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exchange rate fluctuations

        Due to the foregoing factors, it is possible that in some future periods our revenue and operating results may not meet the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could fall substantially either suddenly, or over time, and our business, financial condition and results of operations would be adversely affected.

Adverse or uncertain conditions in the global economy could negatively impact our clients and therefore our results of operations.

        Regional and global economic weakness and uncertainty have resulted in some companies reassessing their spending for technology and IT related projects and services. Our revenue and profitability depend on the overall demand for IT services from our clients, including discretionary IT spending. Portions of our expenses are fixed and other expenses are tied to expected levels of utilization. To the extent that we do not achieve anticipated levels of revenue growth, our gross profit and net income could be adversely affected until such expenses are reduced to an appropriate level.

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A significant or prolonged economic downturn in the IT services industry, or industries in which we focus, may result in our clients reducing or postponing spending on the services we offer.

        Our revenue is dependent on us entering into large contracts for our services with a limited number of clients each year. As we are not the exclusive IT service provider for our clients, the volume of work that we perform for any specific client is likely to vary from year to year. There are a number of factors, other than our performance, that could affect the size, frequency and renewal rates of our client contracts. For instance, if economic conditions weaken or deteriorate in the IT services industry, or in any industry in which we focus, our clients may reduce or postpone their IT spending significantly which may, in turn, lower the demand for our services and negatively affect our revenue and profitability. As a way of dealing with a challenging economic environment, clients may change their outsourcing strategy by performing more work in-house or replacing their existing software with packaged software supported by the licensor. The loss of, or any significant decline in business from, one or more of our major clients likely would lead to a significant decline in our revenue and operating margins, particularly if we are unable to make corresponding reductions in our expenses in the event of any such loss or decline. Moreover, a significant change in the liquidity or financial position of any of these clients could have a material adverse effect on the collectability of our accounts receivable, liquidity and future operating results.

We may be audited by software vendors from whom we license or use their software to train our resources or serve our clients, which may result in claims for infringement, violations of license provisions or other damages.

        From time to time, we are subject to audit by our vendors from whom we license and use software to confirm compliance with usage and deployment requirements. If as a result of these audits or otherwise, vendors believe that we have committed usage or deployment violations, we may be required to purchase software from these vendors, and we may be subject to claims of infringement or wrongful usage which may result in legal liability to us, including damages, legal fees and expenses. In addition to legal liability and related expense of any litigation, which may include damages and the obligations to purchase software from such software vendor, we may be prevented from using the vendor's software in the future which may have a material and negative impact on our ability to service our customers, conduct training of our IT professionals and generally perform our services.

Negative public perception in the markets in which we sell services regarding offshore IT service providers and proposed anti-outsourcing legislation may adversely affect demand for our services.

        We have based our growth strategy on certain assumptions regarding our industry, services and future demand in the market for such services. However, the trend to outsource IT services may not continue and could reverse. Offshore outsourcing is a politically sensitive topic in the United States and the United Kingdom. For example, recently many organizations and public figures in the United States and the United Kingdom have publicly expressed concern about a perceived association between offshore outsourcing providers and the loss of jobs in their home countries. In addition, there has been recent publicity about the negative experience of certain companies that use offshore outsourcing, particularly in India. Current or prospective clients may elect to perform such services themselves or may be discouraged from transferring these services from onshore to offshore providers to avoid negative perceptions that may be associated with using an offshore provider. Any slowdown or reversal of existing industry trends towards offshore outsourcing would seriously harm our ability to compete effectively with competitors that operate out of facilities located in the United States or the United Kingdom. Legislation in the United States or in certain European countries may be enacted that is intended to discourage or restrict outsourcing. Any changes to existing laws or the enactment of new legislation restricting offshore outsourcing in the United States or the United Kingdom may adversely affect our ability to do business in the United States or in the United Kingdom, particularly if these changes are widespread, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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We may not be able to obtain, develop or implement new systems, infrastructure, procedures and controls that are required to support our operations, maintain cost controls, market our services and manage our relationships with our clients.

        To manage our operations effectively, we must continue to maintain and may need to enhance our IT infrastructure, financial and accounting systems and controls and manage expanded operations in several locations. We also must attract, integrate, train and retain qualified personnel, especially in the areas of accounting, internal audit and financial disclosure. Further, we will need to manage our relationships with various clients, vendors and other third parties. We may not be able to develop and implement on a timely basis, if at all, the systems, infrastructure procedures and controls required to support our operations, including infrastructure management, and controls regarding usage and deployment of hardware and software, for performance of our services. Any failure by us to comply with these controls or our contractual obligations could result in legal liability to us, which would have a negative impact on our consolidated statements of income and consolidated balance sheets. Additionally, some factors, like changes in immigration laws or visa processing restrictions that limit our ability to engage offshore resources at client locations in the United States, the United Kingdom or other countries, are outside of our control. Our future operating results will also depend on our ability to develop and maintain a successful sales organization and processes that can ensure our ability to effectively monitor, manage and forecast our sales activities and resource needs. If we are unable to manage our operations effectively, our operating results could fluctuate from quarter to quarter and our financial condition could be materially adversely affected.

