems integration and advanced technologies); products, business
 platforms and solutions to accelerate intellectual property-led
 innovation including Finacle®, our banking solution; and offerings in
 the areas of analytics, cloud, and digital transformation.
 
 The Company is a public limited company incorporated and domiciled in
 India and has its registered office at Bengaluru, Karnataka, India.
 The Company has its primary listings on BSE Limited and the National
 Stock Exchange in India. The Company''s American Depositary Shares
 representing equity shares are also listed on the New York Stock
 Exchange (NYSE), NYSE Euronext London and NYSE Euronext Paris.
 
 2 Notes to accounts for the year ended March 31,2015
 
 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.
 
 Effective January 1, 2015, Infosys Limited Employees'' Welfare trust
 (trust) has been deconsolidated consequent to SEBI (Share Based
 Employee Benefits) Regulations, 2014 issued on October 28, 2014.  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.
 
 In the period of five years immediately preceding March 31,2015
 
 The Company has allotted 57,42,36,166 fully paid-up equity shares of
 face value Rs. 5/- each during the quarter ended December 31, 2014
 pursuant to a bonus issue approved by the shareholders through a postal
 ballot. The record date fixed by the Board of Directors was December 3,
 2014. Bonus share of one equity share for every equity share held and a
 stock dividend of one American Depositary Share (ADS) for every ADS
 held, respectively, has been allotted. Consequently, the ratio of
 equity shares underlying the ADSs held by an American Depositary
 Receipt holder remains unchanged. Options granted under the stock
 option plan have been adjusted for bonus shares.
 
 During the year ended March 31, 2014, the amount of dividend per share
 recognized as distribution to equity shareholders was Rs. 63/- (not
 adjusted for bonus issue). The dividend for the year ended March 31,
 2014 includes Rs. 43/- per share (not adjusted for bonus issue) of final
 dividend. 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.
 
 The Board of Directors, in its meeting of October 10, 2014, declared an
 interim dividend of Rs. 30/- per equity share (not adjusted for bonus
 issue). Further the Board of Directors, in its meeting of April 24,
 2015, have proposed a final dividend of Rs. 29.50/- per equity share
 (equivalent to Rs. 14.75/- per share after 1:1 bonus issue, if approved
 by shareholders) for the financial year ended March 31, 2015. The
 proposal is subject to the approval of shareholders at the Annual
 General Meeting to be held on June 22, 2015. The total dividend
 appropriation for the year ended March 31,2015 would amount to
 approximately Rs. 6,145 crore including corporate dividend tax of Rs. 1,034
 crore.
 
 The Board has decided to revise and increase dividend payout ratio from
 up to 40% to up to 50% of post-tax consolidated profits effective
 fiscal 2015.
 
 The Board, in its meeting held on April 24, 2015, has considered,
 approved and recommended a bonus issue of one equity share for every
 equity share held and a stock dividend of one American Depositary Share
 (ADS) for every ADS held, respectively, as on a record date to be
 determined. Consequently, the ratio of equity shares underlying the
 ADSs held by an American Depositary Receipt holder would remain
 unchanged. The bonus issue of equity shares and ADSs will be subject to
 approval by the shareholders through postal ballot, and any other
 applicable statutory and regulatory approvals. Accordingly, the record
 date for the bonus issues of equity shares and ADSs will be announced
 in due course.
 
 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.
 
 Stock option plan
 
 2011 RSU Plan (''the 2011 Plan'') : The Company has a 2011 RSU Plan
 which provides for the grant of restricted stock units (RSUs) to
 eligible employees of the Company. The Board of Directors recommended
 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 2011 Plan is
 56,67,200 (currently held by the Infosys Limited Employees'' Welfare
 Trust and adjusted for bonus shares issued) and the plan shall continue
 in effect for a term of 10 years from the date of initial grant under
 the plan. The RSUs will be issued at par value of the equity share. The
 2011 Plan is administered by the management development and
 compensation committee, now known as nomination and remuneration
 committee, (''the committee'') and through the Infosys Limited
 Employees'' Welfare Trust (''the trust''). The committee comprises
 independent members of the Board of Directors.
 
 During the year ended March 31, 2015, the Company made a grant of
 27,067 restricted stock units to Dr. Vishal Sikka, Chief Executive
 Officer and Managing Director. The RSUs will vest 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 the 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.
 
 In accordance with the Securities and Exchange Board of India (Share
 Based Employee Benefits) Regulations, 2014, the excess of the closing
 market price on the grant date of the RSUs over the exercise price is
 amortized on a straight-line basis over the vesting period.
 
