Exhibit 99.11
IFRS INR
Earnings Release
Independent Auditors’ Report
To the Board of Directors of Infosys Limited
We have audited the accompanying
consolidated financial statements of Infosys Limited (“the Company”) and subsidiaries, which comprise the consolidated
balance sheet as at September 30, 2013, the consolidated statement of comprehensive income for the three months and six months then ended, consolidated
statements of changes in equity and cash flows for the for the six months then ended, and a summary of significant accounting policies
and other explanatory information.
Management’s Responsibility
for the Consolidated Financial Statements
Management is responsible for the
preparation of these consolidated financial statements that give a true and fair view of the consolidated financial position, consolidated
financial performance and consolidated cash flows of the Company in accordance with the International Financial Reporting Standards
as issued by International Accounting Standards Board (“IFRS”). This responsibility includes the design, implementation
and maintenance of internal control relevant to the preparation and presentation of the consolidated financial statements that
give a true and fair view and are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the Standards
on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s
preparation and presentation of the consolidated financial statements that give a true and fair view in order to design audit procedures
that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion and to the best
of our information and according to the explanations given to us, the consolidated financial statements give a true and fair view
in conformity with IFRS:
| (a) | in the case of the consolidated balance sheet,
of the consolidated financial position as at September 30, 2013; |
| (b) | in the case of the consolidated statement
of comprehensive income, of the consolidated financial performance for the three months and six months ended on that date; |
| (c) | in the case of the consolidated statement
of changes in equity, of the consolidated changes in equity for the six months ended on that date; and |
| (d) | in the case of the consolidated statement
of cash flows, of the consolidated cash flows for the six months ended on that date. |
for B S R & Co.
Chartered Accountants
Firm’s registration number: 101248W
Zubin Shekary
Partner
Membership number: 048814
Bangalore
11 October 2013
Infosys
Limited and subsidiaries
(In
crore except share data)
| Consolidated Balance Sheets as of |
Note |
September 30, 2013 |
March 31, 2013 |
| ASSETS |
|
|
|
| Current assets |
|
|
|
| Cash and cash equivalents |
2.1 |
22,543 |
21,832 |
| Available-for-sale financial assets |
2.2 |
2,810 |
1,739 |
| Investment in Certificates of deposit |
|
528 |
– |
| Trade receivables |
|
8,343 |
7,083 |
| Unbilled revenue |
|
3,151 |
2,435 |
| Prepayments and other current assets |
2.4 |
2,435 |
2,123 |
| Derivative financial instruments |
2.7 |
– |
101 |
| Total current assets |
|
39,810 |
35,313 |
| Non-current assets |
|
|
|
| Property, plant and equipment |
2.5 |
7,010 |
6,468 |
| Goodwill |
2.6 |
2,201 |
1,976 |
| Intangible assets |
2.6 |
391 |
368 |
| Available-for-sale financial assets |
2.2 |
1,031 |
394 |
| Deferred income tax assets |
2.16 |
555 |
503 |
| Income tax assets |
2.16 |
1,388 |
1,092 |
| Other non-current assets |
2.4 |
189 |
237 |
| Total non-current assets |
|
12,765 |
11,038 |
| Total assets |
|
52,575 |
46,351 |
| LIABILITIES AND EQUITY |
|
|
|
| Current liabilities |
|
|
|
| Trade payables |
|
100 |
189 |
| Derivative financial instruments |
2.7 |
452 |
- |
| Current income tax liabilities |
2.16 |
1,910 |
1,329 |
| Client deposits |
|
21 |
36 |
| Unearned revenue |
|
843 |
823 |
| Employee benefit obligations |
|
893 |
614 |
| Provisions |
2.8 |
443 |
213 |
| Other current liabilities |
2.9 |
4,368 |
3,082 |
| Total current liabilities |
|
9,030 |
6,286 |
| Non-current liabilities |
|
|
|
| Deferred income tax liabilities |
2.16 |
70 |
119 |
| Other non-current liabilities |
2.9 |
276 |
149 |
| Total liabilities |
|
9,376 |
6,554 |
| Equity |
|
|
|
| Share capital- 5 par value 60,00,00,000 equity shares authorized, issued and outstanding 57,14,02,566 each, net of 28,33,600 treasury shares each, as of September 30, 2013 and March 31, 2013, respectively |
|
286 |
286 |
| Share premium |
|
3,090 |
3,090 |
| Retained earnings |
|
39,054 |
36,114 |
| Other components of equity |
|
769 |
307 |
| Total equity attributable to equity holders of the Company |
|
43,199 |
39,797 |
| Non-controlling interests |
|
– |
– |
| Total equity |
|
43,199 |
39,797 |
| Total liabilities and equity |
|
52,575 |
46,351 |
The
accompanying notes form an integral part of the consolidated interim financial statements
As
per our report of even date attached
| for
B S R & Co. |
for
Infosys Limited |
Chartered
Accountants
Firm’s
Registration No : 101248W
Zubin Shekary Partner Membership No. 48814 |
N. R. Narayana Murthy Executive Chairman |
S. Gopalakrishnan Executive Vice-Chairman |
S. D. Shibulal Chief Executive Officer and Managing Director |
K. V. Kamath Director |
| |
Deepak M. Satwalekar Director |
Dr. Omkar Goswami Director |
David L. Boyles Director |
Prof. Jeffrey S. Lehman Director |
| |
R. Seshasayee Director |
Srinath Batni Director |
V. Balakrishnan Director |
B.G.Srinivas Director |
Bangalore
October 11, 2013 |
Rajiv Bansal Chief Financial Officer |
K.Parvatheesam Chief Risk Officer and Company Secretary |
|
|
Infosys
Limited and subsidiaries
(In
crore except share and per equity share data)
| Consolidated Statements of Comprehensive Income |
Note |
Three months ended September 30, |
Six months ended September 30, |
| |
|
2013 |
2012 |
2013 |
2012 |
| Revenues |
|
12,965 |
9,858 |
24,232 |
19,474 |
| Cost of sales |
2.10 |
8,384 |
6,102 |
15,703 |
11,912 |
| Gross profit |
|
4,581 |
3,756 |
8,529 |
7,562 |
| Operating expenses: |
|
|
|
|
|
| Selling and marketing expenses |
2.10 |
757 |
506 |
1,341 |
975 |
| Administrative expenses* |
2.10 |
987 |
653 |
1,687 |
1,297 |
| Total operating expenses |
|
1,744 |
1,159 |
3,028 |
2,272 |
| Operating profit |
|
2,837 |
2,597 |
5,501 |
5,290 |
| Other income, net |
2.13 |
510 |
706 |
1,087 |
1,182 |
| Profit before income taxes |
|
3,347 |
3,303 |
6,588 |
6,472 |
| Income tax expense |
2.16 |
940 |
934 |
1,807 |
1,814 |
| Net profit |
|
2,407 |
2,369 |
4,781 |
4,658 |
| Other comprehensive income |
|
|
|
|
|
| |
|
|
|
|
|
| Items that will not be reclassified to profit or loss |
|
|
|
|
|
| Remeasurement of the net defined benefit liability/(asset) |
2.11 |
30 |
– |
38 |
– |
| |
|
30 |
– |
38 |
– |
| Items that may be reclassified subsequently to profit or loss |
|
|
|
|
|
| Fair value changes on available-for-sale financial asset, net of tax effect (refer note 2.2 and 2.16) |
|
(19) |
3 |
(21) |
(2) |
| Exchange differences on translating foreign operations |
|
206 |
(44) |
395 |
24 |
| |
|
187 |
(41) |
374 |
22 |
| Total other comprehensive income |
|
217 |
(41) |
412 |
22 |
| |
|
|
|
|
|
| Total comprehensive income |
|
2,624 |
2,328 |
5,193 |
4,680 |
| Profit attributable to: |
|
|
|
|
|
| Owners of the company |
|
2,407 |
2,369 |
4,781 |
4,658 |
| Non-controlling interests |
|
– |
– |
– |
– |
| |
|
2,407 |
2,369 |
4,781 |
4,658 |
| Total comprehensive income attributable to: |
|
|
|
|
|
| Owners of the company |
|
2,624 |
2,328 |
5,193 |
4,680 |
| Non-controlling interests |
|
– |
– |
– |
– |
| |
|
2,624 |
2,328 |
5,193 |
4,680 |
| Earnings per equity share |
|
|
|
|
|
| Basic () |
|
42.12 |
41.46 |
83.66 |
81.52 |
| Diluted () |
|
42.12 |
41.46 |
83.66 |
81.52 |
| Weighted average equity shares used in computing earnings per equity share |
2.17 |
|
|
|
|
| Basic |
|
57,14,02,566 |
57,13,97,749 |
57,14,02,566 |
57,13,97,150 |
| Diluted |
|
57,14,02,566 |
57,13,98,613 |
57,14,02,566 |
57,13,98,353 |
| |
|
|
|
|
|
| (*)
Administrative expenses for the three months and six months ended September 30, 2013 include a provision of 219 crore towards
visa related matters. Refer note 2.20 |
The
accompanying notes form an integral part of the consolidated interim financial statements
As
per our report of even date attached
| for
B S R & Co. |
for
Infosys Limited |
Chartered
Accountants
Firm’s
Registration No : 101248W
Zubin Shekary Partner Membership No. 48814 |
N. R. Narayana Murthy Executive Chairman |
S. Gopalakrishnan Executive Vice-Chairman |
S. D. Shibulal Chief Executive Officer and Managing Director |
K. V. Kamath Director |
| |
Deepak M. Satwalekar Director |
Dr. Omkar Goswami Director |
David L. Boyles Director |
Prof. Jeffrey S. Lehman Director |
| |
R. Seshasayee Director |
Srinath Batni Director |
V. Balakrishnan Director |
B.G.Srinivas Director |
Bangalore
October 11, 2013 |
Rajiv Bansal Chief Financial Officer |
K.Parvatheesam Chief Risk Officer and Company Secretary |
|
|
Infosys
Limited and subsidiaries
Consolidated
Statements of Changes in Equity
(In
crore except share data)
| |
Shares(*) |
Share capital |
Share premium |
Retained earnings |
Other components of equity |
Total equity attributable to equity holders of the Company |
| Balance as of April 1, 2012 |
57,13,96,401 |
286 |
3,089 |
29,816 |
270 |
33,461 |
| Changes in equity for the six months ended September 30, 2012 |
|
|
|
|
|
|
| Shares issued on exercise of employee stock options |
2,445 |
– |
1 |
– |
– |
1 |
| Dividends (including corporate dividend tax) |
– |
– |
– |
(2,126) |
– |
(2,126) |
| Fair value changes on available-for-sale financial assets, net of tax effect (refer note 2.2) |
– |
– |
– |
– |
(2) |
(2) |
| Net
profit |
– |
– |
– |
4,658 |
– |
4,658 |
| Exchange differences on translating foreign operations |
– |
– |
– |
– |
24 |
24 |
| Balance as of September 30, 2012 |
57,13,98,846 |
286 |
3,090 |
32,348 |
292 |
36,016 |
| Balance as of April 1, 2013 |
57,14,02,566 |
286 |
3,090 |
36,114 |
307 |
39,797 |
| Changes in equity for the six months ended September 30, 2013 |
|
|
|
|
|
|
| Shares issued on exercise of employee stock options |
– |
– |
– |
– |
– |
– |
| Remeasurement of the net defined benefit liability/(asset)( refer note 2.11) |
– |
– |
– |
– |
38 |
38 |
| Change in accounting policy -Adoption of Revised IAS 19 (refer note 2.11) |
– |
– |
– |
(35) |
50 |
15 |
| Dividends (including corporate dividend tax) |
– |
– |
– |
(1,806) |
– |
(1,806) |
| Fair value changes on available-for-sale financial assets, net of tax effect (refer note 2.2) |
– |
– |
– |
– |
(21) |
(21) |
| Net profit |
– |
– |
– |
4,781 |
– |
4,781 |
| Exchange differences on translating foreign operations |
– |
– |
– |
– |
395 |
395 |
| Balance as of September 30, 2013 |
57,14,02,566 |
286 |
3,090 |
39,054 |
769 |
43,199 |
* excludes
treasury shares of 28,33,600 held by consolidated trust.
The
accompanying notes form an integral part of the consolidated interim financial statements
As
per our report of even date attached
| for
B S R & Co. |
for
Infosys Limited |
Chartered
Accountants
Firm’s
Registration No : 101248W
Zubin Shekary Partner Membership No. 48814 |
N. R. Narayana Murthy Executive Chairman |
S. Gopalakrishnan Executive Vice-Chairman |
S. D. Shibulal Chief Executive Officer and Managing Director |
K. V. Kamath Director |
| |
Deepak M. Satwalekar Director |
Dr. Omkar Goswami Director |
David L. Boyles Director |
Prof. Jeffrey S. Lehman Director |
| |
R. Seshasayee Director |
Srinath Batni Director |
V. Balakrishnan Director |
B.G.Srinivas Director |
Bangalore
October 11, 2013 |
Rajiv Bansal Chief Financial Officer |
K.Parvatheesam Chief Risk Officer and Company Secretary |
|
|
Infosys
Limited and subsidiaries
(In
crore)
| Consolidated Statements of Cash Flows |
Note |
Six months ended September 30, |
| |
|
2013 |
2012 |
| Operating activities: |
|
|
|
| Net profit |
|
4,781 |
4,658 |
| Adjustments to reconcile
net profit to net cash provided by operating activities: |
|
|
|
| Depreciation and amortization |
2.5 and 2.6 |
652 |
528 |
| Income tax expense |
2.16 |
1,807 |
1,814 |
| Income on available-for-sale financial assets and certificates of deposits |
|
(114) |
(104) |
| Effect of exchange rate changes on assets and liabilities |
|
69 |
15 |
| Deferred purchase price |
|
84 |
– |
| Other non-cash item |
|
(6) |
3 |
| Changes in working capital |
|
|
|
| Trade receivables |
|
(1,260) |
(800) |
| Prepayments and other assets |
|
(95) |
(346) |
| Unbilled revenue |
|
(716) |
(73) |
| Trade payables |
|
(27) |
6 |
| Client deposits |
|
(15) |
(7) |
| Unearned revenue |
|
19 |
217 |
| Other liabilities and provisions |
|
2,283 |
296 |
| Cash generated from operations |
|
7,462 |
6,207 |
| Income taxes paid |
2.16 |
(1,667) |
(1,614) |
| Net cash provided by operating activities |
|
5,795 |
4,593 |
| Investing activities: |
|
|
|
| Payment for acquisition of intangible assets |
2.6 |
– |
(9) |
| Expenditure on property, plant and equipment net of sale proceeds, including changes in retention money and capital trade payables |
2.5 and 2.9 |
(1,192) |
(893) |
| Payment for acquisition of business, net of cash acquired |
2.3 |
– |
(5) |
| Loans to employees |
|
(26) |
(23) |
| Deposits placed with corporation |
|
(6) |
(42) |
| Income on available-for-sale financial assets |
|
83 |
87 |
| Investment in quoted debt securities |
2.2 |
(643) |
(65) |
| Investment in certificates of deposit |
|
(519) |
– |
| Redemption of certificates of deposit |
|
– |
100 |
| Investment in liquid mutual fund units |
|
(10,931) |
(9,532) |
| Redemption of liquid mutual fund units |
|
9,895 |
4,578 |
| Investment in fixed maturity plan securities |
|
(30) |
– |
| Net cash provided by / (used in) investing activities |
|
(3,369) |
(5,804) |
| Financing activities: |
|
|
|
| Proceeds from issuance of common stock on exercise of employee stock options |
|
– |
1 |
| Payment of dividends |
|
(1,543) |
(1,827) |
| Payment of corporate dividend tax |
|
(263) |
(298) |
| Net cash used in financing activities |
|
(1,806) |
(2,124) |
| Effect of exchange rate changes on cash and cash equivalents |
|
91 |
1 |
| Net
increase/(decrease) in cash and cash equivalents |
|
620 |
(3,335) |
| Cash and cash equivalents at the beginning |
2.1 |
21,832 |
20,591 |
| Cash and cash equivalents at the end |
2.1 |
22,543 |
17,257 |
| Supplementary information: |
|
|
|
| Restricted
cash balance |
2.1 |
314 |
283 |
The
accompanying notes form an integral part of the consolidated interim financial statements
As
per our report of even date attached
| for
B S R & Co. |
for
Infosys Limited |
Chartered
Accountants
Firm’s
Registration No : 101248W
Zubin Shekary Partner Membership No. 48814 |
N. R. Narayana Murthy Executive Chairman |
S. Gopalakrishnan Executive Vice-Chairman |
S. D. Shibulal Chief Executive Officer and Managing Director |
K. V. Kamath Director |
| |
Deepak M. Satwalekar Director |
Dr. Omkar Goswami Director |
David L. Boyles Director |
Prof. Jeffrey S. Lehman Director |
| |
R. Seshasayee Director |
Srinath Batni Director |
V. Balakrishnan Director |
B.G.Srinivas Director |
Bangalore
October 11, 2013 |
Rajiv Bansal Chief Financial Officer |
K.Parvatheesam Chief Risk Officer and Company Secretary |
|
|
Notes
to the Consolidated Interim Financial Statements
1.
Company Overview and Significant Accounting Policies
1.1
Company overview
Infosys
Limited (Infosys or the company) along with its controlled trusts, Infosys Limited Employees‘ Welfare Trust and Infosys
Science Foundation, majority owned and controlled subsidiary, Infosys BPO Limited and its wholly owned and controlled subsidiaries
(Infosys BPO), and its wholly owned and controlled subsidiaries Infosys Technologies (Australia) Pty. Limited (Infosys Australia),
Infosys Technologies (China) Co. Limited (Infosys China), Infosys Technologies S. DE R.L. de C.V. (Infosys Mexico), Infosys Technologies
(Sweden) AB (Infosys Sweden), Infosys Tecnologia do Brasil Ltda (Infosys Brasil), Infosys Public Services, Inc., (Infosys Public
Services), Infosys Americas Inc., (Infosys Americas), Infosys Consulting India Limited, Infosys Technologies (Shanghai) Company
Limited (Infosys Shanghai) and Lodestone Holding AG and its controlled subsidiaries (Infosys Lodestone) is a leading global technology
services company. The Infosys group of companies (the Group) provides business consulting, technology, engineering and outsourcing
services. In addition, the Group offers software products for the banking industry.
The
company is a public limited company incorporated and domiciled in India and has its registered office at Bangalore, Karnataka,
India. The company has its primary listings on the Bombay Stock Exchange and National Stock Exchange in India. The company’s
American Depositary Shares representing equity shares are also listed on the New York Stock Exchange (NYSE) following the company’s
voluntary delisting from the NASDAQ Global Select Market on December 11, 2012. The company was listed in NYSE Euronext London
and Paris on February 20, 2013.
The
Group’s consolidated interim financial statements were authorized for issue by the company’s Board of Directors on
October 11, 2013.
1.2
Basis of preparation of financial statements
These
consolidated interim financial statements have been prepared in compliance with International Financial Reporting Standards as
issued by the International Accounting Standards Board (IFRS), under the historical cost convention on the accrual basis except
for certain financial instruments and prepaid gratuity benefits which have been measured at fair values. Accounting policies have
been applied consistently to all periods presented in these consolidated interim financial statements.
