Effective 1 April 2011, the Company instituted the Restricted Stock
Unit Plan-2011. The Board and the shareholders of the Company approved
RSU Plan-2011 on 22 November 2010 and 24 February 2011 respectively.
The RSU Plan-2011 provides for the issue of restricted options to
employees and directors of the Company and its subsidiaries.
The RSU Plan-2011 is administered by the MphasiS Employees Benefit
Trust which was created for this purpose. Each option, granted under
the RSU Plan-2011, entitles the holder thereof with an option to apply
for and be issued one equity share of the Company at an exercise price
of Rs. Nil per share. The equity shares covered under these options vest
over a period of twelve months from the date of grant. The exercise
period is three months from the date of vesting.
1. The Company''s software development centres in India include 100%
Export Oriented (''EOU''), Special Economic Zone (''SEZ'') under
Special Economic Zone Ordinance and Software Technology Park (''STP'')
Units under the Software Technology Park guidelines issued by the
Government of India. They are exempted from customs and central excise
duties and levies on imported and indigenous capital goods and stores
and spares. The Company has executed legal undertakings to pay customs
duty, central excise duty, levies and liquidated damages, if any, in
respect of imported and indigenous capital goods and stores and spares
consumed duty free, in the event that certain terms and conditions are
not fulfilled. Bank guarantees aggregating to Rs. 44.06 millions as at 31
October 2013 (31 October 2012: Rs. 44.53 millions) have been furnished to
the Customs authorities in this regard.
2. Contingent liabilities and commitments
(a) The Company has received assessment orders for the financial years
ended 31 March 2004, 31 March 2005, 31 March 2006, 31 March 2007, 31
March 2008 and 31 March 2009, wherein certain adjustments in respect of
transfer pricing under section 92CA of the Income Tax Act, 1961 have
been made to the taxable income and demand orders for Rs. 1,536.95
millions (31 October 2012: Rs. 1,503.02 millions) have been raised on the
Company. The above demands are disputed by the management and the
Company has filed appeals against the aforesaid orders with appellate
authorities. The management is of the view that the prices determined
by it are at arm''s length and is confident that the demands raised by
the assessing officer are not tenable under law. Pending outcome of the
aforesaid matters under litigation, no provision has been made in the
books of account for the above mentioned tax demands.
Other claims against the Company not acknowledged as debts amounting to
Rs. 3,701.89 millions (31 October 2012: Rs. 1,110.80 millions) net of bank
guarantees aggregating to Rs. 4,910.28 millions (31 October 2012: Rs. Nil).
The management, basis internal evaluation and legal opinion is of the
view that these demands are not tenable.
(b) Other outstanding bank guarantees as at 31 October 2013: Rs. 663.63
millions (31 October 2012: Rs. 619.30 millions) including those furnished
on account of jointly controlled operations Rs. 108.70 millions (31
October 2012: Rs. 235.74 millions).
(c) Estimated amount of contracts remaining to be executed on capital
account (net of advances) and not provided for as at 31 October 2013: Rs.
92.06 millions (31 October 2012: Rs. 90.61 millions);
Unamortized premium as at 31 October 2013 on forward exchange contracts
to hedge the foreign currency risk of the underlying outstanding at the
balance sheet date is Rs. 52.26 millions (31 October 2012: Rs. 53.91
millions). Net foreign currency exposure of the Company that is not
hedged by a derivative instrument or otherwise as at 31 October 2013: Rs.
14,393.83 millions (31 October 2012: Rs. 9,999.80 millions).
(e) The Company has issued performance guarantees on behalf of its
subsidiaries for any future liabilities which may arise out of
contracts and to certain clients for executed contracts.
3. Operating Leases
(a) The Company is obligated under non-cancellable leases for
equipment, office and residential space that are renewable on a
periodic basis at the option of the lessor and lessee. The total rental
expenses under non-cancellable operating leases amounted to Rs. 303.97
millions for the year ended 31 October 2013. (31 October 2012: Rs. 421.38
The Company has also occupied office facilities and residential
facilities under cancellable operating lease agreements. The Company
intends to renew such leases in the normal course of its business.