The failure to successfully and timely implement certain financial system changes to improve operating efficiency and enhance our reporting controls could harm our business.

        We have implemented and continue to install several upgrades and enhancements to our financial systems. We expect these initiatives to enable us to achieve greater operating and financial reporting efficiency and also enhance our existing control environment through increased levels of automation of certain processes. Failure to successfully implement and execute these initiatives in a timely, effective and efficient manner could significantly increase our costs, distract our management and could result in the disruption of our operations, the inability to comply with our Sarbanes-Oxley obligations and the inability to report our financial results in a timely and accurate manner.

Our failure to anticipate rapid changes in technology may negatively affect demand for our services in the marketplace.

        Our success will depend, in part, on our ability to develop and implement business and technology solutions that anticipate rapid and continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely basis, which may negatively affect demand for our solutions in the marketplace. Also, if our competitors respond faster than we do to changes in technology, industry standards and client preferences, we may lose business and our services may become less competitive or obsolete. Any one or a combination of these circumstances could have a material adverse effect on our ability to obtain and successfully complete client engagements.

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Interruptions or delays in service from our third-party providers could impair our global delivery model, which could result in client dissatisfaction and a reduction of our revenue.

        We depend upon third parties to provide a high speed network of active voice and data communications 24 hours per day and various satellite and optical links between our global delivery centers and our clients. Consequently, the occurrence of a natural disaster or other unanticipated problems with the equipment or at the facilities of these third-party providers could result in unanticipated interruptions in the delivery of our services. For example, we may not be able to maintain active voice and

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data communications between our global delivery centers and our clients' sites at all times due to disruptions in these networks, system failures or virus attacks. Any significant loss in our ability to communicate or any impediments to any IT professional's ability to provide services to our clients could result in a disruption to our business, which could hinder our performance or our ability to complete client projects in a timely manner. This, in turn, could lead to substantial liability to our clients, client dissatisfaction, loss of revenue and a material adverse effect on our business, our operating results and financial condition. We cannot assure you that our business interruption insurance will adequately compensate our clients or us for losses that may occur. Even if covered by insurance, any failure or breach of security of our systems could damage our reputation and cause us to lose clients.

Some of our client contracts contain restrictions or penalty provisions that, if triggered, could result in lower future revenue and decrease our profitability.

        We have entered in the past, and may in the future enter, into contracts that contain restrictions or penalty provisions that, if triggered, may adversely affect our operating results. For instance, some of our client contracts provide that, during the term of the contract and for a certain period thereafter ranging from six to twelve months, we may not use the same personnel to provide similar services to any of the client's competitors. This restriction may hamper our ability to compete for and provide services to clients in the same industry. In addition, some contracts contain provisions that would require us to pay penalties or liquidated damages to our clients if we do not meet pre-agreed service level requirements. If any of the foregoing were to occur, our future revenue and profitability under these contracts could be materially harmed.

We may face liability if we breach our obligations related to the protection, security, and nondisclosure of confidential client information.

        In the course of providing services to our clients, we may have access to confidential client information, including nonpublic personal data. We are bound by certain agreements to use and disclose this information in a manner consistent with the privacy standards under regulations applicable to our clients and are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect this information, such as the European Union Directive on Data Protection and various U.S. federal and state laws governing the protection of health or other individually identifiable information. If any person, including a team member of ours, misappropriates client confidential information, or if client confidential information is inappropriately disclosed due to a security breach of our computer systems, system failures or otherwise, or if a security breach occurs on a project on which we are engaged, we may have substantial liabilities to our clients or our clients' customers and may incur substantial liability and penalties in connection with any violation of applicable privacy laws and/or criminal prosecution. In addition, in the event of any breach or alleged breach of our confidentiality agreements with our clients, these clients may terminate their engagements with us or sue us for breach of contract, resulting in the associated loss of revenue and increased costs and damaged reputation. We may also be subject to civil or criminal liability if we are deemed to have violated applicable regulations. We cannot assure you that we will adequately address the risks created by the regulations to which we may be contractually obligated to abide.

        In addition, many of our agreements with our clients do not include any limitation on our liability to them with respect to breaches of our obligation to keep the information we receive from them confidential.