1.3
Changes in accounting policies
The
Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards,
with effect from April 1, 2013.
| a. | Amendments to IFRS 7 Financial Instruments: Disclosures * |
| b. | IFRS 10 Consolidated Financial Statements (2011) (Refer 1.4) |
| c. | IFRS 11 Joint Arrangements* |
| d. | IFRS 12 Disclosure of Interests in Other Entities* |
| e. | IFRS 13 Fair Value Measurement |
On April 1, 2013, the Group adopted,
IFRS 13, “Fair Value Measurement” which establishes a single source of guidance for fair value measurement under IFRS.
IFRS 13 provides a revised definition of fair value and guidance on how it should be applied where its use is already required
or permitted by other standards within IFRS and introduces more comprehensive disclosure requirements on fair value measurement.
There was no impact on the consolidated financial statements from the adoption of the measurement requirements of IFRS 13. The
Group has provided the disclosures as required by IFRS 13 in the note “Financial Instruments” of these consolidated
financial statements.
| f. | Amendments to IAS 1- Presentation of Items of Other Comprehensive Income (Refer statement of comprehensive
income) |
As a result of the
amendments to IAS 1, the Group has modified the presentation of items of other comprehensive income in its consolidated statements
of comprehensive income, to present separately items that would be reclassified to profit or loss in the future from those that
would never be. Comparative information has also been re-presented accordingly.
The adoption of the amendment
to IAS 1 has no impact on the recognised assets, liabilities and comprehensive income of the Group.
| g. | IAS 19 Employee Benefits (2011) (Revised IAS 19) Refer 1.19.1 |
| h. | Amendments to IAS 32- Financial Instruments: Income taxes arising from distribution to equity holders* |
| i. | Amendments to IAS 34- Interim Financial Reporting: Segment information for total assets and liabilities* |
*
The adoption of these standards does not have any impact on the audited consolidated interim financial statements of the group.
1.4
Basis of consolidation
Infosys
consolidates entities which it owns or controls. As a result of IFRS 10, the Group has changed its accounting policy with respect
to the basis for determining control.
Control
exists when the parent has power over the entity, is exposed, or has rights, to variable returns from its involvement with the
entity and has the ability to affect those returns by using its power over the entity. Power is demonstrated through existing
rights that give the ability to direct relevant activities, those which significantly affect the entity's returns. Subsidiaries
are consolidated from the date control commences until the date control ceases.
Previously,
control existed when the Group had the power to govern the financial and operating policies of an entity so as to obtain benefits
from its activities. In assessing control, potential voting rights that were currently exercisable were also taken into account.
In
accordance with the transitional provisions of IFRS 10 (2011), the Group reassessed the control conclusion at April 1, 2013 and
has concluded that there is no change to the scope of the entities to be consolidated as a result of the adoption of IFRS 10
The
financial statements of the Group companies are consolidated on a line-by-line basis and intra-group balances and transactions
including unrealized gain / loss from such transactions are eliminated upon consolidation. These financial statements are prepared
by applying uniform accounting policies in use at the Group. Non-controlling interests which represent part of the net profit
or loss and net assets of subsidiaries that are not, directly or indirectly, owned or controlled by the company, are excluded.
1.5
Use of estimates
The
preparation of the financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions.
These estimates, judgments and assumptions affect the application of accounting policies and the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts
of revenues and expenses during the period. Application of accounting policies that require critical accounting estimates involving
complex and subjective judgments and the use of assumptions in these financial statements have been disclosed in Note 1.6. Accounting
estimates could change from period to period. Actual results could differ from those estimates. Appropriate changes in estimates
are made as management becomes aware of changes in circumstances surrounding the estimates. Changes in estimates are reflected
in the financial statements in the period in which changes are made and, if material, their effects are disclosed in the notes
to the consolidated interim financial statements.
1.6
Critical accounting estimates
a.
Revenue recognition
The
group uses the percentage-of-completion method in accounting for its fixed-price contracts. Use of the percentage-of-completion
method requires the group to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be
expended. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship between
input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which
such losses become probable based on the expected contract estimates at the reporting date.
b.
Income taxes
The
company's two major tax jurisdictions are India and the U.S., though the company also files tax returns in other overseas jurisdictions.
Significant judgments are involved in determining the provision for income taxes, including amount expected to be paid/recovered
for uncertain tax positions. Also refer to Note 2.16.
c.
Business combinations and intangible assets
Business
combinations are accounted for using IFRS 3 (Revised), Business Combinations. IFRS 3 requires the identifiable intangible assets
and contingent consideration to be fair valued in order to ascertain the net fair value of identifiable assets, liabilities and
contingent liabilities of the acquiree. Significant estimates are required to be made in determining the value of contingent consideration
and intangible assets. These valuations are conducted by independent valuation experts.
1.7
Revenue recognition
The
company derives revenues primarily from software related services and from the licensing of software products. Arrangements with
customers for software related services are either on a fixed-price, fixed-timeframe or on a time-and-material basis.
Revenue
on time-and-material contracts are recognized as the related services are performed and revenue from the end of the last billing
to the balance sheet date is recognized as unbilled revenues. Revenue from fixed-price, fixed-timeframe contracts, where there
is no uncertainty as to measurement or collectability of consideration, is recognized as per the percentage-of-completion method.
When there is uncertainty as to measurement or ultimate collectability revenue recognition is postponed until such uncertainty
is resolved. Efforts or costs expended have been used to measure progress towards completion as there is a direct relationship
between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in
which such losses become probable based on the current contract estimates. Costs and earnings in excess of billings are classified
as unbilled revenue while billings in excess of costs and earnings are classified as unearned revenue. Maintenance revenue is
recognised rateably over the term of the underlying maintenance arrangement.
In
arrangements for software development and related services and maintenance services, the company has applied the guidance in IAS
18, Revenue, by applying the revenue recognition criteria for each separately identifiable component of a single transaction.
The arrangements generally meet the criteria for considering software development and related services as separately identifiable
components. For allocating the consideration, the company has measured the revenue in respect of each separable component of a
transaction at its fair value, in accordance with principles given in IAS 18. The price that is regularly charged for an item
when sold separately is the best evidence of its fair value. In cases where the company is unable to establish objective and reliable
evidence of fair value for the software development and related services, the company has used a residual method to allocate the
arrangement consideration. In these cases the balance of the consideration, after allocating the fair values of undelivered components
of a transaction has been allocated to the delivered components for which specific fair values do not exist.
License
fee revenues are recognized when the general revenue recognition criteria given in IAS 18 are met. Arrangements to deliver software
products generally have three elements: license, implementation and Annual Technical Services (ATS). The company has applied the
principles given in IAS 18 to account for revenues from these multiple element arrangements. Objective and reliable evidence of
fair value has been established for ATS. Objective and reliable evidence of fair value is the price charged when the element is
sold separately. When other services are provided in conjunction with the licensing arrangement and objective and reliable evidence
of their fair values have been established, the revenue from such contracts are allocated to each component of the contract in
a manner, whereby revenue is deferred for the undelivered services and the residual amounts are recognized as revenue for delivered
elements. In the absence of objective and reliable evidence of fair value for implementation, the entire arrangement fee for license
and implementation is recognized using the percentage-of-completion method as the implementation is performed. Revenue from client
training, support and other services arising due to the sale of software products is recognized as the services are performed.
ATS revenue is recognised ratably over the period in which the services are rendered.
Advances
received for services and products are reported as client deposits until all conditions for revenue recognition are met.
The
company accounts for volume discounts and pricing incentives to customers as a reduction of revenue based on the rateable allocation
of the discounts/ incentives amount to each of the underlying revenue transaction that results in progress by the customer towards
earning the discount/ incentive. Also, when the level of discount varies with increases in levels of revenue transactions, the
company recognizes the liability based on its estimate of the customer's future purchases. If it is probable that the criteria
for the discount will not be met, or if the amount thereof cannot be estimated reliably, then discount is not recognized until
the payment is probable and the amount can be estimated reliably. The company recognizes changes in the estimated amount of obligations
for discounts in the period in which the change occurs. The discounts are passed on to the customer either as direct payments
or as a reduction of payments due from the customer.
The
company presents revenues net of value-added taxes in its statement of comprehensive income.
1.8
Property, plant and equipment
Property,
plant and equipment are stated at cost, less accumulated depreciation and impairments, if any. Costs directly attributable to
acquisition are capitalized until the property, plant and equipment are ready for use, as intended by management. The group depreciates
property, plant and equipment over their estimated useful lives using the straight-line method. The estimated useful lives of
assets for current and comparative periods are as follows:
| Buildings
|
15
years |
| Plant and
machinery |
5
years |
| Computer
equipment |
2-5
years |
| Furniture
and fixtures |
5
years |
| Vehicles |
5
years |
Depreciation
methods, useful lives and residual values are reviewed at each reporting date.
Advances
paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date and the cost of assets not
put to use before such date are disclosed under ‘Capital work-in-progress’. Subsequent expenditures relating to property,
plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the
Group and the cost of the item can be measured reliably. Repairs and maintenance costs are recognized in net profit in the statement
of comprehensive income when incurred. The cost and related accumulated depreciation are eliminated from the financial statements
upon sale or retirement of the asset and the resultant gains or losses are recognized in net profit in the statement of comprehensive
income. Assets to be disposed off are reported at the lower of the carrying value or the fair value less cost to sell.
1.9
Business combinations
Business
combinations have been accounted for using the acquisition method under the provisions of IFRS 3 (Revised), Business Combinations.
The
cost of an acquisition is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred
or assumed at the date of acquisition, which is the date on which control is transferred to the Group. The cost of acquisition
also includes the fair value of any contingent consideration. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair value on the date of acquisition.
Transaction
costs that the Group incurs in connection with a business combination such as finders’ fees, legal fees, due diligence fees,
and other professional and consulting fees are expensed as incurred.
1.10
Goodwill
Goodwill
represents the cost of business acquisition in excess of the Group's interest in the net fair value of identifiable assets, liabilities
and contingent liabilities of the acquiree. When the net fair value of the identifiable assets, liabilities and contingent liabilities
acquired exceeds the cost of business acquisition, a gain is recognized immediately in net profit in the statement of comprehensive
income. Goodwill is measured at cost less accumulated impairment losses.
1.11
Intangible assets
Intangible
assets are stated at cost less accumulated amortization and impairment. Intangible assets are amortized over their respective
individual estimated useful lives on a straight-line basis, from the date that they are available for use. The estimated useful
life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence, demand, competition,
and other economic factors (such as the stability of the industry, and known technological advances), and the level of maintenance
expenditures required to obtain the expected future cash flows from the asset.
Research
costs are expensed as incurred. Software product development costs are expensed as incurred unless technical and commercial feasibility
of the project is demonstrated, future economic benefits are probable, the company has an intention and ability to complete and
use or sell the software and the costs can be measured reliably. The costs which can be capitalized include the cost of material,
direct labour, overhead costs that are directly attributable to preparing the asset for its intended use. Research and development
costs and software development costs incurred under contractual arrangements with customers are accounted as cost of sales.
1.12 Financial
instruments
Financial
instruments of the Group are classified in the following categories: non-derivative financial instruments comprising of loans
and receivables, available-for-sale financial assets and trade and other payables; derivative financial instruments under the
category of financial assets or financial liabilities at fair value through profit or loss; share capital and treasury shares.
The classification of financial instruments depends on the purpose for which those were acquired. Management determines the classification
of its financial instruments at initial recognition.
a.
Non-derivative financial instruments
(i) Loans and receivables
Loans
and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are presented as current assets, except for those maturing later than 12 months after the balance sheet date which are presented
as non-current assets. Loans and receivables are measured initially at fair value plus transaction costs and subsequently carried
at amortized cost using the effective interest method, less any impairment loss or provisions for doubtful accounts. Loans and
receivables are represented by trade receivables, net of allowances for impairment, unbilled revenue, cash and cash equivalents,
prepayments, certificates of deposit, and other assets. Cash and cash equivalents comprise cash and bank deposits and deposits
with corporations. The company considers all highly liquid investments with a remaining maturity at the date of purchase of three
months or less and that are readily convertible to known amounts of cash to be cash equivalents. Certificates of deposit is a
negotiable money market instrument for funds deposited at a bank or other eligible financial institution for a specified time
period. For these financial instruments, the carrying amounts approximate fair value due to the short maturity of these instruments.
Loans and receivables are reclassified to available-for-sale financial assets when the financial asset becomes quoted in an active
market.
(ii)
Available-for-sale financial assets
Available-for-sale
financial assets are non-derivatives that are either designated in this category or are not classified in any of the other categories.
Available-for-sale financial assets are recognized initially at fair value plus transactions costs. Subsequent to initial recognition
these are measured at fair value and changes therein, other than impairment losses and foreign exchange gains and losses on available-for-sale
monetary items are recognized directly in other comprehensive income. When an investment is derecognized, the cumulative gain
or loss in other comprehensive income is transferred to net profit in the statement of comprehensive income. These are presented
as current assets unless management intends to dispose off the assets after 12 months from the balance sheet date.
(iii)
Trade and other payables
Trade
and other payables are initially recognized at fair value, and subsequently carried at amortized cost using the effective interest
method. For these financial instruments, the carrying amounts approximate fair value due to the short maturity of these instruments.
b.
Derivative financial instruments
Financial
assets or financial liabilities, at fair value through profit or loss.
This
category has two sub-categories wherein, financial assets or financial liabilities are held for trading or are designated as such
upon initial recognition. A financial asset is classified as held for trading if it is acquired principally for the purpose of
selling in the short term. Derivatives are categorized as held for trading unless they are designated as hedges.
The
group holds derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes
in foreign exchange rates on trade receivables and forecasted cash flows denominated in certain foreign currencies. The counterparty
for these contracts is generally a bank or a financial institution. Although the group believes that these financial instruments
constitute hedges from an economic perspective, they do not qualify for hedge accounting under IAS 39, Financial Instruments:
Recognition and Measurement. Any derivative that is either not designated a hedge, or is so designated but is ineffective per
IAS 39, is categorized as a financial asset, at fair value through profit or loss.
Derivatives
are recognized initially at fair value and attributable transaction costs are recognized in net profit in the statement of comprehensive
income when incurred. Subsequent to initial recognition, derivatives are measured at fair value through profit or loss and the
resulting exchange gains or losses are included in other income. Assets/ liabilities in this category are presented as current
assets/current liabilities if they are either held for trading or are expected to be realized within 12 months after the balance
sheet date.
c.
Share capital and treasury shares
Ordinary
Shares
Ordinary
shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares and share options
are recognized as a deduction from equity, net of any tax effects.
Treasury
Shares
When
any entity within the Group purchases the company's ordinary shares, the consideration paid including any directly attributable
incremental cost is presented as a deduction from total equity, until they are cancelled, sold or reissued. When treasury shares
are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit
on the transaction is transferred to/ from share premium.
1.13
Impairment
a.
Financial assets
The
Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets
is impaired. A financial asset is considered impaired if objective evidence indicates that one or more events have had a negative
effect on the estimated future cash flows of that asset. Individually significant financial assets are tested for impairment on
an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
(i) Loans
and receivables
Impairment
loss in respect of loans and receivables measured at amortized cost are calculated as the difference between their carrying amount,
and the present value of the estimated future cash flows discounted at the original effective interest rate. Such impairment loss
is recognized in net profit in the statement of comprehensive income.
(ii) Available-for-sale
financial assets
Significant
or prolonged decline in the fair value of the security below its cost and the disappearance of an active trading market for the
security are objective evidence that the security is impaired. An impairment loss in respect of an available-for-sale financial
asset is calculated by reference to its fair value and is recognized in net profit in the statement of comprehensive income. The
cumulative loss that was recognized in other comprehensive income is transferred to net profit in the statement of comprehensive
income upon impairment.
b.
Non-financial assets
(i)
Goodwill
Goodwill
is tested for impairment on an annual basis and whenever there is an indication that goodwill may be impaired, relying on a number
of factors including operating results, business plans and future cash flows. For the purpose of impairment testing, goodwill
acquired in a business combination is allocated to the Group's cash generating units (CGU) or groups of CGU’s expected to
benefit from the synergies arising from the business combination. A CGU is the smallest identifiable group of assets that generates
cash inflows that are largely independent of the cash inflows from other assets or group of assets. Impairment occurs when the
carrying amount of a CGU including the goodwill, exceeds the estimated recoverable amount of the CGU. The recoverable amount of
a CGU is the higher of its fair value less cost to sell and its value-in-use. Value-in-use is the present value of future cash
flows expected to be derived from the CGU.
Total
impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other
assets of the CGU pro-rata on the basis of the carrying amount of each asset in the CGU. An impairment loss on goodwill is recognized
in net profit in the statement of comprehensive income and is not reversed in the subsequent period.
(ii)
Intangible assets and property, plant and equipment
Intangible
assets and property, plant and equipment are evaluated for recoverability whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher
of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not
generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined
for the CGU to which the asset belongs.
If
such assets are considered to be impaired, the impairment to be recognized in net profit in the statement of comprehensive income
is measured by the amount by which the carrying value of the assets exceeds the estimated recoverable amount of the asset.
c.
Reversal of impairment loss
An
impairment loss for financial assets is reversed if the reversal can be related objectively to an event occurring after the impairment
loss was recognized. An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss
is reversed if there has been a change in the estimates used to determine the recoverable amount. The carrying amount of an asset
other than goodwill is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount
that would have been determined (net of any accumulated amortization or depreciation) had no impairment loss been recognized for
the asset in prior years. A reversal of impairment loss for an asset other than goodwill and available- for-sale financial assets
that are equity securities is recognized in net profit in the statement of comprehensive income. For available-for-sale financial
assets that are equity securities, the reversal is recognized in other comprehensive income.
1.14
Fair value of financial instruments
In
determining the fair value of its financial instruments, the group uses a variety of methods and assumptions that are based on
market conditions and risks existing at each reporting date. The methods used to determine fair value include discounted cash
flow analysis, available quoted market prices and dealer quotes. All methods of assessing fair value result in general approximation
of value, and such value may never actually be realized.
For
all other financial instruments the carrying amounts approximate fair value due to the short maturity of those instruments. The
fair value of securities, which do not have an active market and where it is not practicable to determine the fair values with
sufficient reliability, are carried at cost less impairment.
1.15
Provisions
A
provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability.
a) Post sales client support
The
group provides its clients with a fixed-period post sales support for corrections of errors and telephone support on all its fixed-price,
fixed-timeframe contracts. Costs associated with such support services are accrued at the time related revenues are recorded and
included in cost of sales. The group estimates such costs based on historical experience and estimates are reviewed on a periodic
basis for any material changes in assumptions and likelihood of occurrence.
b) Onerous contracts
Provisions
for onerous contracts are recognized when the expected benefits to be derived by the Group from a contract are lower than the
unavoidable costs of meeting the future obligations under the contract. The provision is measured at the present value of the
lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision
is established the Group recognizes any impairment loss on the assets associated with that contract.
1.16
Foreign currency
Functional
currency
The
functional currency of Infosys, Infosys BPO and Infosys Consulting India is the Indian rupee. The functional currencies for Infosys
Australia, Infosys China, Infosys Mexico, Infosys Sweden, Infosys Brasil, Infosys Public Services, Infosys Shanghai, Infosys Lodestone
and Infosys Americas are the respective local currencies. These financial statements are presented in Indian rupees (rounded off
to crore; one crore equals ten million).
Transactions
and translations
Foreign-currency
denominated monetary assets and liabilities are translated into the relevant functional currency at exchange rates in effect at
the balance sheet date. The gains or losses resulting from such translations are included in net profit in the statement of comprehensive
income. Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair value are translated
at the exchange rate prevalent at the date when the fair value was determined. Non-monetary assets and non-monetary liabilities
denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of
transaction
Transaction
gains or losses realized upon settlement of foreign currency transactions are included in determining net profit for the period
in which the transaction is settled. Revenue, expense and cash-flow items denominated in foreign currencies are translated into
the relevant functional currencies using the exchange rate in effect on the date of the transaction.
