USD - TCS

Transcription

USD - TCS

Financial Statements prepared
in accordance with US GAAP - Fiscal 2011
REPORT FOR THE YEAR ENDED MARCH 31, 2011
Contents
Board of Directors
1
Management Team
2
Management Discussion and Analysis of Financial Condition and
Results of operations of TCS Limited in accordance with U.S. GAAP
4
Report of Independent Auditors
23
Consolidated balance sheet as on March 31, 2010 and 2011
24
Consolidated statements of income for the years ended
March 31, 2009, 2010 and 2011
25
Statement of shareholders’ equity for the years ended
March 31, 2009, 2010 and 2011
26
Consolidated statements for cash flows for the years ended
March 31, 2009, 2010 and 2011
28
Notes to Consolidated financial statements
30
1
Annual Report 2010-11
This page has been intentionally left blank
2
Board of Directors
(As of March 31, 2011)
R N Tata (Chairman)
S Ramadorai (Vice Chairman)
N Chandrasekaran (CEO & Managing Director)
Aman Mehta
V Thyagarajan
Prof. Clayton M Christensen
Dr. Ron Sommer
Laura M Cha
S Mahalingam (CFO & Executive Director)
Phiroz Vandrevala (Executive Director)
Dr. Vijay Kelkar
Ishaat Hussain
Company Secretary
Suprakash Mukhopadhyay
Statutory Auditors
Deloitte Haskins & Sells
US GAAP Auditors
Deloitte Haskins & Sells
Registered Office
9th Floor, Nirmal Building
Nariman Point, Mumbai 400 021
Tel : 91 22 6778 9595
Fax : 91 22 6778 9660
Website : www.tcs.com
Corporate Office
TCS House
Raveline Street, Fort
Mumbai 400 001
Tel : 91 22 6778 9999
Fax : 91 22 6778 9000
E-mail: [email protected]
Registrars & Transfer Agents
TSR Darashaw Limited
6-10, Haji Moosa Patrawala Industrial Estate
20, Dr. E. Moses Road, Mahalaxmi
Mumbai 400 011
Tel : 91 22 6656 8484
Fax : 91 22 6656 8494
E-mail: [email protected]
Website: www.tsrdarashaw.com
1
Management Team
Function
Name
Corporate
CEO
N Chandrasekaran
CFO
S Mahalingam
Corporate Affairs
Phiroz Vandrevala
Global Human Resources
Ajoyendra Mukherjee
Geography Heads
North America
Surya Kant
Europe
A S Lakshminarayanan
APAC
Girija Pande
Vish Iyer
Qi Qi Dong
Masahiko Kaji
Latin America
Henry Manzano
MEA
Girish Ramachandran
India
Srinivasa G Raghavan
Functions
Marketing
John Lenzen
Corporate Communication
Pradipta Bagchi
R&D
K Ananth Krishnan
Human Resources
Ritu Anand
Ashok Mukherjee
K Ganesan
Thomas Simon
S Narasimhan
Legal
Satya Hegde
Finance
B Sanyal
V Ramakrishnan
Pauroos Karkaria
G S Lakshminarayanan
Rajesh Gopinathan
Company Secretary
Suprakash Mukhopadhyay
Chief Compliance Officer
Ravindra J Shah
Security
R K Raghavan
2
Management Team
Function
Name
Industry Service Units
Banking & Financial Services
Ramanamurthy Magapu
K Krithivasan
Susheel Vasudevan
Tej Paul Bhatla
Insurance
Vijaya Deepti
Suresh Muthuswami
Telecom
Ravi Viswanathan
Manufacturing
Milind Lakkad
Hi Tech
Nagaraj Ijari
Carol Wilson
Government
Tanmoy Chakrabarty
Retail & Distribution
Pratik Pal
Life Sciences & Healthcare
Debashis Ghosh
Energy, Resources & Utilities
Hasit Kaji
Media and Information Services
Kamal Bhadada
Travel & Hospitality
S Sukanya
Strategic Growth Units
TCS Financial Services
N G Subramaniam
Small & Medium Business
Venguswamy Ramaswamy
Platform BPO
Raj Agrawal
Service Units
Global Consulting Practice
J Rajagopal
Engineering & Industrial Services
Regu Ayyaswamy
Infrastructure Services
P R Krishnan
BPO
Abid Ali Neemuchwala
Global Delivery Network
Gabriel Rozman
Assurance Services
Siva Ganesan
Enterprise Solutions
Krishnan Ramanujam
Alliances
K Jayaramakrishnan
Internal IT
Alok Kumar
3
Management Discussion and Analysis of
Results of Operations and Financial Condition
The following discussion and analysis should be read
together with the consolidated US GAAP financial
statements of Tata Consultancy Services Limited
(hereinafter referred to as TCS Limited or TCS or TCS Ltd.
or the Company) for the financial years ended
March 31, 2011, 2010 and 2009.
The Company’s financial year ends on March 31. All
references to a particular financial year are to the
twelve-month period ended March 31 of that year.
Highlights
In fiscal 2011, total revenues aggregated $8.2 billion - a
growth of 29.14% over the total revenues of $6.3 billion
in fiscal 2010. Revenues from information technology
and consultancy services were $7.9 billion - a growth of
28.77% over $6.1 billion in fiscal 2010. Operating profits of
$2,280.0 million in fiscal 2011 represented a growth of
35.59% over the operating profits of $1,681.6 million in
fiscal 2010.
In fiscal 2011, net income aggregated $1.9 billion - a
growth of 31.33% over $1.5 billion in fiscal 2010.
For the first three quarters of fiscal 2011, the Company
paid a total interim dividend of $0.13 (` 6) per equity share.
On April 21, 2011, the Board of Directors recommended,
for approval of shareholders, a final dividend of
$0.16 (` 8) per share. If approved, the total dividend
for fiscal 2011 would aggregate $0.29 (` 14) per share,
including the three interim quarterly dividends. The
resultant dividend payout ratio would be 36.63% of the
unconsolidated profits of the Company for fiscal 2011
under US GAAP.
Significant accounting policies
Note 2 of ‘Notes to Consolidated Financial Statements’
gives the details of the significant accounting policies
used for the preparation and presentation of the financial
statements.
These financial statements have been prepared in
accordance with accounting principles generally accepted
in the United States of America (“US GAAP”).
Certain prior-year amounts have been reclassified to
conform to current year presentation.
The functional currency of Tata Consultancy Services
Limited and its Indian subsidiaries is the Indian rupee,
whereas the functional currency of foreign subsidiaries is
the currency in their countries of incorporation.
The accompanying financial statements are reported in
US dollars.
Estimates and assumptions used in the preparation
of the consolidated US GAAP financial statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America (“US GAAP”) requires the management
to make estimates and assumptions that affect:
•
the reported amounts of assets and liabilities
•
disclosures of contingent assets and liabilities at the
date of these financial statements and
•
the reported amounts of revenues and expenses for
the years presented.
Areas in which significant judgments and estimates are
used include, but are not limited to:
•
estimated costs for completion of fixed price contracts
•
allowances for uncollectible accounts receivable
•
useful lives of tangible and intangible assets
•
impairment assessment of goodwill, other intangible
assets and long-lived assets
•
purchase price allocation on acquisition of business
•
retirement benefits and
•
income taxes.
Actual results could differ from these estimates.
4
Results of operations
(in millions of USD)
Fiscal 2011
Fiscal 2010
% of
Revenues
in FY11
Fiscal 2009
% of
Revenues
in FY10
% of
Revenues
in FY09
Revenues:
Information technology and
consultancy services
7,906.7
96.58
6,140.3
96.86
5,789.3
96.24
280.1
3.42
199.0
3.14
226.4
3.76
8,186.8
100.00
6,339.3
100.00
6,015.7
100.00
4,259.4
52.03
3,241.4
51.13
3,146.7
52.31
246.1
3.00
170.8
2.70
196.3
3.26
Total cost of revenues
4,505.5
55.03
3,412.2
53.83
3,343.0
55.57
Gross profit
3,681.3
44.97
2,927.1
46.17
2,672.7
44.43
1,377.9
16.83
1,227.2
19.36
1,237.5
20.57
Sale of equipment and
software licenses
Total revenues
Cost of revenues:
Cost of information
technology and consultancy
services
Cost of equipment and
software licenses
Operating expenses:
Selling, general and
administrative expenses
Research and development
expenses
23.4
0.29
18.3
0.29
10.3
0.17
Total operating expenses
1,401.3
17.12
1,245.5
19.65
1,247.8
20.74
Operating income
2,280.0
27.85
1,681.6
26.52
1,424.9
23.69
Other income / (expense):
Interest income
110.1
1.34
44.6
0.70
22.4
0.36
Interest expense
(16.9)
(0.20)
(11.4)
(0.18)
(11.5)
(0.19)
Equity in net earnings of
affiliates
(0.1)
-
(0.2)
-
(0.2)
-
Other non-operating
income / (expense), net
21.6
0.26
15.6
0.25
(108.5)
(1.80)
114.7
1.40
48.6
0.77
(97.8)
(1.63)
2,394.7
29.25
1,730.2
27.29
1,327.1
22.06
465.3
5.68
261.1
4.12
190.4
3.16
1,929.4
23.57
1,469.1
23.17
1,136.7
18.90
(24.4)
(0.30)
(15.5)
(0.24)
(12.9)
(0.22)
1,905.0
23.27
1,453.6
22.93
1,123.8
18.68
Other income, net
Income before income
taxes
Income tax expense
Net income
Net income attributable to
non-controlling interests
Net income attributable to
TCS Ltd.
5
Revenues
The revenues of the Company also depend on:
The Company derives its revenues primarily from
information technology and consultancy services, including
software development services, implementation and
other related services, re-licensing of third party software
products and sales, licensing and sale of its own software,
business process outsourcing, sale and maintenance of
equipment.
•
the ability of the Company to secure business from
existing and new clients
•
delivery of products and services that meet the
changing IT needs of clients and
•
the proportion of work performed at overseas
locations vis-à-vis the work performed at its facilities
in India.
The revenues of the Company are affected by:
The Company’s engagement for providing services to
clients is executed either on fixed-price-fixed-time basis
or time and material basis. When bidding for turnkey
engagements, the Company endeavors to accurately
estimate the costs and timing of completion of the projects,
based on (1) the processes it plans to use (2) the employees
it plans to deploy and (3) past project experience. For such
turnkey contracts, the Company bears the risk of cost and
time overruns, including delays caused by factors beyond
its control.
•
economic conditions in respective geographies
•
the financial position of the industries serviced by the
Company
•
pace of technological changes
•
information technology spending of the clients and
•
cross currency exchange rate fluctuations.
The composition and growth of revenues are shown below:
Fiscal 2011
% growth
Fiscal 2010
% growth
Fiscal 2009
Revenues
8,186.8
29.14
6,339.3
5.38
6,015.7
Information technology and consultancy
services
7,906.7
28.77
6,140.3
6.06
5,789.3
% of total revenues
96.58
-
96.86
-
96.24
Sale of equipment and software licenses
280.1
40.75
199.0
(12.10)
226.4
3.42
-
3.14
-
3.76
% of total revenues
The growth of 29.14% in total revenues has resulted from increased demand. Revenues from existing clients constituted
97.85% of revenues in fiscal 2011 (97.48% of revenues in fiscal 2010).
Composition of revenues by currency
The Company earns its revenues in multiple currencies. The table below shows the currency wise revenues earned in
the last three years.
(% of revenues)
Fiscal 2011
Fiscal 2010
Fiscal 2009
US dollar
59.40
58.62
58.21
Sterling pound
12.46
13.07
15.58
Indian rupee
9.37
8.71
9.19
Euro
7.09
7.78
8.30
Australian dollar
4.00
2.91
1.74
Canadian dollar
1.96
1.62
1.19
Others
Total
6
5.72
7.29
5.79
100.00
100.00
100.00
India (37.34%), the United Kingdom (23.51%) and Middle
East and Africa (30.95%).
Revenues by segments
Analysis of revenues by industry verticals
(% of revenues)
Fiscal
2011
Banking, financial
services and
insurance (BFSI)
Telecom
Retail and consumer
packaged goods
(CPG)
Manufacturing
Others
Total
Fiscal
2010
Analysis of revenues by service practice
Fiscal
2009
(% of revenues)
Fiscal
2011
44.28
14.18
11.00
7.37
23.17
100.00
44.93
14.53
10.60
8.10
21.84
100.00
42.88
16.21
8.82
9.80
22.29
100.00
BFSI continues to be the Company’s largest industry vertical.
In fiscal 2011, the Company’s revenues from this segment
have remained strong as the global economic recovery
continued. BFSI revenues grew by 27.27% in fiscal 2011.
In fiscal 2011, impressive growth has been seen in Retail
and CPG (34.04%) and also in verticals like Life Sciences
and Healthcare (31.69%), Energy, Resources and Utilities
(86.16%), Hi-Tech (49.57%) and Travel, Transportation
and Hospitality (38.61%) included in ‘Others’ reported
above. Growth in revenues for Manufacturing (17.59%)
was relatively lower.
Analysis of revenues by geography
(% of revenues)
Fiscal
2011
Americas
53.87
United Kingdom
Fiscal
2010
52.81
Fiscal
2009
46.46
48.73
48.48
Business Process
Outsourcing (BPO)
11.27
11.53
7.25
Enterprise Solutions (ES)
10.14
10.47
12.49
IT Infrastructure Services
(IT IS)
9.42
8.36
7.98
Business Intelligence (BI)
5.31
5.69
8.06
Assurance Services
6.78
5.04
4.22
Engineering and
Industrial Services (EIS)
4.80
4.98
5.96
Asset Leverage Solution
(Products)
3.65
3.29
2.90
Consulting
Total
2.17
1.91
2.66
100.00
100.00
100.00
During fiscal 2011, all service lines have shown growth.
Significant contributors to such growth were Assurance
Services (73.36%), IT IS (45.57%) and Consulting
(46.34%). Other service lines also grew at impressive rates
in fiscal 2011 - Asset Leveraged Solutions (42.87%),
BPO (26.37%), ES (25.11%), ADM (23.14%), EIS (24.55%)
and BI (20.49%).
Revenue analysis by service location
(% of international revenues)
51.32
15.46
16.17
19.05
9.33
10.48
10.52
India
9.20
8.65
7.87
Offshore India
Asia Pacific
6.58
5.25
4.77
Iberoamerica
3.61
4.72
4.68
Offsite Global Delivery
Center (GDC)
Middle East and
Africa
1.95
1.92
1.79
100.00
100.00
100.00
The improved demand in Americas region has resulted
in significant growth in revenues from the region in
fiscal 2011 (31.73%) as compared to last fiscal (8.44%).
Asia Pacific region registered impressive growth (62.00%)
in fiscal 2011 compared to 15.82% in fiscal 2010.
Other regions contributing significant growth were
Fiscal
2009
Application Development
and Maintenance (ADM)
Europe
Total
Fiscal
2010
Fiscal
2011
Fiscal
2010
Fiscal
2009
50.96
50.97
44.22
5.02
5.72
4.59
Total offsite
55.98
56.69
48.81
Total onsite
44.02
43.31
51.19
100.00
100.00
100.00
Total
The offshore revenues from India remained steady at
50.96% of the international revenues in fiscal 2011
(50.97% in fiscal 2010; 44.22% in fiscal 2009). The
movement from GDC to onsite in fiscal 2011 was the result
of business demand.
7
Revenue analysis by nature of contract
(% of international revenues)
Fiscal 2011
Fiscal 2010
Fiscal 2009
Time and material
50.65
52.18
55.21
Fixed-price-fixed-time
49.35
47.82
44.79
100.00
100.00
100.00
Total
As part of its strategy, the Company has been moving more towards fixed-price-fixed-time contracts. TCS has aligned
its capabilities in order to deliver such contracts successfully.
Expenditure
Cost of revenues (COR)
Cost of revenues of the Company consists of cost of
information technology and consultancy services and cost
of equipment and software licenses directly attributable
to execution of projects.
Cost of information technology and consultancy services
consists primarily of compensation for personnel engaged in
providing consultancy services, employee allowances, client
specific training expenses, travel expenses, depreciation
of property, plant and equipment, amortization of
intangibles, rental expenses and communication expenses
in relation to delivery of equipment and development
of IT services. Cost of services also includes payments to
subcontractors, who are consultants hired in order to meet
client demand and/or to address specific skill requirements.
Employee cost includes salaries, which comprise fixed
and variable components of employee compensation,
overseas living allowances, staff welfare and contribution
to retirement funds such as provident fund, gratuity, social
security and other employee benefits.
The Company engages in extensive training of new hires as
well as periodic training of existing employees to upgrade
skills. Training costs for existing employees are categorized
as cost of services if training is related to specific projects;
otherwise such costs are considered as selling, general and
administrative (SG&A) expenses.