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Although we have general liability insurance coverage, including coverage for errors or omissions, there can be no assurance that coverage will continue to be available on reasonable terms or will be sufficient in amount to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations and financial condition.

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Our contractual limitations on liability with our clients and third parties may not be enforceable.

        Under a majority of our agreements with our clients, our liability for breach of certain of our obligations is generally limited to actual damages suffered by the client and is typically capped at the greater of an agreed amount or the fees paid or payable to us for a period of time under the relevant agreement. These limitations and caps on liability may be unenforceable or otherwise may not protect us from liability for damages. In addition, certain liabilities, such as claims of third parties for which we may be required to indemnify our clients or liability for breaches of confidentiality, are generally not limited under those agreements. Our agreements are governed by laws of multiple jurisdictions, therefore the interpretation of such provisions, and the availability of defenses to us, may vary, which may contribute to the uncertainty as to the scope of our potential liability. In addition, many of our agreements with our clients do not include any limitation on our liability to them with respect to breaches of our obligation to keep the information we receive from them confidential.

Our services may infringe on the intellectual property rights of others, which may subject us to legal liability, harm our reputation, prevent us from offering some services to our clients or distract management.

        We cannot be sure that our services or the deliverables that we develop and create for our clients do not infringe on the intellectual property rights of third parties and infringement claims may be asserted against us or our clients. As the number of patents, copyrights and other intellectual property rights in our industry increase, we believe that companies in our industry will face more frequent infringement claims. These claims may harm our reputation, distract management, increase costs and prevent us from offering some services to our clients. Historically, we have generally agreed to indemnify our clients for all expenses and liabilities resulting from infringement of intellectual property rights of third parties based on the services and deliverables that we have performed and provided to our clients. In some instances, the amount of these indemnities may be greater than the revenue we receive from the client. In addition, as a result of intellectual property litigation, we may be required to stop selling, incorporating or using products that use or incorporate the infringed intellectual property. We may be required to obtain a license or pay a royalty to make, sell or use the relevant technology from the owner of the infringed intellectual property. Such licenses or royalties may not be available on commercially reasonable terms, or at all. We may also be required to redesign our services or change our methodologies so as not to use the infringed intellectual property, which may not be technically or commercially feasible and may cause us to expend significant resources. Subject to certain limitations, under our indemnification obligations to our clients, we may also have to provide refunds to our clients to the extent that we must require them to cease using an infringing deliverable if we are unable to provide a work-around or acquire a license to permit use of the infringing deliverable that we had provided to them as part of a service engagement. If we are obligated to make any such refunds or dedicate time to provide alternatives or acquire a license to the infringing intellectual property, our business and financial condition could be materially adversely affected.

New and changing corporate governance and public disclosure requirements add uncertainty to our compliance policies and increase our costs of, and time dedicated to, compliance.

        Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, other SEC regulations, and the Nasdaq Global Select Market rules, are creating uncertainty for companies like ours. These laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time, as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such corporate governance standards.

        In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal control over financial reporting and our external auditors' audit of that assessment requires the commitment of significant financial and managerial

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resources. We consistently assess the adequacy of our internal control over financial reporting, remediate any control deficiencies that may be identified, and validate through testing that our control is functioning as documented. While we do not anticipate any material weaknesses, the inability of management and our independent registered public accountant to provide us with an unqualified report as to the adequacy and effectiveness, respectively, of our internal controls over financial reporting, including operations of any acquired businesses in the applicable reporting period, for future year ends could result in adverse consequences to us, including, but not limited to, a loss of investor confidence in the reliability of our financial statements, which could cause the market price of our stock to decline.

        Our management team and other personnel will need to devote a substantial amount of time to these compliance initiatives. In particular, these obligations will require substantial attention from our senior management and divert its attention away from the day-to-day management of our business, which could materially and adversely affect our business operations.

        We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In addition, the laws, regulations and standards regarding corporate governance may make it more difficult for us to obtain director and officer liability insurance. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with their performance of duties. As a result, we may face difficulties attracting and retaining qualified board members and executive officers, which could harm our business. If we fail to comply with new or changed laws, regulations or standards of corporate governance, our business and reputation may be harmed.

Our share price could be adversely affected if we are unable to maintain effective internal controls.

        The accuracy of our financial reporting is dependent on the effectiveness of our internal controls. We are required to provide a report from management to our stockholders on our internal control over financial reporting that includes an assessment of the effectiveness of these controls. Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. Because of these inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud. If we cannot maintain and execute adequate internal control over financial reporting or implement required new or improved controls to ensure the reliability of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, fail to meet our public reporting requirements on a timely basis, or be unable to properly report on our business and the results of our operations, and the market price of our securities could be materially adversely affected.

Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violation of these regulations could harm our business.

        We are subject to numerous, and sometimes conflicting, legal regimes on matters as diverse as anti-corruption, import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, immigration, internal and disclosure control obligations, securities regulation, anti-competition, data privacy and protection, employment and labor relations. Some of these legal regimes are in emerging markets where legal systems may be less developed or familiar to us. Compliance with diverse legal requirements is costly, time-consuming and requires significant resources. Violations of one or more of these regulations in the conduct of our business could result in significant fines, criminal sanctions against us or our officers, prohibitions on doing business and damage to our reputation. Violations of these regulations in connection with the performance of our obligations to our clients also could result in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage, restrictions on our ability to process information and allegations by our clients that

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we have not performed our contractual obligations. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws may not be well developed or provide sufficiently clear guidance and may be insufficient to protect our rights.

        In particular, in many parts of the world, including countries in which we operate and/or seek to expand, it is possible that our employees, subcontractors or agents in the local business community might not conform to international business standards and could violate anti-corruption laws, or regulations, including the UK Bribery Act of 2010 and the U.S. Foreign Corrupt Practices Act ("FCPA") which prohibit improper payments or offers of improper payments to foreign officials to obtain business or any other benefit. The FCPA also requires covered companies to make and keep books and records that accurately and fairly reflect the transactions of the company and to devise and maintain an adequate system of internal accounting controls. Although we have policies and procedures in place that are designed to promote legal and regulatory compliance, our employees, subcontractors and agents could take actions that violate these policies or procedures or applicable anti-corruption laws, regulations or standards. Violations of these laws or regulations by us, our employees or any of these third parties could subject us to criminal or civil enforcement actions (whether or not we participated or knew about the actions leading to the violations), including fines or penalties, disgorgement of profits and suspension or disqualification from work, any of which could materially adversely affect our business, including our results of operations and our reputation.

The loss of key members of our senior management team may prevent us from executing our business strategy.

        Our future success depends to a significant extent on the continued service and performance of key members of our senior management team. Our growth and success depends to a significant extent on our ability to retain Kris Canekeratne, our chief executive officer, who is a founder of our company and has led

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the growth, operation, culture and strategic direction of our business since its inception. The loss of his services or the services of other key members of our senior management could seriously harm our ability to execute our business strategy. Although we have entered into agreements with our executive officers providing for severance and change in control benefits to them, each of our executive officers or other key employees could terminate employment with us at any time. We also may have to incur significant costs in identifying, hiring, training and retaining replacements for key employees. The loss of any member of our senior management team might significantly delay or prevent the achievement of our business or development objectives and could materially harm our business. We do not maintain key man life insurance on any of our team members.

Risks related to our Indian and Sri Lankan operations

Political instability or changes in the central or state governments in India could result in the change of several policies relating to foreign direct investment and repatriation of capital and dividends. Further, changes in the monetary and economic policies could adversely affect economic conditions in India generally and our business in particular.

        We have subsidiaries in India and a significant portion of our business, fixed assets and human resources are located in India. As a result, our business is affected by foreign exchange rates and controls, interest rates, local regulations, changes in government policy, taxation, social and civil unrest and other political, economic or other developments in or affecting India. Since 1991, successive Indian governments have pursued policies of economic liberalization. In the past, the Indian economy has experienced many of the problems that commonly confront the economies of developing countries, including high inflation, erratic gross domestic product growth and shortages of foreign exchange. The Indian government has exercised, and continues to exercise, significant influence over many aspects of the Indian economy and Indian government actions concerning the economy could have a material adverse effect on private sector entities like us. In the past, the Indian government has provided significant tax incentives and relaxed certain regulatory restrictions in order to encourage foreign investment in specified sectors of the

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economy, including the software development services industry. Programs that have benefited us include, among others, tax holidays, liberalized import and export duties and preferential rules on foreign investment and repatriation. Notwithstanding these benefits, as noted above, India's central and state governments remain significantly involved in the Indian economy as regulators. In recent years, the Indian government has introduced non-income related taxes, including the fringe benefit tax (which was repealed as of April 1, 2009) and new service taxes, and income-related taxes, including the Minimum Alternative Tax. In addition, a change in government leadership in India or change in policies of the existing government in India that results in the elimination of any of the benefits realized by us from our Indian operations or the imposition of new taxes applicable to such operations could have a material adverse effect on our business, results of operations and financial condition. For instance, certain changes to the application of the Minimum Alternative Tax with respect to Special Economic Zone ("SEZ") units may negatively impact our cash flows and other benefits enjoyed by us which could have a material adverse effect on our business, results of operations and financial condition.

Changes in the policies or political stability of the government of Sri Lanka could adversely affect economic conditions in Sri Lanka, which could adversely affect our business.