The
translation of financial statements of the foreign subsidiaries to the functional currency of the company is performed for assets
and liabilities using the exchange rate in effect at the balance sheet date and for revenue, expense and cash-flow items using
the average exchange rate for the respective periods. The gains or losses resulting from such translation are included in currency
translation reserves under other components of equity. When a subsidiary is disposed off, in full, the relevant amount is transferred
to net profit in the statement of comprehensive income.However when a change in the parent's ownership does not result in loss
of control of a subsidiary, such changes are recorded through equity.
Goodwill
and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the exchange rate in effect at the balance sheet date.
1.17
Earnings per equity share
Basic
earnings per equity share is computed by dividing the net profit attributable to the equity holders of the company by the weighted
average number of equity shares outstanding during the period. Diluted earnings per equity share is computed by dividing the net
profit attributable to the equity holders of the company by the weighted average number of equity shares considered for deriving
basic earnings per equity share and also the weighted average number of equity shares that could have been issued upon conversion
of all dilutive potential equity shares. The dilutive potential equity shares are adjusted for the proceeds receivable had the
equity shares been actually issued at fair value (i.e. the average market value of the outstanding equity shares). Dilutive potential
equity shares are deemed converted as of the beginning of the period, unless issued at a later date. Dilutive potential equity
shares are determined independently for each period presented.
The
number of equity shares and potentially dilutive equity shares are adjusted retrospectively for all periods presented for any
share splits and bonus shares issues including for changes effected prior to the approval of the financial statements by the Board
of Directors.
1.18
Income taxes
Income
tax expense comprises current and deferred income tax. Income tax expense is recognized in net profit in the statement of comprehensive
income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in other comprehensive
income. Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from
the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.
Deferred income tax assets and liabilities are recognized for all temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial
recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting
nor taxable profit or loss at the time of the transaction. Deferred tax assets are reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred
income tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted by
the balance sheet date and are expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities is recognized as
income or expense in the period that includes the enactment or the substantive enactment date. A deferred income tax asset is
recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary
differences and tax losses can be utilized. Deferred income taxes are not provided on the undistributed earnings of subsidiaries
and branches where it is expected that the earnings of the subsidiary or branch will not be distributed in the foreseeable future.
The income tax provision for the interim period is made based on the best estimate of the annual average tax rate expected to
be applicable for the full financial year. The group offsets current tax assets and current tax liabilities, where it has a legally
enforceable right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize the asset
and settle the liability simultaneously. Tax benefits of deductions earned on exercise of employee share options in excess of
compensation charged to income are credited to share premium.
1.19
Employee benefits
1.19.1
Gratuity
Infosys
provides for gratuity, a defined benefit retirement plan (the Gratuity Plan) covering eligible employees. The Gratuity Plan provides
a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on
the respective employee's salary and the tenure of employment.
Liabilities
with regard to the Gratuity Plan are determined by actuarial valuation, performed by an independent actuary, at each balance sheet
date using the projected unit credit method. The company fully contributes all ascertained liabilities to the Infosys Limited
Employees' Gratuity Fund Trust (the Trust). In case of Infosys BPO, contributions are made to the Infosys BPO's Employees' Gratuity
Fund Trust. Trustees administer contributions made to the Trusts and contributions are invested in a scheme with Life Insurance
Corporation as permitted by law.
The
group has adopted Revised IAS 19 effective April 1, 2013. Pursuant to this adoption, the Group recognizes the net obligation of
a defined benefit plan in its balance sheet as an asset or liability.The amended standard requires immediate recognition of the
gains and losses through re-measurements of the net defined benefit liability/ (asset) through other comprehensive income. Further
it also requires the interest expense (income) on plan assets to be considered in the Profit and Loss to be restricted to the
discount rate based on the Government securities yield. The actual return of the portfolio, in excess of such yields is recognised
through the other comprehensive income. The Revised IAS 19 also requires effect of any plan amendments to be recognised immediately
through the net profits, in the statement of comprehensive income.
Previously,
the actuarial gains and losses were charged or credited to net profit in the statement of comprehensive income in the period in
which they arose and the expected return on plan assets computed based on market expectations were considered as part of the net
gratuity cost.
The
adoption of Revised IAS 19 Employee Benefits did not have a material impact on the consolidated financial statements.
1.19.2
Superannuation
Certain
employees of Infosys are also participants in a defined contribution plan. The company has no further obligations to the Plan
beyond its monthly contributions. Certain employees of Infosys BPO are also eligible for superannuation benefit. Infosys BPO has
no further obligations to the superannuation plan beyond its monthly contribution which are periodically contributed to a trust
fund, the corpus of which is invested with the Life Insurance Corporation of India.
1.19.3
Provident fund
Eligible
employees of Infosys receive benefits from a provident fund, which is a defined benefit plan. Both the employee and the company
make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee's salary. The company
contributes a part of the contributions to the Infosys Limited Employees' Provident Fund Trust. The trust invests in specific
designated instruments as permitted by Indian law. The remaining portion is contributed to the government administered pension
fund. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the government.
The company has an obligation to make good the shortfall, if any, between the return from the investments of the Trust and the
notified interest rate.
In
respect of Infosys BPO, eligible employees receive benefits from a provident fund, which is a defined contribution plan. Both
the employee and Infosys BPO make monthly contributions to this provident fund plan equal to a specified percentage of the covered
employee's salary. Amounts collected under the provident fund plan are deposited in a government administered provident fund.
The company has no further obligation to the plan beyond its monthly contributions.
1.19.4
Compensated absences
The
Group has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating
compensated absences is determined by actuarial valuation on the additional amount expected to be paid/availed as a result of
the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognized
in the period in which the absences occur.
1.20
Share-based compensation
The
Group recognizes compensation expense relating to share-based payments in net profit using a fair-value measurement method in
accordance with IFRS 2, Share-Based Payment. Under the fair value method, the estimated fair value of awards is charged to income
on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was
in-substance, multiple awards. The Group includes a forfeiture estimate in the amount of compensation expense being recognized.
The
fair value of each option is estimated on the date of grant using the Black-Scholes-Merton valuation model. The expected term
of an option is estimated based on the vesting term and contractual term of the option, as well as expected exercise behaviour
of the employee who receives the option. Expected volatility during the expected term of the option is based on historical volatility,
during a period equivalent to the expected term of the option, of the observed market prices of the company's publicly traded
equity shares. Expected dividends during the expected term of the option are based on recent dividend activity. Risk-free interest
rates are based on the government securities yield in effect at the time of the grant over the expected term.
1.21
Dividends
Final
dividends on shares are recorded as a liability on the date of approval by the shareholders and interim dividends are recorded
as a liability on the date of declaration by the company's Board of Directors.
1.22
Operating profit
Operating
profit for the Group is computed considering the revenues, net of cost of sales, selling and marketing expenses and administrative
expenses.
1.23
Other income
Other
income is comprised primarily of interest income, dividend income and exchange gain/loss on forward and options contracts and
on translation of other assets and liabilities. Interest income is recognized using the effective interest method. Dividend income
is recognized when the right to receive payment is established.
1.24
Leases
Leases
under which the group assumes substantially all the risks and rewards of ownership are classified as finance leases. When acquired,
such assets are capitalized at fair value or present value of the minimum lease payments at the inception of the lease, whichever
is lower. Lease payments under operating leases are recognised as an expense on a straight line basis in net profit in the statement
of comprehensive income over the lease term.
1.25
Government grants
The
Group recognizes government grants only when there is reasonable assurance that the conditions attached to them shall be complied
with, and the grants will be received. Government grants related to assets are treated as deferred income and are recognized in
net profit in the statement of comprehensive income on a systematic and rational basis over the useful life of the asset. Government
grants related to revenue are recognized on a systematic basis in net profit in the statement of comprehensive income over the
periods necessary to match them with the related costs which they are intended to compensate.
1.26 Recent
accounting pronouncements
1.26.1
Standards issued but not yet effective
IFRS
9 Financial Instruments: In November 2009, the International Accounting Standards Board issued IFRS 9, Financial Instruments:
Recognition and Measurement, to reduce the complexity of the current rules on financial instruments as mandated in IAS 39. The
effective date for IFRS 9 is annual periods beginning on or after January 1, 2015 with early adoption permitted. IFRS 9 has fewer
classification and measurement categories as compared to IAS 39 and has eliminated the categories of held to maturity, available
for sale and loans and receivables. Further it eliminates the rule-based requirement of segregating embedded derivatives and tainting
rules pertaining to held to maturity investments. For an investment in an equity instrument which is not held for trading, IFRS
9 permits an irrevocable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes
from the investment in other comprehensive income. No amount recognized in other comprehensive income would ever be reclassified
to profit or loss. IFRS 9, was further amended in October 2010, and such amendment introduced requirements on accounting for financial
liabilities. This amendment addresses the issue of volatility in the profit or loss due to changes in the fair value of an entity’s
own debt. It requires the entity, which chooses to measure a liability at fair value, to present the portion of the fair value
change attributable to the entity’s own credit risk in the other comprehensive income. The group is required to adopt IFRS
9 by accounting year commencing April 1, 2015. The group is currently evaluating the requirements of IFRS 9, and has not yet determined
the impact on the consolidated interim financial statements.
Amendments
to IAS 32 Offsetting Financial Assets and Financial Liabilities : In December 2011, the International Accounting Standards
Board issued amendments to IAS 32, Offsetting Financial Assets and Financial Liabilities. The amendments clarify that:
| - | an entity currently has a legally enforceable right to set-off if that
right is- |
| - | not contingent on future event; and |
| - | enforceable both in the normal course of business and in the event of
default, insolvency or bankruptcy of the entity and all counterparties; |
| - | gross settlement is equivalent to net settlement if and only if the gross
settlement mechanism has features that: |
| - | eliminate or result in insignificant credit and liquidity risk; and |
| - | process receivables and payables in a single settlement process or cycle. |
The
group is required to adopt amendments to IAS 32 by accounting year commencing April 1, 2014. The group is currently evaluating
the requirements of IAS 32 amendments and has not yet determined the impact on the consolidated interim financial statements
2.
Notes to the consolidated interim financial statements
2.1
Cash and cash equivalents
Cash
and cash equivalents consist of the following:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Cash and bank deposits |
18,935 |
18,728 |
| Deposits with corporations |
3,608 |
3,104 |
| |
22,543 |
21,832 |
Cash
and cash equivalents as of September 30, 2013 and March 31, 2013 include restricted cash and bank balances of 314 crore and 305
crore, respectively. The restrictions are primarily on account of cash and bank balances held by irrevocable trusts controlled
by the Company, and bank balances held as margin money deposits against guarantees and balances held in unclaimed dividend bank
accounts.
The
deposits maintained by the Group with banks and corporations comprise of time deposits, which can be withdrawn by the Group at
any point without prior notice or penalty on the principal.
The
table below provides details of cash and cash equivalents:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Current Accounts |
|
|
| ANZ Bank, Taiwan |
– |
2 |
| Bank of America, Mexico |
9 |
4 |
| Bank of America, USA |
229 |
904 |
| Bank Zachodni WBK S.A |
3 |
3 |
| Barclays Bank, UK |
22 |
12 |
| Bonz Bank, Australia |
2 |
– |
| China Merchants Bank, China |
1 |
1 |
| Citibank NA, Australia |
150 |
174 |
| Citibank NA, Brazil |
12 |
14 |
| Citibank N.A, China |
74 |
46 |
| Citibank N.A, China (U.S. dollar account) |
– |
1 |
| Citibank N.A, Costa Rica |
2 |
1 |
| Citibank N.A., Czech Republic |
2 |
2 |
| Citibank NA, Dubai |
2 |
4 |
| Citibank NA, New Zealand |
2 |
2 |
| Citibank NA, Japan |
23 |
16 |
| Citibank NA, India |
4 |
14 |
| Citibank NA, Philippines (U.S. dollar account) |
1 |
– |
| Citibank NA, Thailand |
1 |
1 |
| Citibank NA, South Africa |
7 |
1 |
| Citibank EEFC, India (U.S. dollar account) |
9 |
111 |
| Commerzbank, Germany |
41 |
8 |
| Deustche Bank, India |
3 |
11 |
| Deutsche Bank, Czech Republic |
– |
3 |
| Deutsche Bank, Czech Republic (U.S. dollar account) |
2 |
2 |
| Deutsche Bank, Czech Republic (Euro account) |
1 |
5 |
| Deutsche Bank, Belgium |
5 |
10 |
| Deutsche Bank, France |
1 |
5 |
| Deutsche Bank, Germany |
18 |
14 |
| Deutsche Bank, Netherlands |
8 |
11 |
| Deustche Bank, Philippines |
2 |
3 |
| Deustche Bank, Philippines (U.S. dollar account) |
3 |
1 |
| Deustche Bank, Poland |
7 |
12 |
| Deustche Bank, Poland (Euro account) |
15 |
2 |
| Deutsche Bank, Russia |
2 |
1 |
| Deutsche Bank, Russia (U.S. dollar account) |
– |
1 |
| Deutsche Bank, Spain |
2 |
2 |
| Deutsche Bank, Singapore |
1 |
1 |
| Deutsche Bank, Switzerland |
1 |
1 |
| Deutsche Bank, Transze |
– |
1 |
| Deutsche Bank, United Kingdom |
163 |
70 |
| Deustche Bank-EEFC (Euro account) |
18 |
21 |
| Deustche Bank-EEFC (Swiss Franc account) |
2 |
2 |
| Deustche Bank-EEFC (U.S. dollar account) |
460 |
64 |
| HDFC Bank-Unclaimed dividend account |
1 |
1 |
| HSBC Bank, Brazil |
4 |
2 |
| ICICI Bank, India |
106 |
50 |
| ICICI Bank-EEFC (Euro account) |
– |
2 |
| ICICI Bank-EEFC (United Kingdom Pound Sterling account) |
1 |
6 |
| ICICI Bank-EEFC (U.S. dollar account) |
14 |
13 |
| ICICI Bank-Unclaimed dividend account |
2 |
2 |
| ING, Belgium |
1 |
2 |
| ING, Netherlands |
1 |
– |
| Nordbanken, Sweden |
14 |
2 |
| Shanghai Pudong Development Bank, China |
– |
1 |
| Punjab National Bank, India |
2 |
3 |
| RBS, Denmark |
1 |
1 |
| Royal Bank of Canada, Canada |
28 |
15 |
| Royal Bank of Scotland, China |
34 |
52 |
| Royal Bank of Scotland, China (U.S. dollar account) |
33 |
4 |
| Raiffeisen Bank, Romania |
2 |
– |
| Raiffeisen Bank, Czech Republic |
1 |
– |
| State Bank of India |
1 |
– |
| The Bank of Tokyo-Mitsubishi UFJ,Ltd.,Japan |
– |
1 |
| Westpac, Australia |
4 |
2 |
| UBS AG, Switzerland |
19 |
1 |
| Landbouwkrediet, Belgium (Euro account) |
1 |
1 |
| |
1,580 |
1,725 |
| Deposit Accounts |
|
|
| Andhra Bank |
704 |
704 |
| Allahabad Bank |
355 |
275 |
| Axis Bank |
840 |
1,060 |
| Anz Bank |
– |
6 |
| Bank of America, Mexico |
– |
15 |
| Bank of Baroda |
1,159 |
1,919 |
| Bank of India |
1,674 |
1,891 |
| Canara Bank |
2,623 |
2,186 |
| Central Bank of India |
1,308 |
1,262 |
| Corporation Bank |
779 |
779 |
| Citibank, China |
15 |
79 |
| Deustche Bank, Poland |
87 |
55 |
| Federal Bank |
25 |
25 |
| ICICI Bank |
2,902 |
2,598 |
| IDBI Bank |
1,439 |
995 |
| ING Vysya Bank |
100 |
88 |
| Indusind Bank |
25 |
– |
| Indian Overseas Bank |
593 |
441 |
| Jammu and Kashmir Bank |
25 |
25 |
| Kotak Mahindra Bank |
280 |
280 |
| National Australia Bank Limited, Australia |
78 |
7 |
| Nordbanken, Sweden |
– |
1 |
| Oriental Bank of Commerce |
695 |
824 |
| Punjab National Bank |
80 |
– |
| Ratnakar Bank |
5 |
5 |
| South Indian Bank |
40 |
65 |
| State Bank of Hyderabad |
700 |
700 |
| State Bank of India |
58 |
58 |
| Standard Chartered Bank |
106 |
– |
| Union Bank of India |
80 |
80 |
| Vijaya Bank |
380 |
380 |
| Yes Bank |
200 |
200 |
| |
17,355 |
17,003 |
| Deposits with corporations |
|
|
| HDFC Limited |
3,608 |
3,104 |
| |
3,608 |
3,104 |
| Total |
22,543 |
21,832 |
2.2
Available-for-sale financial assets
Investments
in liquid mutual fund, fixed maturity plan securities, quoted debt securities and unquoted equity securities are classified as
available-for-sale financial assets.
Cost
and fair value of investment in liquid mutual fund, fixed maturity plan securities, quoted debt securities and unquoted equity
securities are as follows:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Current |
|
|
| Liquid mutual fund units: |
|
|
| Cost and fair value |
2,777 |
1,739 |
| Fixed maturity plan securities: |
|
|
| Cost |
30 |
– |
| Gross unrealised holding gains |
1 |
– |
| Fair value |
31 |
– |
| Quoted debt securities: |
|
|
| Cost |
2 |
– |
| Gross unrealised holding gains |
– |
– |
| Fair value |
2 |
– |
| |
2,810 |
1,739 |
| Non-current |
|
|
| Quoted debt securities: |
|
|
| Cost |
1,043 |
380 |
| Gross unrealised holding gain/ (loss) |
(17) |
7 |
| Fair value |
1,026 |
387 |
| Unquoted equity securities: |
|
|
| Cost |
4 |
4 |
| Gross unrealised holding gains |
1 |
3 |
| Fair value |
5 |
7 |
| |
1,031 |
394 |
| Total available-for-sale financial assets |
3,841 |
2,133 |
Fixed
maturity plan securities:
During
the three months ended September 30, 2013, the company invested in fixed maturity plan securities. The fair value as of September
30, 2013 is 31 crore. The net unrealized gain of 1 crore, net of taxes of less than 1 crore has been recognized in other comprehensive
income for the three months and six months ended September 30, 2013 respectively. The fair value of 31 crore has been derived
based on the quoted prices as of September 30, 2013.
Quoted
debt securities:
The
company has invested in current and non-current quoted debt securities. The fair value of the non-current quoted debt securities
as of September 30, 2013 and March 31, 2013 is 1,026 crore and 387 crore, respectively. The net unrealized loss of 20 crore
and 21 crore, net of taxes of 3 crore each has been recognized in other comprehensive income for the three months and six months
ended September 30, 2013 respectively. The fair value of 1,026 crore has been derived based on the quoted prices as of September
30, 2013.
The
fair value of the current quoted debt securities as of September 30, 2013 and March 31, 2013 is 2 crore and Nil, respectively.
The net unrealized loss of less than 1 crore , net of taxes of less than 1 crore has been recognized in other comprehensive
income for the three months ended September 30, 2013 respectively. The fair value of 2 crore has been derived based on the quoted
prices as of September 30, 2013.
