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Infosys

BSE: 500209|NSE: INFY|ISIN: INE009A01021|SECTOR: Computers - Software
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« Mar 15
Notes to Accounts Year End : Mar '16
1.  Notes to accounts for the year ended March 31, 2016
 
 Amounts in the financial statements are presented in Rs, crore, except
 for per equity 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.
 
 In the period of five years immediately preceding March 31, 2016 :
 
 The Company has allotted 1,14,84,72,332 fully-paid-up shares of face
 value Rs, 5 each during the quarter ended June 30, 2015, pursuant to
 bonus issue approved by the shareholders through a postal ballot.  The
 book closure date fixed by the Board was June 17, 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.
 
 For both the bonus issues, a 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, have been allotted. Consequently, the
 ratio of equity shares underlying the ADSs held by an American
 Depositary Receipt holder remains unchanged. Options granted under the
 restricted stock unit plan have been adjusted for bonus shares.
 
 During the year ended March 31, 2015, the amount of dividend per share
 recognized as distribution to equity shareholders includes Rs, 29.50 per
 share of final dividend (not adjusted for bonus shares on June 17,
 2015) and Rs, 30 per share of interim dividend (not adjusted for bonus
 shares of June 17, 2015 and December 3, 2014). The total dividend
 appropriation for the year ended March 31, 2015 amounted to Rs, 6,145
 crore, including corporate dividend tax of Rs, 1,034 crore.
 
 The Board has increased dividend payout ratio from up to 40% to up to
 50% of post-tax consolidated profits effective fiscal 2015.
 
 The Board of Directors, in its meeting on October 12, 2015, declared an
 interim dividend of Rs, 10 per equity share. Further the Board of
 Directors, in its meeting on April 15, 2016, has proposed a final
 dividend of Rs, 14.25 per equity share for the financial year ended March
 31, 2016. The proposal is subject to the approval of shareholders at
 the Annual General Meeting to be held on June 18, 2016. The total
 dividend appropriation for the year ended March 31, 2016 amounted to Rs,
 6,704 crore, including corporate dividend tax of Rs, 1,134 crore.
 
 The Central Government, in consultation with the National Advisory
 Committee on Accounting Standards, has amended the Companies
 (Accounting Standards) Rules, 2006 (''principal rules''), through a
 notification issued by the Ministry of Corporate Affairs dated March
 30, 2016. The Companies (Accounting Standards) Rules, 2016 is effective
 March 30, 2016. According to the amended rules, the above-mentioned
 proposed dividend will not be recorded as a liability as at March 31,
 2016. (Refer to Para 8.5 of AS-4 – Contingencies and Events occurring
 after Balance Sheet date). The Company believes, based on a legal
 opinion, that the Rule 3(2) of the principal rules has not been
 withdrawn or replaced and accordingly, the Companies (Accounting
 Standards) Rule, 2016 will apply for the accounting periods commencing
 on or after March 30, 2016. Therefore the Company has recorded Rs, 3,939
 crore as liability for proposed dividends (including corporate dividend
 tax) as at March 31, 2016.
 
 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
 
 2015 Stock Incentive Compensation Plan : SEBI issued the Securities and
 Exchange Board of India (Share Based Employee Benefits) Regulations,
 2014 (''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 are currently held by the Trust towards the 2011
 Plan). 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 to grant the instruments under the 2015 Plan over a
 period of four to seven years.
 
 2011 RSU Plan : The Company had a 2011 RSU Plan (''the 2011 Plan'') which
 provided for the grant of restricted stock units (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 2011 Plan was
 1,13,34,400 and the 2011 Plan was expected to continue in effect for a
 term of 10 years from the date of initial grant under the plan. During
 the year ended March 31, 2015, the Company
 
 made a grant of 1,08,268 restricted stock units (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 the
 recommendation of the 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. Further, the Company
 has earmarked 1,00,000 equity shares for employee welfare activities
 approved by the shareholders through the postal ballot which ended on
 March 31, 2016. The equity shares currently 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.
 
 Further, 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
 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.
 
 In accordance with the SEBI Regulations, 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.
 
 2. Investment in Noah Consulting LLC
 
 On November 16, 2015, Infosys acquired 100% membership interest in Noah
 Consulting LLC, 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 a cash consideration of US  million (approximately Rs, 216 crore),
 contingent consideration of up to US  million (approximately Rs, 33
 crore on acquisition date) and retention bonus of up to US  million
 (approximately Rs, 212 crore on acquisition date). The payment of
 contingent consideration to the sellers of Noah was dependent on 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.
 