        Our subsidiary in Sri Lanka has been approved as an export computer software developer by the Board of Investment ("BOI") in Sri Lanka, which is a statutory body organized to facilitate foreign investment into Sri Lanka and grant concessions and benefits to entities with which it has entered into agreements. Pursuant to our current agreement with the BOI, our Sri Lankan subsidiary is entitled to an exemption from income taxation on export revenue for a period of 12 years expiring on March 31, 2019 provided that certain job creation and retention requirements were met by March 31, 2015.2016. We believe we have achieved the job criteria and have notified the BOI. The BOI on review could challenge our hiring

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commitments in which case we would have to forego part of the 12 year tax holiday. Further, government policies relating to taxation other than on income would also have an impact on the subsidiary, and the political, economic or social factors in Sri Lanka may affect these policies. Historically, past incumbent governments have followed policies of economic liberalization. However, we cannot assure you that the current government or future governments will continue these liberal policies.

Regional conflicts or terrorist attacks and other acts of violence or war in the United States, the United Kingdom, India and Sri Lanka, or other regions could adversely affect financial markets, resulting in loss of client confidence and our ability to serve our clients which, in turn, could adversely affect our business, results of operations and financial condition.

        The Asian region has from time to time experienced instances of civil unrest and hostilities among neighboring countries, including between India and Pakistan. Since May 1999, military confrontations between India and Pakistan have occurred in Kashmir. Also, there have been military hostilities and civil unrest in Iraq and Afghanistan. Terrorist attacks, such as the ones that occurred in Brussels in March 2016, Paris in November 2015, Boston on April 15, 2013, New York and Washington, D.C., on September 11, 2001, New Delhi on December 13, 2001, Bali on October 12, 2002, London on July 7, 2005, and Mumbai on November 26, 2008, civil or political unrest and military hostilities in Sri Lanka and other acts of violence or war, including those involving India, Sri Lanka, the United States, the United Kingdom or other countries, may adversely affect U.S., U.K. and worldwide financial markets. Prospective clients may wish to visit several of our facilities, including our global delivery centers in India or Sri Lanka, prior to reaching a decision on vendor selection. Terrorist threats, attacks and international conflicts could make travel more difficult and cause potential clients to delay, postpone or cancel decisions to use our services. In addition, such attacks may have an adverse impact on our ability to operate effectively and interrupt lines of communication and restrict our offshore resources from traveling onsite to client locations, effectively curtailing our ability to deliver our services to our clients. These obstacles may increase our expenses and negatively affect our operating results. In addition, military activity, terrorist attacks, political tensions between India and Pakistan and, historically, conflicts within Sri Lanka, despite the current cessation of hostilities, could create a greater perception that

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the acquisition of services from companies with significant Indian or Sri Lankan operations involves a higher degree of risk that could adversely affect client confidence in India or Sri Lanka as a software development center, each of which would have a material adverse effect on our business.

Our net income may decrease if the governments of the United States, the United Kingdom, the Netherlands, India, Sri Lanka, Germany, Singapore, Sweden or Hungary adjust the amount of our taxable income by challenging our transfer pricing policies.

        Our subsidiaries conduct intercompany transactions among themselves and with the U.S. parent company on an arm's-length basis in accordance with U.S. and local country transfer pricing regulations. The jurisdictions in which we operate could challenge our determination of arm's-length profit and issue tax assessments. Although the United States has income tax treaties with most countries in which we have operations, which should alleviate the risk of double taxation, the costs to appeal any such tax assessment and potential interest and penalties could decrease our earnings and cash flows.

        The Indian taxing authorities issued assessment orders for the fiscal years ended March 31, 2004 to March 31, 20102011 of our Indian subsidiary, Virtusa (India) Private Limited, now merged with and into our affiliate, Virtusa Consulting Services Private Limited and Virtusa Software Services Private Limited (referred to as "Virtusa India"). At issue in these assessments were several matters, the most significant of which was the redetermination of the arm's-length profit related to intercompany transactions. For fiscal year ended March 31, 2004 and 2005, we contested both assessments and also filed appeals with Indian tax authorities and U.S. Competent Authorities. Although we have settled certain tax obligations for the fiscal years ended March 31, 2004 and 2005, we have appealed certain other tax related matters effectingaffecting our

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fiscal year ended March 31, 2004 and 2005 with the Indian tax authorities. During the fiscal year ended March 31, 2005, we have appealed the redetermination of arm length pricing for transactions with our U.K. subsidiary. Although we have successfully resolved some issues we continue to appeal several other fiscal years' assessments with the Indian tax authorities. If we do not prevail in our appeals, we may incur an additional legal liability and obligations to pay additional interest, penalties and costs related to such matters.