Unquoted
equity securities:
During
February 2010, Infosys sold 32,31,151 shares of OnMobile Systems Inc, U.S.A, at a price of 166.58 per share, derived from quoted
prices of the underlying marketable equity securities.
As
of September 30, 2013 the 21,54,100 shares were fair valued at 5 crore and the resultant unrealized loss of 1 crore, net of
taxes of 1 crore has been recognized in other comprehensive income for the six months ended September 30, 2013. The fair value
of 5 crore and 7 crore as of September 30, 2013 and March 31, 2013, respectively has been derived based on an agreed upon exchange
ratio between these unquoted equity securities and quoted prices of the underlying marketable equity securities.
Unrealized
loss of 1 crore each, net of taxes of less than 1 crore and 1 crore respectively, has been recognized in other comprehensive
income for the three months and six months ended September 30, 2013.
2.3
Business combinations
During
the year ended March 31, 2010, Infosys BPO acquired 100% of the voting interests in Infosys McCamish Systems LLC (formerly known
as McCamish Systems LLC) (McCamish), a business process solutions provider based in Atlanta, Georgia, in the United States. The
business acquisition was conducted by entering into Membership Interest Purchase Agreement for a cash consideration of 173
crore and a contingent consideration of upto 93 crore. The fair value of contingent consideration and its undiscounted
value on the date of acquisition was 40 crore and 67 crore, respectively.
The
payment of contingent consideration was dependent upon the achievement of certain revenue targets and net margin targets by McCamish
over a period of 4 years ending March 31, 2014. Further, contingent to McCamish signing any deal with a customer with total revenues
of USD 100 million or more, the aforesaid period could be extended by 2 years. The total contingent consideration was estimated
to be in the range between 67 crore and 93 crore. The fair value of contingent consideration is determined by
discounting the estimated amount payable to the previous owners of McCamish on achievement of certain financial targets. The key
inputs used for the determination of the fair value of contingent consideration was the discount rate of 13.9% and the probabilities
of achievement of the net margin and the revenue targets ranging from 50% to 100%.
During
the three months and six months ended September 30, 2013, the liability related to contingent consideration increased by less
than 1 crore and 1 crore , respectively due to passage of time.
During
the year ended March 31, 2013, McCamish entered into an asset purchase agreement with Seabury & Smith Inc., a company providing
back office services to life insurers, to purchase its BPO division for a cash consideration of 5 crore and a deferred consideration
of 5 crore. Consequent to the transaction intangible assets on customer contracts and relationships of 5 crore and intangible
software of 1 crore and goodwill of 4 crore has been recorded. The intangible customer contracts and relationships and software
are being amortized over a period of five years and four months, respectively, being management’s estimate of its useful
life, based on the life over which economic benefits are expected to be realized. During the three months ended September 30,
2013, based on an assessment made by the management, deferred consideration of 5 crore has been reversed in the statement of
comprehensive income, as the same is no longer payable.
During
the year ended March 31, 2013, pursuant to McCamish entering into the asset purchase agreement with Seabury & Smith Inc.,
an assessment of the probability of McCamish achieving the required revenue and net margin targets pertaining to contingent consideration
was conducted. The assessment was based on the actual and projected revenues and net margins pertaining to McCamish post consummation
of the asset purchase transaction. Consequently, the fair value of the contingent consideration and its related undiscounted value
was determined at 17 crore and 23 crore, respectively, and the related liability no longer required were reversed in the statement
of comprehensive income. The contingent consideration is estimated to be in the range between 23 crore and 33
crore. As of September 30, 2013 the fair value of the contingent consideration and its related undiscounted value is 22 crore
and 27 crore, respectively
On
January 4, 2012 Infosys BPO acquired 100% of the voting interest in Portland Group Pty. Ltd. a strategic sourcing and category
management services provider based in Australia. The business acquisition was conducted by entering into a share sale agreement
for a cash consideration of 200 crore.
On
October 22, 2012, Infosys acquired 100% of the voting interests in Lodestone Holding AG, a global management consultancy firm
headquartered in Zurich. The business acquisition was conducted by entering into a share purchase agreement for a cash consideration
of 1,187 crore and and an additional consideration of upto 608 crore, which the company refers to as deferred purchase price,
payable to the selling shareholders of Lodestone Holding AG who are continuously employed or otherwise engaged by the Group during
the three year period following the date of the acquisition.
This
business acquisition will strengthen Infosys’s consulting and systems integration (C&SI) capabilities. Further the acquisition
will enable Infosys to increase its global presence particularly in continental Europe and markets like Latin America and Asia
pacific. Consequently, the excess of the purchase consideration paid over the fair value of assets acquired has been attributed
towards goodwill.
The
purchase price has been allocated based on Management’s estimates and independent appraisal of fair values as follows:
(In
crore)
| Component |
Acquiree's carrying amount |
Fair value adjustments |
Purchase price allocated |
| Property, plant and equipment |
28 |
– |
28 |
| Net current assets |
87 |
– |
87 |
| Deferred tax assets |
30 |
(12) |
18 |
| Borrowings |
(89) |
– |
(89) |
| Intangible assets - customer contracts and relationships |
– |
196 |
196 |
| Intangible assets - brand |
– |
25 |
25 |
| Deferred tax liabilities on Intangible assets |
– |
(55) |
(55) |
| |
56 |
154 |
210 |
| Goodwill |
|
|
977 |
| Total purchase price |
|
|
1,187 |
The
goodwill is not tax deductible.
The
amount of trade receivables acquired from the above business acquisition was 212 crore. Subsequently the trade receivables have
been fully collected.
The
identified intangible customer contracts are being amortized over a period of two years and the identified customer relationships
are being amortized over a period of ten years whereas the identified intangible brand is being amortized over a period of two
years, being management's estimate of the useful life of the assets.
The
acquisition date fair value of each major class of consideration as at the acquisition date is as follows:
(In
crore)
| Particulars |
Consideration settled |
| Fair value of total consideration |
|
| Cash consideration |
1,187 |
| Total |
1,187 |
As
per the share purchase agreement, one third of the enterprise value for the acquisition amounting to approximately 608 crore,
referred to as deferred purchase price, is payable to the selling shareholders of Lodestone who will be continuously employed
or otherwise engaged by the Group post acquisition during the three year period from the date of acquisition. The deferred purchase
price is payable on the third anniversary of the acquisition date subject to sellers being in continuous employment with the group
during the three year period. This transaction is treated as post acquisition employee remuneration expense as per IFRS 3R. For
the three months and six months ended September 30, 2013, a post-acquisition employee remuneration expense of 46 crore and 84
crore respectively, is recorded in cost of sales in the statement of comprehensive income.
The
transaction costs of 9 crore related to the acquisition have been included under administrative expense in the statement of comprehensive
income for the year ended March 31, 2013.
2.4
Prepayments and other assets
Prepayments
and other assets consist of the following:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Current |
|
|
| Rental deposits |
11 |
24 |
| Security deposits with service providers |
37 |
34 |
| Loans and advances to employees |
217 |
139 |
| Prepaid
expenses (1) |
184 |
79 |
| Interest accrued and not due |
78 |
93 |
| Withholding
taxes (1) |
943 |
800 |
| Advance
payments to vendors for supply of goods (1) |
34 |
59 |
| Deposit with corporation |
768 |
762 |
| Premiums
held in trust (2) |
136 |
117 |
| Other assets |
27 |
16 |
| |
2,435 |
2,123 |
| Non-current |
|
|
| Loans and advances to employees |
24 |
84 |
| Deposit with corporation |
36 |
36 |
| Rental deposits |
58 |
43 |
| Security deposits with service providers |
32 |
33 |
| Prepaid
expenses (1) |
5 |
10 |
| Prepaid
gratuity and other benefits (1) |
34 |
31 |
| |
189 |
237 |
| |
2,624 |
2,360 |
| Financial assets in prepayments and other assets |
1,424 |
1,381 |
| (2) | Represents
premiums
collected
from
policyholders
and
payable
to
insurance
providers
by
a
service
provider
maintaining
the
amounts
in
fiduciary
capacity |
Withholding
taxes primarily consist of input tax credits. Other assets primarily represent travel advances and other recoverable from customers.
Security deposits with service providers relate principally to leased telephone lines and electricity supplies.
Deposit
with corporation represents amounts deposited to settle certain employee-related obligations as and when they arise during the
normal course of business.
2.5
Property, plant and equipment
Following
are the changes in the carrying value of property, plant and equipment for the three months ended September 30, 2013:
(In
crore)
| |
Land |
Buildings |
Plant and machinery |
Computer equipment |
Furniture and fixtures |
Vehicles |
Capital work-in-progress |
Total |
| Gross carrying value as of July 1, 2013 |
853 |
4,255 |
1,296 |
1,997 |
840 |
29 |
1,940 |
11,210 |
| Additions |
94 |
125 |
55 |
225 |
57 |
3 |
77 |
636 |
| Deletions |
– |
– |
– |
(1) |
(1) |
(2) |
– |
(4) |
| Translation difference |
– |
– |
3 |
15 |
13 |
3 |
– |
34 |
| Gross carrying value as of September 30, 2013 |
947 |
4,380 |
1,354 |
2,236 |
909 |
33 |
2,017 |
11,876 |
| Accumulated depreciation as of July 1, 2013 |
– |
(1,567) |
(890) |
(1,451) |
(608) |
(16) |
– |
(4,532) |
| Depreciation |
– |
(72) |
(51) |
(162) |
(29) |
(1) |
– |
(315) |
| Accumulated depreciation on deletions |
– |
– |
– |
1 |
1 |
1 |
– |
3 |
| Translation difference |
– |
– |
(2) |
(10) |
(10) |
0 |
– |
(22) |
| Accumulated depreciation as of September 30, 2013 |
– |
(1,639) |
(943) |
(1,622) |
(646) |
(16) |
– |
(4,866) |
| Carrying value as of July 1, 2013 |
853 |
2,688 |
406 |
546 |
232 |
13 |
1,940 |
6,678 |
| Carrying value as of September 30, 2013 |
947 |
2,741 |
411 |
614 |
263 |
17 |
2,017 |
7,010 |
Proceeds
on the sale of property, plant and equipment during the three months ended September 30, 2013 was less than 1 crore.
Following
are the changes in the carrying value of property, plant and equipment for the three months ended September 30, 2012:
(In
crore)
| |
Land |
Buildings |
Plant and machinery |
Computer equipment |
Furniture and fixtures |
Vehicles |
Capital work-in-progress |
Total |
| Gross carrying value as of July 1, 2012 |
720 |
4,018 |
1,335 |
1,549 |
816 |
9 |
1,049 |
9,496 |
| Additions |
23 |
65 |
38 |
148 |
24 |
– |
156 |
454 |
| Deletions |
– |
– |
(1) |
(1) |
– |
– |
– |
(2) |
| Translation difference |
– |
– |
(1) |
(5) |
(8) |
– |
– |
(14) |
| Gross carrying value as of September 30, 2012 |
743 |
4,083 |
1,371 |
1,691 |
832 |
9 |
1,205 |
9,934 |
| |
|
|
|
|
|
|
|
|
| Accumulated depreciation as of July 1, 2012 |
– |
(1,291) |
(853) |
(1,182) |
(552) |
(4) |
– |
(3,882) |
| Depreciation |
– |
(68) |
(61) |
(96) |
(42) |
(1) |
– |
(268) |
| Accumulated depreciation on deletions |
– |
– |
1 |
– |
– |
– |
– |
1 |
| Translation difference |
– |
– |
– |
6 |
6 |
– |
– |
12 |
| Accumulated depreciation as of September 30, 2012 |
– |
(1,359) |
(913) |
(1,272) |
(588) |
(5) |
– |
(4,137) |
| Carrying value as of July 1, 2012 |
720 |
2,727 |
482 |
367 |
264 |
5 |
1,049 |
5,614 |
| Carrying value as of September 30, 2012 |
743 |
2,724 |
458 |
419 |
244 |
4 |
1,205 |
5,797 |
Proceeds
on the sale of property, plant and equipment during the three months ended September 30, 2012 was less than 1 crore.
Following
are the changes in the carrying value of property, plant and equipment for the six months ended September 30, 2013:
In
crore)
| |
Land |
Buildings |
Plant and machinery |
Computer equipment |
Furniture and fixtures |
Vehicles |
Capital work-in-progress |
Total |
| Gross carrying value as of April 1, 2013 |
850 |
4,199 |
1,254 |
1,887 |
800 |
26 |
1,660 |
10,676 |
| Additions |
97 |
181 |
92 |
322 |
80 |
6 |
357 |
1,135 |
| Deletions |
– |
– |
(1) |
(9) |
(1) |
(3) |
– |
(14) |
| Translation difference |
– |
– |
9 |
36 |
30 |
4 |
– |
79 |
| Gross carrying value as of September 30, 2013 |
947 |
4,380 |
1,354 |
2,236 |
909 |
33 |
2,017 |
11,876 |
| |
|
|
|
|
|
|
|
|
| Accumulated depreciation as of April 1, 2013 |
– |
(1,497) |
(835) |
(1,304) |
(558) |
(14) |
– |
(4,208) |
| Depreciation |
– |
(142) |
(104) |
(303) |
(66) |
(2) |
– |
(617) |
| Accumulated depreciation on deletions |
– |
– |
1 |
9 |
1 |
2 |
– |
13 |
| Translation difference |
– |
– |
(5) |
(24) |
(23) |
(2) |
– |
(54) |
| Accumulated depreciation as of September 30, 2013 |
– |
(1,639) |
(943) |
(1,622) |
(646) |
(16) |
– |
(4,866) |
| Carrying value as of April 1, 2013 |
850 |
2,702 |
419 |
583 |
242 |
12 |
1,660 |
6,468 |
| Carrying value as of September 30, 2013 |
947 |
2,741 |
411 |
614 |
263 |
17 |
2,017 |
7,010 |
Proceeds
on the sale of property, plant and equipment during the six months ended September 30, 2013 was 1 crore.
Following
are the changes in the carrying value of property, plant and equipment for the six months ended September 30, 2012:
(In
crore)
| |
Land |
Buildings |
Plant and machinery |
Computer equipment |
Furniture and fixtures |
Vehicles |
Capital work-in-progress |
Total |
| Gross carrying value as of April 1, 2012 |
709 |
3,867 |
1,261 |
1,387 |
764 |
8 |
1,034 |
9,030 |
| Additions |
34 |
216 |
110 |
301 |
65 |
1 |
171 |
898 |
| Deletions |
– |
– |
(1) |
(2) |
– |
– |
– |
(3) |
| Translation difference |
– |
– |
1 |
5 |
3 |
– |
– |
9 |
| Gross carrying value as of September 30, 2012 |
743 |
4,083 |
1,371 |
1,691 |
832 |
9 |
1,205 |
9,934 |
| |
|
|
|
|
|
|
|
|
| Accumulated depreciation as of April 1, 2012 |
– |
(1,226) |
(795) |
(1,093) |
(503) |
(4) |
– |
(3,621) |
| Depreciation |
– |
(133) |
(119) |
(177) |
(85) |
(1) |
– |
(515) |
| Accumulated depreciation on deletions |
– |
– |
1 |
1 |
– |
– |
– |
2 |
| Translation difference |
– |
– |
– |
(3) |
– |
– |
– |
(3) |
| Accumulated depreciation as of September 30, 2012 |
– |
(1,359) |
(913) |
(1,272) |
(588) |
(5) |
– |
(4,137) |
| Carrying value as of April 1, 2012 |
709 |
2,641 |
466 |
294 |
261 |
4 |
1,034 |
5,409 |
| Carrying value as of September 30, 2012 |
743 |
2,724 |
458 |
419 |
244 |
4 |
1,205 |
5,797 |
Proceeds
on the sale of property, plant and equipment during the six months ended September 30, 2012 was less than 1 crore.
The
depreciation expense for the three months and six months ended September 30, 2013 and September 30, 2012 is included in cost of
sales in the consolidated statement of comprehensive income.
Carrying
value of land includes 359 crore and 358 crore as of September 30, 2013 and March 31, 2013, respectively, towards deposits paid
under certain lease-cum-sale agreements to acquire land including agreements where the Company has an option to purchase the properties
on expiry of the lease period. The Company has already paid 99% of the market value of the properties prevailing at the time of
entering into the lease-cum-sale agreements with the balance payable at the time of purchase. The contractual commitments for
capital expenditure were 1,608 crore and 1,696 crore, as of September 30, 2013 and March 31, 2013, respectively.
2.6
Goodwill and intangible assets
Following
is a summary of changes in the carrying amount of goodwill:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Carrying value at the beginning |
1,976 |
993 |
| Goodwill recognized on Lodestone acquisition (Refer note 2.3) |
– |
977 |
| Goodwill recognized on Seabury & Smith acquisition (Refer note 2.3) |
– |
4 |
| Translation differences |
225 |
2 |
| Carrying value at the end |
2,201 |
1,976 |
For
the purpose of impairment testing, goodwill acquired in a business combination is allocated to the cash generate units (CGU) or
groups of CGU’s, which are benefiting from the synergies of the acquisition. The chief operating decision maker reviews
the goodwill for any impairment at the operating segment level, which is represented through groups of CGU’s.
(In
crore)
| Segment |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Financial services and insurance (FSI) |
623 |
573 |
| Manufacturing (MFG) |
499 |
429 |
| Energy, utilities, communication and services (ECS) |
294 |
268 |
| Retail, consumer packaged goods, logistics and life sciences (RCL) |
785 |
706 |
| Total |
2,201 |
1,976 |
The
entire goodwill relating to Infosys BPO’s acquisition of McCamish has been allocated to the groups of CGU’s which
are aggregated at the ‘Financial services and insurance’ segment level.
The
goodwill relating to Lodestone acquisition has been allocated to the groups of CGU’s which are aggregated at the entity’s
operating segment level.
The
recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. The fair value of a CGU is
determined based on the market capitalization. The value-in-use is determined based on specific calculations. These calculations
use pre-tax cash flow projections over a period of five years, based on financial budgets approved by management and an average
of the range of each assumption mentioned below. As of March 31, 2013, the estimated recoverable amount of the CGU exceeded its
carrying amount. The recoverable amount was computed based on the fair value being higher than value-in-use and the carrying amount
of the CGU was computed by allocating the net assets to operating segments for the purpose of impairment testing. The key assumptions
used for the calculations are as follows:
| |
In % |
| Long term growth rate |
8-10 |
| Operating margins |
17-20 |
| Discount rate |
16.1 |
The
above discount rate is based on the Weighted Average Cost of Capital (WACC) of the Company. These estimates are likely to differ
from future actual results of operations and cash flows.