The composition of the Company’s cost of revenues and growth are shown below:
Fiscal 2011 % growth Fiscal 2010 % growth
Revenues
Fiscal 2009
8,186.8
29.14
6,339.3
5.38
6,015.7
4,259.4
31.41
3,241.4
3.01
3,146.7
Cost of revenues:
Cost of information technology and consultancy
services
% of total revenues
52.03
-
51.13
-
52.31
Cost of equipment and software licenses
246.1
44.09
170.8
(12.99)
196.3
3.00
-
2.70
-
3.26
4,505.5
32.04
3,412.2
2.07
3,343.0
55.03
-
53.83
-
55.57
% of total revenues
Total
% of total revenues
8
The significant items of cost of information technology and consultancy services are given below:
Fiscal 2011
Employee costs
% of
Revenues
Fiscal 2010
% of
Revenues
Fiscal 2009
% of
Revenues
3,661.8
44.73
2,799.3
44.16
2,692.4
44.76
123.7
1.51
94.4
1.49
78.3
1.30
76.0
0.93
56.3
0.89
70.6
1.17
Communication
88.7
1.08
61.7
0.97
57.0
0.95
Other expenses
309.2
3.78
229.7
3.62
248.4
4.13
4,259.4
52.03
3,241.4
51.13
3,146.7
52.31
Depreciation and
amortization
Foreign travel
Total
The total cost of information technology and consultancy services as a percentage of total revenues increased from
51.13% in fiscal 2010 to 52.03% in fiscal 2011. As shown in the above table, the increase was mainly due to employee
costs, foreign travel costs and communication expenses. Details of employee costs are given below.
Fiscal 2011
Salaries
% of
Revenues
Fiscal 2010
% of
Revenues
Fiscal 2009
% of
Revenues
1,847.6
22.57
1,364.7
21.53
1,257.9
20.91
Foreign allowances
999.7
12.21
839.1
13.24
900.9
14.98
Subcontractors
465.0
5.68
351.2
5.54
291.1
4.84
Provident and other
funds
125.8
1.54
96.3
1.52
92.8
1.54
Staff welfare
132.8
1.62
94.0
1.48
87.5
1.45
90.9
1.11
54.0
0.85
62.2
1.04
3,661.8
44.73
2,799.3
44.16
2,692.4
44.76
Legal expenses
Total
For purpose of this analysis, ‘employee cost’ includes cost
of services hired from subcontractors. In terms of revenues,
the ‘employee cost’ in fiscal 2011 in COR has increased to
44.73% from 44.16% in fiscal 2010. The reasons for the
increase are:
38.62% in fiscal 2010), mainly comprising
•
•
staff welfare expenses 0.14%
legal expenses related to employment such as visa
expenses etc 0.26%
increase in cost of services hired from subcontractors
0.14% (5.68% in fiscal 2011, 5.54% in fiscal 2010)
cost of salaries (excluding foreign allowances)
1.04%
increase in employee costs (excluding cost of
subcontractors) 0.43% (39.05% in fiscal 2011,
offset by reduction in growth of foreign
allowances 1.03%
Expenditure on account of cost of equipment and software licenses has increased to $246.1 million in fiscal 2011
(3.00% of revenues) from $170.8 million in fiscal 2010 (2.70% of revenues). The increase is on account of additional
systems integration projects executed by the Company during fiscal 2011.
9
Gross Profit
Growth in company’s gross profit is shown below:
Fiscal 2011
% growth
Fiscal 2010
% growth
Fiscal 2009
Revenues
8,186.8
29.14
6,339.3
5.38
6,015.7
Gross profit
3,681.3
25.77
2,927.1
9.52
2,672.7
44.97
-
46.17
-
44.43
% of revenues
Gross profit increased to $ 3,681.3 million in fiscal 2011 (44.97% of revenues) from $2,927.1 million in fiscal 2010
(46.17% of revenues).
Cost of revenues grew by 32.04% in fiscal 2011 (55.03% of revenues in fiscal 2011, 53.83% of revenues in fiscal 2010)
while revenues grew by 29.14% in fiscal 2011 over fiscal 2010. This has resulted in decline in gross profit margin from
46.17% in fiscal 2010 to 44.97% in fiscal 2011.
Operating expenses
The Company’s operating expenses include selling, general and administrative (SG&A) expenses and research and
development (R&D) expenses.
The Company’s SG&A expenses primarily comprise compensation for employees in sales, administration and other
functions not directly engaged in the IT services delivery process. SG&A also includes depreciation and amortization
of intangibles and software for internal use, insurance, utilities and rental expenses, business promotion expenses,
allowances for uncollectible receivables, travel expenses, legal and professional fees, marketing expenses and other
general expenses not directly attributable to execution of projects.
The summary of operating expenses is given below:
Fiscal 2011
% growth
Fiscal 2010
% growth
Fiscal 2009
8,186.8
29.14
6,339.3
5.38
6,015.7
1,377.9
12.28
1,227.2
(0.83)
1,237.5
16.83
-
19.36
-
20.57
R&D expenses
23.4
27.87
18.3
77.67
10.3
% of total revenues
0.29
-
0.29
-
0.17
1,401.3
12.51
1,245.5
(0.18)
1,247.8
17.12
-
19.65
-
20.74
Revenues
Operating expenses:
SG&A expenses
% of total revenues
Total
% of total revenues
SG&A expenses as a percentage of revenues have decreased by 2.53% in fiscal 2011 (19.36% in fiscal 2010, 16.83% in
fiscal 2011).
R&D expenses remained steady at 0.29% of revenues in both fiscal 2011 and fiscal 2010.
10
Selling, general and administrative (SG&A) expenses
Fiscal 2011
Employee costs
% of
Revenues
Fiscal 2010
% of
Revenues
Fiscal 2009
% of
Revenues
929.7
11.36
745.7
11.76
754.2
12.54
Rent and electricity
89.7
1.10
97.2
1.53
98.1
1.63
Depreciation and
amortization
51.5
0.63
57.7
0.91
45.5
0.76
Travel and conveyance
60.5
0.74
43.0
0.68
60.0
1.00
Marketing and sales
promotion
25.1
0.30
22.1
0.35
20.1
0.33
Professional fees
43.4
0.53
34.4
0.54
42.0
0.70
Communication
30.8
0.38
27.7
0.44
31.7
0.53
Provision for doubtful
debts
(22.8)
(0.28)
36.1
0.57
14.3
0.24
Other expenses
170.0
2.07
163.3
2.58
171.6
2.84
1,377.9
16.83
1,227.2
19.36
1,237.5
20.57
448.2
5.47
481.5
7.60
483.3
8.03
Total
SG&A expenses other
than employee costs
Employee costs in SG&A expenses
Fiscal 2011
% of
Revenues
Fiscal 2010
% of
Revenues
Fiscal 2009
% of
Revenues
Salaries
684.3
8.36
569.8
8.99
529.9
8.82
Foreign allowances
139.4
1.70
93.1
1.47
137.4
2.28
Staff welfare
52.6
0.64
42.5
0.67
44.7
0.74
Provident and other funds
49.8
0.61
38.4
0.61
36.5
0.61
3.6
0.05
1.9
0.02
5.7
0.09
929.7
11.36
745.7
11.76
754.2
12.54
Commission
Total
Employee costs in SG&A expenses as a percentage of total revenues decreased from 11.76% in fiscal 2010 to
11.36% in fiscal 2011. The decrease is attributable to cost of salaries, 0.63% (8.36% in fiscal 2011; 8.99% in fiscal 2010)
partly offset by higher foreign allowances 0.23% (1.70% in fiscal 2011; 1.47% in fiscal 2010).
SG&A expenses other than employee costs decreased significantly by 2.13%, from 7.60% of revenues in fiscal
2010 to 5.47% in fiscal 2011. The decrease was primarily attributable to successful continuing cost management
initiatives undertaken across the Company. Significant decreases in terms of revenues were recorded in rent and
electricity (1.10% in fiscal 2011; 1.53% in fiscal 2010), depreciation and amortization (0.63% in fiscal 2011; 0.91% in
11
fiscal 2010), communication expenses (0.38% in fiscal 2011; 0.44% in fiscal 2010), provision for doubtful debts (reversal of
0.28% in fiscal 2011; provision of 0.57% in fiscal 2010) and other expenses (2.07% in fiscal 2011; 2.58% in fiscal 2010).
Other expenses were lower in fiscal 2011 as a percentage of revenues primarily as a result of:
•
cost of repairs (0.25% in fiscal 2011, 0.66% in fiscal 2010)
•
consumables (0.12% in fiscal 2011, 0.20% in fiscal 2010)
•
other miscellaneous items of expenses (0.69% in fiscal 2011, 0.93% in fiscal 2010)
•
offset by higher education, recruitment and training costs (0.58% in fiscal 2011, 0.33% in fiscal 2010) and higher
advertisement costs (0.16% in fiscal 2011, 0.11% in fiscal 2010).
Increased business activity necessitated higher levels of travel and consequently the expenditure on account of travel
and conveyance was higher (0.74% in fiscal 2011, 0.68% in fiscal 2010).
Research and development (R&D) expenses
The Company’s R&D expenses include all expenditure incurred in various research and development centers in India,
which includes employee cost of research personnel, infrastructure maintenance costs and all other expenditure
required to carry on R&D activities.
Fiscal 2011
% growth
Fiscal 2010
% growth
Fiscal 2009
8,186.8
29.14
6,339.3
5.38
6,015.7
R&D expenses
23.4
27.87
18.3
77.67
10.3
% of total revenues
0.29
-
0.29
-
0.17
Revenues
R&D expenses in fiscal 2011 increased by 27.87% ($23.4 million in fiscal 2011, $18.3 million in fiscal 2010). The increase
was in line with the Company’s plan laid out for R&D and innovation projects.
Operating income
Fiscal 2011
% growth
Fiscal 2010
% growth
Fiscal 2009
Revenues
8,186.8
29.14
6,339.3
5.38
6,015.7
Operating income
2,280.0
35.59
1,681.6
18.02
1,424.9
27.85
-
26.52
-
23.69
% of total revenues
The Company’s operating income in fiscal 2011 was higher by 35.59% at $2,280.0 million as compared to
$1,681.6 million in fiscal 2010. As a percentage of total revenues, the Company’s operating profit margin went up
significantly by 1.33% (27.85% in fiscal 2011, 26.52% in fiscal 2010).
Derivative financial instruments
Details of derivative financial instruments as at March 31, 2011 and March 31, 2010 are disclosed in note 24 of the
‘Notes to Consolidated Financial Statements’. The policies on derivative financial instruments have been brought out
in item 2(r) of the ‘Notes to Consolidated Financial Statements’.
12
Other income / (expense)
Other income includes interest and dividend income, foreign currency exchange gains and losses, profit / loss on sale of
investments, income from rent and miscellaneous income. Other expenses include interest expense on bank overdraft
and debt.
The details of other income/ (expense) are given in the table below:
Fiscal 2011
Revenues
Interest income
Interest expense
Net interest income/
(expense)
Equity in net earnings of
affiliates
Foreign exchange loss
(net)
Dividend income
Others, net
Total other income/
(expense), net
Total
Fiscal 2010
8,186.8
110.1
(16.9)
% of
Revenues
100.00
1.34
(0.20)
Fiscal 2009
6,339.3
44.6
(11.4)
% of
Revenues
100.00
0.70
(0.18)
6,015.7
22.4
(11.5)
% of
Revenues
100.00
0.36
(0.19)
93.2
1.14
33.2
0.52
10.9
0.17
(0.1)
-
(0.2)
-
(0.2)
-
(10.3)
3.6
28.3
(0.13)
0.04
0.35
(39.1)
2.8
51.9
(0.61)
0.04
0.82
(166.9)
27.8
30.6
(2.77)
0.46
0.51
21.5
114.7
0.26
1.40
15.4
48.6
0.25
0.77
(108.7)
(97.8)
(1.80)
(1.63)
The increase in interest income in fiscal 2011 was a result of continuous monitoring of the deployment of surplus cash
in order to maximize yield.
The decrease in the foreign exchange loss (net) in fiscal 2011 is primarily attributable to lower losses incurred on the
forward and option hedging contracts.
Income tax
Income tax expense comprises current tax expense and net changes in deferred tax assets and liabilities.
The Company benefited from certain tax incentives under the Indian Income Tax Act 1961, for export of IT services
that it provided from specially designated Software Technology Parks in India (STPs). The benefits applicable to STPs
expired on March 31, 2011.
The Company also avails tax incentives applicable to Special Economic Zones (SEZ) under the IT Act.
Till March 31, 2011, ‘Minimum Alternative Tax’ (MAT) was applicable to the Company excluding its income from SEZ.
With effect from April 1, 2011, MAT would be applicable to income from SEZ also. MAT paid results in tax credit which
according to the IT Act can be carried forward for subsequent ten years and adjusted against future tax liabilities. In
the view of the Company, it would have sufficient tax liabilities to offset the MAT credits during the prescribed carry
forward period. Accordingly, MAT has been recognized as deferred tax asset in the balance sheet.
Income tax expense analysis is given in the table below:
Income before taxes
Income tax expense
Income tax as a % of revenues
Effective tax rate % (Income tax expense/ income before
taxes)
Fiscal 2011
2,394.7
465.3
5.68
Fiscal 2010
1,730.2
261.1
4.12
Fiscal 2009
1,327.1
190.4
3.16
19.43
15.09
14.35
13
The increase in effective tax rate for fiscal 2011 as compared to fiscal 2010 was primarily attributable to:
•
increase in tax provision for Tata Consultancy Services Limited primarily as a result of expiry of tax holiday for
certain STP units
•
provision for taxes on increased interest income
•
increase in the taxable profit of some of the overseas subsidiaries
•
increase in tax provision of one of the Company’s subsidiaries in India as a result of expiry of tax holiday of its STP
Units with effect from April 1, 2010
The effective tax rate was lower than the current corporate tax rate in India for fiscal 2011 (33.22%), primarily due to
the tax benefits applicable to the STPs and SEZs that the Company operated from during fiscal 2011.
Net income
Net income of the Company for fiscal 2011 was $1,929.4 million ($1,469.1 million in fiscal 2010).
Fiscal
2011
% growth
Fiscal
2010
% growth
Fiscal
2009
Revenues
8,186.8
29.14
6,339.3
5.38
6,015.7
Net income
1,929.4
31.33
1,469.1
29.24
1,136.7
% of total revenues
23.57
-
23.17
-
18.90
Net income attributable to non-controlling
interests
(24.4)
57.42
(15.5)
20.16
(12.9)
% of total revenues
(0.30)
-
(0.24)
-
(0.22)
1,905.0
31.05
1,453.6
29.35
1,123.8
23.27
-
22.93
-
18.68
Net income attributable to TCS Limited
% of total revenues
The increase in net income as percentage of revenues (23.57% in fiscal 2011, 23.17% in fiscal 2010) is attributable to
the increase in operating income, increase in net other income, offset by higher income tax expense.
The increase in net income attributable to TCS Limited as percentage of revenues (23.27% in fiscal 2011, 22.93% in
fiscal 2010) was due to the increase in net income, offset by marginally higher net profits attributable to minority
shareholders in two of the Company’s subsidiaries in India.
14
Segment results
The Company considers ‘Industry’ as its primary segment and ‘Geography’ as its secondary segment.
Revenues and expenses directly attributable to segments are reported under each reportable primary segment.
The Company’s segment-wise operating performance are analyzed in terms of revenues, expenses directly attributable
to the segments, allocable expenses and segment results.