Total rental expense under cancellable operating leases was Rs. 1,138.25
millions for the year ended 31 October 2013. (31 October 2012: Rs. 854.43
millions). Office premises are obtained on operating lease for terms
ranging from 1-7 years and are renewable at the option of the Company/
(b) The Company has subleased office space under non-cancellable
operating lease agreements that are renewable on a periodic basis at
the option of both the lessor and lessee. The total sub lease rental
Income under non-cancellable operating leases amounted to Rs. 42.08
millions for the year ended 31 October 2013 (31 October 2012: Rs. 34.14
4. Related Party Transactions
(a) Entities where control exists:
- Hewlett-Packard Company, USA (ultimate holding Company)
- Hewlett-Packard Eagle Corporation, USA (100% subsidiary of
Hewlett-Packard Company, USA)
- Electronic Data Systems LLC, USA (formerly Electronic Data Systems
Corporation, USA), (100% subsidiary of Hewlett-Packard Eagle
* EDS Asia Pacific Holdings, Mauritius (formerly TH Holding,
Mauritius), EDS World Corporation (Far East) and EDS World Corporation
LLC (Netherlands), the subsidiaries of Electronic Data Systems LLC, USA
(formerly Electronic Data Systems Corporation, USA) hold 60.49% (31
October 2012: 60.50%) of the equity capital of the Company.
(b) The related parties where control exists also includes BFL
Employees Equity Reward Trust, Kshema Employees Welfare Trust, MphasiS
Employee Benefit Trust and the following subsidiaries.
- MphasiS Corporation (Rs.MphasiS USARs.)
- MphasiS Australia Pty Limited (MphasiS Australia)
- MphasiS Consulting Limited (MphasiS Consulting)
- MphasiS Ireland Limited (MphasiS Ireland'')
- MphasiS Lanka Private Limited (''MphasiS Lanka'')
- MphasiS Deutschland GmbH (''MphasiS GmbH'')
- MphasiS (Shanghai) Software & Services Company Limited (''MphasiS
- MphasiS FinsourcE Limited (''MphasiS FinsourcE'')
- MphasiS Belgium BVBA (''MphasiS Belgium'')
- MphasiS Poland s.p.z.o.o
- PT. MphasiS Indonesia (''MphasiS Indonesia'')
- MphasiS Pte Limited (''MphasiS Singapore'')
- MphasiS UK Limited (''MphasiS UK'')
- MphasiS Wyde Inc.
- Wyde Corporation
- Wyde Solutions Canada Inc.
- MphasiS Philippines Inc.
- Wyde Tunisie SARL
- Digital Risk, LLC
- Digital Risk Mortgage Services, LLC
- Digital Risk Compliance Services, LLC
- Digital Risk Analytics, LLC
- MphasiS Europe BV (''MphasiS Europe'')
- MphasiS Infrastructure Services Inc.
- MsourcE (India) Private Limited (''MsourcE India'')
- MphasiS Software and Services (India) Private Limited (''MphasiS
- MsourcE Mauritius Inc. (''MsourcE Mauritius'')
- MphasiS Wyde SAS
- MsourcE India BPO Private Limited
- Investor Services, LLC
- Digital Risk Valuation Services, LLC
- Digital Risk Europe, OOD
- Digital Risk Mortgage Services, Corp
(c) Key management personnel:
The key management personnel of the Company are as mentioned below:
Executive key management personnel represented on the Board of the
- Balu Ganesh Ayyar Chief Executive Officer
(d) Direct or indirect subsidiaries of ultimate holding company with
which transactions have taken place:
- Hewlett-Packard UK Enterprise (I) Ltd.
- P.T. Hewlett-Packard Berca Servisindo
- Autonomy Inc
- HP India Software Operation Pvt Ltd
- Hewlett-Packard Australia Pty Limited
- HP Enterprise Services BPA Pty Ltd
- Hewlett-Packard Brasil Ltda
- Hewlett-Packard (Schweiz) GmbH
- Shanghai Hewlett-Packard Co, Ltd
- Hewlett-Packard GmbH
- Global E:Business Operations Private Ltd
- HP Centre de Competence France SAS
- Hewlett-Packard Ltd
- HP Financial Services (New Zealand)
- Hewlett-Packard Company
- HP Financial Services GmbH
- HP Financial Services SPRL
- HP Enterprise Services Australia Pty Ltd
- Hewlett-Packard Belgium B.V.B.A/S.P.R.L
- Hewlett-Packard (Canada) Co.