Following
are the changes in the carrying value of acquired intangible assets for the three months ended September 30, 2013:
(In
crore)
| |
Customer related |
Software related |
Sub-contracting rights related |
Intellectual property rights related |
Land use- rights related |
Brand |
Others |
Total |
| Gross carrying value as of July 1, 2013 |
365 |
34 |
21 |
11 |
68 |
26 |
9 |
534 |
| Additions through business combinations (Refer note 2.3) |
– |
– |
– |
– |
– |
– |
– |
– |
| Additions |
– |
– |
– |
– |
– |
– |
– |
– |
| Translation differences |
26 |
2 |
– |
– |
4 |
3 |
– |
35 |
| Gross carrying value as of September 30, 2013 |
391 |
36 |
21 |
11 |
72 |
29 |
9 |
569 |
| Accumulated amortization as of July 1, 2013 |
(92) |
(22) |
(14) |
(11) |
(1) |
(9) |
(4) |
(153) |
| Amortization expense |
(11) |
(1) |
(1) |
– |
– |
(4) |
(1) |
(18) |
| Translation differences |
(3) |
(2) |
– |
– |
(2) |
– |
– |
(7) |
| Accumulated amortization as of September 30, 2013 |
(106) |
(25) |
(15) |
(11) |
(3) |
(13) |
(5) |
(178) |
| Carrying value as of July 1, 2013 |
273 |
12 |
7 |
– |
67 |
17 |
5 |
381 |
| Carrying value as of September 30, 2013 |
285 |
11 |
6 |
– |
69 |
16 |
4 |
391 |
Following
are the changes in the carrying value of acquired intangible assets for the three months ended September 30, 2012:
(In
crore)
| |
Customer related |
Software related |
Sub–contracting rights related |
Intellectual property rights related |
Land use– rights related |
Others |
Total |
| Gross carrying value as of July 1, 2012 |
146 |
32 |
21 |
11 |
62 |
– |
272 |
| Additions through business combinations (Refer note 2.3) |
5 |
1 |
– |
– |
– |
– |
6 |
| Additions |
– |
– |
– |
– |
– |
9 |
9 |
| Translation differences |
(5) |
– |
– |
– |
(3) |
– |
(8) |
| Gross carrying value as of September 30, 2012 |
146 |
33 |
21 |
11 |
59 |
9 |
279 |
| |
|
|
|
|
|
|
|
| Accumulated amortization as of July 1, 2012 |
(58) |
(16) |
(8) |
(11) |
– |
– |
(93) |
| Amortization expense |
(4) |
(1) |
(1) |
– |
(1) |
– |
(7) |
| Translation differences |
1 |
– |
– |
– |
– |
– |
1 |
| Accumulated amortization as of September 30, 2012 |
(61) |
(17) |
(9) |
(11) |
(1) |
– |
(99) |
| Carrying value as of July 1, 2012 |
88 |
16 |
13 |
– |
62 |
– |
179 |
| Carrying value as of September 30, 2012 |
85 |
16 |
12 |
– |
58 |
9 |
180 |
Following are the changes in the carrying value of acquired
intangible assets for the six months ended September 30, 2013:
(In
crore)
| |
Customer related |
Software related |
Sub-contracting rights related |
Intellectual property rights related |
Land use- rights related |
Brand |
Others |
Total |
| Gross carrying value as of April 1, 2013 |
341 |
32 |
21 |
11 |
61 |
24 |
9 |
499 |
| Additions through business combinations (Refer note 2.3) |
– |
– |
– |
– |
– |
– |
– |
– |
| Additions |
– |
– |
– |
– |
– |
– |
– |
– |
| Translation differences |
50 |
4 |
– |
– |
11 |
5 |
– |
70 |
| Gross carrying value as of September 30, 2013 |
391 |
36 |
21 |
11 |
72 |
29 |
9 |
569 |
| Accumulated amortization as of April 1, 2013 |
(80) |
(19) |
(12) |
(11) |
(1) |
(5) |
(3) |
(131) |
| Amortization expense |
(21) |
(2) |
(3) |
– |
– |
(7) |
(2) |
(35) |
| Translation differences |
(5) |
(4) |
– |
– |
(2) |
(1) |
– |
(12) |
| Accumulated amortization as of September 30, 2013 |
(106) |
(25) |
(15) |
(11) |
(3) |
(13) |
(5) |
(178) |
| Carrying value as of April 1, 2013 |
261 |
13 |
9 |
– |
60 |
19 |
6 |
368 |
| Carrying value as of September 30, 2013 |
285 |
11 |
6 |
– |
69 |
16 |
4 |
391 |
Following
are the changes in the carrying value of acquired intangible assets for the six months ended September 30, 2012:
(In
crore)
| |
Customer related |
Software related |
Sub-contracting rights related |
Intellectual property rights related |
Land use- rights related |
Others |
Total |
| Gross carrying value as of April 1, 2012 |
138 |
31 |
21 |
11 |
57 |
– |
258 |
| Additions through business combinations (Refer note 2.3) |
5 |
1 |
– |
– |
– |
– |
6 |
| Additions |
– |
– |
– |
– |
– |
9 |
9 |
| Translation differences |
3 |
1 |
– |
– |
2 |
– |
6 |
| Gross carrying value as of September 30, 2012 |
146 |
33 |
21 |
11 |
59 |
9 |
279 |
| Accumulated amortization as of April 1, 2012 |
(55) |
(14) |
(5) |
(11) |
– |
– |
(85) |
| Amortization expense |
(7) |
(2) |
(3) |
– |
(1) |
– |
(13) |
| Translation differences |
1 |
(1) |
(1) |
– |
– |
– |
(1) |
| Accumulated amortization as of September 30, 2012 |
(61) |
(17) |
(9) |
(11) |
(1) |
– |
(99) |
| Carrying value as of April 1, 2012 |
83 |
17 |
16 |
– |
57 |
– |
173 |
| Carrying value as of September 30, 2012 |
85 |
16 |
12 |
– |
58 |
9 |
180 |
The
subcontracting rights, recognized consequent to the subcontracting agreement with Telecom’s Gen-I division are being amortized
over a period of three years, being the management’s estimate of its useful life, based on the life over which economic
benefits are expected to be realized. The value of subcontracting rights on initial recognition was 19 crore. As of September
30, 2013, the subcontracting rights have a remaining amortization period of approximately one year.
The
land use rights acquired by Infosys Shanghai are being amortized over the initial term of 50 years. Further the government grant
received for the land use right is also amortized over the initial term of 50 years. The value of land use rights on initial recognition
was 54 crore. As of September 30, 2013, the land use rights have a remaining amortization period of approximately 48 years.
The
intangible asset on account of software purchase recognized by Infosys is amortized over a period of five years being the management’s
estimate of useful life of such intangible assets. The value of the software on initial recognition was 17 crore. As of September
30, 2013, this intangible asset has a remaining amortization period of approximately three years.
The
intangible customer contracts recognized at the time of acquisition of Philips BPO operations are being amortized over a period
of seven years, being management's estimate of its useful life, based on the life over which economic benefits are expected to
be realized. As of September 30, 2013, the customer contracts have a remaining amortization period of approximately one year.
The
intangible customer contracts and relationships recognized at the time of the McCamish acquisition are being amortized over a
period of nine years, being management’s estimate of its useful life, based on the life over which economic benefits are
expected to be realized. As of September 30, 2013, the customer contracts and relationships have a remaining amortization period
of approximately five years.
The
intangible customer contracts and relationships of 40 crore, recognized at the time of the Portland acquisition are being amortized
over a period of ten years, being management’s estimate of its useful life, based on the life over which economic benefits
are expected to be realized. As of September 30, 2013, the customer contracts and relationships have a remaining amortization
period of approximately eight years.
The
intangible customer contracts and relationships of 5 crore, recognized pursuant to McCamish entering into the asset purchase
agreement with Seabury & Smith Inc., are being amortized over a period of five years, being management’s estimate of
its useful life, based on the life over which economic benefits are expected to be realized. As of September 30, 2013, the customer
contracts and relationships have a remaining amortization period of approximately four years.
The
intangible customer contracts recognized at the time of Lodestone acquisition are being amortized over a period of two years and
the identified customer relationships are being amortized over a period of ten years whereas the identified intangible brand is
being amortized over a period of two years, being management's estimate of the useful life of the assets. As of September 30,
2013, the customer contracts and brand have a remaining amortization period of approximately one year each and the customer relationships
have a remaining amortization period of approximately nine years.
The
aggregate amortization expense included in cost of sales, for the three months and six months ended September 30, 2013 and September
30, 2012 was 18 crore and 7 crore and 35 crore and 13 crore, respectively.
Research
and development expense recognized in net profit in the consolidated statement of comprehensive income, for the three months and
six months ended September 30, 2013 and September 30, 2012 was 265 crore and 250 crore and 512 crore and 462 crore, respectively.
2.7
Financial instruments
Financial
instruments by category
The
carrying value and fair value of financial instruments by categories as of September 30, 2013 were as follows:
(In
crore)
| |
Loans and receivables |
Financial
assets /
liabilities at fair value through profit and loss |
Available for sale |
Trade and other payables |
Total
carrying value / fair value |
| Assets: |
|
|
|
|
|
| Cash and cash equivalents (Refer Note 2.1) |
22,543 |
– |
– |
– |
22,543 |
| Available-for-sale financial assets (Refer Note 2.2) |
– |
– |
3,841 |
– |
3,841 |
| Investment in certificates of deposit |
528 |
– |
– |
– |
528 |
| Trade receivables |
8,343 |
– |
– |
– |
8,343 |
| Unbilled revenue |
3,151 |
– |
– |
– |
3,151 |
| Prepayments and other assets (Refer Note 2.4) |
1,424 |
– |
– |
– |
1,424 |
| Total |
35,989 |
– |
3,841 |
– |
39,830 |
| Liabilities: |
|
|
|
|
|
| Trade payables |
– |
– |
– |
100 |
100 |
| Client deposits |
– |
– |
– |
21 |
21 |
| Employee benefit obligations |
– |
– |
– |
893 |
893 |
| Other liabilities (Refer Note 2.9) |
– |
– |
– |
3,536 |
3,536 |
| Liability towards McCamish acquisition on a discounted basis (Refer Note 2.9) |
– |
– |
– |
22 |
22 |
| Liability towards other acquisitions (Refer Note 2.9) |
– |
– |
– |
155 |
155 |
| Derivative financial instruments |
– |
452 |
– |
– |
452 |
| Total |
– |
452 |
– |
4,727 |
5,179 |
The
carrying value and fair value of financial instruments by categories as of March 31, 2013 were as follows:
(In
crore)
| |
Loans and receivables |
Financial
assets /
liabilities at fair value through profit and loss |
Available for sale |
Trade and other payables |
Total
carrying value / fair value |
| Assets: |
|
|
|
|
|
| Cash and cash equivalents (Refer Note 2.1) |
21,832 |
– |
– |
– |
21,832 |
| Available-for-sale financial assets (Refer Note 2.2) |
– |
– |
2,133 |
– |
2,133 |
| Trade receivables |
7,083 |
– |
– |
– |
7,083 |
| Unbilled revenue |
2,435 |
– |
– |
– |
2,435 |
| Prepayments and other assets (Refer Note 2.4) |
1,381 |
– |
– |
– |
1,381 |
| Derivative financial instruments |
– |
101 |
– |
– |
101 |
| Total |
32,731 |
101 |
2,133 |
– |
34,965 |
| Liabilities: |
|
|
|
|
|
| Trade payables |
– |
– |
– |
189 |
189 |
| Client deposits |
– |
– |
– |
36 |
36 |
| Employee benefit obligations |
– |
– |
– |
614 |
614 |
| Other liabilities (Refer Note 2.9) |
– |
– |
– |
2,411 |
2,411 |
| Liability towards McCamish acquisition on a discounted basis (Refer Note 2.9) |
– |
– |
– |
18 |
18 |
| Liability towards other acquisitions (Refer Note 2.9) |
– |
– |
– |
59 |
59 |
| Total |
– |
– |
– |
3,327 |
3,327 |
Fair
value hierarchy
Level
1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level
2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level
3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The
following table presents fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of September
30, 2013:
(In
crore)
| |
As of September 30, 2013 |
Fair value measurement at end of the reporting period/year using |
| |
|
Level 1 |
Level 2 |
Level 3 |
| Assets |
|
|
|
|
| Available- for- sale financial asset- Investments in liquid mutual fund units (Refer Note 2.2) |
2,777 |
2,777 |
– |
– |
| Available- for- sale financial asset- Investments in fixed maturity plan securities (Refer Note 2.2) |
31 |
31 |
– |
– |
| Available- for- sale financial asset- Investments in quoted debt securities (Refer Note 2.2) |
1,028 |
1,028 |
– |
– |
| Available- for- sale financial asset- Investments in unquoted equity instruments (Refer Note 2.2) |
5 |
– |
5 |
– |
| Derivative financial instruments - loss on outstanding foreign exchange forward and option contracts |
452 |
– |
452 |
– |
The
following table presents fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of March
31, 2013:
(In
crore)
| |
As of March 31, 2013 |
Fair value measurement at end of the reporting period/year using |
| |
|
Level 1 |
Level 2 |
Level 3 |
| Assets |
|
|
|
|
| Available- for- sale financial asset- Investments in liquid mutual fund units (Refer Note 2.2) |
1,739 |
1,739 |
– |
– |
| Available- for- sale financial asset- Investments in quoted debt securities (Refer Note 2.2) |
387 |
387 |
– |
– |
| Available- for- sale financial asset- Investments in unquoted equity instruments (Refer Note 2.2) |
7 |
– |
7 |
– |
| Derivative financial instruments- gain on outstanding foreign exchange forward and option contracts |
101 |
– |
101 |
– |
Income
from financial assets or liabilities that are not at fair value through profit or loss is as follows:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Interest income on deposits and certificates of deposit |
522 |
432 |
1,037 |
912 |
| Income from available-for-sale financial assets |
62 |
63 |
104 |
89 |
| |
584 |
495 |
1,141 |
1,001 |
Derivative
financial instruments
The
Group uses derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes
in foreign exchange rates on trade receivables and forecasted cash flows denominated in certain foreign currencies. 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
following table gives details in respect of outstanding foreign exchange forward and option contracts:
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| |
In million |
In crore |
In million |
In crore |
| Forward contracts |
|
|
|
|
| In U.S. dollars |
832 |
5,281 |
851 |
4,621 |
| In Euro |
45 |
383 |
62 |
431 |
| In United Kingdom Pound Sterling |
88 |
876 |
65 |
537 |
| In Australian dollars |
70 |
409 |
70 |
396 |
| Option contracts |
|
|
|
|
| In U.S. dollars |
– |
– |
– |
– |
| Total forwards and options |
|
6,949 |
|
5,985 |
The
Group recognized a net loss on derivative financial instruments of 375 crore and 793 crore during the three and six months ended
September 30, 2013 as against a net gain on derivative financial instruments of 373 crore and 28 crore during the three and
six months ended September 30, 2012 which are included in other income.
The
foreign exchange forward and option contracts mature between one to twelve months. The table below analyzes the derivative financial
instruments into relevant maturity groupings based on the remaining period as of the balance sheet date:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Not later than one month |
1466 |
988 |
| Later than one month and not later than three months |
2,879 |
1,794 |
| Later than three months and not later than one year |
2,604 |
3,203 |
| |
6,949 |
5,985 |
Financial
risk management
Financial
risk factors
The
Group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group's primary
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 Group is foreign exchange risk. The Group uses derivative financial instruments to
mitigate foreign exchange related risk exposures. The Group'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. The demographics of the customer including the default
risk of the industry and country in which the customer operates also has an influence on credit risk assessment.
Market
risk
The
Group operates internationally and a major portion of the business is transacted in several currencies and consequently the Group
is exposed to foreign exchange risk through its sales and services in the United States and elswhere, and purchases from overseas
suppliers in various foreign currencies. The Group uses derivative financial instruments such as foreign exchange forward and
option contracts to mitigate the risk of changes in foreign exchange rates on trade receivables and forecasted cash flows denominated
in certain foreign currencies. 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 Group’s operations are adversely affected
as the rupee appreciates/ depreciates against these currencies.
The
following table gives details in respect of the outstanding foreign exchange forward and option contracts:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Aggregate amount of outstanding forward and option contracts |
6,949 |
5,985 |
| Gains / (losses) on outstanding forward and option contracts |
(452) |
101 |
The
outstanding foreign exchange forward and option contracts as of September 30, 2013 and March 31, 2013, mature between one to twelve
months.
The
following table analyzes foreign currency risk from financial instruments as of September 30, 2013:
(In
crore)
| |
U.S. dollars |
Euro |
United Kingdom Pound Sterling |
Australian dollars |
Other currencies |
Total |
| Cash and cash equivalents |
840 |
191 |
382 |
180 |
48 |
1,641 |
| Trade receivables |
5,478 |
885 |
658 |
527 |
505 |
8,053 |
| Unbilled revenue |
1,784 |
408 |
204 |
193 |
287 |
2,876 |
| Other assets |
697 |
17 |
46 |
48 |
185 |
993 |
| Trade payables |
(12) |
(5) |
(19) |
(3) |
(51) |
(90) |
| Client deposits |
(10) |
(9) |
– |
– |
(1) |
(20) |
| Accrued expenses |
(919) |
(110) |
(56) |
(31) |
(156) |
(1272) |
| Employee benefit obligations |
(363) |
(70) |
(36) |
(133) |
(95) |
(697) |
| Other liabilities |
(1,763) |
(435) |
29 |
(104) |
(290) |
(2,563) |
| Net assets / (liabilities) |
5,732 |
872 |
1,208 |
677 |
432 |
8,921 |
The
following table analyzes foreign currency risk from financial instruments as of March 31, 2013:
(In
crore)
| |
U.S. dollars |
Euro |
United Kingdom Pound Sterling |
Australian dollars |
Other currencies |
Total |
| Cash and cash equivalents |
1,106 |
83 |
87 |
185 |
345 |
1,806 |
| Trade receivables |
4,684 |
828 |
568 |
416 |
360 |
6,856 |
| Unbilled revenue |
1,403 |
313 |
156 |
106 |
222 |
2,200 |
| Other assets |
539 |
33 |
31 |
17 |
153 |
773 |
| Trade payables |
(54) |
(10) |
(11) |
(1) |
(32) |
(108) |
| Client deposits |
(20) |
(12) |
– |
– |
(4) |
(36) |
| Accrued expenses |
(554) |
(81) |
2 |
(29) |
(103) |
(765) |
| Employee benefit obligations |
(242) |
(50) |
(12) |
(79) |
(67) |
(450) |
| Other liabilities |
(1,006) |
(309) |
53 |
(56) |
(146) |
(1,464) |
| Net assets / (liabilities) |
5,856 |
795 |
874 |
559 |
728 |
8,812 |
For
the three months ended September 30, 2013 and September 30, 2012, every percentage point depreciation / appreciation in the exchange
rate between the Indian rupee and U.S. dollar, has affected the Company's incremental operating margins by approximately 0.46%
and 0.53%, respectively.
For
the six months ended September 30, 2013 and September 30, 2012, every percentage point depreciation / appreciation in the exchange
rate between the Indian rupee and U.S. dollar, has affected the Company's incremental operating margins by approximately 0.46%
and 0.53%, respectively.
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.
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 8,343 crore and 7,083 crore as of September
30, 2013 and March 31, 2013, respectively and unbilled revenue amounting to 3,151 crore and 2,435 crore as of September 30,
2013 and March 31, 2013, 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 is managed 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.
The
following table gives details in respect of percentage of revenues generated from top customer and top five customers:
(In
%)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Revenue from top customer |
3.9 |
4.0 |
3.9 |
4.0 |
| Revenue from top five customers |
15.0 |
16.0 |
14.9 |
16.1 |
Financial
assets that are neither past due nor impaired
Cash
and cash equivalents and available-for-sale financial assets are neither past due nor impaired. Cash and cash equivalents include
deposits with banks and corporations with high credit-ratings assigned by international and domestic credit-rating agencies. Available-for-sale
financial assets include investment in liquid mutual fund units, quoted debt securities and unquoted equity securities. Certificates
of deposit represent funds deposited at a bank or other eligible financial institution for a specified time period. Investment
in quoted debt securities represents the investments made in debt securities issued by government and quasi government organizations.
Of the total trade receivables, 5,971 crore and 5,241 crore as of September 30, 2013 and March 31, 2013, respectively, were
neither past due nor impaired.