Fiscal 2011
% of
Revenues
Fiscal 2010
% of
Revenues
Fiscal 2009
% of
Revenues
Total segment revenue
8,186.8
100.00
6,339.3
100.00
6,015.7
100.00
Total segment result
2,414.0
29.49
1,792.6
28.28
1,526.7
25.38
134.0
1.64
111.0
1.74
101.8
1.69
2,280.0
27.85
1,681.6
26.52
1,424.9
23.69
Other income/(expense), net
114.7
1.40
48.6
0.77
(97.8)
(1.63)
Income before income taxes
2,394.7
29.25
1,730.2
27.29
1,327.1
22.06
465.3
5.68
261.1
4.12
190.4
3.16
1,929.4
23.57
1,469.1
23.17
1,136.7
18.90
Unallocable expenses (net)
Operating income
Income tax expense
Net income
The summary of the Company’s segment revenues and segment results is given below:
Segment revenues
BFSI
Fiscal 2011
% of
Revenues
Fiscal 2010
% of
Revenues
Fiscal 2009
% of
Revenues
3,625.1
44.28
2,848.3
44.93
2,579.7
42.88
Manufacturing
603.6
7.37
513.3
8.10
589.3
9.80
Retail and Consumer
Packaged Goods (CPG)
900.5
11.00
671.8
10.60
530.5
8.82
Telecom
1,160.5
14.18
921.0
14.53
975.1
16.21
Others
1,897.1
23.17
1,384.9
21.84
1,341.1
22.29
Total
8,186.8
100.00
6,339.3
100.00
6,015.7
100.00
Segment results
BFSI
Fiscal 2011
% of
segment
results
Fiscal 2010
% of
segment
results
Fiscal 2009
% of
segment
results
1,123.2
46.53
799.9
44.62
640.5
41.95
Manufacturing
154.5
6.40
156.4
8.72
168.5
11.04
Retail and CPG
236.2
9.78
179.4
10.01
110.1
7.21
Telecom
404.0
16.74
285.4
15.92
288.7
18.91
Others
496.1
20.55
371.5
20.73
318.9
20.89
2,414.0
100.00
1,792.6
100.00
1,526.7
100.00
Total
15
Segment-wise performances are discussed below:
BFSI
Fiscal 2011
% of
segment
revenues
Fiscal 2010
% of
segment
revenues
Fiscal 2009
% of
segment
revenues
Segment revenue
3,625.1
100.00
2,848.3
100.00
2,579.7
100.00
Segment result
1,123.2
30.98
799.9
28.08
640.5
24.83
BFSI constitutes the Company’s largest segment. The revenues in BFSI aggregated 44.28% of Company’s total revenues
in fiscal 2011 (44.93% in fiscal 2010; 42.88% in fiscal 2009) and has contributed 46.53% of total segment results in
fiscal 2011 (44.62% in fiscal 2010; 41.95% in fiscal 2009).
BFSI has shown satisfactory growth in terms of revenues (27.27% over fiscal 2010) as well as segment result
(40.42% over fiscal 2010). Margin improved from 28.08% in fiscal 2010 to 30.98% in fiscal 2011. Customers in
this segment were adversely affected by the economic slowdown in fiscal 2009 as well as fiscal 2010. However, in
fiscal 2011, this segment witnessed economic recovery and increased spending.
Other significant developments in this segment during fiscal 2011 were (1) addition of new customers across geographies,
including marquee logos that hold good potential for future growth (2) establishing a group of ‘Industry Principals’
to advise customers on high end business strategy and (3) filing application for patenting ‘Risk Assessment System’,
which is a component of the Company’s Mobile Telematic Solution.
Telecom
Segment revenue
Segment result
Fiscal 2011
% of
segment
revenues
Fiscal 2010
% of
segment
revenues
Fiscal 2009
% of
segment
revenues
1,160.5
100.00
921.0
100.00
975.1
100.00
404.0
34.81
285.4
30.99
288.7
29.61
The second largest segment for the Company is Telecom including Media and Entertainment which constituted
14.18% of the Company’s revenues in fiscal 2011 (14.53% in fiscal 2010; 16.21% in fiscal 2009).
The segment contributed 16.74% of total segment results in fiscal 2011 (15.92% in fiscal 2010; 18.91% in fiscal 2009), a
growth of 41.56% in fiscal 2011 over fiscal 2010. Margin improved from 30.99% in fiscal 2010 to 34.81% in fiscal 2011.
In fiscal 2010, Telecom faced some setbacks. Some of the major customers cut down their IT budgets and the Company
witnessed a reduction in revenues compared to fiscal 2009.
In fiscal 2011, Telecom (including media and entertainment) witnessed moderate growth (26.00% over fiscal 2010),
driven by recovery of business with some of the strategic customers.
In fiscal 2011, Telecom added new customers with annuity business potential across geographies, deployed mobile
number portability solutions and IT infrastructure for launch of 3G services for clients, commercially deployed ‘Telco
in a Box’ offering to large Telecom Company’s and created a dedicated unit called ‘Mobility Solutions Unit’ to service
all the industry verticals of TCS.
In fiscal 2011, Media and Entertainment grew by exploiting the Company’s full service capability, deploying Platform
Based Solutions for its customers, pre-building a Social Web Monetization Platform to enable its customers to rapidly
establish social media based presence on the web and building capability in the broadcasting segment.
16
Retail and CPG
Fiscal 2011
% of
segment
revenues
Fiscal 2010
% of
segment
revenues
Fiscal 2009
% of
segment
revenues
Segment revenue
900.5
100.00
671.8
100.00
530.5
100.00
Segment result
236.2
26.23
179.4
26.70
110.1
20.75
The third largest segment for the Company is Retail and CPG. The segment constituted 11.00% of the Company’s
revenues in fiscal 2011 (10.60% in fiscal 2010; 8.82% in fiscal 2009). The segment revenues have shown substantial
improvement over last fiscal 34.04% in fiscal 2011 over fiscal 2010 (26.64% in fiscal 2010 over fiscal 2009).
This segment contributed 9.78% of total segment results in fiscal 2011 (10.01% in fiscal 2010; 7.21% in fiscal 2009) - a
growth of 31.66% in fiscal 2011 over fiscal 2010, with steady margins.
The Retail and CPG segment did well in fiscal 2011 by capitalizing on the increased spending by retailers on discretionary
programs and making full use of its domain driven full services offerings. During fiscal 2011, the segment won several
transformational deals using the Company’s deep domain capabilities, offered non-linear solutions using the Company’s
domain driven ‘Full Services Offerings’ for certain mission critical programs for clients and worked with alliance partners
and also used the Company’s rich repository of intellectual properties to bring best practices to its customers.
Manufacturing
Fiscal 2011
% of
segment
revenues
Fiscal 2010
% of
segment
revenues
Fiscal 2009
% of
segment
revenues
Segment revenue
603.6
100.00
513.3
100.00
589.3
100.00
Segment result
154.5
25.60
156.4
30.47
168.5
28.59
The fourth largest segment for the Company is Manufacturing which constituted 7.37% of the Company’s revenues in
fiscal 2011 (8.10% in fiscal 2010; 9.80% in fiscal 2009). The segment revenues grew by 17.59%.
Manufacturing segment contributed 6.40% to the total segment results in fiscal 2011 (8.72% in fiscal 2010;
11.04% in fiscal 2009). The segment results declined 1.21% in fiscal 2011.
Manufacturing industry was one of the worst affected during the global economic slowdown. In fiscal 2010, the segment
revenues and segment results declined as compared to fiscal 2009.
Aerospace and process engineering areas continued to face strong headwinds in fiscal 2011. Automotive and Industrial
Manufacturing and Components improved marginally – the result was a moderate 17.59% growth in revenues in
fiscal 2011 over fiscal 2010. However, the segment had to face pressure on margins, which resulted in decrease in segment
results from 30.47% in fiscal 2010 to 25.60% in fiscal 2011. The manufacturing segment continued to invest in the
expected growth areas, namely, mobility, Knowledge Process Outsourcing (KPO) and green and sustainability initiatives.
17
Others
Fiscal 2011
Segment revenue
% of
segment
revenues
Fiscal 2010
% of
segment
revenues
Fiscal 2009
% of
segment
revenues
1,897.1
100.00
1,384.9
100.00
1,341.1
100.00
496.1
26.15
371.5
26.83
318.9
23.78
Segment result
Other segments include:
•
Life Sciences and Healthcare
•
Energy, Resources and Utilities
•
Travel, Transportation and Hospitality
•
Third party products
•
Hi-Tech
•
s-Governance
•
Others
These segments constituted 23.17% of the Company’s revenues in fiscal 2011 (21.84% of the Company’s revenues in
fiscal 2010; 22.29% in fiscal 2009).
These segments contributed 20.55% to the total segment results in fiscal 2011 (20.73% in fiscal 2010; 20.89% in
fiscal 2009). Results of these segments registered a growth of 33.54% in fiscal 2011 over fiscal 2010 with steady margins.
During fiscal 2011, significant contributors to growth of revenues were Life Sciences and Healthcare (31.69%), Energy,
Resources and Utilities (86.16%), Hi-Tech (49.57%) and Travel, Transportation & Hospitality (38.61%).
18
Financial position
Analysis of working capital
Liquidity and capital resources
The Company’s growth has been financed largely by cash
generated from operations.
As at March 31, 2011, the Company had cash and cash
equivalents of $348.5 million ( $228.2 million as at
March 31, 2010). Liquid funds available with the Company
as at March 31, 2011 were $2,129.5 million ($1,946.7 million
as at March 31, 2010). These liquid funds included cash,
bank deposits, inter-corporate deposits, investments in
mutual funds, debentures and bonds.
The Company continues to have sufficient cash from
operations to meet its working capital requirements. In
addition, it has short-term working capital facilities with
various commercial banks. The available lines of credit
with banks were $307.0 million as at March 31, 2011
($246.8 million as at March 31, 2010).
Working capital
As at March 31, 2011, the Company had $ 2,291.0 million
in working capital as compared to $1,837.9 million as at
March 31, 2010.
As at
March 31,
2011
As at
March 31,
2010
Increase /
(decrease)
Cash and cash equivalents
348.5
228.2
120.3
Bank deposits
713.2
813.1
(99.9)
1,839.3
1,293.4
545.9
Unbilled revenues
302.5
267.4
35.1
Prepaid expenses and
other current assets (net)
499.1
471.0
28.1
Total
As at March 31,
2010
Current assets (A)
3,702.6
3,073.1
Current liabilities (B)
1,411.6
1,235.2
Working capital ( A - B)
2,291.0
1,837.9
2.62
2.49
Capital employed (total
shareholder equity +
non-current liabilities)
5,896.6
4,913.9
Working capital as a
percentage of capital
employed
38.85
37.40
Current ratio (A / B)
The current ratio improved from 2.49 as at March 31, 2010
to 2.62 as at March 31, 2011.
The ratio of working capital to capital employed increased
to 38.85% as at March 31, 2011 as compared to 37.40% as
at March 31, 2010.
Cash flows
The Company’s cash flows from operating, investing
and financing activities as reflected in the consolidated
statement of cash flows are summarized below:
Cash flow summary
Current assets:
Accounts receivable (net)
As at March 31,
2011
3,702.6
3,073.1
629.5
Accrued expenses and
other current liabilities
1,150.9
998.7
152.2
Unearned and deferred
revenues
182.2
162.8
19.4
Short-term debt
56.1
51.4
4.7
Mandatorily redeemable
preference shares
22.4
22.3
0.1
Current liabilities:
Total
1,411.6
1,235.2
176.4
Working capital
2,291.0
1,837.9
453.1
Fiscal
2011
Cash and cash
equivalents at the
beginning of the
year
Net cash provided by
operating activities
Net cash used in
investing activities
Net cash used in
financing activities
Net increase/
(decrease) in cash
and cash equivalents
Effect of foreign
exchange on cash
Cash and cash
equivalents at the
end of the year
Fiscal
2010
Fiscal
2009
228.2
288.2
266.1
1,526.4
1,616.4
1,184.9
(409.7)
(1,196.7)
(755.5)
(1,002.7)
(500.3)
(357.8)
114.0
(80.6)
71.6
6.3
20.6
(49.5)
348.5
228.2
288.2
19
Cash flows from operating activities
Cash flows from financing activities
Fiscal
2011
Net Income
1,929.4
Fiscal
2010
1,469.1
1,136.7
Adjustments:
Depreciation and
amortization
176.8
153.0
124.5
Others
(39.1)
(95.9)
(65.6)
Operating profit
before working
capital changes
2,067.1
1,526.2
Fiscal
2011
Fiscal
2009
1,195.6
Effect of working
capital changes
(540.7)
90.2
(10.7)
Cash generated
from operations
1,526.4
1,616.4
1,184.9
Cash inflows from operating activities primarily contributed
to the generation of cash in fiscal 2011.
Fiscal
2010
Fiscal
2009
Dividends paid
(including tax)
(990.3)
(410.7)
(345.7)
Dividends paid
by subsidiaries
(including tax)
(4.0)
(2.7)
(2.3)
Others
(8.4)
(86.9)
(9.8)
(1,002.7)
(500.3)
(357.8)
Net cash used
in financing
activities
The most significant item is outflow on account of
dividends paid by Tata Consultancy Ltd and its subsidiaries,
which have gone up in fiscal 2011 to US$ 994.3 million
($413.4 million in fiscal 2010; $348.0 million in fiscal 2009).
Short-term debt
The changes in short-term debt as at March 31 for the year
ended 2011 and 2010 are shown below:
Cash flows from investing activities
Fiscal
2011
Fiscal
2010
Fiscal
2009
Put-call option
liability
Net sale / (purchase)
of available-for-sale
investments
471.6
(139.4)
211.8
Purchase of property,
plant and equipment, net
(375.1)
(220.0)
(242.4)
Bank deposits, net
(496.9)
(538.5)
(213.8)
13.4
6.9
(497.9)
(22.7)
(305.7)
(13.2)
(409.7)
(1,196.7)
(755.5)
Purchase of subsidiaries
and business, net of
cash acquired (including
additional consideration
and adjustments)
Others
Net cash used in
investing activities
Total
Net cash used in investing activities was $ 409.7 million in
fiscal 2011($1,196.7 million in fiscal 2010; $755.5 million
in fiscal 2009).
20
Others
Increase/
(decrease)
As at
March 31,
2011
As at
March 31,
2010
48.7
37.8
10.9
7.4
13.6
(6.2)
56.1
51.4
4.7
As part of the shareholders’ agreement with
Phoenix Group Services Ltd or Phoenix (formerly known
as Pearl Group Services Limited), Tata Consultancy
Services Limited had a call option to buy the minority
interest of 24% in Diligenta Limited (a subsidiary of the
Company), at a fixed price between March 24, 2010 and
March 23, 2011. TCS has a further call option to buy the
said minority interest from March 24, 2012 and beyond.
Phoenix has a put option to sell the said minority interest
of 24% to the Company at the same price between
March 24, 2011 and March 23, 2012. Since the put option
could mature in less than one year, the liability arising
out of the said option has been recognized as short term
liability as on March 31, 2011. As at March 31, 2011, neither
TCS Limited nor Phoenix exercised their respective options.
Mandatorily redeemable preference shares
During the fiscal 2008, Tata Consultancy Services Limited
arranged an unsecured long-term debt of $24.9 million
by issuance and allotment of 1,000 million ‘redeemable
preference shares’. This debt would be redeemable at par
at the end of six years from the date of allotment, but may
be repayable at any time after three years from the date
of allotment at the option of the debt holder. This debt
carries a fixed and variable cumulative dividend liability as
disclosed in note 16 of the notes to consolidated financial
statements.
The debt $ 22.4 million as at March 31, 2011 ($ 22.3 million
as at March 31, 2010) has been considered as a current
liability.
Long-term debt
The Company’s long-term debt as at March 31, 2011 was
$ 0.9 million ($2.4 million as at March 31, 2010).
Shareholders’ equity
Equity shares
Issued and fully paid-up share capital was $21.5 million
as at March 31, 2009. Post the issue of stock dividend in
the ratio of 1:1, the issued and fully paid-up share capital
had increased to $41.8 million as at March 31, 2010. There
has been no change in the issued and fully paid-up share
capital as at March 31, 2011.
Accumulated other comprehensive (loss)/income
(AOCI)
Accumulated other comprehensive income (AOCI) includes
the cumulative effect of foreign currency translation,
unrealized gains/losses on certain investments in debt/
securities, effective portion of gains/losses on derivative
instruments designated as cash flow hedges and employee
benefit liability adjustments.
The movement in AOCI for the last two years is given
in the table below.
As at
March 31,
2011
As at
March 31,
2010
Increase/
(decrease)
AOCI balances as at
beginning of period
(23.7)
(556.5)
532.8
Net foreign currency
translation
63.1
382.0
(318.9)
Cash flow hedges
17.2
150.6
(133.4)
Actuarial gain on
employee benefits
1.7
3.7
(2.0)
Unrealized loss on
available-for-sale
securities
(0.3)
(3.5)
3.2
AOCI balances at end of
period
58.0
(23.7)
81.7
AOCI movement
Retained earnings
Retained earnings were $5,031.5 million as at
March 31, 2011 ($4,116.8 million as at March 31, 2010).
This increase was due to addition of net income of
$1,905.0 million ($1,453.6 million in fiscal 2010) net
of dividend payout (including tax on dividend) of
$990.3 million during fiscal 2011.
21
Investments
Property, plant and equipment, net
Investments
Investment in
debentures
Investments in
mutual funds
Investments in
debt securities
Others
Total
As at
March 31,
2011
299.5
78.2
As at
March 31,
2011
Increase/
As at
March 31, (decrease)
2010
268.9
568.4
30.6
(490.2)
2.5
25.7
6.5
2.2
4.3
412.4
842.0
(429.6)
In fiscal 2011, investments in mutual funds were brought
down in conformity with the Company’s cash management
strategy. Consequently, the term deposits with banks have
increased.