 3. 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
  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.
 
 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 has made this investment to
 form a new company along with Dream Works 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. As of March
 31, 2016, Infosys Nova Holdings holds 16% of the equity interest in DWA
 Nova LLC.
 
 5. 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 a cash
 consideration of Rs, 1,398 crore.
 
 6. 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 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 equity shares in
 EdgeVerve.
 
 On April 24, 2015, the Board of Directors of Infosys has 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 business was
 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) have been
 transferred and accordingly a gain of Rs, 3,036 crore has been recorded
 as an exceptional item.  The consideration was settled through an 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.
 
 7.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 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. During
 the quarter ended December 31, 2015, the liability towards deferred
 consideration was settled.
 
 Amounts of Rs, 110 crore and Rs, 219 crore, representing the proportionate
 charge of the deferred consideration have been recognized as an expense
 during the years ended March 31, 2016 and March 31, 2015, respectively.
 
 The eligible R&D revenue and capital expenditure are Rs, 54 crore and Nil
 for the year ended March 31, 2016 respectively and Rs, 160 crore and Nil
 towards revenue and capital expenditure respectively for the year ended
 March 31, 2015.
 
 8. Segment reporting
 
 The Company''s operations predominantly relate to providing end-to-end
 business solutions to enable clients enhance their business
 performance. During the year ended March 31, 2016, the Company
 reorganized its segments to enhance executive-customer relationships,
 improve focus of sales investments and increase management oversight.
 However, the reorganizations did not have any impact on the reportable
 segments as per AS 17 ''Segment reporting'' apart from Manufacturing
 being named Manufacturing and Hi-tech. The 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)
 
 - Manufacturing and Hi-tech (MFG & HI-TECH)
 
 - Energy & utilities, Communications and Services (ECS)
 
 - Retail, Consumer packaged goods and Logistics (RCL)
 
 - Life Sciences and Healthcare (LSH)
 
 Geographic segmentation is based on business sourced from specific
 geographic regions 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. 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 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.
 
 As at March 31, 2016 and March 31, 2015, the plan assets have been
 primarily invested in insurer managed funds. 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, 74 crore to the gratuity trust during the fiscal 2017.
 
 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, 2016 and March
 31, 2015 amounts to Rs, 4 crore and Rs, 7 crore, respectively and disclosed
 under ''Other long-term liabilities'' and ''Other current liabilities''.
 
 9. Provident fund
 
 The Company contributed Rs, 345 crore towards provident fund during the
 year ended March 31, 2016 (Rs, 295 crore during the year ended March 31,
 2015).
 
 The Guidance on Implementing AS 15, Employee Benefits (revised 2005)
 issued by the 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 the guidance issued by the Actuarial
 Society of India during the quarter ended December 31, 2011, and based
 on the assumptions listed below, there is no shortfall as at March 31,
 2016, 2015, 2014, 2013 and 2012.
 
 10. Restricted deposits
 
 Restricted deposits as at March 31, 2016 comprise Rs, 1,154 crore (Rs,
 1,039 crore as at March 31, 2015) deposited with financial institutions
 to settle employee-related obligations as and when they arise during
 the normal course of business.
 
 11. 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.
 
 - Gross amount required to be spent by the Company during the year is Rs,
 256 crore.
 
 - Amount spent during the year :
 
 In addition to the activities mentioned above, the Company has spent Rs,
 86 crore on multiple CSR initiatives including Chennai flood disaster
 relief, environment sustainability and conservation of natural
 resources aimed at long-term sustainability of the ecosystem.
 
 12. Indian accounting standards
 
 The Ministry of Corporate Affairs (MCA), through its notification
 in the Official Gazette dated February 16, 2015, notified the Indian
 Accounting Standards (Ind AS) applicable to certain classes of
 companies. Ind AS would replace the existing Indian GAAP prescribed
 under Section 133 of the Companies Act, 2013 read with Rule 7 of the
 Companies (Accounts) Rules, 2014. For Infosys and its subsidiaries,
 Ind AS would be applicable for the accounting periods beginning
 April 1, 2016, with a transition date of April 1, 2015.
 
 The Company has evaluated the effect of transition from Indian GAAP
 to Ind AS and the following are the areas which would have an impact
 on account of the transition on the Company :
 
 -  Fair valuation of certain financial instruments
 
 -  Employee costs pertaining to defined benefit obligations
 
 -  Discounting of certain long-term liabilities
 
 -  Share-based payments
 
 Further, there would be a change in the presentation of financial
 statements including additional disclosures.
Source : Dion Global Solutions Limited
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