There
is no other class of financial assets that is not past due but impaired except for trade receivables of 16 crore and 4 crore
as of September 30, 2013 and March 31, 2013, respectively.
Financial
assets that are past due but not impaired
The
Group’s credit period generally ranges from 30-45 days. The age analysis of the trade receivables have been considered from
the due date. The age wise break up of trade receivables, net of allowances that are past due, is given below:
(In
crore)
| Period (in days) |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Less than 30 |
1,569 |
1,324 |
| 31 – 60 |
438 |
245 |
| 61 – 90 |
177 |
101 |
| More than 90 |
188 |
172 |
| |
2,372 |
1,842 |
The
provision for doubtful trade receivables for the three months and six months ended September 30, 2013 and September 30, 2012 was
33 crore and 14 crore and 71 crore and 38 crore, respectively. The movement in the provision for doubtful accounts receivables
is as follows:
| |
Three months ended September 30, |
Six months ended September 30, |
Year ended March 31, |
| |
2013 |
2012 |
2013 |
2012 |
2013 |
| Balance at the beginning |
136 |
110 |
95 |
85 |
85 |
| Translation differences |
6 |
(4) |
15 |
- |
(3) |
| Provisions for doubtful accounts receivable (refer note 2.10) |
33 |
14 |
71 |
38 |
35 |
| Trade receivables written off |
(14) |
(7) |
(20) |
(10) |
(22) |
| Balance at the end |
161 |
113 |
161 |
113 |
95 |
Liquidity
risk
As
of September 30, 2013, the Group had a working capital of 30,780 crore including cash and cash equivalents of 22,543 crore,
current available-for-sale financial assets of 2,810 crore and investment in certificates of deposit of 528 crore. As of March
31, 2013, the Group had a working capital of 29,027 crore including cash and cash equivalents of 21,832 crore, current available-for-sale
financial assets of 1,739 crore.
As
of September 30, 2013 and March 31, 2013, the outstanding employee benefit obligations were 893 crore and 614 crore, respectively,
which have been substantially funded. Further, as of September 30, 2013 and March 31, 2013, the Group had no outstanding bank
borrowings. Accordingly, no liquidity risk is perceived.
The
table below provides details regarding the contractual maturities of significant financial liabilities as of September 30, 2013:
(In
crore)
| Particulars |
Less than 1 year |
1-2 years |
2-4 years |
4-7 years |
Total |
| Trade payables |
100 |
– |
– |
– |
100 |
| Client deposits |
21 |
– |
– |
– |
21 |
| Other liabilities (Refer Note 2.9) |
3,503 |
33 |
– |
– |
3,536 |
| Liability towards McCamish acquisition on an undiscounted basis (Refer Note 2.9) |
– |
14 |
13 |
– |
27 |
| Liability towards other acquisitions (Refer Note 2.9) |
– |
|
155 |
– |
155 |
The
table below provides details regarding the contractual maturities of significant financial liabilities as of March 31, 2013:
(In
crore)
| Particulars |
Less than 1 year |
1-2 years |
2-4 years |
4-7 years |
Total |
| Trade payables |
189 |
– |
– |
– |
189 |
| Client deposits |
36 |
– |
– |
– |
36 |
| Other liabilities (Refer Note 2.9) |
2,373 |
16 |
22 |
– |
2,411 |
| Liability towards McCamish acquisition on an undiscounted basis (Refer Note 2.9) |
– |
6 |
17 |
– |
23 |
| Liability towards other acquisitions (Refer Note 2.9) |
5 |
– |
54 |
– |
59 |
As
of September 30, 2013 and March 31, 2013, the group had outstanding financial guarantees of 27 crore and 19 crore, respectively,
towards leased premises. These financial guarantees can be invoked upon breach of any term of the lease agreement. To the group’s
knowledge there has been no breach of any term of the lease agreement as of September 30, 2013 and March 31, 2013.
2.8
Provisions
Provisions
comprise the following:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Provision for post sales client support |
224 |
213 |
| Provisions towards visa related matters (Refer note 2.20) |
219 |
– |
| |
443 |
213 |
Provision
for post sales client support represents cost associated with providing post sales support services which are accrued at the time
of recognition of revenues and are expected to be utilized over a period of 6 months to 1 year. The movement in the provision
for post sales client support is as follows:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
Year ended March 31, |
| |
2013 |
2012 |
2013 |
2012 |
2013 |
| Balance at the beginning |
217 |
148 |
213 |
133 |
133 |
| Provision recognized / (reversed) (refer
note 2.10) |
(7) |
60 |
(17) |
68 |
80 |
| Provision utilized |
1 |
– |
(1) |
(4) |
(5) |
| Translation difference |
13 |
4 |
29 |
15 |
5 |
| Balance at the end |
224 |
212 |
224 |
212 |
213 |
Provision
for post sales client support for the three months and six months ended September 30, 2013 and September 30, 2012 is included
in cost of sales in the statement of comprehensive income.
2.9
Other liabilities
Other
liabilities comprise the following
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Current |
|
|
| Accrued compensation to employees |
1,421 |
723 |
| Accrued expenses |
1,662 |
1,283 |
| Withholding
taxes payable (1) |
897 |
699 |
| Retainage |
83 |
79 |
| Unamortized negative past service cost (Refer Note 2.11.1) (1) |
– |
4 |
| Liabilities of controlled trusts |
145 |
148 |
| Liability towards acquisition of business |
– |
5 |
| Accrued gratuity |
1 |
2 |
| Deferred income - government grant on
land use rights (1) (Refer Note 2.6) |
1 |
1 |
| Premiums
held in trust (2) |
136 |
117 |
| Others |
22 |
21 |
| |
4,368 |
3,082 |
| Non-current |
|
|
| Liability towards acquisition of business |
177 |
72 |
| Unamortized negative past service cost (Refer Note 2.11.1) (1) |
– |
11 |
| Incentive accruals |
66 |
38 |
| Deferred income -
government grant on land use rights (1) (Refer Note 2.6) |
33 |
28 |
| |
276 |
149 |
| |
4,644 |
3,231 |
| Financial liabilities included in other liabilities (excluding liability towards acquisition of business) |
3,536 |
2,411 |
| Financial liability towards McCamish acquisition on a discounted basis |
22 |
18 |
| Financial liability towards McCamish acquisition on an undiscounted basis (Refer Note 2.3) |
27 |
23 |
| Financial liability towards other acquisitions on a discounted basis (Refer Note 2.3) |
155 |
59 |
| (1) | Non
financial
liabilities |
| (2) | Represents
premiums
collected
from
policyholders
and
payable
to
insurance
providers
by
a
service
provider
maintaining
the
amounts
in
fiduciary
capacity. |
Accrued
expenses primarily relates to cost of technical sub-contractors, telecommunication charges, legal and professional charges, brand
building expenses, overseas travel expenses and office maintenance. Others include unclaimed dividend balances.
2.10
Expenses by nature
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Employee benefit costs (Refer Note 2.11.4) |
7,704 |
5,432 |
14,217 |
10,692 |
| Deferred purchase price pertaining to acquisition (Refer Note 2.3) |
46 |
– |
84 |
– |
| Depreciation and amortization charges (Refer Note 2.5 and 2.6) |
333 |
275 |
652 |
528 |
| Travelling costs |
446 |
382 |
885 |
753 |
| Consultancy and professional charges |
104 |
136 |
206 |
251 |
| Software packages for own use |
147 |
131 |
302 |
258 |
| Third party items bought for service delivery |
36 |
33 |
75 |
62 |
| Communication costs |
117 |
87 |
217 |
170 |
| Cost of technical sub-contractors |
527 |
342 |
1,003 |
631 |
| Power and fuel |
58 |
56 |
113 |
109 |
| Office maintenance |
99 |
78 |
184 |
156 |
| Repairs and maintenance |
38 |
41 |
82 |
87 |
| Rates and taxes |
28 |
22 |
47 |
43 |
| Insurance charges |
13 |
12 |
26 |
21 |
| Commission |
9 |
11 |
17 |
16 |
| Branding and marketing expenses |
37 |
36 |
70 |
73 |
| Consumables |
10 |
9 |
15 |
15 |
| Provision for post-sales client support (Refer Note 2.8) |
(7) |
60 |
(17) |
68 |
| Provision for doubtful account receivables (Refer Note 2.7) |
33 |
14 |
71 |
38 |
| Postage and courier |
6 |
5 |
13 |
8 |
| Printing and stationery |
4 |
5 |
10 |
8 |
| Donations |
1 |
5 |
1 |
10 |
| Operating lease payments (Refer Note 2.14) |
81 |
63 |
157 |
122 |
| Recruitment and training |
2 |
2 |
4 |
2 |
| Others* |
256 |
24 |
297 |
63 |
| Total cost of sales, selling and marketing expenses and administrative expenses |
10,128 |
7,261 |
18,731 |
14,184 |
(*)
Others for the three months and six months ended September 30, 2013 include a provision of 219
crore towards visa related matters. Refer note 2.20
2.10.1
Break-up of expenses
Cost
of sales
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Employee benefit costs |
6,791 |
4,854 |
12,596 |
9,567 |
| Deferred purchase price pertaining to acquisition (Refer Note 2.3) |
46 |
– |
84 |
– |
| Depreciation and amortization |
333 |
275 |
652 |
528 |
| Travelling costs |
368 |
300 |
727 |
579 |
| Software packages for own use |
146 |
131 |
299 |
258 |
| Third party items bought for service delivery |
36 |
33 |
75 |
62 |
| Cost of technical sub-contractors |
527 |
342 |
1003 |
631 |
| Consumables |
9 |
8 |
13 |
14 |
| Operating lease payments |
53 |
39 |
103 |
76 |
| Communication costs |
42 |
28 |
77 |
56 |
| Repairs and maintenance |
23 |
18 |
52 |
41 |
| Provision for post-sales client support |
(7) |
60 |
(17) |
68 |
| Consultancy and professional charges |
– |
3 |
– |
3 |
| Others |
17 |
11 |
39 |
29 |
| Total |
8,384 |
6,102 |
15,703 |
11,912 |
Selling
and marketing expenses
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Employee benefit costs |
641 |
390 |
1,115 |
746 |
| Travelling costs |
47 |
47 |
90 |
97 |
| Branding and marketing |
37 |
36 |
70 |
71 |
| Operating lease payments |
11 |
9 |
20 |
18 |
| Communication costs |
7 |
5 |
12 |
10 |
| Commission |
9 |
11 |
17 |
16 |
| Consultancy and professional charges |
3 |
6 |
12 |
14 |
| Software packages for own use |
1 |
– |
3 |
– |
| Printing and stationery |
1 |
1 |
1 |
1 |
| Others |
– |
1 |
1 |
2 |
| Total |
757 |
506 |
1,341 |
975 |
Administrative
expenses
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Employee benefit costs |
272 |
188 |
506 |
379 |
| Consultancy and professional charges |
101 |
127 |
194 |
234 |
| Repairs and maintenance |
15 |
23 |
30 |
46 |
| Office maintenance |
99 |
78 |
184 |
156 |
| Power and fuel |
58 |
56 |
113 |
109 |
| Communication costs |
68 |
54 |
128 |
104 |
| Travelling costs |
31 |
35 |
68 |
77 |
| Provision for doubtful accounts receivable |
33 |
14 |
71 |
38 |
| Rates and taxes |
28 |
22 |
47 |
43 |
| Insurance charges |
13 |
12 |
26 |
21 |
| Operating lease payments |
17 |
15 |
34 |
28 |
| Postage and courier |
6 |
5 |
13 |
8 |
| Printing and stationery |
3 |
4 |
9 |
7 |
| Branding and marketing |
– |
– |
– |
2 |
| Consumables |
1 |
1 |
2 |
1 |
| Donations |
1 |
5 |
1 |
10 |
| Recruitment and training |
2 |
2 |
4 |
2 |
| Others* |
239 |
12 |
257 |
32 |
| Total |
987 |
653 |
1,687 |
1,297 |
(*)
Others for the three months and six months ended September 30, 2013, include a provision of 219 crore towards visa related matters. Refer note 2.20
2.11
Employee benefits
2.11.1
Gratuity
The
following tables set out the funded status of the gratuity plans and the amounts recognized in the Group's financial statements
as of September 30, 2013 and March 31, 2013:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Change in benefit obligations |
|
|
| Benefit obligations at the beginning |
652 |
600 |
| Service cost |
49 |
201 |
| Interest expense |
25 |
37 |
| Remeasurements of the net defined benefit liability/ (asset) * |
(31) |
NA |
| Actuarial (gains)/ losses |
NA |
(25) |
| Curtailment |
– |
(69) |
| Benefits paid |
(51) |
(92) |
| Benefit obligations at the end |
644 |
652 |
| Change in plan assets |
|
|
| Fair value of plan assets at the beginning |
681 |
613 |
| Expected return on plan assets |
NA |
60 |
| Interest income* |
27 |
NA |
| Remeasurements- Return on plan assets excluding amounts included in interest income* |
7 |
NA |
| Actuarial gains /(losses) |
NA |
- |
| Employer contributions |
14 |
100 |
| Benefits paid |
(51) |
(92) |
| Fair value of plan assets at the end |
678 |
681 |
| Funded status |
34 |
29 |
| Prepaid gratuity benefit |
34 |
31 |
| Accrued gratuity |
– |
(2) |
*As
per Revised IAS 19
Amount
for the three months and six months ended September 30, 2013 and September 30, 2012 recognised in net profit in the statement
of comprehensive income:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Service cost |
5 |
29 |
49 |
108 |
| Net interest on the net defined benefit
liability / (asset)* |
(2) |
NA |
(2) |
NA |
| Interest cost |
– |
11 |
– |
22 |
| Expected return on plan assets |
– |
(14) |
– |
(29) |
| Actuarial (gain) / loss |
– |
(3) |
– |
(41) |
| Plan amendments – past service cost |
– |
(1) |
– |
(2) |
| Net gratuity cost |
3 |
22 |
47 |
58 |
*As
per Revised IAS 19
Amount
for the three months and six months ended September 30, 2013 recognised in statement of other comprehensive income:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2013 |
| Remeasurements of the net defined benefit liability/ (asset) |
|
|
| Actuarial (gains) / losses |
(27) |
(31) |
| (Return) / loss on
plan assets excluding amounts included in the net interest on the net defined benefit liability / (asset) |
(3) |
(7) |
| |
(30) |
(38) |
The
company has adopted Revised IAS 19 with effect from April 1, 2013. Comparative information has not been restated for the changes
as the effect of the change in accounting policy is not material.The impact on account of the revision in accounting policy is
a reduction in retained earnings by 35 crore , an increase in other comprehensive income by 50 crore and write back of unamortized
negative past service cost by 15 crore to retained earnings.
During
the year ended March 31, 2013, the company aligned the gratuity entitlement for majority of its employees prospectively to the
Payment of Gratuity Act, 1972. This amendment resulted in a curtailment gain of 69 crore for the year ended March 31, 2013, which
has been recognized in the statement of comprehensive income.
Amounts
recognised in statement of comprehensive income has been apportioned between cost of sales, selling and marketing expenses and
administrative expenses on the basis of direct employee cost as follows:
(In
crore)
| |
Three
months ended September 30, |
Six
months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Cost of sales |
3 |
20 |
42 |
52 |
| Selling and marketing expenses |
– |
1 |
3 |
4 |
| Administrative expenses |
– |
1 |
2 |
2 |
| |
3 |
22 |
47 |
58 |
Effective
July 1, 2007, the Company amended its Gratuity Plan, to suspend the voluntary defined death benefit component of the Gratuity
Plan. This amendment resulted in a negative past service cost amounting to 37 crore, which was being amortized on a straight-line
basis over the average remaining service period of employees which is 10 years. On adoption of Revised IAS 19, the unamortized
negative past service cost of 15 crore as of March 31, 2013, has been credited to retained earnings.
The
weighted-average assumptions used to determine benefit obligations as of September 30, 2013 and March 31, 2013 are set out below:
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Discount rate |
9.2% |
8.0% |
| Weighted average rate of increase in compensation levels |
7.3% |
7.3% |
The
weighted-average assumptions used to determine net periodic benefit cost for the three months and six months ended September 30,
2013 and September 30, 2012 are set out below:
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Discount rate |
8.0% |
8.2% |
8.0% |
8.6% |
| Weighted average rate of increase in compensation levels |
7.3% |
7.3% |
7.3% |
7.3% |
| Rate of return on plan assets |
9.6% |
9.5% |
9.6% |
9.5% |
| Weighted average duration of defined benefit obligation* |
9.2 years |
NA |
9.2 years |
NA |
*As
per Revised IAS 19
The
Company contributes all ascertained liabilities towards gratuity to the Infosys Limited Employees' Gratuity Fund Trust. In case
of Infosys BPO, contributions are made to the Infosys BPO Employees' Gratuity Fund Trust. Trustees administer contributions made
to the trust and contributions are invested in specific designated instruments as permitted by Indian law and investments are
also made in mutual funds that invest in the specific designated instruments. As of September 30, 2013 and March 31, 2013 the
plan assets have been primarily invested in government securities.
Actual
return on assets for the three months and six months ended September 30, 2013 and September 30, 2012 were 17 crore and 15 crore
and 34 crore and 32 crore, respectively.
The
Company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards. The Company's
overall expected long-term rate-of-return on assets has been determined based on consideration of available market information,
current provisions of Indian law specifying the instruments in which investments can be made, and historical returns. Historical
returns during the three months and six months ended September 30, 2013 and September 30, 2012 have not been lower than the expected
rate of return on plan assets estimated for those years. The discount rate is based on the government securities yield.
As
of September 30, 2013, every percentage point increase / decrease in discount rate will affect our gratuity benefit obligation
by approximately 41 crore.
As
of September 30, 2013, every percentage point increase / decrease in weighted average rate of increase in compensation levels
will affect our gratuity benefit obligation by approximately 34 crore.
As
of September 30, 2013, every percentage point increase / decrease in attrition rate will affect our gratuity benefit obligation
by approximately 9 crore.
The
Company expects to contribute approximately 60 crore to the gratuity trusts during the reminder of fiscal 2014.
Maturity
profile of defined benefit obligation:
(in
crore)
| 2013-14 |
90 |
| 2014-15 |
95 |
| 2015-16 |
100 |
| 2016-17 |
107 |
| 2017-18 |
117 |
| Next
5 years Payouts (6-10 years) |
686 |
Sensitivity
for significant actuarial assumptions is computed by varying the actuarial assumptions used for valuation of defined benefit obligation
by one percentage.
Assumptions
regarding future mortality experience are set in accordance with the published statistics by the Life Insurance Corporation of
India.
2.11.2
Superannuation
The
Company contributed 51 crore and 42 crore and 99 crore and 83 crore to the superannuation plan during the three months and
six months ended September 30, 2013 and September 30, 2012, respectively.
Superannuation
contributions have been apportioned between cost of sales, selling and marketing expenses and administrative expenses on the basis
of direct employee cost as follows:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Cost of sales |
45 |
37 |
88 |
74 |
| Selling and marketing expenses |
5 |
3 |
8 |
6 |
| Administrative expenses |
1 |
2 |
3 |
3 |
| |
51 |
42 |
99 |
83 |
2.11.3
Provident fund
The
Company 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 Actuarial Society of
India has issued the final guidance for measurement of provident fund liabilities during the quarter ended December 31, 2011.
The actuary has accordingly provided a valuation and based on the below provided assumptions there is no shortfall as at September
30, 2013 and March 31, 2013, respectively.