Increase/
(decrease)
Buildings
570.7
463.1
107.6
Computer equipment
482.6
356.4
126.2
Furniture, fixtures and
office equipment
406.8
337.0
69.8
Land
68.1
68.1
-
Plant and machinery
22.8
33.2
(10.4)
6.3
6.8
(0.5)
(686.3)
(546.3)
(140.0)
871.0
718.3
152.7
302.8
210.1
92.7
1,173.8
928.4
245.4
Automobiles
28.2
As at
March 31,
2010
Less: Accumulated
depreciation
Sub-Total
Capital work-inprogress
Total
The Company has undertaken large scale infrastructure
development projects across various locations to meet
its business needs. These facilities are expected to be
completed in phased manner during fiscal 2012 and
beyond. Many of these projects for construction of delivery
centers in India would be covered by the provisions of
Special Economic Zone (SEZ).
CAUTIONARY STATEMENT
Certain statements made in the Management Discussion and Analysis Report relating to the Company’s
objectives, projections, outlook, expectations, estimates, etc. may constitute ‘forward looking statements’
within the meaning of applicable laws and regulations. Actual results may differ from such expectations,
projections, etc., whether express or implied. Several factors could make significant difference to the
Company’s operations. These include economic conditions affecting demand and supply, government
regulations and taxation, natural calamities, etc. over which the Company does not have any direct control.
22
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of
Tata Consultancy Services Limited
Mumbai, India
We have audited the accompanying consolidated balance sheets of Tata Consultancy Services Limited and its
subsidiaries (collectively referred to as “TCS Limited” or the “Company”) as of March 31, 2010 and 2011, and the
related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows
for each of the years in the three-year period ended March 31, 2011, all expressed in US dollars. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of TCS Limited as of March 31, 2010 and 2011, and the results of its operations and its cash flows for each of
the years in the three-year period ended March 31, 2011, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte Haskins & Sells
CHARTERED ACCOUNTANTS
Mumbai, India
May 25, 2011
23
Consolidated Balance Sheets
As of March 31, 2010 and March 31, 2011
As of March 31,
2010
As of March 31,
2011
(In millions of USD)
ASSETS:
Current assets:
Bank deposits
Accounts receivable (net of allowances of $74.9 million and
$52.4 million, respectively)
Unbilled revenues
Prepaid expenses and other current assets (net of allowances of
$7.2 million and $8.2 million, respectively)
Total current assets
Investment in debentures issued by Tata Sons Limited and its subsidiary
Other investments
Intangible assets, net
Goodwill
Other non-current assets
Total assets
LIABILITIES AND EQUITY:
Liabilities:
Current liabilities:
Accrued expenses and other current liabilities
Unearned and deferred revenues
Short-term debt
Mandatorily redeemable preference shares
Total current liabilities
Long-term debt
Other non-current liabilities
Total liabilities
Commitments and contingencies (see note 26)
Shareholders’ equity:
Equity shares: par value $0.02 (`1) per share; authorized
2,250,000,000 equity shares; issued and fully paid-up
1,957,220,996 equity shares
Additional paid-in-capital
Accumulated other comprehensive income / (loss)
Retained earnings
Total shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
$228.2
813.1
$348.5
713.2
1,293.4
267.4
1,839.3
302.5
471.0
3,073.1
268.9
573.1
928.4
157.7
564.0
583.9
$6,149.1
499.1
3,702.6
299.5
112.9
1,173.8
156.6
571.3
1,291.5
$7,308.2
$998.7
162.8
51.4
22.3
1,235.2
2.4
165.8
1,403.4
-
$1,150.9
182.2
56.1
22.4
1,411.6
0.9
133.0
1,545.5
-
41.8
526.6
(23.7)
4,116.8
4,661.5
84.2
4,745.7
$6,149.1
41.8
526.4
58.0
5,031.5
5,657.7
105.0
5,762.7
$7,308.2
See accompanying notes to consolidated financial statements
24
Consolidated Statements of Income
For the years ended March 31, 2009, 2010 and 2011
Year ended
March 31, 2009
Year ended
March 31, 2010
Year ended
March 31, 2011
(In millions of USD, except shares and per share data)
Revenues:
Information technology and consultancy services
$5,789.3
$6,140.3
$7,906.7
226.4
199.0
280.1
6,015.7
6,339.3
8,186.8
3,146.7
3,241.4
4,259.4
196.3
170.8
246.1
Total cost of revenues
3,343.0
3,412.2
4,505.5
Gross profit
2,672.7
2,927.1
3,681.3
1,237.5
1,227.2
1,377.9
10.3
18.3
23.4
1,247.8
1,245.5
1,401.3
1,424.9
1,681.6
2,280.0
22.4
44.6
110.1
(11.5)
(11.4)
(16.9)
(0.2)
(0.2)
(0.1)
(108.5)
15.6
21.6
(97.8)
48.6
114.7
1,327.1
1,730.2
2,394.7
190.4
261.1
465.3
1,136.7
1,469.1
1,929.4
Sale of equipment and software licenses
Total revenues
Cost of revenues:
Cost of information technology and consultancy
services
Operating expenses:
Selling, general and administrative expenses
Research and development expenses
Total operating expenses
Operating income
Other income / (expense):
Interest income
Interest expense
Equity in net earnings of affiliates
Other non-operating income / (expense), net
Other income, net
Income tax expense
Net income
Net income attributable to non-controlling
interests
Net income attributable to TCS Limited
Weighted average number of shares used in
computing basic and diluted earnings per share:
Basic and diluted earnings per share:
(12.9)
(15.5)
(24.4)
$1,123.8
$1,453.6
$1,905.0
1,957,220,996
1,957,220,996
1,957,220,996
$0.57
$0.74
$0.97
25
Consolidated Statements of Changes in Shareholders’ Equity
Share Capital
Number of
shares
Equity
share
capital
Additional
paid-incapital
$21.5
$546.7
Accumulated
other
comprehensive
income / (loss)
Retained
earnings
Total
Shareholders’
equity
Noncontrolling
interests
Total
Comprehensive
income
Balance as of March 31, 2008
978,610,498
$223.3
$2,295.8
$3,087.3
Acquisition of subsidiary
Sale of subsidiary shares to
Net income
1,123.8
Unrealized loss on
available-for-sale securities,
net of realized earnings
and taxes
1,123.8
$57.3
$3,144.6
4.5
4.5
0.9
0.9
12.9
1,136.7
$1,136.7
(2.4)
(2.4)
(643.1)
(643.1)
(2.4)
(2.4)
Foreign currency
translation adjustment
(631.3)
(631.3)
Effective portion of loss
on derivative instruments,
net of tax
(140.9)
(140.9)
(140.9)
(140.9)
(5.2)
(5.2)
(5.2)
(5.2)
Employee benefit plans,
net of tax
(11.8)
Comprehensive income
$345.1
Dividends paid, including
tax on dividend
978,610,498
$21.5
$546.7
$(556.5)
0.2
(0.1)
Net income
Unrealized loss on
and taxes
(345.7)
(345.7)
(2.3)
(348.0)
$3,073.9
$3,085.6
$61.5
$3,147.1
0.1
1.0
1.1
1,453.6
1,453.6
15.5
1,469.1
$1,469.1
(3.5)
(3.5)
(3.5)
(3.5)
Foreign currency
translation adjustment
382.1
382.1
8.5
390.6
390.6
Effective portion of gain
net of tax
150.6
150.6
0.4
151.0
151.0
3.7
3.7
3.7
3.7
net of tax
$2,010.9
Issue of stock dividend
978,610,498
20.3
(20.3)
1,957,220,996
$41.8
$526.6
tax on dividend
26
$(23.7)
(410.7)
(410.7)
(2.7)
(413.4)
$4,116.8
$4,661.5
$84.2
$4,745.7
Consolidated Statements of Changes in Shareholders’ Equity (continued)
Share Capital
Number of
shares
Equity
share
capital
Additional
paid- incapital
Accumulated
other
comprehensive
income / (loss)
Retained
earnings
Total TCS
Shareholders’
equity
Noncontrolling
interest
Total
Comprehensive
income
1,957,220,996
$41.8
$526.6
$(23.7)
$4,116.8
$4,661.5
Purchase of subsidiary
shares from non-controlling
interests
(0.2)
0.2
Net income
1,905.0
$84.2
$4,745.7
0.1
0.1
-
(1.5)
(1.5)
1,905.0
24.4
1,929.4
$1,929.4
(0.3)
(0.3)
Unrealized loss on
and taxes
(0.3)
(0.3)
Foreign currency translation
adjustment
62.9
62.9
1.6
64.5
64.5
Effective portion of gain
net of tax
17.2
17.2
(0.1)
17.1
17.1
1.7
1.7
0.3
2.0
net of tax
2.0
$2,012.7
Issue of stock dividend
tax on dividend
1,957,220,996
$41.8
$526.4
$58.0
(990.3)
(990.3)
(4.0)
(994.3)
$5,031.5
$5,657.7
$105.0
$5,762.7
27
Consolidated Statements of Cash Flows
Year ended
March 31, 2009
Year ended
March 31, 2010
Year ended
March 31, 2011
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Loss / (Gain) on sale of property, plant and
equipment
Deferred income taxes
Equity in net earnings of affiliates
Gain on sale of available-for-sale investments
Interest accrued on investment in debentures
Goodwill written off
Non-cash interest on put-call option liability
Provision for diminution in value of investments
Allowances for doubtful debts and advances
Discount on acquisition
Net change in:
Accounts receivable
Unbilled revenues
Prepaid expenses and other current assets
Unearned and deferred revenues
Net cash provided by operating activities
Cash flows from investing activities:
Bank deposits placed
Purchase of investments
Purchase of property, plant and equipment
Purchase of commercial paper
Government grant received
Purchase of subsidiaries and business, net of cash
acquired (including additional consideration and
purchase price adjustment)
Acquisition of intangible assets
Proceeds from sale of subsidiary
Proceeds from sale of available-for-sale
investments
Proceeds from sale of property, plant and
equipment
Commercial paper realization
Proceeds from bank deposits
Inter-corporate deposits
Proceeds from inter-corporate deposits
Investments in debentures issued by Tata Sons
Limited and its subsidiary
Net cash used in investing activities
28
$1,136.7
$1,469.1
$1,929.4
124.5
153.0
176.8
(3.2)
(70.5)
0.2
(11.7)
3.5
16.1
-
0.5
(102.0)
0.2
(33.0)
(1.7)
3.6
36.5
-
0.4
10.5
0.1
(18.3)
(11.7)
0.2
8.3
0.2
(21.5)
(7.3)
(82.3)
(13.5)
(14.6)
(107.7)
161.3
27.1
19.0
1,184.9
(4.4)
56.6
(39.0)
(44.7)
75.6
(7.8)
53.9
1,616.4
(491.4)
(29.1)
(46.9)
(85.3)
102.5
16.1
(6.6)
1,526.4
(258.8)
(6,507.4)
(252.6)
2.5
(805.7)
(11,904.5)
(222.8)
-
(1,387.7)
(10,868.8)
(379.1)
(31.5)
-
(497.9)
(0.4)
0.5
6.9
(1.6)
0.5
13.4
(16.6)
-
6,719.2
11,765.1
11,340.4
10.2
45.0
(33.5)
17.7
2.8
267.2
(51.0)
8.7
4.0
33.2
890.8
(62.2)
71.5
(755.5)
(262.3)
(1,196.7)
(17.1)
(409.7)
Consolidated Statements of Cash Flows (continued)
For the year ended March 31, 2009, 2010 and 2011
Year ended
March 31, 2009
Year ended
March 31, 2010
Year ended
March 31, 2011
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Repayment of short-term debt
Repayment of long-term debt
Net change in bank overdrafts and cash
credits
Purchase of shares from non-controlling
interests
Dividends paid by subsidiaries
Dividends paid (including dividend tax)
Sale of subsidiary shares to non-controlling
interests
Net cash used in financing activities
Net change in cash
Effect of foreign exchange on cash
Cash and cash equivalents, beginning of the
year
Cash and cash equivalents, end of the
year
Supplementary cash flow information:
Interest paid
Income taxes paid
Supplementary disclosure of cash flow
non-cash investing activities:
Payable for purchase of property, plant and
equipment
1.0
(0.2)
0.3
(100.0)
(0.3)
0.1
(13.6)
(0.3)
(11.5)
12.0
6.8
(2.3)
(345.7)
(2.7)
(410.7)
(1.5)
(4.0)
(990.3)
0.9
(357.8)
71.6
(49.5)
1.1
(500.3)
(80.6)
20.6
0.1
(1,002.7)
114.0
6.3
266.1
288.2
228.2
$288.2
$228.2
$348.5
$8.5
$246.1
$9.4
$404.7
$8.6
$493.7
$4.0
$5.6
$12.2
29
Notes To Consolidated Financial Statements
1.
Background and Operations
Tata Consultancy Services Limited and its subsidiaries (collectively referred to as “TCS Limited” or
the “Company”) provide a wide range of information technology and consultancy services including systems
hardware and software, communications and networking, hardware sizing and capacity planning, software
project management solutions, technology education services and business process outsourcing.
As of March 31, 2011, Tata Sons Limited owned 73.75 % of Tata Consultancy Services Limited’s equity share
capital and has the ability to control its operating and financial policies.
2.
Summary of Significant Accounting Policies
a.
Basis of presentation
These financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”). Certain amounts reported in previous years have
been reclassified to conform to the presentation in fiscal 2011.
b.
Basis of consolidation
TCS Limited consolidates all wholly-owned and majority owned domestic and foreign subsidiaries
where the Company’s ownership is more than 50 percent. TCS Limited did not have variable interests in
any variable interest entities during the periods presented.
Inter-company transactions, balances and unrealized profits and losses on such transactions are
eliminated on consolidation.
The results of entities with controlling interests acquired have been consolidated from the date
of acquisition, except for those entities that have been accounted for as business combinations under
common control. Purchase consideration paid in excess of the fair value of net assets acquired has been
recognized as goodwill. The excess of fair value of the net assets acquired over the sum of (1) the fair value
of the consideration transferred, (2) the fair value of any previously held equity interest, and (3) the fair
value of any non-controlling interests is recognized as a gain in the income statement in the period in
which the business combination occurs.
Where the Company’s ownership interest is less than 100 percent, the non-controlling ownership
interests are reported in the consolidated balance sheets within equity as a separate component. The
non-controlling ownership interest in income, net of tax, is classified as ‘‘net income attributable to
non-controlling interests’’ in the consolidated statement of income.
c.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America (US GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of revenues and expenses for
the years presented. Significant estimates in these consolidated financial statements that are susceptible
to change as more information becomes available include costs to complete for fixed price contracts,
allowances for uncollectible accounts receivable, useful lives of intangible assets and property, plant and
equipment, estimates of future cash flows and other assumptions associated with goodwill and long-lived
assets, asset impairment test, determination of discount and other rate assumptions for retirement and
other postretirement benefit expenses and income taxes. Actual results could differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting
estimates are recognized in the period in which the estimate is revised and future periods are affected.
d.
Revenue recognition
TCS Limited earns revenues primarily from providing information technology and consultancy
services, including services under contracts for software development, implementation and other related
services, re-licensing of third party software products and sales, licensing and sale of its own software,
business process outsourcing and maintenance of equipment.
30
TCS Limited recognizes revenue as follows:
Revenues from bundled contracts that involve supplying computer equipment, licensing software and
providing services are recognized separately for each separate accounting unit. The contract consideration
is allocated among the separate units of accounting based on their relative fair values. The fair value of
each separate accounting unit is determined by reference to the price charged when the same separate
accounting unit is sold separately.
Revenues from contracts priced on a time and material basis are recognized as services are rendered
and as related costs are incurred.
Revenues from software development contracts, which are generally time bound fixed price contracts,
are recognized over the life of the contract using the percentage-of-completion method, with contract
costs determining the degree of completion. Revenue recognition using the percentage-of-completion
method in conformity with ASC 605-35-05-01, is based on the guidance in ASC 985-605-05, Software
Revenue Recognition to account for revenues under fixed price arrangements for software development
and related services. Losses on such contracts are recognized when probable. Revenues in excess of billings
are recognized as unbilled revenues in the consolidated balance sheet; to the extent billings are in excess
of revenues recognized, the excess is reported as unearned and deferred revenue in the consolidated
balance sheet.
Revenues from business process outsourcing contracts priced on the basis of time and material or
unit of delivery are recognized as services are rendered or the related obligation is performed.
Revenues from the sale of computer equipment are recognized upon delivery, which is when title
passes to the customer. TCS Limited acts as a reseller of third party computer equipment products; such
revenues are reported gross as TCS Limited acts as a principal, has pricing authority and bears inventory
and credit risk.