Our net income may decrease if the governments of India or Sri Lanka levy new taxes or reduce or withdraw tax benefits and other incentives provided to us.

        Virtusa India is an export-oriented company under the Indian Income Tax Act of 1961 and is entitled to claim tax exemption for each Software Technology Park ("STP"), which it operates. Virtusa India historically has operated STPs in Hyderabad and in Chennai. The income tax benefits of the STP in Hyderabad and Chennai expired on March 31, 2010 and 2011, respectively. Historically, however, substantially all of the earnings of both STPs qualified as tax- exempt export profits. Although we believe we have complied with and were eligible for the STP holidays, the government of India may deem us ineligible for the STP holiday or make adjustments to the profit level in previous tax years, subject to the applicable statute of limitations, which could result in additional legal liability, including obligations to pay additional taxes, penalties, interest and other costs arising out of such matter. For instance, the Indian taxing authorities issued an assessment order for the fiscal years ended March 31, 2007 against Virtusa India related to the denial of all STP benefits for our Chennai STP on the basis that the STP was formed by the splitting up or the reconstruction of our Hyderabad STP. This matter is currently pending before the High Court of Hyderabad. We have filed appeals with the appropriate Indian tax authorities to appeal other years. We may incur additional legal liability and obligations to pay additional interest, penalties and costs related to such matter. We have appealed such assessments but we can make no assurance that our appeals will be successful.

        We have located most of our Indian operations in areas designated as a SEZ, under the SEZ Act of 2005. In particular, we are continuing our build out of a facility on a 6.3 acre parcel of land in Hyderabad, India that has been designated as a SEZ. In addition, we have leased space and operate in SEZ designated locations in Bangalore, Pune and Chennai, India. Although our profits from the SEZ operations would be

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eligible for certain income tax exemptions for a period up to 15 years, we may not be able to take full advantage of the tax holidays in each SEZ if we are not able to grow our operations, including the hiring of IT professionals into the SEZ facilities, and there is no guarantee that we will secure SEZ status for any other future locations in India. Additionally, the government of India may deem us ineligible for a SEZ holiday or make adjustments to the transfer pricing profit levels resulting in an overall increase in our effective tax rate.

        In addition, our Sri Lankan subsidiary, Virtusa Private Ltd. ("Virtusa SL"), was approved as an export computer software developer by the BOI in 1998 and has been granted a tax holiday. Virtusa SL has negotiated various extensions and new arrangements of the original holiday period in exchange for further capital investments in Sri Lanka facilities. The most recent 12-year tax holiday agreement, which is set to expire on March 31, 2019, requires that we meet certain new job creation, retention and investment criteria. As of March 31, 2015,2016, we believe we have met the job creation target. We have submitted the required details to BOI and are awaiting their confirmation. At March 31, 2015,2016, we were eligible for the entire 12-year tax holiday. Further, the Sri Lankan Department of Inland Revenue has challenged the eligibility of the initial year of our granted tax holiday. This challenge was affirmed by the Tax Appeals Commission based on their judgment that we did not meet the required investment commitments. However, during the fiscal year ended March 31, 2014,2015, we received notice from the BOI certifying the tax holiday for all previously claimed years, including the initial year under challenge. If any such tax assessment were ruled against us, such a ruling may materially harm our business, operating results, and financial results and materially reduce our profitability.

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Wage pressures and increases in government mandated benefits in India and Sri Lanka may reduce our profit margins.

        Wage costs in India and Sri Lanka have historically been significantly lower than wage costs in the United States and Europe for comparably-skilled professionals. However, wages in India and Sri Lanka are increasing, which will result in increased costs for IT professionals, particularly project managers and other mid-level professionals. We may need to increase the levels of our team member compensation more rapidly than in the past to remain competitive without the ability to make corresponding increases to our billing rates. Compensation increases may reduce our profit margins, make us less competitive in pricing potential projects against those companies with lower cost resources and otherwise harm our business, operating results and financial condition.

        In addition, we contribute to benefit funds covering our employees in India and Sri Lanka as mandated by the Indian and Sri Lankan governments. Benefits are based on the team members' years of service and compensation. If the governments of India and/or Sri Lanka were to legislate increases to the benefits required under these plans or mandate additional benefits, our profitability and cash flows would be reduced.

Our facilities are at risk of damage by earthquakes, tsunamis, flooding and other natural disasters.