- Hewlett-Packard Technology (Shanghai) Co., Ltd
- Hewlett-Packard Colombia Ltda
- Hewlett-Packard Aps
- Hewlett-Packard OY
- Hewlett-Packard France SaS
- Hewlett-Packard CDS Limited
- HP Enterprise Services UK Ltd
- Hewlett-Packard India Sales Private Limited
- Hewlett-Packard Galway Ltd
- Hewlett-Packard Servicios Espania, S.L.
- Hewlett-Packard Globalsoft Limited
- HP Enterprise Services Energy Italia S.r.l
- Hewlett-Packard Korea Limited
- Hewlett-Packard de Mexico S. De R.L. De CV
- Hewlett-Packard (K) Limited Liability Partnership
- Hewlett-Packard International Trade B.V.Saudi Arabia Branch
- Hewlett-Packard New Zealand
- Hewlett-Packard Singapore (Sales) Pte. Ltd
- HP Services (Singapore) Pte Ltd
- HP Software, LLC
- Hewlett-Packard State & Local Enterprise Services, Inc.
- Hewlett-Packard SAS, France
- Hewlett-Packard Servizi ICT S.r.l.
- Hewlett-Packard Global Investments B.V
- Hewlett-Packard International Sa''rl
- Hewlett-Packard Pakistan (Private) Limited
- Hewlett-Packard Financial Services (Australia)
- HP Enterprise Services (Hong Kong) Ltd
- Hewlett-Packard Ireland, Ltd.
- Hewlett-Packard Financial Services (India) Private Ltd.
- Hewlett-Packard (M) Sdn.Bhd.
- HP Enterprise Services Italia S.r.l
- Hewlett-Packard Japan Limited
- Hewlett-Packard Services Kuwait Company W.L.L
- Hewlett-Packard Multimedia SDN BHD
- Hewlett-Packard Nederland B.V
- Hewlett-Packard Norge A/S
- Hewlett-Packard Sverige A.B.
- Hewlett-Packard Asia Pacific Pte Ltd.
- Hewlett-Packard (Thailand) Ltd
- Hewlett-Packard Enterprises LLC
- HP Enterprise Services, LLC
- Hewlett-Packard South Africa (Proprietary) Limited
- Hewlett-Packard Nigeria Ltd
- Hewlett-Packard Slovakia, s.r.o.
- Hewlett-Packard Gulf SAS
- Hewlett-Packard Philippines Incorporation
- Hewlett-Packard Enterprise Services France S.A.S
5. Segment reporting
The Company has identified Banking and Capital Market, Insurance,
Information Technology, Communication and Entertainment and Emerging
Industries as primary business segments of the Company.
The accounting policies consistently used in the preparation of the
financial statements are also applied to record revenue and expenditure
in individual segments. Assets, liabilities, revenues and direct
expenses in relation to segments are categorised based on items that
are individually identifiable to that segment, while other items,
wherever allocable, are apportioned to the segments on an appropriate
basis. Certain items are not specifically allocable to individual
segments as the underlying services are used interchangeably. The
Company therefore believes that it is not practical to provide segment
disclosures relating to such items, and accordingly such items are
separately disclosed as ''unallocated''.
Client relationships are driven based on client domicile. The
geographical segments include United States of America (USA), Asia
Pacific (APAC), India and Europe, Middle East & Africa (EMEA).
6. Stock Based Compensation
The Company uses the intrinsic value method of accounting for its
employee stock options except for RSU Plan 2010, RSU Plan 2011 and ESOP
2012 plan wherein compensation cost is measured based on fair value
method. The Company has therefore adopted the pro-forma disclosure
provisions as required by the Guidance Note on "Accounting for
Employee Share-based Payments" issued by the ICAI with effect from 1
b. Provident Fund
The Company contributed '' 512.02 millions during the year ended 31
October 2013 (31 October 2012: '' 542.83 millions).