Revenues from the sale of internally developed and manufactured systems and third party software
products which do not require significant modification are recognized upon delivery of a license, which
is when the absolute right to use passes to the customer and TCS Limited does not have any material
remaining service obligations.
Revenues from maintenance contracts and from finite period software licenses granted are
recognized on a straight-line basis over the period of the contract.
TCS Limited recognizes volume discount obligations as a reduction of revenue in proportion to the
revenue recognised from the customer to the total expected revenue.
TCS Limited reports billed out-of-pocket expenses as revenue.
All revenues are recognized only when evidence of an arrangement is obtained and the other criteria
to support revenue recognition are met, including the price is fixed or determinable, services have been
rendered and collectability of the resulting receivable is reasonably assured.
Revenues are reported net of discounts, indirect and service taxes.
e.
Cost recognition
Costs and expenses are recognized when incurred and have been classified according to their primary
functions in the following categories:
Cost of information technology and consultancy services
These costs primarily include employee compensation of personnel engaged in providing services,
travel expenses, employee allowances, payroll related taxes, fees to external consultants engaged in
providing services, depreciation and amortization of production related equipment and software, facility
expenses, communication costs, losses incurred on fixed price contracts and other project related expenses.
These costs consist of the cost of resold computer equipment and re-licensed software, include
inward shipping and insurance costs.
Selling, general and administrative expenses
Selling costs primarily include employee compensation for sales and marketing personnel, travel
costs, advertising, business promotion expenses, allowances for delinquent receivables, facility expenses
for sales and marketing offices and market research costs.
31
General and administrative costs primarily include employee compensation for administrative,
supervisory, managerial and practice management personnel, depreciation and amortization of
non-production equipment and software, facility expenses for administrative offices, communication
costs, fees to external consultants and other general expenses.
Research and development expenses
Research and development (R&D) expenses include all costs relating to TCS Limited’s research and
development center and costs incurred for the development of software to be sold.
The R&D center’s expenses primarily consist of employee compensation for research personnel,
facilities expenses for the R&D center and the cost of software and equipment for which there is no future
use within the enterprise. Property, plant and equipment that have an alternative future use within the
enterprise are capitalized and depreciated over their estimated useful lives.
f.
Foreign currency
The functional currency of Tata Consultancy Services Limited and its Indian subsidiaries is the
Indian Rupee, whereas the functional currency of foreign subsidiaries is the currency in their countries of
incorporation.
Transactions in foreign currency are recorded at the original rates of exchange prevailing at the
time of the transactions. Foreign currency denominated monetary assets and liabilities are restated using
exchange rates prevailing on the balance sheet dates. Exchange gains and losses arising on settlement and
restatement of foreign currency denominated monetary assets and liabilities are included in net income.
The reporting currency of the Company is US Dollars.
Assets and liabilities of entities with functional currency other than reporting currency have been
translated to the reporting currency using exchange rates prevailing on the balance sheet date. Income
statement items have been translated using the quarterly weighted average exchange rates. Translation
adjustments have been reported as a component of other comprehensive income in the statement of
changes in shareholders’ equity.
g.
Income taxes
Income tax expense comprises current tax expense and the net change in the deferred tax asset or
liability during the year.
Current income taxes
The
current
income
tax
expense
includes
Indian
income
taxes
payable
for
Tata Consultancy Services Limited’s worldwide operations after taking credit for benefits available for
operations in Software Technology Parks (or STPs) and Special Economic Zones (or SEZs) and export
earnings, and after offsetting benefits under double tax avoidance treaties for foreign taxes payable in
overseas jurisdictions.
Current income tax is payable in each of Tata Consultancy Services Limited’s overseas branches and
is computed in accordance with the tax laws applicable in the jurisdiction in which each of the branches
operate. The amounts paid are generally available for offset as tax credits in India towards the income tax
liability computed on Tata Consultancy Services Limited’s worldwide income.
The current income tax expense for overseas subsidiaries has been computed based on the laws
applicable to each entity in the jurisdiction in which that entity operates.
Payments of advance taxes and income taxes payable in the same tax jurisdictions are offset.
Deferred tax assets and liabilities are recognized for the future tax consequences of temporary
differences between the carrying values of assets and liabilities and their respective tax bases, minimum
alternative and other tax credits and unutilized business loss carry forwards. Deferred tax assets and
liabilities are computed separately for each taxable entity in the consolidated enterprise and for each
taxable jurisdiction. Valuation allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized and are separately estimated at each such entity without
offsetting. In assessing the realisability of deferred tax assets, management considers whether it is more
likely than not, that some portion, or all, of the deferred tax assets will not be realized. The ultimate
32
realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which the temporary differences and loss carry forwards are deductible. Management considers
the reversal of taxable temporary differences, the projected future taxable income, tax planning strategies
and impact of tax exemptions currently available to the Company, in making this assessment.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be received or settled. The effect
of change in tax rates on deferred tax is recognized in the income statement in the period that the change
was enacted.
For domestic operations carried out in STPs and SEZs, deferred tax assets and liabilities, if any, have
been established for the tax consequences of those temporary differences between the carrying values of
assets and liabilities and their respective tax bases that reverse after the tax holiday ends. No deferred tax
asset has been recognized for the reduction in taxes attributable to such tax holidays.
For taxable entities and undertakings that are not entitled to tax holidays, deferred tax assets and
liabilities are recognized for the future tax consequences of temporary differences between the carrying
values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Valuation
allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will
not be realized.
Uncertain tax position are recognized using the more likely than not threshold determined solely
based on technical merits that the tax positions will sustain upon examination. Tax positions that meet
the recognition threshold are measured as the largest amount of benefit that is greater than fifty percent
likely of being realized upon settlement with relevant taxing authority that has full knowledge of all
relevant information.
The Company recognizes interest and penalties related to income tax assessments in income tax
expenses.
h.
TCS Limited considers all highly liquid financial instruments including bank deposits, which are readily
convertible into cash and have original maturities of three months or less from the date of purchase, to be
cash equivalents.
i.
Concentrations of credit risk
Financial instruments that potentially subject TCS Limited to concentrations of credit risk principally
consist of cash and cash equivalents and bank deposits, accounts receivable, unbilled revenues and
investment in debentures issued by Tata Sons Limited and its subsidiary.
j.
Business combinations, goodwill and intangible assets
Purchased intangible assets, other than goodwill, consist of amounts allocated to customer
relationships on acquisition of a business, acquisition of intellectual property rights and acquired contract
rights. The intangible assets are amortized on a straight-line basis. The following table summarizes the
nature of intangibles and the estimated useful lives.
Nature of intangibles
Useful lives
Customer-related intangibles
2-10 years
Technology-related intangibles
3-10 years
Software licenses
Acquired contract rights
License period
5-12 years
The Company accounts for its business combinations under the acquisition method of accounting.
Intangible assets acquired in a business combination are recognized and reported separately from goodwill.
All assets and liabilities of the acquired businesses, including goodwill, are assigned to reporting units.
Goodwill represents the cost of the acquired businesses in excess of the fair value of identifiable
tangible and intangible net assets purchased. Goodwill is not amortized but tested for impairment annually
on March 31 or when events or circumstances indicate that the implied fair value of goodwill is less than
its carrying amount. Goodwill impairment assessment is a two-step test. The first step compares the fair
33
value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting
unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however if the
carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment
test is performed to measure the impairment loss, if any. TCS Limited uses an income-based approach to
determine the fair value of the reporting unit by estimating the present value of the future cash flows
after considering current economic conditions and trends, estimated future operating results and growth
rates, and anticipated future economic and regulatory conditions. When required to perform the second
step, TCS Limited compares the implied fair value of goodwill of reporting units with the carrying amount
of that goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss
equal to that excess amount is recognized, not to exceed the goodwill carrying amount. TCS Limited
determines the implied fair value of goodwill for a reporting unit by assigning the fair value of the
reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets)
as if the reporting unit had been acquired in a business combination. The excess of the fair value of the
reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.
This assignment process is only for the purpose of testing goodwill impairment and TCS Limited does not
adjust the carrying amount of the recognized assets and liabilities (other than goodwill, if appropriate) or
recognise previously unrecognized intangible assets in the consolidated balance sheet as a result of this
assignment process.
k.
Investments
Equity securities and investments in mutual funds with readily determinable fair market values
are classified as available-for-sale securities and recorded at fair value. Unrealized gains and losses on
such securities, net of applicable taxes, are reported in accumulated other comprehensive income, a
separate component of shareholders’ equity. Unrealized losses considered to be other-than-temporary are
recognized in net income. Realized gains and losses on sale of securities are recorded on the trade date
and the costs of investments sold are determined using the weighted average method.
Equity securities that do not have readily determinable fair market values are recorded at original
cost subject to an impairment charge for any other than temporary decline in value. The fair values of
these securities are not estimated if there are no events or changes in circumstances that may have a
significant effect on the fair value.
Debt securities for which management has the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and are reported at amortized cost.
TCS Limited does not have any securities classified as trading.
l.
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is
provided for property, plant and equipment so as to expense the cost over their estimated useful lives at
the following basis and rates:
Type of asset
Method
Buildings on freehold land
Declining balance
Straight line
Straight line
Straight line
Declining balance
Straight line
Straight line
Declining balance
Straight line
Buildings on leasehold land
Computer equipment
Automobiles
Plant and machinery
Furniture, fixtures and office equipment
Rate
5.0% - 7.39%
1.63% - 2.5%
Lease period
16% - 50%
25.89% - 29.89%
19.80% - 33.33%
33.33%
13.91%
10% - 100%
Depreciation is not recorded on capital work in progress until construction and installation are
complete and the asset is ready for its intended use.
34
m.
Impairment or disposal of long-lived assets (excluding goodwill)
Whenever events or circumstances indicate that the carrying amount of long-lived assets may not
be recoverable, TCS Limited subjects such assets to a test of recoverability based on the undiscounted cash
flows estimated to be generated by the asset or asset group. If these cash flows are less than the carrying
value of such asset or asset group, an impairment loss is measured based on the difference between the
estimated fair value and carrying value of the asset or asset group. Assumptions and estimates used to
estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment
are subject to a degree of judgment and complexity. As of March 31, 2010 and 2011, none of TCS Limited’s
long-lived assets was considered impaired.
n.
Compensated absences
TCS Limited provides for the cost of vacation earned but not taken, based on the number of days of
carry forward entitlement at each balance sheet date.
o.
Long-term debt
TCS Limited reports long-term debt at the outstanding principal balance. Interest costs are accounted
for on accruals basis and charged to the statement of income using the effective interest method.
p.
Earnings per share
Basic earnings per share are computed by dividing net income attributable to shareholders of
Tata Consultancy Services Limited by the weighted average number of equity shares outstanding during
the period. Tata Consultancy Services Limited did not have any potentially dilutive securities in any of the
periods presented.
q.
Comprehensive income includes all changes in equity from transactions and other events and
circumstances from non-shareholder sources. Comprehensive income comprises unrealized gains / (losses)
on available-for-sale securities, translation adjustments arising on the translation of financial statements
from functional currency to reporting currency, effective portion of gains / (losses) on derivative instruments
designated as cash flow hedges, unrealized actuarial gains / (losses) and net income.
r.
TCS Limited uses foreign currency option and forward contracts to manage its exposure to foreign
exchange. TCS Limited recognizes the outstanding contracts at fair value. The option and forward contracts
are designated and documented as hedges at the inception of the contract. The effectiveness of option and
forward contracts to reduce the risk associated with the exposure being hedged is assessed and measured
at inception and on an ongoing basis. Any amounts excluded from the assessment of hedge effectiveness,
as well as the ineffective portion of designated hedges are reported in earnings immediately.
Changes in fair value of derivative instruments designated and qualifying as hedges are recognized as
a component of the accumulated other comprehensive income in the statement of changes in shareholders’
equity and is reclassified into earnings when the related hedge items affect earnings. Changes in fair
value of derivative financial instruments that are not designated as a hedge are recorded immediately in
earnings.
When the financial instrument is terminated or settled prior to the expected maturity or realization
of the underlying item, hedge accounting is discontinued prospectively. Gains or losses from changes in
fair value of discontinued derivative instruments are recognized in earnings when the hedged transaction
occurs. Transactions that are no longer probable, recognized fair value adjustments within accumulated
other comprehensive income are reported immediately in current earnings.
35
s.
Newly issued accounting pronouncements
In October 2009, the FASB issued ASU 2009-13 on Multiple-deliverable Revenue Arrangements. The
ASU amends the guidance in ASC 605-25 on multiple-element revenue arrangements. The ASU requires an
entity to allocate consideration at the inception of an arrangement to all of its deliverables based on their
relative selling prices. The criteria for when delivered items in a multiple-deliverable arrangement should
be considered separate units of accounting has been retained, however the ASU removes the previous
separation criterion that objective and reliable evidence of the fair value of any undelivered items must
exist for the delivered items to be considered a separate unit or separate units of accounting.
The ASU requires that in the absence of the vendor-specific objective evidence or third-party evidence
of the selling prices, consideration must be allocated to the deliverables based on management’s best
estimate of the selling prices. Application of the “residual method” of allocating an overall arrangement
fee between delivered and undelivered elements will no longer be permitted. The ASU is effective for
fiscal years beginning on or after June 15, 2010. The effect on adoption of ASC 605-25 on TCS Limited’s
consolidated financial statements is being evaluated.
In October 2009, the FASB issued ASU 2009-14 on Software Revenue Recognition. It amends
ASC 985-605 and ASC 985-605-15-3 (Issue 03-5) to exclude from their scope all tangible products containing
both software and non software components that function together to deliver the product’s essential
functionality. The ASU is effective for fiscal years beginning on or after June 15, 2010. The requirements of
this ASU and its impact on TCS Limited’s financial statements are being evaluated.
In April 2010, the Emerging Issues Task Force (EITF) reached a final consensus on milestone method
of revenue recognition and published ASU 2010-17, Revenue Recognition - Milestone Method amends the
guidance in ASC 605-28. The scope of this ASU is limited to arrangements that include milestones relating
to research or development deliverables. The consensus specifies guidance that must be met for a vendor
to recognise consideration that is contingent upon achievement of a substantive milestone in its entirety
in the period in which the milestone is achieved. The guidance applies to milestones in arrangements
within the scope of this consensus regardless of whether the arrangement is determined to have single
or multiple deliverables or units of accounting. The final consensus will be effective for fiscal years,
and interim periods within those years, beginning on or after June 15, 2010. The effect on adoption of
ASC 605-25 on TCS Limited’s consolidated financial statements is being evaluated.
In December 2010, the FASB issued ASU 2010-28, on ‘When to Perform Step 2 of the Goodwill
Impairment Test for Reporting Units with Zero or Negative Carrying Amounts’. This ASU does not prescribe
a specific method of calculating the carrying value of a reporting unit in the performance of step 1 of the
goodwill impairment test, but requires entities with a zero or negative carrying value to assess, considering
qualitative factors listed in ASC 350-20-35-30, whether it is more likely than not that a goodwill impairment
exists. If an entity concludes that goodwill impairment exists, the entity must perform step 2 of the goodwill
impairment test. This ASU is effective for impairment tests performed during the fiscal years (and interim
periods within those years) that begin after December 15, 2010. Early application is not permitted. The
Company does not expect the adoption of ASU 2010-28 to have a material impact on its consolidated
results of operation and financial condition.
In December 2010, the Emerging Issues Task Force (EITF) reached a final consensus on Disclosure of
Supplementary Pro Forma Information for Business Combinations and published ASU 2010-29. The ASU
amends the disclosure requirements in ASC 805. The amendments in this Update specify that if a public
entity presents comparative financial statements, the entity should disclose revenue and earnings of the
combined entity as though the business combination(s) that occurred during the current year had occurred
as of the beginning of the comparable prior annual reporting period only. The amendments in this
Update also expand the supplemental pro forma disclosures under ASC 805 to include a description of the
nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported proforma revenue and earnings. The ASU is effective prospectively
36
for business combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2010. TCS Limited will adopt the revised guidance
effective April 1, 2011.
3.
Acquisitions
On August 31, 2010, Diligenta Limited, a wholly owned subsidiary of Tata Consultancy Services Limited,
acquired 100 percent equity interest in Diligenta 2 Limited (formerly known as Unisys Insurance Services
Limited), a business process outsourcing (referred to as “BPO”) provider within the life and pension services from
Unisys Limited for a consideration of $1.5 (£1). This acquisition will expand the Company’s existing presence in
the United Kingdom market and strengthen the business capabilities.
Fair value of assets acquired and liabilities include an intangible asset relating to customer relationships of
$4.3 million. Excess of fair value of net assets over purchase consideration of $7.3 million has been recognized in
earnings as bargain purchase discount on acquisition.