        In December 2004, Sri Lanka and India were struck by multiple tsunamis that devastated certain areas of both countries. Our Indian and Sri Lankan facilities are also located in regions that are susceptible to tsunamistsunamis. Flooding and other natural disasters which may increase the risk of disruption of information systems and telephone service for sustained periods. For instance, in December, 2015 Chennai, India suffered one of the worst flooding and rains in the history of Chennai which shut down our facilities, had a negative impact on our operations and client engagements and triggered our business continuity plans where we tried to mitigate the impact to our clients, employees and our business. Damage or destruction that interrupts our ability to deliver our services could damage our relationships with our clients and may cause us to incur substantial additional expense to repair or replace damaged equipment or facilities. Our insurance coverage may not be sufficient to cover all such expenses. Furthermore, we may be unable to secure such insurance coverage or to secure such insurance coverage at premiums acceptable to us in the future. Prolonged disruption of our services as a result of natural disasters may cause our clients to terminate their contracts with us and may result in project delays, project cancellations and loss of substantial revenue to us. Prolonged disruptions

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may also harm our team members or cause them to relocate, which could have a material adverse effect on our business.

The laws of India and Sri Lanka do not protect intellectual property rights to the same extent as those of the United States and we may be unsuccessful in protecting our intellectual property rights. Unauthorized use of our intellectual property rights may result in loss of clients and increased competition.

        Our success depends, in part, upon our ability to protect our proprietary methodologies, trade secrets and other intellectual property. We rely upon a combination of trade secrets, confidentiality policies, non-disclosure agreements, other contractual arrangements and copyright, patent, and trademark laws to protect our intellectual property rights. However, existing laws of India and Sri Lanka do not provide protection of intellectual property rights to the same extent as provided in the United States. The steps we take to protect our intellectual property may not be adequate to prevent or deter infringement or other unauthorized use of our intellectual property. Thus, we may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights. Our competitors may be able to imitate or duplicate our services or methodologies. The unauthorized use or duplication of our intellectual property could disrupt our ongoing business, distract our management and team members, reduce our revenue and increase our costs and expenses. We may need to litigate to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Any such litigation could be extremely time-consuming and costly and could materially adversely impact our business.

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Risks related to our common stock

The market price of our common stock may fluctuate significantly.

        The market price of our common stock has at times experienced substantial price volatility as a result of variations between our actual and anticipated financial results, announcements by us and our competitors, projections or speculation about our business or that of our competitors by the media or investment analysts or uncertainty about current global economic conditions. The stock market, as a whole, also has experienced extreme price and volume fluctuations that have affected the market price of the common stock of many technology companies in ways that may have been unrelated to such companies' operating performance. Furthermore, we believe the market price of our common stock should reflect future growth and profitability expectations. If we fail to meet these expectations, the market price of our common stock may significantly decline.

        In addition, there are many other factors that may cause the market price of our common stock to fluctuate, including:

•

actual or anticipated variations in our quarterly operating results, including fluctuations resulting from changes in foreign exchange rates or acquisitions by us, or the quarterly financial results of companies perceived to be similar to us



•

deterioration and decline in general economic, industry and/or market conditions



•

announcements of technological innovations or new services by us or our competitors



•

changes in estimates of our financial results or recommendations by market analysts



•

announcements by us or our competitors of significant projects, contracts, acquisitions, strategic alliances or joint ventures



•

changes in our capital structure, such as future issuances of securities or the incurrence of additional debt



•

regulatory developments in the United States, the United Kingdom, India, Sri Lanka or other countries in which we operate or have clients

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•

litigation involving our company, our general industry or both



•

additions or departures of key team members



•

investors' general perception of us



•

changes in the market valuations of other IT service providers

        If any of the foregoing occurs or continues to occur, it could cause our stock price to fall and may expose us to securities class action litigation. Any securities class action litigation could result in substantial costs and the diversion of management's attention and resources. Many of these factors are beyond our control.

Provisions in our charter documents and under Delaware law may prevent or delay a change of control of us and could also limit the market price of our common stock.

        Certain provisions of Delaware law and of our certificate of incorporation and by-laws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us, even if such a change in control would be beneficial to our stockholders or result in a premium for your shares of our common stock. These provisions may also

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prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:

•

a classified board of directors



•

limitations on the removal of directors



•

advance notice requirements for stockholder proposals and nominations



•

the inability of stockholders to act by written consent or to call special meetings



•

the ability of our board of directors to make, alter or repeal our by-laws

        The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote is necessary to amend or repeal the above provisions that are contained in our certificate of incorporation. In addition, our board of directors has the ability to designate the terms of and issue new series of preferred stock without stockholder approval. Also, absent approval of our board of directors, our by-laws may only be amended or repealed by the affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote.

        In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which limits business combination transactions with stockholders of 15% or more of our outstanding voting stock that our board of directors has not approved. These provisions and other similar provisions make it more difficult for stockholders or potential acquirers to acquire us without negotiation. These provisions may apply even if some stockholders may consider the transaction beneficial to them.