 The weighted average remaining contractual life of RSUs outstanding as
 of March 31,2015 under the 2011 Plan was 2.39 years.
 
 The differential on stock compensation expense if the ''fair value''
 of the RSUs on the date of the grant were considered instead of the
 ''intrinsic value'' during the year ended March 31, 2015 is less than
 Rs. 1 crore.  Consequently, there is no impact on earnings per share.
 
 The fair value for the above impact analysis is estimated on the date
 of grant using the Black-Scholes-Merton model with the following
 assumptions :
 
 The expected term of an RSU is estimated based on the vesting term and
 contractual term of the RSU, as well as expected exercise behavior of
 the employee who receives the RSU. Expected volatility during the
 expected term of the RSU 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.
 
 The weighted average fair value of RSUs on grant date was Rs. 3,355/-
 During the year ended March 31, 2015, the Company recorded an employee
 compensation expense of Rs. 2 crore in the Statement of Profit and Loss.
 
 2.1 Deferred taxes
 
 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, 2015 and March 31,2014, the Company has provided for
 branch profit tax of Rs. 316 crore and Rs. 303 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. 13 crore movement on account of
 exchange rate during the year ended March 31,2015.
 
 2.1.1 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. 219 crore and Rs. 228 crore, representing the proportionate
 charge of the deferred consideration has been recognized as an expense
 during the years ended March 31, 2015 and March 31, 2014 respectively.
 
 2.1.2 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. On April 15,
 2014, the Board of Directors (''the Board'') of Infosys authorized
 the Company to execute a Business Transfer Agreement and related
 documents with EdgeVerve, subject to securing the requisite approval
 from shareholders in the Annual General Meeting. Subsequently, at the
 AGM held on June 14, 2014, the shareholders authorized the Board to
 enter into a Business Transfer Agreement and related documents with
 EdgeVerve, with effect from July 1, 2014 or such other date as may be
 decided by the Board. 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 (US  million)
 with effect from July 1, 2014. Net assets amounting to Rs. 9 crore have
 also been transferred and accordingly a gain of Rs. 412 crore has been
 recorded as an exceptional item. The consideration has been settled
 through the issue of fully paid-up shares in EdgeVerve.
 
 2.1.3 Investment in Panaya Inc.
 
 On March 5, 2015, Infosys acquired 100% of the voting interests in
 Panaya Inc. (''Panaya''), a Delaware Corporation in the United
 States.  Panaya is a leading provider of automation technology for
 large-scale enterprise and software management. The business
 acquisition was conducted by entering into a share purchase agreement
 for cash consideration of approximately Rs. 1,398 crore.
 
 2.1.4 Investment in DWA Nova LLC
 
 During the year ended March 31, 2015, Infosys Nova Holdings LLC
 acquired 20% of the equity interests in DWA Nova LLC for a cash
 consideration of Rs. 94 crore. The Company invested Rs. 94 crore to form a
 new company along with DreamWorks Animation (DWA).  The new company,
 DWA Nova LLC, will develop and commercialize image generation
 technology in order to provide end-to-end digital manufacturing
 capabilities for companies involved in the design, manufacturing,
 marketing or distribution of physical consumer products.
 
 Proposed investment
 
 On April 24, 2015, the Company entered into a definitive agreement to
 acquire Kallidus Inc. (doing business as Skava) and its affiliate, a
 leading provider of digital experience solutions, including mobile
 commerce and in-store shopping experiences to large retail clients for
 a consideration of approximately Rs. 750 crore including a deferred
 component and retention bonus.
 
 The revision in the useful life of assets held at April 1, 2014 has
 resulted in a decrease in deferred tax credit by Rs. 165 crore for the
 year ended March 31, 2015 (Refer to Note 2.8).
 
 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 as
 per Indian Income Tax Act, 1961. Infosys'' operations are conducted
 through Software Technology Parks (''STPs'') and Special Economic
 Zones (''SEZs''). Income from STPs were tax exempt for the first 10
 years from the fiscal in which the unit commenced software development,
 or March 31, 2011 whichever is earlier. Income from SEZs Unit 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.
 