Proforma information has not been included, as the effect of the acquisition on TCS Limited’s consolidated
results of operations is not material.
4.
Cash and cash equivalents consist of the following:
Held within India
Held outside India
Total
5.
As of March 31,
As of March 31,
2010
2011
$36.8
$113.4
191.4
235.1
$228.2
$348.5
Concentrations of credit risk
Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly
affect groups of counter parties whose aggregate credit exposure is material in relation to TCS Limited’s total
credit exposure.
TCS Limited has a customer concentration of risk, as illustrated in the table below showing the aggregated
accounts receivable and unbilled revenues for five largest customers as of March 31, 2010 and 2011, respectively.
TCS Limited’s exposure to other customers is diversified and no other single customer explains more than
2.0% of outstanding accounts receivable and unbilled revenues as of March 31, 2010 and 2011.
As of March 31, 2010
(In millions of USD, except percentages)
Total accounts
receivable and
unbilled revenues
Percentage
Customer A
Customer B
Customer P
Customer D
Customer R
Others
Total
$105.2
44.9
38.1
37.9
34.7
1,300.0
$1,560.8
6.7
2.9
2.4
2.4
2.2
83.4
100.0
37
Customer A
Customer B
Customer P
Customer R
Customer D
Others
Total
(In millions of USD, except percentages)
Total accounts
receivable and
unbilled revenues
Percentage
$108.8
5.1
58.6
2.7
51.8
2.4
42.7
2.0
42.3
2.0
1,837.6
85.8
$2,141.8
100.0
TCS Limited also has a geographic concentration of credit risk with exposure to customers based in the
United States of America, India and the United Kingdom comprising 42.2%, 19.8% and 14.8% of the balances as
of March 31, 2010 and 41.1% , 22.0% and 15.6% of the balances as of March 31, 2011, respectively.
TCS Limited also has a geographic concentration of credit risk relating to cash and cash equivalents held
with banks in India, Europe, South Africa, the United Kingdom and the United States of America comprising
16.1%, 24.1%, 13.2%, 6.9% and 6.2% of the balances as of March 31, 2010 and 32.5%, 16.5%, 8.6%, 8.4% and
5.2% of the balances as of March 31, 2011, respectively.
TCS Limited has a geographic concentration of credit risk relating to bank deposits with banks in India
comprising 96.4% and 98.1% of the balances as of March 31, 2010 and 2011, respectively.
6.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
As of March 31,
2010
As of March 31,
2011
Prepaid expenses
Advance to suppliers
$162.9
8.9
20.2
Employee loans and advances(net of allowances of
$4.9 million and $5.9 million, respectively)
33.9
43.3
Income taxes paid in advance
22.9
75.1
79.2
36.1
Foreign currency derivative assets
17.7
22.6
Inter-corporate deposits
64.6
56.1
115.5
$471.0
82.8
$499.1
Other current assets (net of allowances of $2.3 million and
$2.3 million, respectively)
Total
7.
$128.3
Investment in Non-Convertible Debentures of Tata Sons Limited and its subsidiary
During the fiscal 2010, TCS Limited subscribed to the privately placed unsecured, unlisted redeemable
non-convertible debentures issued by Tata Sons Limited and its subsidiary Panatone Finvest Limited for a
consideration of $217.8 million and $44.5 million respectively. The debentures issued by Tata Sons Limited would
be redeemable at par in three equal installments at the end of second, third and fourth year respectively
from the date of allotment while the debentures issued by Panatone Finvest Limited would be redeemed
38
at the end of the third year. The non-convertible debentures issued by Tata Sons Limited and its subsidiary
Panatone Finvest Limited carry an effective interest of 8.50% and 8.75%, respectively.
During the fiscal 2011, TCS e-Serve Limited, a majority owned subsidiary of Tata Consultancy Services
Limited, purchased debentures issued by Tata Sons Limited for a consideration of $17.1 million, maturing in
fiscals 2014 and 2021. These debentures carry an effective interest rate ranging from 8.97% to 9.93%.
Information on unrecognized gains and losses for debentures with Tata Sons Limited and its subsidiary,
that have been classified as held-to-maturity investments, is as follows:
Fair
value
Gross
unrecognized
gains
Gross
unrecognized
losses
Amortized
Cost
Debentures with Tata Sons Limited
and its subsidiary:
As of March 31, 2010:
Investments in debt securities
Total
$267.9
$267.9
$$-
$(1.0)
$(1.0)
$268.9
$268.9
$291.4
$291.4
$$-
$(8.1)
$(8.1)
$299.5
$299.5
Total
The fair value and related unrealized losses for debentures with Tata Sons Limited and its subsidiary in a
continuous unrealized loss position for more than 12 months are as follows as of March 31, 2011:
Description of securities
Less than 12
months
Fair
value
Debentures with Tata Sons Limited
and its subsidiary
Total
$17.3
$17.3
Unrecognized
losses
$(0.6)
$(0.6)
12 months or greater
Fair
value
Unrecognized
losses
$274.1
$274.1
$(7.5)
$(7.5)
Total
Fair
value
$291.4
$291.4
Unrecognized
losses
$(8.1)
$(8.1)
The unrealized loss on TCS Limited investment in debentures with Tata Sons Limited and its subsidiary
were caused by interest rate increase. As TCS Limited does not intend to sell the investments and it is more likely
than not that TCS Limited will not be required to sell the investments before recovery of the amortized cost, the
Company does not consider the investments to be other than temporarily impaired as of March 31, 2011.
The contractual maturity of debentures with Tata Sons Limited and its subsidiary as of March 31, 2011 is as
follows:
Year ending March 31,
2012
2013
2014
2021
Total
Debt securities
$74.8
121.4
88.7
14.6
$299.5
39
8.
Other investments
Other investments consist of the following:
As of March 31,
As of March 31,
2010
2011
$570.1
$79.9
1.9
27.6
1.1
5.4
$573.1
$112.9
Investments available-for-sale, at fair value
Investments held-to-maturity, at amortized cost
Investments at cost, net
Total
Information on unrealized gains and losses on available-for-sale investments at March 31, 2010 and
March 31, 2011 is as follows:
Cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Available-for-sale securities:
Investments in mutual funds
$567.3
$1.1
$-
$568.4
1.7
-
-
1.7
$569.0
$1.1
$-
$570.1
$77.2
$1.0
$-
$78.2
1.6
0.1
-
1.7
$78.8
$1.1
$-
$79.9
Total available-for-sale securities
Investments in mutual funds
Total available-for-sale securities
Information on unrecognized gains and losses for held-to-maturity investments is as follows:
Fair value
Gross
unrecognized
gains
Gross
unrecognized
losses
Amortized
Cost
Held-to-maturity securities:
Investments in preference securities
Total held-to-maturity securities
$0.8
$-
$-
$0.8
1.0
-
(0.1)
1.1
$1.8
$-
$(0.1)
$1.9
$26.1
$-
$(0.4)
$26.5
Investments in preference securities
Total held-to-maturity securities
40
1.0
-
(0.1)
1.1
$27.1
$-
$(0.5)
$27.6
Supplementary Information:
Year ended
March 31,
2009
Dividend on investments
Proceeds from sale of available-for-sale
securities
Gross realized gains from sale of
available-for-sale securities
Unrealized gain reclassified from
accumulated other comprehensive income
to earnings on sale of available-for-sale
securities
9.
Year ended
March 31,
2010
Year ended
March 31,
2011
$27.8
$2.8
$3.6
6,719.2
11,765.1
11,340.4
11.7
33.0
18.3
9.4
7.2
1.1
Property, plant and equipment by asset category are as follows:
As of March 31,
2010
As of March 31,
2011
Land
$68.1
$68.1
Buildings
463.1
570.7
Computer equipment
356.4
482.6
Automobiles
6.8
6.3
33.2
22.8
337.0
406.8
Property, plant and equipment, at cost
1,264.6
1,557.3
Less: Accumulated depreciation
(546.3)
(686.3)
718.3
871.0
210.1
302.8
$928.4
$1,173.8
Plant and machinery
Capital work-in-progress
Depreciation expense was $106.2 million, $126.0 million and $149.9 million in fiscals 2009, 2010 and 2011,
respectively.
In fiscal 2009, the useful life of computer equipment of Tata Consultancy Services Limited had been
reviewed by the management and the original estimate of the useful life of these assets has been increased
from two to four years. The remaining depreciable amount is charged over the revised remaining useful life of
these assets. Consequently, depreciation for fiscal 2009 is lower and the profit for fiscal 2009 is higher by $39.3
million, and the earnings per share is higher by $0.02.
During the fiscal 2009, Tata America International Corporation (“TAIC”), a wholly owned subsidiary,
received $2.5 million consequent to a grant agreement entered with a State Development Department, USA
in respect of TAIC’s new office established in the State of Ohio, with an obligation to create new employment
positions during the term of the agreement. The carrying amount of the related property, plant and equipment
has been reduced by $2.5 million. The grant is recognized as income over the life of the property, plant and
equipment by way of reduced depreciation charge.
41
Included in property, plant and equipment are the following assets taken on capital lease :
As of March 31,
2010
As of March 31,
2011
Buildings
10.
$7.3
$9.5
Computer equipment
1.9
0.9
0.9
1.0
Leased property
10.1
11.4
Less: Accumulated depreciation
(3.1)
(3.5)
Leased property, net
$7.0
$7.9
Intangible assets
Intangible assets
Gross
cost
Additions
Deletions
Foreign
Accumulated
currency amortization
exchange
gain/(loss)
Net
carrying
value
Software licenses
Others
Total
$23.0
24.4
162.0
12.3
4.7
$226.4
$1.6
$1.6
$$-
$2.2
4.1
5.7
0.6
(0.2)
$12.4
$(16.6)
(13.8)
(34.9)
(13.2)
(4.2)
$(82.7)
$8.6
14.7
132.8
1.3
0.3
$157.7
Software licenses
Others
Total
$23.0
24.4
162.0
13.9
4.7
$228.0
$4.3
13.5
5.2
$23.0
$(1.1)
(0.4)
$(1.5)
$3.0
5.5
7.7
0.6
(0.3)
$16.5
$(19.9)
(17.3)
(52.1)
(16.1)
(4.0)
$(109.4)
$10.4
26.1
117.6
2.5
$156.6
The estimated amortization for each of the five fiscal years subsequent to March 31, 2011 is as follows:
2012
2013
2014
2015
2016
Thereafter
Total
Amortization expense
$28.6
26.3
23.1
22.1
20.2
36.3
$156.6
Amortization expense was $18.3 million, $27.0 million and $26.9 million in fiscals 2009, 2010 and 2011,
respectively.
42
11.
Goodwill
Balance at the beginning of the year
Additional goodwill recognized during the year
Adjustments relating to change in purchase consideration
Adjustment for deferred tax on deductible goodwill
Impairment
Foreign currency translation adjustment
Balance at the end of the year
As of March 31,
As of March 31,
2010
2011
$510.6
$564.0
1.9
0.4
(7.4)
(0.3)
(0.2)
51.8
14.5
$564.0
$571.3
TCS Limited performed its annual impairment test as of March 31, 2011. TCS Limited estimated the fair
values of the reporting units using an income-based approach and estimated future cash flows after considering
current economic conditions and trends, estimated future operating results and growth rate, and anticipated
future economic and regulatory conditions. The estimated cash flows were developed using internal forecasts.
The discount rates used is a weighted-average cost of capital, which reflects a market rate, for each reporting
unit. As of March 31, 2011, the fair values of all reporting units exceed the carrying amounts and no impairment
loss was recognized in fiscal 2011. Segment-wise allocation of goodwill is disclosed in note no.25.
As of March 31, 2011, goodwill amounting to $30.7 million is deductible for tax purposes.
12.
Other non-current assets consist of the following:
Non-current portion of employee loans
Prepaid rent
Rent deposits
Income taxes paid in advance
Restricted cash
Long-term bank deposits
Others
Total
13.
As of March 31,
As of March 31,
2010
2011
$4.0
$2.8
28.5
44.8
79.0
87.0
185.1
206.9
248.6
250.3
9.3
6.3
1.0
605.8
28.4
87.6
$583.9
$1,291.5
Accrued expenses and other current liabilities consist of the following:
Accounts payable, including retentions
Accrued expenses
Accrued compensation expenses
Income taxes payable
Indirect taxes payable
Foreign currency derivative liabilities
Other current liabilities
Total
As of March 31,
As of March 31,
2010
2011
$279.6
$336.1
278.4
222.8
170.2
202.4
123.4
89.6
63.7
102.0
54.4
124.9
18.1
3.3
10.9
69.8
$998.7
$1150.9
43
14.
Income taxes
The income tax expense consists of the following:
Year ended
March 31, 2009
Year ended
March 31, 2010
Year ended
March 31, 2011
Current income tax expense
Deferred income tax expense / (benefit)
Total income tax expense
$260.9
$363.1
$454.8
(70.5)
(102.0)
10.5
$190.4
$261.1
$465.3
The reconciliation of estimated income tax expense at Indian statutory income tax rate to income tax
expense reported in statement of income is as follows:
Year ended
March 31, 2009
Year ended
March 31, 2010
Year ended
March 31, 2011
$1,327.1
$1,730.2
$2,394.7
33.99%
33.99%
33.22%
451.1
588.1
795.5
(361.8)
(407.2)
(486.7)
6.6
27.8
52.5
Tax on income at different rates
78.0
42.3
149.7
Excess provision in prior years
(3.8)
(13.0)
(69.8)
Others, net
20.3
23.1
24.1
$190.4
$261.1
$465.3
Indian statutory income tax rate
Expected income tax expense
Tax effect of adjustments to reconcile
expected income tax expense to
reported income tax expense:
Tax holidays and income exempt
from tax
Undistributed earnings in branches
and subsidiaries
Total income tax expense
Under Section 10A of the Indian Income Tax Act, 1961, Tata Consultancy Services Limited and its subsidiaries
in India are entitled to tax holidays for its various Software Technology Park (STP) units located across India.
These tax holidays are available for a period of ten fiscal years from the date of commencement of operations.
However, the tax holiday is not available effective from April 1, 2011.
In addition, Tata Consultancy Services Limited and its subsidiaries in India benefit from the tax exemption
available for units set up under the Special Economic Zone Act, 2005 (SEZ). These tax holidays are available for
a period of fifteen fiscal years from the date of commencement of operations. Under the SEZ scheme, the unit
which begins providing services on or after April 1, 2005 will be eligible for deductions of 100% of profits or
gains derived from export of services for the first five years, 50% of such profit or gains for a further period of
five years and 50% of such profit or gains for the balance period of five years subject to fulfillment of certain
conditions.
44
The per share (basic) effect of the tax holiday was $0.18, $0.21 and $0.25 for fiscals 2009, 2010
and 2011.
The tax effects of significant temporary differences are as follows:
As of March 31,
As of March 31,
2010
2011
Tax effect of:
Deductible temporary differences:
$3.7
$4.6
Retirement benefits and compensated absences
18.2
17.6
Receivables, loans and advances
37.4
11.3
Allowances for diminution in value of investments
MAT credit entitlement
Operating loss carry forward
Intangibles and goodwill
Others
Deferred tax asset
Less: Valuation allowance
Net deferred tax asset
Current
Non-current
Total
Taxable temporary differences:
Retirement benefits and compensated absences
Branch profit tax
Undistributed earnings of subsidiaries
Unrealized gain on available-for-sale securities
Others
Deferred tax liability
Current
Non-current
Total
0.8
-
242.8
230.6
20.9
35.9
6.5
7.7
12.8
11.9
343.1
319.6
(15.3)
(33.2)
$327.8
$286.4
$79.2
248.6
$327.8
$36.1
250.3
$286.4
$18.0
0.1
9.8
52.7
54.1
$134.7
$54.4
80.3
$134.7
$10.4
1.4
13.5
99.7
0.3
51.9
$177.2
$124.9
52.3
$177.2
Valuation allowance has been recognized on deferred tax assets relating to impairment of certain securities
carried at cost and uncollected export receivables anticipated to be non-recoverable.
Under the Indian Income Tax Act, 1961, unabsorbed business losses expire 8 years after the year in which
they originate. In respect of certain foreign subsidiaries, business losses can be carried forward indefinitely
unless there is a substantial change in the ownership.
Under the Indian Income Tax Act, 1961, Tata Consultancy Services Limited and its subsidiaries in India are
liable to pay Minimum Alternate Tax (MAT) in the tax holiday period. MAT paid can be carried forward for a
period of 10 years and can be set off against the future tax liabilities. Consequently, TCS Limited has recognized
a deferred tax asset of $230.6 million as of March 31, 2011.