The
details of fund and plan asset position are given below:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Plan assets at period end, at fair value |
2,510 |
2,399 |
| Present value of benefit obligation at period end |
2,510 |
2,399 |
| Asset
recognized in balance sheet |
– |
– |
Assumptions
used in determining the present value obligation of the interest rate guarantee under the Deterministic Approach:
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Government of India (GOI) bond yield |
9.2% |
8.0% |
| Remaining term of maturity |
8 years |
8 years |
| Expected guaranteed interest rate |
8.5% |
8.3% |
The
Company contributed 75 crore and 65 crore and 145 crore and 129 crore to the provident fund during the three months and six
months ended September 30, 2013 and September 30, 2012, respectively.
Provident
fund contributions have been apportioned between cost of sales, selling and marketing expenses and administrative expenses on
the basis of direct employee cost as follows:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Cost of sales |
65 |
58 |
128 |
116 |
| Selling and marketing expenses |
7 |
5 |
12 |
9 |
| Administrative expenses |
3 |
2 |
5 |
4 |
| |
75 |
65 |
145 |
129 |
2.11.4
Employee benefit costs include:
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Salaries and bonus |
7,575 |
5,303 |
13,926 |
10,422 |
| Defined contribution plans |
59 |
50 |
115 |
97 |
| Defined benefit plans |
70 |
79 |
176 |
173 |
| |
7,704 |
5,432 |
14,217 |
10,692 |
The
employee benefit cost is recognized in the following line items in the statement of comprehensive income:
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Cost of sales |
6,791 |
4,854 |
12,596 |
9,567 |
| Selling and marketing expenses |
641 |
390 |
1,115 |
746 |
| Administrative expenses |
272 |
188 |
506 |
379 |
| |
7,704 |
5,432 |
14,217 |
10,692 |
2.12
Equity
Share
capital and share premium
The
Company has only one class of shares referred to as equity shares having a par value of 5. The amount received in excess of the
par value has been classified as share premium. Additionally, share-based compensation recognized in net profit in the consolidated
statement of comprehensive income is credited to share premium. 28,33,600 shares were held by controlled trust, each as of September
30, 2013 and March 31, 2013.
Retained
earnings
Retained
earnings represent the amount of accumulated earnings of the Company.
Other
components of equity
Other
components of equity consist of currency translation, fair value changes on available-for-sale financial assets and remeasurement
of net defined benefit liability / (asset).
The
Company’s objective when managing capital is to safeguard its ability to continue as a going concern and to maintain an
optimal capital structure so as to maximize shareholder value. In order to maintain or achieve an optimal capital structure, the
Company may adjust the amount of dividend payment, return capital to shareholders, issue new shares or buy back issued shares.
As of September 30, 2013, the Company has only one class of equity shares and has no debt. Consequent to the above capital structure
there are no externally imposed capital requirements.
The
rights of equity shareholders are set out below.
2.12.1
Voting
Each
holder of equity shares is entitled to one vote per share. The equity shares represented by American Depositary Shares (ADS) carry
similar rights to voting and dividends as the other equity shares. Each ADS represents one underlying equity share.
2.12.2
Dividends
The
Company declares and pays dividends in Indian rupees. Indian law mandates that any dividend be declared out of accumulated distributable
profits only after the transfer to a general reserve of a specified percentage of net profit computed in accordance with current
regulations. The remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable
distribution taxes
The
amount of per share dividend recognized as distributions to equity shareholders for six months ended September 30, 2013 and September
30, 2012 was 27.00 and 32.00, respectively. The amount of per share dividend recognised as distribution to equity shareholders
for the six months ended September 30, 2012 include a special dividend – 10 years of Infosys BPO operation of 10.00 per
equity share.
The
Board of Directors, in their meeting on October 11, 2013, declared an interim dividend of 20 per equity share, which would result
in a cash outflow of approximately 1344 crore, inclusive of corporate dividend tax of approximately 195 crore.
2.12.3
Liquidation
In
the event of liquidation of the Company, the holders of shares shall be entitled to receive any of the remaining assets of the
Company, after distribution of all preferential amounts. However, no such preferential amounts exist currently, other than the
amounts held by irrevocable controlled trusts. The amount distributed will be in proportion to the number of equity shares held
by the shareholders. For irrevocable controlled trusts, the corpus would be settled in favour of the beneficiaries.
2.12.4
Share options
There
are no voting, dividend or liquidation rights to the holders of options issued under the Company's share option plans.
2.13
Other income
Other
income consists of the following:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Interest income on deposits and certificates of deposit |
522 |
432 |
1037 |
912 |
| Exchange gains/ (losses) on forward and options contracts |
(375) |
373 |
(793) |
28 |
| Exchange gains/ (losses) on translation of other assets and liabilities |
289 |
(216) |
720 |
95 |
| Income from available-for-sale financial assets |
62 |
63 |
104 |
89 |
| Others |
12 |
54 |
19 |
58 |
| |
510 |
706 |
1,087 |
1,182 |
2.14
Operating leases
The
Group has various operating leases, mainly for office buildings, that are renewable on a periodic basis. Rental expense for operating
leases was 81 crore and 63 crore and 157 crore and 122 crore for the three months and six months ended September 30, 2013
and September 30, 2012, respectively.
The
schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Within one year of the balance sheet date |
240 |
212 |
| Due in a period between one year and five years |
544 |
440 |
| Due after five years |
312 |
113 |
A
majority of the Group’s operating lease arrangements extend up to a maximum of ten years from their respective dates of
inception, and relates to rented overseas premises. Some of these lease agreements have a price escalation clause.
2.15
Employees' Stock Option Plans (ESOP)
1998
Employees Stock Option Plan (the 1998 Plan): The Company’s 1998 Plan provides for the grant of non-statutory share options
and incentive share options to employees of the Company. The establishment of the 1998 Plan was approved by the Board of Directors
in December 1997 and by the shareholders in January 1998. The Government of India has approved the 1998 Plan, subject
to a limit of 1,17,60,000 equity shares representing 1,17,60,000 ADS to be issued under the 1998 Plan. All options granted under
the 1998 Plan are exercisable for equity shares represented by ADSs. The options under the 1998 Plan vest over a period of one
through four years and expire five years from the date of completion of vesting. The 1998 Plan is administered by a compensation
committee, all of whom are independent members of the Board of Directors and through the Infosys Limited Employees’ Welfare
Trust (the Trust). The term of the 1998 Plan ended on January 6, 2008, and consequently no further shares will be issued to employees
under this plan.
1999
Employees Stock Option Plan (the 1999 Plan): In the year 2000, the Company instituted the 1999 Plan. The Board of Directors and
shareholders approved the 1999 Plan in June 1999. The 1999 Plan provides for the issue of 5,28,00,000 equity shares to employees.
The 1999 Plan is administered by a compensation committee, all of whom are independent members of the Board of Directors and through
the Infosys Limited Employees’ Welfare Trust (the Trust). Under the 1999 Plan, options will be issued to employees at an
exercise price, which shall not be less than the fair market value (FMV) of the underlying equity shares on the date of grant.
Under the 1999 Plan, options may also be issued to employees at exercise prices that are less than FMV only if specifically approved
by the shareholders of the Company in a general meeting. All options under the 1999 Plan are exercisable for equity shares. The
options under the 1999 Plan vest over a period of one through six years, although accelerated vesting based on performance conditions
is provided in certain instances and expire over a period of 6 months through five years from the date of completion of vesting.
The term of the 1999 plan ended on June 11, 2009, and consequently no further shares will be issued to employees under this plan.
There
were no share options outstanding and exercisable as of September 30, 2013 and March 31, 2013.
There
was no activity in the 1998 Plan during the six months ended September 30, 2012 and for the 1999 Plan the activity is set out
below:
| |
Six months ended September 30, 2012 |
| |
Shares arising out of options |
Weighted average exercise price |
| 1999 Plan: |
|
|
| Outstanding at the beginning |
11,683 |
2,121 |
| Forfeited and expired |
(5,518) |
2,121 |
| Exercised |
(2,445) |
2,121 |
| Outstanding at the end |
3,720 |
2,121 |
| Exercisable at the end |
3,720 |
2,121 |
The
weighted average share price of options exercised under the 1999 Plan during the six months ended September 30, 2012 was 2,458.
The
share-based compensation recorded for the six months ended September 30, 2012 was Nil.
2.16
Income taxes
Income
tax expense in the consolidated statement of comprehensive income comprises:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Current taxes |
|
|
|
|
| Domestic taxes |
873 |
806 |
1,650 |
1,538 |
| Overseas taxes |
199 |
141 |
309 |
280 |
| |
1,072 |
947 |
1,959 |
1,818 |
| Deferred taxes |
|
|
|
|
| Domestic taxes |
(18) |
(32) |
(39) |
(24) |
| Overseas taxes |
(114) |
19 |
(113) |
20 |
| |
(132) |
(13) |
(152) |
(4) |
| Income tax expense |
940 |
934 |
1,807 |
1,814 |
Entire
deferred income tax for the three months and six months ended September 30, 2013 and September 30, 2012 relates to origination
and reversal of temporary differences.
A
reversal of deferred tax liability of 4 crore and Nil for the three months ended September 30, 2013 and September 30, 2012
and a reversal of deferred tax liability of 4 crore and 1 crore for the the six months ended September 30, 2013 and September
30, 2012, respectively, relating to available-for-sale financial assets has been recognized in other comprehensive income (Refer
Note 2.2).
A
reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before
income taxes is summarized below:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Profit before income taxes |
3,347 |
3,303 |
6,588 |
6,472 |
| Enacted tax rates in India |
33.99% |
32.45% |
33.99% |
32.45% |
| Computed expected tax expense |
1,137 |
1,072 |
2,239 |
2,100 |
| Tax effect due to non-taxable income for Indian tax purposes |
(421) |
(216) |
(750) |
(475) |
| Branch profit tax |
(47) |
– |
(47) |
– |
| Overseas taxes |
162 |
104 |
272 |
204 |
| Tax reversals, overseas and domestic |
10 |
(7) |
(12) |
(11) |
| Effect of exempt income |
(22) |
(29) |
(37) |
(38) |
| Effect of unrecognized deferred tax assets |
6 |
17 |
23 |
34 |
| Effect of differential overseas tax rates |
(4) |
– |
(7) |
(2) |
| Effect of non-deductible expenses |
145 |
1 |
172 |
4 |
| Taxes on dividend received from subsidiary |
– |
7 |
– |
7 |
| Additional deduction on research and development expense |
(23) |
– |
(45) |
– |
| Others |
(3) |
(15) |
(1) |
(9) |
| Income tax expense |
940 |
934 |
1,807 |
1,814 |
The
applicable Indian statutory tax rates for fiscal 2014 and fiscal 2013 are 33.99% and 32.45%, respectively. The increase in the
statutory tax rate to 33.99% is consequent to changes made in the Finance Act 2013
During
the year ended March 31, 2013 the company received weighted tax deduction on eligible research and development expenditures based
on the approval received from Department of Scientific and Industrial Research (DSIR) for Finacle and Infosys labs which is effective
from 23rd November, 2011. The weighted tax deduction is equal to 200% of such expenditures incurred.
The
foreign tax expense is due to income taxes payable overseas, principally in the United States of America. In India, the company
has benefited from certain tax incentives the Government of India had provided to the export of software from specially designated
software technology parks, or STPs, in India and the company continues to benefit from certain tax incentives for facilities set
up under the Special Economic Zones Act, 2005. However, the tax incentives provided by the Government of India for STPs have expired,
and all the STP units are now taxable. Under the Special Economic Zones Act, 2005 scheme, units in designated special economic
zones which begin providing services on or after April 1, 2005 are eligible for a deduction of 100 percent of profits or gains
derived from the export of services for the first five years from commencement of provision of services and 50 percent of such
profits or gains for a further five years. Certain tax benefits are also available for a further period of five years subject
to the unit meeting defined conditions.
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, 2013, Infosys' U.S. branch net assets amounted to approximately 4,008 crore. As of September 30, 2013, the Company
has provided for branch profit tax of 316 crore for its U.S branch, as the Company estimates that these branch profits are expected
to be distributed in the foreseeable future.
Deferred
income tax liabilities have not been recognized on temporary differences amounting to 2,160 crore and 1,923 crore as of September
30, 2013 and March 31, 2013, respectively, associated with investments in subsidiaries and branches as it is probable that the
temporary differences will not reverse in the foreseeable future.
The
following table provides the details of income tax assets and income tax liabilities as of September 30, 2013 and March 31, 2013:
(In
crore)
| |
As at |
| |
September 30, 2013 |
March 31, 2013 |
| Income tax assets |
1,388 |
1,092 |
| Current income tax liabilities |
1,910 |
1,329 |
| Net current income tax asset/ (liability) at the end |
(522) |
(237) |
The
gross movement in the current income tax asset/ (liability) for the three months and six months ended September 30, 2013 and September
30, 2012 is as follows:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Net current income tax asset/ (liability) at the beginning |
(603) |
(358) |
(237) |
(17) |
| Translation differences |
5 |
1 |
7 |
(1) |
| Income tax paid |
1,148 |
1,082 |
1,667 |
1,614 |
| Current income tax expense (Refer Note 2.16) |
(1,072) |
(947) |
(1,959) |
(1,818) |
| Net current income tax asset/ (liability) at the end |
(522) |
(222) |
(522) |
(222) |
The
tax effects of significant temporary differences that resulted in deferred income tax assets and liabilities are as follows:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Deferred income tax assets |
|
|
| Property, plant and equipment |
370 |
358 |
| Minimum alternate tax credit carry-forwards |
21 |
37 |
| Computer software |
48 |
46 |
| Accrued compensation to employees |
48 |
30 |
| Trade receivables |
35 |
19 |
| Compensated absences |
219 |
146 |
| Accumulated losses |
46 |
36 |
| Available-for-sale financial asset |
3 |
– |
| Others |
88 |
96 |
| Total deferred income tax assets |
878 |
768 |
| Deferred income tax liabilities |
|
|
| Intangible asset |
(70) |
(68) |
| Temporary difference related to branch profits |
(316) |
(315) |
| Available-for-sale financial asset |
– |
(1) |
| Others |
(7) |
– |
| Total deferred income tax liabilities |
(393) |
(384) |
| Deferred income tax assets after set off |
555 |
503 |
| Deferred income tax liabilities after set off |
(70) |
(119) |
Deferred
tax assets and deferred tax liabilities have been offset wherever the Group 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.
The
deferred income tax assets and deferred income tax liabilities recoverable within and after 12 months are as follows:
(In
crore)
| |
As of |
| |
September 30, 2013 |
March 31, 2013 |
| Deferred income tax assets to be recovered after 12 months |
617 |
600 |
| Deferred income tax assets to be recovered within 12 months |
261 |
168 |
| Total deferred income tax assets |
878 |
768 |
| Deferred income tax liabilities to be settled after 12 months |
(194) |
(254) |
| Deferred income tax liabilities to be settled within 12 months |
(199) |
(130) |
| Total deferred income tax liabilities |
(393) |
(384) |
In
assessing the realizability of deferred income tax assets, 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. 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, 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
gross movement in the deferred income tax account for the three months and six months ended September 30, 2013 and September 30,
2012 is as follows:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Net deferred income tax asset at the beginning |
374 |
272 |
384 |
304 |
| Translation differences |
(25) |
13 |
(55) |
(11) |
| Credits relating to temporary differences (Refer Note 2.16) |
132 |
13 |
152 |
4 |
| Temporary difference on available-for-sale financial asset (Refer Note 2.2) |
4 |
– |
4 |
1 |
| Net deferred income tax asset at the end |
485 |
298 |
485 |
298 |
The
credits relating to temporary differences are primarily on account of compensated absences, trade receivables, accumulated losses,
accrued compensation to employees and property, plant and equipment.
Pursuant
to the enacted changes in the Indian Income Tax Laws effective April 1, 2007, a Minimum Alternate Tax (MAT) has been extended
to income in respect of which a deduction may be claimed under sections 10A and 10AA of the Income Tax Act. Consequent to the
enacted change, Infosys BPO has calculated its tax liability for current domestic taxes after considering MAT. The excess tax
paid under MAT provisions being over and above regular tax liability can be carried forward and set off against future tax liabilities
computed under regular tax provisions. Infosys BPO was required to pay MAT, and, accordingly, a deferred income tax asset of 21
crore and 37 crore has been recognized on the balance sheet as of September 30, 2013 and March 31, 2013, respectively, which
can be carried forward for a period of ten years from the year of recognition.
Claims
against the company not acknowledged as debts include demands from the Indian Income tax authorities for payment of additional
tax of 1,548 crore (1,088 crore), including interest of 429 crore (313 crore) upon completion of their tax review for fiscal
2006, fiscal 2007, fiscal 2008 and fiscal 2009. These income tax demands are mainly on account of disallowance of a portion of
the deduction claimed by the company under Section 10A of the Income Tax Act. The deductible amount is determined by the ratio
of export turnover to total turnover. The disallowance arose from certain expenses incurred in foreign currency being reduced
from export turnover but not reduced from total turnover. The tax demand for fiscal 2007, fiscal 2008 and fiscal 2009 also includes
disallowance of portion of profit earned outside India from the STP units and disallowance of profits earned from SEZ units. The
matter for fiscal 2006, fiscal 2007, fiscal 2008 and fiscal 2009 are pending before the Commissioner of Income tax ( Appeals),
Bangalore. The company is contesting the demand and the management including its tax advisors believes that its position will
likely be upheld in the appellate process. The management believes that the ultimate outcome of these proceedings will not have
a material adverse effect on the Company's financial position and results of operations.
2.17
Earnings per equity share
The
following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share:
| |
Three months ended September 30 |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Basic earnings per equity share - weighted average number of equity shares outstanding (1) |
57,14,02,566 |
57,13,97,749 |
57,14,02,566 |
57,13,97,150 |
| Effect of dilutive common equivalent shares - share options outstanding |
– |
864 |
– |
1,203 |
| Diluted earnings per equity share - weighted average number of equity shares and common equivalent shares outstanding |
57,14,02,566 |
57,13,98,613 |
57,14,02,566 |
57,13,98,353 |
(1)Excludes
treasury shares
For
the three months and six months ended September 30, 2013, and September 30, 2012, there were no outstanding options to purchase
equity shares which had an anti-dilutive effect.