 2.2 Contingent liabilities and commitments (to the extent not provided
 for)
 
                                                         in Rs. crore
 
 Particulars                                      As at March 31,
 
                                                  2015         2014
 
 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                                        22           24
 
 Claims against the Company, not
 
 acknowledged as debts    (1)                     167          169
 
 [Net of amount paid to statutory
 authorities Rs. 3,572 crore (Rs. 1,716 crore)]
 
 Commitments
 
 Estimated amount of unexecuted capital
 
 contracts (net of advances and deposits)       1,272          827
 
 (1) Claims against the Company not acknowledged as debts include demand
 from the Indian Income tax authorities for payment of tax of Rs.3,337
 crore C 1,548 crore), including interest of Rs. 964 crore C 430 crore)
 upon completion of their tax assessment for fiscal 2006, fiscal 2007,
 fiscal 2008, fiscal 2009 and fiscal 2010. These demands were paid to
 statutory tax authorities which includes Rs. 1,788 crore paid during the
 year ended March 31, 2015 consequent to demand from tax authorities in
 India for fiscal 2010 towards denial of certain tax benefits. The
 Company has filed an appeal with the Income Tax Appellate Tribunal.
 
 Demand for fiscal 2006, fiscal 2007, fiscal 2008 and fiscal 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. This disallowance arose
 from certain expenses incurred in foreign currency being reduced from
 export turnover but not reducedfrom total turnover Demand for fiscal
 2007, fiscal 2008, fiscal 2009 and fiscal 2010 also includes
 disallowance of portion of profit earned outside India from the STP
 units and disallowance of profits earned from SEZ units under Section
 10AA of the Income Tax Act. The matters for fiscal 2007, fiscal 2008
 andfiscal 2009 are pending before the Commissioner of Income Tax
 (Appeals) Bengaluru. For the matter of fiscal 2006, the Commissioner of
 Income Tax (Appeals) has passed a partly favorable order. The order
 giving effect of said Commissioner Order is awaited. 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 recognized a gain of Rs. 499 crore and Rs. 217 crore on
 derivative instruments during the years ended March 31, 2015 and March
 31,2014, respectively, which is included in ''Other income''.
 
 2.3 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 Schedule III to the Companies Act,
 2013.
 
 2.4 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 depositary bank purchases the foreign currencies and remits
 dividends to the ADS holders.
 
 2.5 Merger of Infosys Consulting India Limited
 
 The Hon''ble 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.
 
 The eligible R&D revenue and capital expenditure are Rs. 160 crore and
 Nil for the year ended March 31, 2015, and Rs. 261 crore and Nil towards
 revenue and capital expenditure for the year ended March 31,2014.
 
 2.6 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), enterprises in Retail, Consumer packaged goods and
 Logistics (RCL) and enterprises in Life Sciences and Healthcare (LSH).
 Geographic segmentation is based on business sourced from a particular
 geographic region and delivered from both onsite and offshore. 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.  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 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.
 
 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.
 
 2.7 Provident fund
 
 The Company contributed Rs. 295 crore towards provident fund during the
 year ended March 31, 2015 (Rs. 262 crore during the year ended March
 31,2014).
 
 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 actuary has provided a valuation for provident fund
 liabilities on the basis of guidance issued by Actuarial Society of
 India during the quarter ended December 31, 2011 and based on the
 assumptions provided below, there is no shortfall as at March 31, 2015,
 2014, 2013, 2012 and 2011, respectively.
 
 2.8 Corporate social responsibility
 
 As per Section 135 of the Companies Act, 2013, a corporate social
 responsibility (CSR) committee has been formed by the Company The areas
 for CSR activities are eradication of hunger and malnutrition,
 promoting education, art and culture, healthcare, destitute care and
 rehabilitation and rural development projects. 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.
 
 2.9 Dues to micro, small and medium enterprises
 
 As at March 31, 2015, less than Rs. 1 crore is outstanding to micro and
 small enterprises (Rs. 1 crore as at March 31, 2014). There are no
 interests due or outstanding on the same.
 
 2.10 Litigation
 
 In 2011, 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.
 
 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.  During the year ended March 31, 2014, the Company recorded a
 charge related to the settlement agreement (including legal costs) of Rs.
 219 crore related to the matters that were the subject of the
 Settlement Agreement. The said amount was 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.
 
 2.11 Finacle and Edge Services
 
 On April 24, 2015, the Board of Directors of Infosys authorized the
 Company to execute a Business Transfer Agreement and related documents
 with EdgeVerve, a wholly-owned subsidiary, subject to securing the
 requisite approval from shareholders. The proposed transfer of the
 business of Finacle and Edge Services to EdgeVerve is at an estimated
 consideration of up to Rs. 3,400 crore and up to Rs. 220 crore,
 respectively
 
Source : Dion Global Solutions Limited
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