45
Deferred tax liability of $24.3 million on undistributed earnings of certain foreign subsidiaries have not
been recognized, as it is the intention of TCS Limited to reinvest the foreign earnings of these subsidiaries for
indefinite period of time.
Tax expense / (benefit) allocated to each component of other comprehensive income are as follows:
Year ended
March 31, 2009
Unrealized gain / (loss) on
available-for-sale securities
Employee benefit plans
Unrealized (loss) / gain on effective hedges
Total
$(1.7)
(1.8)
$(3.5)
Year ended
March 31, 2010
Year ended
March 31, 2011
$(2.3)
0.1
4.5
$2.3
$0.3
1.3
(1.5)
$0.1
Tax Uncertainties:
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is given below:
Increases due to tax positions related to prior years
Increases due to tax positions related to the current year
Decreases due to tax positions related to prior years
Decreases due to settlements with taxing authorities
Decreases due to lapse of statute of limitation
Currency translation adjustment
Year ended
Year ended
March 31, 2010
March 31, 2011
$4.3
$38.1
33.0
81.8
2.6
21.7
(0.5)
(4.8)
(0.3)
(2.8)
(1.0)
(0.8)
0.3
$38.1
$133.5
TCS Limited classifies interest and penalties related to unrecognized tax benefits as part of income
tax expense. TCS Limited has accrued for interest and penalties related to unrecognized tax benefits of
$4.0 million and $1.3 million as of March 31, 2010 and March 31, 2011 respectively.
As of March 31, 2010 and March 31, 2011, TCS Limited has unrecognized tax benefits of $38.1 million and
$133.5 million respectively, which if ultimately recognized, will reduce the TCS Limited’s annual effective tax
rate. Quantification of amounts of uncertain tax position as disclosed above that may change within twelve
months of the reporting date is not practicable.
TCS Limited files numerous consolidated and separate income tax returns in India, United States federal and
state jurisdictions, United Kingdom and in several other foreign jurisdictions. On an ongoing basis TCS Limited
is routinely subject to examination by taxing authorities. While it is often difficult to predict the final outcome
or the timing of resolution of any particular uncertain tax position, TCS Limited believes that its unrecognized
tax benefits reflect the outcome that is more likely than not to occur. TCS Limited adjusts these unrecognized
tax benefits, as well as the related interest and penalties, in light of changing facts and circumstances. The
resolution of a matter could be recognized as an adjustment to provision for income taxes and may also require
the outflow of cash.
TCS Limited has ongoing disputes with Indian Income tax authorities relating to tax treatment of
certain items. These mainly include disallowed expenses, tax treatment of certain expenses claimed by
TCS Limited as deductions, and computation of, or eligibility of, certain tax incentives or allowances. As of
March 31, 2011, TCS Limited has demands from direct tax authorities in India, which are being contested
by TCS Limited on appeal amounting to $188.8 million. Demands from direct tax authorities include
46
$53.0 million in respect of TCS e-Serve Limited. TCS e-Serve Limited has also paid advance taxes aggregating
$41.5 million against the disputed amounts for the relevant assessment years. Tata Consultancy Services Limited
is indemnified by Citigroup Inc. against TCS e-Serve Limited’s tax claim and would be required to refund
Citigroup Inc. payments previously made against such claims if TCS e-Serve’s claim is sustained on examination.
TCS Limited believes that its position on these claims made by tax authorities will more likely than not
sustain upon examination by the relevant authorities.
The number of years that are subject to tax assessments varies depending on tax jurisdiction. The major
tax jurisdictions of TCS Limited include India, United States of America and United Kingdom. In India, tax filings
from fiscal 2007 are subject to examination by the taxing authorities. In United States of America, the federal
statute of limitation applies to fiscals 2007 and earlier and applicable state statutes of limitation vary by state.
In United Kingdom, the statute of limitation generally applies to fiscal 2009 and earlier.
15.
Short-term debt
Short-term debt consists of the following:
Foreign currency bank loans
Cash credits and overdrafts
Current portion of long-term debt
Other short-term debt
Put-call option liability
As of March 31,
As of March 31,
2010
2011
$0.3
$7.1
0.2
0.3
0.3
12.8
37.8
48.7
Total
Available lines of credit
Total debt outstanding
Maximum amount outstanding
Average amount outstanding
Weighted average interest rate
$51.4
$246.8
$56.1
$307.0
$141.7
$79.4
0.9%
$166.6
$36.8
1.2%
Cash credits and overdrafts are secured against accounts receivable. All other debts are unsecured.
In March 2006, Tata Consultancy Services Limited, through its subsidiary Diligenta Limited or “Diligenta”,
acquired, on a going concern basis, certain businesses of Phoenix Group Services Limited or “Phoenix”
(formerly Pearl Group Services Limited or “Pearl”). Phoenix has a minority interest of 24% in Diligenta Limited.
Tata Consultancy Services Limited has a call option to buy this minority interest of 24% at a fixed price at the
end of the fourth year and Phoenix has a put option to sell the shares to Tata Consultancy Services Limited at
the same price at the end of fifth year. The Company has further call option commencing from the sixth year till
the end of eightieth year. An additional consideration of $45.8 million (£30.2 million) has been recorded and
TCS Limited has consolidated 100% of Diligenta at the inception of this arrangement. As at March 31, 2011,
neither Tata Consultancy Services Limited nor Phoenix have exercised their respective options.
16.
Mandatorily redeemable preference shares with Tata Sons Limited
In fiscal 2008, Tata Consultancy Services Limited arranged an unsecured long-term debt of
$24.9 million (`1,000.0 million) by issuance and allotment of 1,000,000,000 Redeemable Preference Shares of
face value of $0.02 (`1) each to Tata Sons Limited. This debt would be redeemable at par at the end of six years
from the date of allotment but may be repayable at any time after 3 years from the date of allotment at par
at the option of the debt holder. This debt carries a fixed cumulative dividend of 1% per annum and a variable
non-cumulative dividend of 1% of the difference between the rate of dividend declared during the year on the
par value of equity shares of Tata Consultancy Services Limited and the average rate of dividend declared on
the par value of equity shares of Tata Consultancy Services Limited for three years preceding the year of issue
of the above debt.
47
17.
Long-term debt
Long-term debt consists of the following:
As of March 31,
2010
Foreign currency debt
Unsecured debt
Less: Current portion
Total
18.
As of March 31,
2011
$1.2
1.5
(0.3)
$2.4
$1.2
(0.3)
$0.9
Other non-current liabilities consist of the following:
Employee benefits liabilities
Others
Total
19.
As of March 31,
As of March 31,
2010
2011
$80.3
$52.3
20.7
26.0
64.7
54.7
$165.7
$133.0
Shareholders’ equity
Authorized and issued share capital
Stock-split
On June 12, 2009, the shareholders of Tata Consultancy Services Limited approved a bonus issue of
978,610,498 equity shares. The bonus issue is in the nature of a stock split effected in the form of a stock
dividend with one additional share issued for every share held. In accordance with Indian law, $20.3 million has
been capitalized from additional paid-in capital as share capital on allotment of bonus shares.
Earnings per share amount has been adjusted retrospectively for all the periods presented.
20.
Retirement and post-retirement benefits
Defined benefit retirement plan
In accordance with Indian law, Tata Consultancy Services Limited and its subsidiaries in India provide for
gratuity, a defined benefit retirement plan covering eligible employees in India. The plan provides for a lump
sum payment to vested employees at retirement, death while in employment or on termination of employment
in an amount equivalent to 15 to 30 days’ salary payable for each completed year of service. Vesting occurs upon
completion of five continuous years of service. The measurement date used for determining retirement benefits
for gratuity is March 31. Certain overseas subsidiaries of TCS Limited also provide for retirement benefit pension
plans in accordance with the local laws.
48
The following table sets out the funded status of the defined benefit retirement plans and the amounts
recognized in the financial statements:
Domestic
plans
Foreign
plans
Total
Domestic
plans
Foreign
plans
Total
Change in benefit obligations:
Benefit obligation, beginning of
the year
Exchange loss
$83.8
$31.5
$115.3
$110.7
$38.5
$149.2
12.1
1.8
13.9
1.5
4.7
6.2
Plans assumed on acquisition of
subsidiaries
-
-
-
0.2
-
0.2
Plan participants’ contribution
-
1.3
1.3
-
1.4
1.4
Service cost
16.2
3.6
19.8
19.9
3.7
23.6
Interest cost
7.0
1.3
8.3
9.0
1.6
10.6
(1.8)
2.4
0.6
1.2
(1.3)
(0.1)
-
0.7
0.7
0.9
0.1
1.0
(6.6)
(4.1)
(10.7)
(8.3)
(2.1)
(10.4)
$110.7
$38.5
$149.2
$135.1
$46.6
$181.7
$70.9
$27.1
$98.0
$97.2
$34.6
$131.8
Exchange gain
9.1
1.6
10.7
1.0
4.1
5.1
Actual return on plan assets
8.0
4.4
12.4
10.3
2.8
13.1
15.8
4.3
20.1
16.2
4.2
20.4
Actuarial (gain) / loss
Past Service Cost
Benefits paid
Benefit obligation, end of the year
Change in plan assets:
Fair value of plan assets,
beginning of the year
Employers’ contributions
Plan participants’
contribution
Benefits paid
Fair value of plan assets, end of the
year
-
1.3
1.3
-
1.4
1.4
(6.6)
(4.1)
(10.7)
(8.3)
(2.1)
(10.4)
$97.2
$34.6
$131.8
$116.4
$45.0
$161.4
Funded status:
Deficit of plan assets over
obligations
$(13.5)
$(3.9)
$(17.4)
$(18.7)
$(1.6)
$(20.3)
Accrued liability
$(13.5)
$(3.9)
$(17.4)
$(18.7)
$(1.6)
$(20.3)
49
Domestic
plans
Category of assets:
Corporate bonds
Equity shares
Special deposit scheme
Index linked gilt
Insurer managed funds
Cash and bank balances
Others
Total
Foreign
plans
$0.4
96.8
$97.2
Total
Domestic
plans
$16.6
6.9
6.6
0.3
4.2
$34.6
$16.6
6.9
0.4
6.6
96.8
0.3
4.2
$131.8
$116.1
0.3
$116.4
Foreign
plans
Total
$20.7
9.4
8.6
0.2
6.1
$45.0
$20.7
9.4
8.6
116.1
0.2
6.4
$161.4
Net periodic gratuity cost consists of the following components:
Year ended
March 31, 2009
Domestic
Foreign
Total
plans
plans
Service cost
Interest cost
Amortization of net
actuarial loss
Past service cost
Expected return on plan
assets
Net periodic gratuity
cost
Year ended
March 31, 2010
Domestic
Foreign
Total
plans
plans
$16.2
$3.6
$19.8
7.0
1.3
8.3
$13.4
6.3
$3.4
1.1
$16.8
7.4
-
-
-
-
0.3
0.7
(5.4)
(1.5)
(6.9)
(6.8)
$14.3
$3.0
$17.3
$16.4
Year ended
March 31, 2011
Domestic Foreign
Total
plans
plans
$19.9
9.0
$3.7
1.6
$23.6
10.6
0.3
0.7
0.9
0.2
0.1
0.2
1.0
(1.5)
(8.3)
(8.2)
(1.8)
(10.0)
$4.4
$20.8
$21.6
$3.8
$25.4
The assumptions used in accounting for the gratuity plan are set out below:
Year ended
March 31, 2009
Domestic Foreign
plans
plans
%
%
Discount rate
Rate of increase in
compensation levels of
covered employees
Rate of return on plan assets
Year ended
March 31, 2010
Domestic
Foreign
plans
plans
%
%
Year ended
March 31, 2011
Domestic Foreign
plans
plans
%
%
7.5 - 8.0
3.5 - 6.3
7.5
3.0 - 6.3
8.0
3.0 - 5.5
4.0 - 15.0
8.0 - 9.2
1.5 - 3.3
4.5 - 5.6
4.0 - 12.0
8.0
1.5 - 3.3
4.0 - 5.6
4.0 - 12.0
8.0
1.5 - 3.6
4.0 – 5.5
TCS Limited’s overall expected long-term rate of return on assets has been determined based on a
consideration of assessed risks of asset management, available market information, historical results of the
return on plan assets and the provisions of Indian law which specify the instruments in which investments can be
made.
50
Accumulated benefit obligation was $75.8 million and $86.9 million as of March 31, 2010 and 2011,
respectively.
The estimated benefit payments expected to be paid for future service are as follows:
2012
2013
2014
2015
2016
2017-2021
Domestic plans
Foreign plans
$10.1
$5.2
14.4
4.0
15.3
3.7
17.0
4.0
19.3
3.9
116.3
19.9
Total
$15.3
18.4
19.0
21.0
23.2
136.2
The expected benefits are based on the same assumptions as are used to measure TCS Limited’s gratuity
obligations as of March 31, 2011. TCS Limited is expected to contribute $18.3 million to gratuity funds in
fiscal 2012 comprising domestic component of $14.2 million and foreign component of $4.1 million.
The net actuarial gain recognized in other comprehensive income for the period is $3.1 million.
An amount of $7.6 million, net of deferred tax, in accumulated other comprehensive income pertains to
actuarial losses that have not yet been recognized as a component of net periodic benefit cost for fiscal 2011.
Defined benefit medical plan
The medical plan liability arises on the retirement and death of an employee. The aforesaid liability is
calculated on the basis of fixed annual amount per employee (based on the basic salary) for qualifying employees.
The most recent actuarial valuation of plan assets and the present value of the defined obligation were
carried out on March 31, 2011. The present values of the defined obligation and the related current service cost
and past service cost were measured using the Projected Unit Credit Method.
The following tables set out the reconciliation of the benefit obligation of the medical plan and amounts
recognized in TCS Limited’s financial statements as at March 31, 2011.
As of March 31,
As of March 31,
2010
2011
Change in benefit obligations:
Benefit obligation, beginning of the year
Exchange difference
Interest cost
Curtailment
Actuarial gain on obligation
Benefits paid
$0.9
0.2
0.1
0.1
(0.1)
$1.2
0.1
(0.2)
(0.1)
Benefit obligation, end of the year
$1.2
$1.0
Net periodic post-retirement medical cost consists of the following components:
Year ended
March 31, 2009
Current service cost
Interest cost
Curtailment
Net cost
$0.1
$0.1
Year ended
March 31, 2010
$0.1
$0.1
Year ended
March 31, 2011
$0.1
(0.2)
$(0.1)
51
Principal actuarial assumptions:
Discount rate
Year ended
March 31, 2009
%
7.5
Year ended
March 31, 2010
%
7.5
Year ended
March 31, 2011
%
8.0
Defined contribution plans
Superannuation
In addition to gratuity benefits, all eligible employees are entitled to benefits under Superannuation,
a defined contribution plan. TCS Limited makes monthly contributions until retirement or resignation of the
employee. TCS Limited recognizes such contributions as an expense when incurred. TCS Limited has no further
obligation beyond its monthly contribution.
TCS Limited contributed $17.0 million, $16.3 million and $21.9 million to the Employees’ Superannuation
Fund in fiscals 2009, 2010 and 2011, respectively.
Provident fund
In accordance with Indian law, all eligible employees of Tata Consultancy Services Limited and its subsidiaries
in India are entitled to receive benefits under the provident fund, a defined contribution plan in which both
the employee and employer contribute monthly at a determined rate (up to 12% of employee’s salary).
Tata Consultancy Services Limited and its subsidiaries in India are liable for future provident fund benefits to the
extent of its annual contribution and any shortfall in fund assets based on government specified minimum rates
of return and recognizes such contributions and shortfall, if any, as an expense in the year incurred.
Tata Consultancy Services Limited and its subsidiaries in India contributed $50.1 million, $55.8 million and
$70.2 million to the provident fund in fiscals 2009, 2010 and 2011, respectively.
Foreign Defined Contribution Plan
TCS Limited and its subsidiaries contributed $11.0 million, $11.2 million and $15.0 million in fiscals 2009,
2010 and 2011, respectively, towards foreign defined contribution plan.
21.
Other non-operating income / (expense), net
Year ended
March 31, 2009
Foreign exchange loss on derivative
instruments designated as cash flow hedges
Foreign exchange gain / (loss) on
other derivative instruments
Foreign exchange (loss) / gain, others
Dividend income
Others, net
Total
22.
Year ended
March 31, 2010
Year ended
March 31, 2011
$(125.0)
$(38.6)
$(5.4)
(93.0)
51.1
27.8
30.6
$(108.5)
24.9
(25.4)
2.8
51.9
$15.6
0.6
(5.5)
3.6
28.3
$21.6
Leases
TCS Limited has taken on lease property, equipment and automobiles under operating lease arrangements.
Operating lease rent expense was $128.8 million, $151.9 million and $161.3 million in fiscals 2009, 2010 and
2011, respectively.