Effective 03 July 2013, the Company has established a Provident Fund
Trust to which contributions towards provident fund are made each
month. The Company has initiated steps for closure and transfer of
funds from recognised provident funds to trust. The trust has invested
the contribution in Government bonds with average returns more than the
guaranteed return. Pending transfer of corpus from recognised provident
fund the Company has not carried out actuarial valuation as at the date
of Balance Sheet. Also the management does not expect any shortfall.
7. MphasiS Employee Welfare Trust, Mauritius (''MEWT''), was formed
in year 2000 to administer the options granted to the employees of
MphasiS Corporation when it was acquired by MphasiS Limited. At the
time of acquisition, 1,288,787 shares of MphasiS Limited were issued to
MEWT to be granted to the employees of MphasiS Corporation in lieu of
the options on its shares held by them. The options that were not
exercised lapsed on 11 April 2011. MEWT no longer had a purpose hence,
the cash balance to the extent of '' 181.69 millions with MEWT and the
sale proceeds of 216,783 shares amounting to '' 83.47 millions
representing the lapsed options was remitted back during the year ended
31 October 2012. The remittance received has been credited to Capital
Reserve. The Company has agreed to indemnify the trustees of MEWT
towards any future claims.
8. The Company acquired control of Kshema Technologies Limited
("Kshema") on 1 June 2004. Kshema has been amalgamated with MphasiS
Limited with effect from 1 April 2005.
The balance consideration payable to the erstwhile shareholders
amounting to '' 17.06 millions (31 October 2012: '' 17.06 millions) is
carried as a liability which will be paid after necessary regulatory
approvals are obtained (refer note 7).
9. The Company is eligible for tax benefit in respect of profits
generated from special economic zones (''SEZ'') under section 10AA of
the Income Tax Act, 1961 (''Act''). The management has relied on the
explanations provided in the Act and consultant''s advice regarding
formation of SEZ units and inter unit costs while considering revenue
and profits arising from SEZ units for the tax financial year
2012-2013. Further, pursuant to introduction of domestic transfer
pricing regulation, effective 1 April 2012, the Company has undertaken
a transfer pricing study and analysis of its domestic transactions
between the related parties. As a result, revenue of '' 733.00 millions
with corresponding cost of '' 666.00 millions relating to the period 1
April 2012 to 31 January 2013, has been accounted during the year ended
31 October 2013, which was initially cross charged by the Company to
domestic related parties by crediting the cost. On the above matters,
an incremental tax liability of '' 121.91 millions has been provided
during the year ended 31 October 2013. The management is confident that
the provision made in respect of aforementioned matters is adequate.
10. The Company has entered into international and specified domestic
transactions with its associated enterprises within the meaning of
section 92B and section 92BA respectively of the Income Tax Act, 1961.
The Company is of the view that all the aforesaid transactions have
been made at arms'' length terms.
11. The Board of directors of the Company in its meeting held on 27
September 2013 has approved the amalgamation of MphasiS FinsourcE
Limited with its holding company, MphasiS Limited. 1 April 2013 being
the appointed date of the merger. The Company is in the process of
seeking approvals from The National Stock Exchange of India Limited,
The Bombay Stock Exchange limited and The Hon''ble High Court of
12. On 22 July 2013, the Board of Directors of MphasiS Lanka (Private)
Limited, a wholly owned subsidiary of the Company, resolved to close
down its operations. Accordingly, an amount of '' 62.33 millions towards
investment and inter-company receivables has been provided for in the
financial statement of the Company.
13. MsourcE India BPO Private Limited has been dissolved and the name
has been struck off from the register of Registrar of Companies
effective 21 November 2013.
14. Current tax for the year ended 31 October 2013 include provision
for earlier years amounting to '' 84.14 millions (year ended 31 October
2012 is net of reversal of provision for earlier years amounting to ''
15. Previous year''s figures have been reclassified to conform to this
year''s classification, wherever applicable.