2.18
Related party transactions
List
of subsidiaries:
| Particulars |
Country |
Holding as of |
|
|
September 30, 2013 |
March 31, 2013 |
| Infosys BPO |
India |
99.98% |
99.98% |
| Infosys China |
China |
100% |
100% |
| Infosys Mexico |
Mexico |
100% |
100% |
| Infosys Sweden |
Sweden |
100% |
100% |
| Infosys Shanghai |
China |
100% |
100% |
| Infosys Brasil |
Brazil |
100% |
100% |
| Infosys Public Services, Inc. |
USA |
100% |
100% |
| Infosys Consulting India Limited (1) |
India |
– |
100% |
| Infosys Americas (2) |
USA |
100% |
– |
| Infosys BPO s. r. o (3) |
Czech Republic |
99.98% |
99.98% |
| Infosys BPO (Poland) Sp Z.o.o (3) |
Poland |
99.98% |
99.98% |
| Infosys McCamish Systems LLC (Formerly known as McCamish Systems LLC)(3) |
USA |
99.98% |
99.98% |
| Portland
Group Pty Ltd (3)(4) (Refer to Note 2.3) |
Australia |
99.98% |
99.98% |
| Portland
Procurement Services Pty Ltd (10)(Refer to Note 2.3) |
Australia |
99.98% |
99.98% |
| Infosys Australia (5) |
Australia |
100% |
100% |
| Lodestone Holding AG(6)(Refer to Note 2.3) |
Switzerland |
100% |
100% |
| Lodestone Management Consultants (Canada) Inc. (7) |
Canada |
100% |
100% |
| Lodestone Management Consultants Inc. (7) |
USA |
100% |
100% |
| Lodestone Management Consultants Pty Limited (7) |
Australia |
100% |
100% |
| Lodestone Management Consultants (Asia Pacific) Limited (7)(8) |
Thailand |
– |
– |
| Lodestone Management Consultants AG (7) |
Switzerland |
100% |
100% |
| Lodestone Augmentis AG (12) |
Switzerland |
100% |
100% |
| Hafner Bauer & Ödman GmbH (7) |
Switzerland |
100% |
100% |
| Lodestone Management Consultants (Belgium) S.A. (9) |
Belgium |
99.90% |
99.90% |
| Lodestone Management Consultants GmbH (7) |
Germany |
100% |
100% |
| Lodestone Management Consultants Pte Ltd. (7) |
Singapore |
100% |
100% |
| Lodestone Management Consultants SAS (7) |
France |
100% |
100% |
| Lodestone Management Consultants s.r.o. (7) |
Czech Republic |
100% |
100% |
| Lodestone Management Consultants GmbH (7) |
Austria |
100% |
100% |
| Lodestone Management Consultants China Co., Ltd. (7) |
China |
100% |
100% |
| Lodestone Management Consultants Ltd. (7) |
UK |
100% |
100% |
| Lodestone Management Consultants B.V. (7) |
Netherlands |
100% |
100% |
| Lodestone Management Consultants Ltda. (9) |
Brazil |
99.99% |
99.99% |
| Lodestone Management Consultants Sp. z.o.o. (7) |
Poland |
100% |
100% |
| Lodestone Management Consultants Portugal, Unipessoal, Lda. (7) |
Portugal |
100% |
100% |
| S.C. Lodestone Management Consultants S.R.L. (7) |
Romania |
100% |
100% |
| Lodestone
Management Consultants S.R.L. (7)(11) |
Argentina |
100% |
100% |
| (1) | 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.
|
| (2) | Incorporated
effective
June
25,
2013 |
| (3) | Wholly
owned
subsidiaries
of
Infosys
BPO. |
| (4) | On
January
4,
2012,
Infosys
BPO
acquired
100%
of
the
voting
interest
in
Portland
Group
Pty
Ltd |
| (6) | On
October
22,
2012,
Infosys
acquired
100%
voting
interest
in
Lodestone
Holding
AG |
| (7) | Wholly
owned
subsidiaries
of
Lodestone
Holding
AG
acquired
on
October
22,
2012 |
| (8) | Liquidated
effective
February
14,
2013 |
| (9) | Majority
owned
and
controlled
subsidiaries
of
Lodestone
Holding
AG
acquired
on
October
22,
2012 |
| (10) | Wholly
owned
subsidiary
of
Portland
Group
Pty
Ltd |
| (11) | Incorporated
effective
January
10,
2013 |
| (12) | Wholly
owned
subsidiary
of
Lodestone
Management
Consultants
AG |
Infosys
has provided guarantee for performance of certain contracts entered into by its subsidiaries.
List
of other related parties:
| Particulars |
Country |
Nature of relationship |
| Infosys Limited Employees' Gratuity Fund Trust |
India |
Post-employment benefit plan of Infosys |
| Infosys Limited Employees' Provident Fund Trust |
India |
Post-employment benefit plan of Infosys |
| Infosys Limited Employees' Superannuation Fund Trust |
India |
Post-employment benefit plan of Infosys |
| Infosys BPO Limited Employees’ Superannuation Fund Trust |
India |
Post-employment benefit plan of Infosys BPO |
| Infosys BPO Limited Employees’ Gratuity Fund Trust |
India |
Post-employment benefit plan of Infosys BPO |
| Infosys Limited Employees’ Welfare Trust |
India |
Controlled trust |
| Infosys Science Foundation |
India |
Controlled trust |
Refer
Note 2.11 for information on transactions with post-employment benefit plans mentioned above.
Transactions
with key management personnel
The
table below describes the compensation to key management personnel which comprise directors and members of the executive council:
(In
crore)
| |
Three months ended September 30, |
Six months ended September 30, |
| |
2013 |
2012 |
2013 |
2012 |
| Salaries and other employee benefits to whole-time directors and members of executive council |
15 |
15 |
22 |
26 |
| Commission and other benefits to non-executive/independent directors |
3 |
2 |
6 |
5 |
| Total compensation to key managerial personnel |
18 |
17 |
28 |
31 |
2.19
Segment reporting
IFRS
8 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 thereby enabling clients to enhance business performance, delivered to customers globally operating
in various industry segments. The Chief Operating Decision Maker 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. 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 financial services and insurance (FSI) comprising enterprises providing banking, finance
and insurance services, enterprises in manufacturing (MFG), enterprises in the energy, utilities, communication and services (ECS)
and enterprises in retail, consumer packaged goods, logistics and life sciences(RCL). Geographic segmentation is based on business
sourced from that geographic region and delivered from both on-site and off-shore. North America comprises the United States of
America, Canada and Mexico, Europe includes continental Europe (both the east and the west), Ireland and the United Kingdom, and
the Rest of the World comprising all other places except those mentioned above and India.
Revenue
and identifiable operating expenses in relation to segments are categorized based on items that are individually identifiable
to that segment. Allocated expenses of segments include expenses incurred for rendering services from the Company's offshore software
development centers and on-site expenses, which are categorized in relation to the associated turnover of the segment. Certain
expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific
segments as the underlying assets are used interchangeably. Management believes that it is not practical to provide segment disclosures
relating to those costs and expenses, and accordingly these expenses are separately disclosed as "unallocated" and adjusted
against the total income of the Company
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. 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 industry revenue information is collated based on individual customers invoiced or in relation to which
the revenue is otherwise recognized.
2.19.1
Industry segments
(In
crore)
| Three months ended September 30, 2013 |
FSI |
MFG |
ECS |
RCL |
Total |
| Revenues |
4,333 |
3,005 |
2,495 |
3,132 |
12,965 |
| Identifiable operating expenses |
2,052 |
1,546 |
1,095 |
1,574 |
6,267 |
| Allocated expenses |
1136 |
833 |
690 |
869 |
3,528 |
| Segment profit |
1,145 |
626 |
710 |
689 |
3,170 |
| Unallocable expenses |
|
|
|
|
333 |
| Operating profit |
|
|
|
|
2,837 |
| Other income, net |
|
|
|
|
510 |
| Profit before income taxes |
|
|
|
|
3,347 |
| Income tax expense |
|
|
|
|
940 |
| Net profit |
|
|
|
|
2,407 |
| Depreciation and amortization |
|
|
|
|
333 |
| Non-cash expenses other than depreciation and amortization |
|
|
|
|
– |
(In
crore)
| Three months ended September 30, 2012 |
FSI |
MFG |
ECS |
RCL |
Total |
| Revenues |
3,317 |
2,178 |
1,994 |
2,369 |
9,858 |
| Identifiable operating expenses |
1,444 |
1,005 |
989 |
1,014 |
4,452 |
| Allocated expenses |
833 |
566 |
518 |
616 |
2,533 |
| Segment profit |
1,040 |
607 |
487 |
739 |
2,873 |
| Unallocable expenses |
|
|
|
|
276 |
| Operating profit |
|
|
|
|
2,597 |
| Other income, net |
|
|
|
|
706 |
| Profit before income taxes |
|
|
|
|
3,303 |
| Income tax expense |
|
|
|
|
934 |
| Net profit |
|
|
|
|
2,369 |
| Depreciation and amortization |
|
|
|
|
275 |
| Non-cash expenses other than depreciation and amortization |
|
|
|
|
1 |
(In
crore)
| Six months ended September 30, 2013 |
FSI |
MFG |
ECS |
RCL |
Total |
| Revenues |
8,131 |
5,544 |
4,642 |
5,915 |
24,232 |
| Identifiable operating expenses |
3,809 |
2839 |
2083 |
2927 |
11,658 |
| Allocated expenses |
2082 |
1495 |
1248 |
1595 |
6,420 |
| Segment profit |
2,240 |
1,210 |
1,311 |
1,393 |
6,154 |
| Unallocable expenses |
|
|
|
|
653 |
| Operating profit |
|
|
|
|
5,501 |
| Other income, net |
|
|
|
|
1087 |
| Profit before income taxes |
|
|
|
|
6,588 |
| Income tax expense |
|
|
|
|
1807 |
| Net profit |
|
|
|
|
4,781 |
| Depreciation and amortization |
|
|
|
|
652 |
| Non-cash expenses other than depreciation and amortization |
|
|
|
|
1 |
(In
crore)
| Six months ended September 30, 2012 |
FSI |
MFG |
ECS |
RCL |
Total |
| Revenues |
6,619 |
4,298 |
3,909 |
4,648 |
19,474 |
| Identifiable operating expenses |
2,915 |
1,951 |
1,871 |
1,974 |
8,711 |
| Allocated expenses |
1,637 |
1,105 |
1,005 |
1,195 |
4,942 |
| Segment profit |
2,067 |
1,242 |
1,033 |
1,479 |
5,821 |
| Unallocable expenses |
|
|
|
|
531 |
| Operating profit |
|
|
|
|
5,290 |
| Other income, net |
|
|
|
|
1,182 |
| Profit before income taxes |
|
|
|
|
6,472 |
| Income tax expense |
|
|
|
|
1,814 |
| Net profit |
|
|
|
|
4,658 |
| Depreciation and amortization |
|
|
|
|
528 |
| Non-cash expenses other than depreciation and amortization |
|
|
|
|
3 |
2.19.2
Geographic segments
(In
crore)
| Three months ended September 30, 2013 |
North America |
Europe |
India |
Rest of the World |
Total |
| Revenues |
7,974 |
3,104 |
317 |
1,570 |
12,965 |
| Identifiable operating expenses |
3,905 |
1,479 |
129 |
754 |
6,267 |
| Allocated expenses |
2,292 |
801 |
67 |
368 |
3,528 |
| Segment profit |
1,777 |
824 |
121 |
448 |
3,170 |
| Unallocable expenses |
|
|
|
|
333 |
| Operating profit |
|
|
|
|
2,837 |
| Other income, net |
|
|
|
|
510 |
| Profit before income taxes |
|
|
|
|
3,347 |
| Income tax expense |
|
|
|
|
940 |
| Net profit |
|
|
|
|
2,407 |
| Depreciation and amortization |
|
|
|
|
333 |
| Non-cash expenses other than depreciation and amortization |
|
|
|
|
- |
(In
crore)
| Three months ended September 30, 2012 |
North America |
Europe |
India |
Rest of the World |
Total |
| Revenues |
6,295 |
2,157 |
161 |
1,245 |
9,858 |
| Identifiable operating expenses |
2,721 |
1,005 |
143 |
583 |
4,452 |
| Allocated expenses |
1,624 |
554 |
40 |
315 |
2,533 |
| Segment profit |
1,950 |
598 |
(22) |
347 |
2,873 |
| Unallocable expenses |
|
|
|
|
276 |
| Operating profit |
|
|
|
|
2,597 |
| Other income, net |
|
|
|
|
706 |
| Profit before income taxes |
|
|
|
|
3,303 |
| Income tax expense |
|
|
|
|
934 |
| Net profit |
|
|
|
|
2,369 |
| Depreciation and amortization |
|
|
|
|
275 |
| Non-cash expenses other than depreciation and amortization |
|
|
|
|
1 |
(In
crore)
| Six months ended September 30, 2013 |
North America |
Europe |
India |
Rest of the World |
Total |
| Revenues |
14,894 |
5,766 |
612 |
2,960 |
24,232 |
| Identifiable operating expenses |
7,245 |
2779 |
264 |
1370 |
11,658 |
| Allocated expenses |
4,095 |
1491 |
130 |
704 |
6,420 |
| Segment profit |
3,554 |
1,496 |
218 |
886 |
6,154 |
| Unallocable expenses |
|
|
|
|
653 |
| Operating profit |
|
|
|
|
5,501 |
| Other income, net |
|
|
|
|
1087 |
| Profit before income taxes |
|
|
|
|
6,588 |
| Income tax expense |
|
|
|
|
1807 |
| Net profit |
|
|
|
|
4,781 |
| Depreciation and amortization |
|
|
|
|
652 |
| Non-cash expenses other than depreciation and amortization |
|
|
|
|
1 |
(In
crore)
| Six months ended September 30, 2012 |
North America |
Europe |
India |
Rest of the World |
Total |
| Revenues |
12,455 |
4,218 |
354 |
2,447 |
19,474 |
| Identifiable operating expenses |
5,398 |
1,990 |
245 |
1,078 |
8,711 |
| Allocated expenses |
3,188 |
1,069 |
81 |
604 |
4,942 |
| Segment profit |
3,869 |
1,159 |
28 |
765 |
5,821 |
| Unallocable expenses |
|
|
|
|
531 |
| Operating profit |
|
|
|
|
5,290 |
| Other income, net |
|
|
|
|
1,182 |
| Profit before income taxes |
|
|
|
|
6,472 |
| Income tax expense |
|
|
|
|
1,814 |
| Net profit |
|
|
|
|
4,658 |
| Depreciation and amortization |
|
|
|
|
528 |
| Non-cash expenses other than depreciation and amortization |
|
|
|
|
3 |
2.19.3
Significant clients
No
client individually accounted for more than 10% of the revenues in the three months and six months ended September 30, 2013 and
September 30, 2012.
2.20
Litigation
On
May 23, 2011, the company received a subpoena from a grand jury in the United States District Court for the Eastern District of
Texas. The subpoena required that the company provide to the grand jury certain documents and records related to its sponsorships
for, and uses of, B1 business visas. The company complied with the subpoena. In connection with the subpoena, during a meeting
with the United States Attorney’s Office for the Eastern District of Texas, the company was advised that it and certain
of its employees are targets of the grand jury investigation. The company was subsequently advised that this investigation was
continuing and that additional subpoenas may be issued.
In
addition, the U.S. Department of Homeland Security (“DHS”) reviewed the company’s employer eligibility verifications
on Form I-9 with respect to its employees working in the United States. In connection with this review, the company was advised
that the DHS has found errors in a significant percentage of its Forms I-9 that the DHS has reviewed, and may impose fines and
penalties on the company related to such alleged errors.
In
pursuit of a civil resolution, the company is engaged in discussions with the U.S. Attorney’s Office and other governmental
departments regarding these matters, and based on the current status of such discussions, has recorded a provision of 219 crores
including legal costs. The company intends to continue discussions with the U.S. Attorney’s Office and other governmental
departments. However, it cannot predict the final outcome of these discussions.
In
the event that the U.S government undertakes any actions which limit the B-1 business visa program or other visa program that
the company utilizes, imposes sanctions, fines or penalties on the company or its employees, or undertakes any other actions against
the company arising from the investigations or discussions that are currently ongoing, this could materially and adversely affect
the company’s business and results of operations.
EPS
for the three months and six months ended September 30, 2013 is 45.96 per share and 87.50 per share respectively, excluding
the provision of 219 crore for visa related matters. EPS for the three months and six months ended September 30, 2013 is 42.12
per share and 83.66 per share, including the provision of 219 crores for visa related matters. The difference is 3.84 per share.
Auditor’s Report on Consolidated
Quarterly Financial Results and Consolidated Year to Date Financial Results of Infosys Limited Pursuant to the Clause 41 of the
Listing Agreement
To
The Board of Directors of Infosys Limited
We have audited the consolidated quarterly financial
results of Infosys Limited (‘the Company’) for the quarter ended 30 September 2013 and the consolidated year to date
financial results for the period from 1April 2013 to 30 September 2013 attached herewith, being submitted by the Company pursuant
to the requirement of Clause 41 of the Listing Agreement, except for the disclosures regarding ‘Public Shareholding’
and ‘Promoter and Promoter Group Shareholding’ which have been traced from disclosures made by the management and have
not been audited by us. These consolidated quarterly financial results as well as the consolidated year to date financial results
have been prepared from the consolidated interim financial statements, which are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial results based on our audit of such consolidated interim
financial statements, which have been prepared in accordance with the recognition and measurement principles laid down in International
Accounting Standard (IAS) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board.
We conducted our audit in accordance with auditing
standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial results are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts disclosed as financial results. An audit also includes assessing the accounting principles used and significant estimates
made by management. We believe that our audit provides a reasonable basis for our opinion.
In our opinion and to the best of our information
and according to the explanations given to us, these consolidated quarterly financial results as well as the consolidated year
to date financial results:
| (i) | include the quarterly financial results and
the year to date financial results of the following entities: |
| | | |
| 4. | Infosys Consulting India Limited; |
| 5. | Infosys Tecnologia Do Brasil LTDA; |
| 6. | Infosys Technologies (Australia) Pty. Limited; |
| 7. | Infosys Technologies (China) Co., Ltd.; |
| 8. | Infosys McCamish Systems, LLC; |
| 9. | Infosys Public Services, Inc.; |
| 10. | Infosys Technologies S. de R.L. de C.V.; |
| 11. | Infosys Technologies (Sweden) AB; |
| 12. | Infosys BPO Poland SP Z O O; |
| 13. | Infosys Technologies (Shanghai) Company Limited; |
| 14. | Infosys Americas Inc.; |
| 15. | Portland Group Pty Ltd; |
| 16. | Portland Procurement Services Pty Ltd; |
| 18. | Lodestone Management Consultants (Canada)
Inc.; |
| 19. | Lodestone Management Consultants Inc.; |
| 20. | Lodestone Management Consultants Pty Limited; |
| 21. | Lodestone Management Consultants AG; |
| 22. | Lodestone Augmentis AG; |
| 23. | Hafner Bauer & Ödman GmbH; |
| 24. | Lodestone Management Consultants (Belgium)
NV; |
| 25. | Lodestone Management Consultants GmbH, Austria; |
| 26. | Lodestone Management Consultants Ltd.; |
| 27. | Lodestone Management Consultants B.V.; |
| 28. | Lodestone Management Consultants Ltda.; |
| 29. | Lodestone Management Consultants Sp. z.o.o.; |
| 30. | Lodestone Management Consultants Portugal,
Unipessoal, Lda.; |
| 31. | Lodestone Management Consultants S.R.L..; |
| 32. | Lodestone Management Consultants Pte. Ltd.; |
| 33. | Lodestone Management Consultants SAS; |
| 34. | Lodestone Management Consultants s.r.o.; |
| 35. | Lodestone Management Consultants GmbH, Germany;
|
| 36. | S.C.Lodestone Management Consultants S.R.L.;
and |
| 37. | Lodestone Management Consultants Co. Ltd |
| | | |
| (ii) | have been presented in accordance with the
requirements of Clause 41 of the Listing Agreement in this regard; and |
| | | |
| (iii) | give a true and fair view of the consolidated
net profit and other financial information for the quarter ended 30 September 2013 as well as the consolidated year to date results
for the period from
1 April 2013 to 30 September 2013. |
Further, we also report that we have, on the
basis of the books of account and other records and information and explanations given to us by the management, also verified the
consolidated number of shares as well as percentage of shareholdings in respect of aggregate amount of consolidated public shareholdings,
as furnished by the Company in terms of Clause 35 of the Listing Agreement and found the same to be correct.
for B S R & Co.
Chartered Accountants
Firm’s registration number: 101248W
Zubin Shekary
Partner
Membership number: 048814
Bangalore
11 October 2013