52
The following is a summary of future minimum lease rental commitments towards non-cancellable
operating leases and capital leases:
2012
2013
2014
2015
2016
Thereafter
Total minimum lease commitments
Less: Interest
Present value of minimum lease payments
23.
Operating lease
Capital lease
$109.6
$2.2
93.6
2.1
83.1
2.1
76.7
2.1
59.8
2.1
227.3
2.4
$650.1
13.0
(4.8)
$8.2
Estimated fair value of financial instruments
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that
are either observable or unobservable and consists of the following three levels:
•
Level 1— Inputs are quoted prices in active markets for identical assets or liabilities.
•
Level 2— Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for
identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that
are observable and market-corroborated inputs which are derived principally from or corroborated by
observable market data.
•
Level 3— Inputs which are unobservable reflecting internal assumptions are used in pricing assets or
liabilities.
The following table summarizes financial assets and liabilities measured at fair value on a recurring
basis:
Investments – available-for-sale securities
Mutual fund units
Corporate debentures and bonds
Level 1 Level 2 Level 3
$$570.1
$568.4
1.7
-
Total
$570.1
568.4
1.7
Derivative financial assets
Foreign currency forward contracts
Foreign currency option contracts
-
20.1
5.7
14.4
-
20.1
5.7
14.4
Derivative financial liabilities
-
26.6
1.6
25.0
-
26.6
1.6
25.0
53
Level 1 Level 2 Level 3
$$79.9
$78.2
1.7
-
Investments – available-for-sale securities
Mutual fund units
Corporate debentures and bonds
24.
Total
$79.9
78.2
$1.7
Derivative financial assets
-
25.9
14.4
11.5
-
25.9
14.4
11.5
Derivative financial liabilities
-
12.9
3.1
9.8
-
12.9
3.1
9.8
TCS Limited’s revenues are denominated in foreign currency predominantly US Dollar, Sterling Pound
and the Euro. In addition to these currencies, TCS Limited also does business in Australian Dollar, Canadian
Dollar, South African Rand and Swiss Franc. Given the nature of the business, a large portion of the costs are
denominated in Indian Rupee. This exposes TCS Limited to profit / loss on currency fluctuations.
TCS Limited monitors and manages the financial risks relating to its operations by analysing its foreign
exchange exposures by the level and extent of currency risks.
Tata Consultancy Services Limited and its subsidiaries use various derivative financial instruments governed
by policies approved by the board of directors such as foreign currency option contracts as well as forward
contracts to manage and mitigate its exposure to foreign exchange rates. The counter party is generally a bank.
These contracts are for a period between one day and eight years.
Tata Consultancy Services Limited and its subsidiaries report quarterly to its risk management board,
an independent body that monitors foreign exchange risks and policies implemented to manage its foreign
exchange exposures. TCS Limited has developed software platform to monitor, manage and report foreign
exchange exposures relating to hedging transactions on a periodic basis.
The following table provides information on the location and fair values of derivative financial instruments
included in consolidated balance sheet as of March 31, 2011:
Location in Balance Sheet
Derivatives
designated as
cash flow hedges:
Assets
March 31,
March 31,
2010
2011
Liabilities
March 31, March 31,
2010
2011
Foreign exchange
forward contracts
Foreign exchange
option contracts
54
Prepaid expenses and other
current assets
Accrued expenses and other
current liabilities
current assets
current liabilities
$0.4
2.3
$4.9
3.3
$-
$-
-
-
-
0.3
0.2
13.6
0.1
8.5
-
-
-
-
-
16.0
8.5
0.4
9.4
Derivatives not
designated as
hedges:
Location in Balance Sheet
Foreign exchange
forward contracts
current assets
current liabilities
current assets
current liabilities
Assets
March 31,
March 31,
2010
2011
Liabilities
March 31, March 31,
2010
2011
Foreign exchange
option contracts
3.0
6.2
-
-
-
-
1.6
2.6
0.7
3.0
-
-
-
-
0.5
-
The following are outstanding Foreign Exchange Forward contracts, which have been designated as cash
flow hedges:
Foreign
Currency
US Dollar
Sterling Pound
AUD
Number of
Notional
Fair Value
Contracts
amount of
Gain /
Forward
(Loss)
contracts
(In millions) (In millions
of USD)
20
51.2
$2.7
-
-
-
Number of
Notional
Fair Value
Contracts
amount of
Gain /
Forward
(Loss)
contracts
of USD)
52
207.8
$7.8
38
19
27.7
9.5
0.4
(0.5)
The following are outstanding Currency Option contracts, which have been designated as cash flow
hedges:
Foreign
Currency
US Dollar
Euro
Sterling Pound
Number of
Notional
Fair Value
Contracts
amount
Gain / (Loss)
of Option
contracts
of USD)
56
-
639.8
-
$(12.1)
-
Number of
Notional
Fair Value
Contracts
amount
Gain / (Loss)
of Option
contracts
of USD)
58
21
9
349.4
149.0
54.0
$(3.8)
0.2
2.0
Net gain on derivative instruments of $11.6 million recognized in accumulated other comprehensive
income as of March 31, 2011, is expected to be reclassified into earnings by March 31, 2012. The maximum period
over which we have hedged our exposure to cash flow variability is through 2015.
55
The movement in accumulated other comprehensive income during fiscals 2010 and 2011 for derivatives
designated as cash flow hedges is as follows:
(Loss) / gain transferred to income statement on occurrence of
forecasted hedge transaction
Net change in the fair value of effective portion of cash flow hedges
(net of deferred taxes of $4.5 million and
$(1.5) million, respectively)
Net derivative gain related to discontinued cash flow hedges
Foreign currency translation adjustment
Amount transferred to non-controlling interests during the year
Year ended
Year ended
March 31, 2010
March 31, 2011
$(143.9)
$(5.9)
15.6
(12.6)
135.2
0.2
(12.6)
(0.4)
$(5.9)
29.7
(0.3)
0.1
$11.0
In addition to the above cash flow hedges, TCS Limited has outstanding foreign exchange
forward contracts and currency option contracts with notional amounts aggregating $779.9 million and
$1042.7 million, whose fair value showed a net gain of $1.6 million and $6.6 million as on March 31, 2010 and
2011, respectively. Although these contracts are effective as hedges from an economic perspective, they do not
qualify for hedge accounting.
Exchange loss of $93.0 million, exchange gain of $24.9 million and exchange gain of $0.6 million on
foreign currency forward exchange contracts and currency option contracts have been recognized in earnings in
fiscals 2009, 2010 and 2011, respectively.
25.
Segment information
Operating segments are defined as components of an enterprise for which discrete financial information is
available that is evaluated regularly by the chief operating decision maker, in deciding how to allocate resources
and assessing performance. TCS Limited’s chief operating decision maker is the Chief Executive Officer and
Managing Director.
The Company has identified business segments (industry practice) as reportable segments. Business
segments are primarily financial services comprising banking, finance and insurance services, manufacturing
companies, companies in retail and consumer packaged goods industries, companies in telecommunication,
media and entertainment and others such as energy, resources and utilities, Hi-Tech industry practice, life science
and healthcare, s-Governance, travel, transportation and hospitality, products, etc.
Revenues and expenses directly attributable to segments are reported under each reportable segment.
Expenses which are not directly identifiable to each reporting segment have been allocated on the basis of
associated revenues of the segment and manpower efforts. All other expenses which are not attributable or
allocable to segments have been disclosed as unallocable expenses.
Assets directly attributable or allocable to segments are disclosed under each reportable segment. All
other assets are disclosed as unallocable. Property, plant and equipment that are used interchangeably among
segments are not allocated to reportable segments.
56
Summarized segment information for the years ended March 31, 2009, 2010 and 2011 is as follows:
Segment Income Statement:
Revenues
Operating expenses
Segment result
Unallocable expenses
Operating income
Other income / (expense), net
Income tax expense
Net income
directly attributable to each
segment
Significant noncash items
Revenues
Operating expenses
Segment result
Operating income
Income tax expense
Net income
segment
Segment assets:
Segment total assets
Unallocable assets
Total assets
Revenues
Operating expenses
Segment result
Operating income
Income tax expense
Net income
segment
Segment assets:
Segment total assets
Unallocable assets
Total assets
Banking,
Financial
Services and
Insurance
$2,579.7
1,939.2
640.5
$19.0
3.4
Banking,
Financial
Services and
Insurance
$2,848.3
2,048.4
799.9
Year ended March 31, 2009
Manufacturing
Retail and Telecom Others
Total
Consumer
Packaged
Goods
$589.3
$530.5
$975.1 $1,341.1 $6,015.7
420.8
420.4
686.4
1,022.2
4,489.0
168.5
110.1
288.7
318.9
1,526.7
101.8
1,424.9
(97.8)
1,327.1
190.4
$1,136.7
$0.1
-
$0.1
1.2
$0.2
2.9
$3.7
8.6
$23.1
16.1
Manufacturing
Total
Consumer
Packaged
Goods
$513.3
$671.8
$921.0 $1,384.9 $6,339.3
356.9
492.4
635.6
1,013.4
4,546.7
156.4
179.4
285.4
371.5
1,792.6
111.0
1,681.6
48.6
1,730.2
261.1
$1,469.1
$39.7
1.5
$0.9
$0.1
$0.1
25.7
$2.2
8.3
$42.0
36.5
$1,438.3
$140.9
$178.3
$306.2
$549.8
$2,613.5
3,535.6
$6,149.1
Banking,
Financial
Services and
Insurance
$3,625.1
2,501.9
1,123.2
Manufacturing
Total
Consumer
Packaged
Goods
$603.6
$900.5 $1,160.5 $1,897.1 $8,186.8
449.1
664.3
756.5
1,401.0
5,772.8
154.5
236.2
404.0
496.1
2,414.0
134.0
2,280.0
114.7
2,394.7
465.3
$1,929.4
$38.6
2.5
$0.4
$1.1
(0.2)
$0.2
(26.1)
$2.8
1.9
$42.7
(21.5)
$1,672.0
$165.4
$243.0
$429.2
$835.7
$3,345.3
3,962.9
$7,308.2
57
Allocation of goodwill and intangible assets by segments for fiscals 2010 and 2011 is as follows:
Industry Practice
Banking, Financial Services and Insurance
Goodwill Intangible
Goodwill Intangible
assets
assets
$525.2
$157.6
$532.5
$148.4
Manufacturing
2.9
-
2.9
1.0
Retail and Consumer Packaged Goods
2.9
-
2.9
1.6
Telecom
9.7
0.1
9.7
2.1
Others
Total
23.3
-
23.3
3.5
$564.0
$157.7
$571.3
$156.6
Geographical revenues are allocated based on the location of the customers. Information regarding
geographical revenues is as follows:
Geography
Year ended
March 31, 2009
Americas
Europe
India
Others
Total
$3,369.2
1,778.5
473.7
394.3
$6,015.7
Year ended
March 31, 2010
Year ended
March 31, 2011
$3,647.2
1,689.4
548.4
454.3
$6,339.3
$4,705.9
2,029.5
753.2
698.2
$8,186.8
Information about major customers:
No single customer represents 10 percent or more of the Company’s total revenues.
26.
Commitments and contingencies
Commitments and contingent liabilities are as follows:
Capital commitments
As of March 31, 2011, $261.4 million was contractually committed for purchase of property, plant and
equipment.
Contingencies
Guarantees and letters of credit
Tata Consultancy Services Limited has issued counter guarantees to Bank of America of $2.0 million
and $1.3 million on behalf of TCS Asia Pacific Pte Ltd. and on behalf of Tata Information Technology
(Shanghai) Company Limited, both 100% owned subsidiaries respectively, in consideration of Bank of America
issuing credit lines, guarantees and other financial facilities in various currencies to these subsidiaries. The
Company has provided guarantees aggregating to $1.2 million to third parties on behalf of its subsidiary
Tata Consultancy services Malaysia Sdn Bhd.
Tata Consultancy Services Limited has issued counter guarantees for $4.6 million on behalf of subsidiaries
(“Ibero”) of TCS Iberoamerica SA (100% owned subsidiary of Tata Consultancy Services Limited), in consideration
of the bank providing bank guarantee facilities to Ibero’s subsidiaries to assist in their bidding for contracts with
some customers.
Tata Consultancy Services Limited has provided guarantees aggregating to $445.3
(GBP 276.6 million) to third parties on behalf of its subsidiary Diligenta Limited and its subsidiary.
58
million
Tata Consultancy Services Limited has provided counter guarantees for $0.6 million to third parties on
behalf of its 100% owned subsidiary TCS FNS Pty Limited and its subsidiary.
Tata Consultancy Services Limited has provided guarantees aggregating to $20.6 million to third party on
behalf of its subsidiary Tata Consultancy Services Limited Canada Inc.
TCS Limited has unexpired letters of credit of $0.4 million as of March 31, 2011.
Indirect tax matters
TCS Limited has ongoing disputes with Indian tax authorities mainly relating to treatment of
characterization and classification of certain items. As of March 31, 2011, TCS Limited has demands from various
indirect tax authorities in Indian jurisdiction, which are being contested by the Company on appeal amounting to
$32.4 million.
Other claims
The share purchase agreement for acquisition of Comicrom S.A. (merged with Tata Consultancy Services
Chile S.A.) provided for additional contingent consideration payable to the previous owners. A sum of
$1.0 million has been paid by the Company during the period ended March 31, 2011, towards full and final
settlement of its dues under the agreement.
TCS Limited has examined the social security and tax aspects of contracts with legal entities which provide
services to an overseas subsidiary and, based on legal opinion, concludes that the subsidiary is in compliance with
the related statutory requirements.
27.
Related party transactions
Tata Consultancy Services Limited’s principal related parties consist of its holding company Tata Sons Limited
and its subsidiaries, its own subsidiaries, affiliates and its key managerial personnel. TCS Limited routinely enters
into transactions with its related parties in the ordinary course of business. Transactions and balances with
its own subsidiaries and affiliates are eliminated on consolidation. TCS Limited’s related party balances and
transactions are summarized as follows:
Transactions with related parties are as follows:
Year ended
March 31, 2009
Revenues from sale of services and
licenses
Other non-operating income
Purchases of goods and services
Contribution to retirement benefits
and employees welfare trusts
Brand equity contribution
Dividend paid (net of dividend tax)
Purchase of property, plant and
equipment
Inter-corporate deposits placed
Inter-corporate deposits realization
Interest income
Interest expense
Allowances for doubtful accounts
receivable and advances
Purchase of commercial paper
Commercial paper realization
Purchase of investment in affiliates
Purchase of debentures in Tata Sons
Limited and its subsidiary
Issue of bonus shares
Year ended
March 31, 2010
Year ended
March 31, 2011
$62.8
15.8
$70.7
0.1
21.0
$87.8
0.3
28.0
60.5
13.8
221.8
59.1
14.2
259.6
69.2
14.7
634.9
0.9
21.6
4.3
2.3
1.5
4.5
37.7
10.3
7.7
3.6
7.1
38.2
39.3
29.3
2.4
0.2
0.5
1.7
-
(0.5)
31.5
33.2
-
-
262.3
15.3
17.1
-
59
Balances receivable from related parties are as follows:
Accounts receivable and unbilled revenues (net)
Advances and deposits
Investments in debentures issued by Tata Sons Limited and
its subsidiary
Total
As of March 31,
As of March 31,
2010
2011
$20.8
$18.8
56.6
77.6
268.9
$346.3
299.5
$395.9
Balances payable to related parties are as follows:
Payables
Advances received
Mandatorily redeemable preference shares with
Tata Sons Limited
Interest payable on preference shares
Total
28.
As of March 31,
As of March 31,
2010
2011
$21.5
$22.8
0.4
0.1
22.3
3.8
$48.0
22.4
2.5
$47.8
Dividends
The dividends declared by Tata Consultancy Services Limited are in Indian Rupees and are based on
the profits available for distribution as reported in the unconsolidated statutory financial statements of
Tata Consultancy Services Limited prepared in accordance with Indian GAAP. Accordingly, the net income
reported in these financial statements may not be fully distributable. As of March 31, 2010 and 2011, incomes
(net of dividend tax) available for distribution were $3,084.8 million (` 137,512.2 million) and $3670.9 million
(` 163,718.5 million), respectively. Subsequent to March 31, 2011, Tata Consultancy Services Limited has proposed
dividend of $0.2 (` 8) per share in respect of fiscal 2011.
29.
Subsequent events
TCS Limited has evaluated subsequent events through May 25, 2011, the date on which the financials were
available for issue.
60
61
62
IT Services
Business Solutions
Outsourcing
Tata Consultancy Services Limited
9th Floor Nirmal Building Nariman Point Mumbai 400 021
www.tcs.com

USD - TCS

Transcription

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