        These provisions could limit the price that investors are willing to pay in the future for shares of our common stock. These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a premium over the then current market price for our common stock.

Item 1B.    Unresolved Staff Comments.

        None.

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Item 2.    Properties.

        Our principal executive offices are located in Westborough, Massachusetts where we lease approximately 22,147 square feet for a term expiring February 28, 2018.

        We both own and lease facilities to support our operations, At March 31, 2015,2016, including Polaris, we leased 501,541775,524 square feet and owned 325,000922,150 square feet in four countries to deliver services globally to our clients, as set forth in the table below:

        In March 2008, we entered into a 99-year lease, as amended in August 2008, with an option for an additional 99 years for approximately 6.3 acres of land in Hyderabad, India, where we have built a campus of approximately 325,000 square feet, and in relation with the Polaris acquisition we own 597,150 square feet in India which is also listed in the above table under "Square Footage Owned".

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        We have sales and business development offices located in New York, Chicago the United Kingdom, Germany, Austria, Japan United Arab Emirates, Switzerland, Hong Kong, the Netherlands, Australia and Sweden.New Zealand. We also have a sales and delivery officeoffices in Sweden, New Jersey, Indianapolis, Tampa, Canada, Hungary Malaysia and Windsor, Connecticut. These leases vary in duration and have expiration dates ranging from one year to fiveeight years.

        We believe that our existing and planned facilities are adequate to support our existing operations and that, as needed, we will be able to obtain suitable additional facilities on commercially reasonable terms.

Item 3.    Legal Proceedings.

        We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of our management, the outcome of such claims and legal actions, if decided adversely, is not currently expected to have a material adverse effect on our operating results, cash flows or consolidated financial position.

Item 4.    Mine Safety Disclosures.

        Not applicable.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        Our common stock trades on the Nasdaq Global Select Market under the symbol "VRTU". The following table sets forth, for the periods indicated, the high and low sale prices for our common stock during our fiscal years ended March 31, 20152016 and March 31, 2014,2015, respectively, as reported on the Nasdaq Global Select Market.

        As of May 15, 2015,24, 2016, there were approximately 29,647,86529,924,895 shares of our common stock outstanding held by approximately 156143 stockholders of record and the last reported sale price of our common stock on the Nasdaq Global Select Market on May 15, 201524, 2016 was $45.65$33.69 per share.

Dividend Policy

        We have never declared or paid any cash dividends on our capital stock. We currently expect to retain future earnings, if any, to finance the growth and development of our business and we do not anticipate paying any cash dividends in the foreseeable future. We intend to permanently reinvest our foreign earnings. Our line of credit with a bank could restrict our ability to declare or make any dividends or similar distributions.

Equity Compensation Plan Information

        The following table provides information as of March 31, 2015 with respect to the shares of our common stock that may be issued under our existing equity compensation plans. We have three equity compensation plans, each of which has been approved by our stockholders: (1) the Amended and Restated 2000 Stock Option Plan, which we refer to as the 2000 Plan; (2) the 2005 Stock Appreciation Rights Plan, which we refer to as the SAR Plan; and (3) the 2007 Stock Option and Incentive Plan, which we refer to as the 2007 Plan. For additional information on our equity compensation plans, including the material

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features of plans not approved by our stockholders, please see note 11 to the consolidated financial statements included elsewhere in this Annual Report.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

        None.

Issuer Purchases of Equity Securities

        Under the terms of our 2007 Stock Option and Incentive Plan ("2007 Plan") and 2015 Stock Option and Incentive Plan ("2015 Plan"), we have issued shares of restricted stock to our employees. On the date that these restricted shares vest, we automatically withhold, via a net exercise provision pursuant to our applicable restricted stock agreements and the 2007 Plan and 2015 Plan, as the case may be, the number of vested shares (based on the closing price of our common stock on such vesting date) equal to tax liability owed by such grantee. The shares withheld from the grantees under the 2007 Plan or the 2015 Plan, as the case may be, to settle their tax liability are reallocated to the number of shares available for issuance under the 20072015 Plan. For the three month period ended March 31, 2015,2016, we withheld an aggregate of 14,69540,555 shares of restricted stock at a price of $40.57$35.94 per share.

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Item 6.    Selected Financial Data.

        The selected historical financial data set forth below at March 31, 20152016 and 20142015 and for the fiscal years ended March 31, 2016, 2015 2014 and 20132014 are derived from our consolidated financial statements which are included elsewhere in this Annual Report on Form 10-K. The selected historical financial data at March 31, 2014, 2013 2012 and 20112012 and for the fiscal years ended March 31, 20122013 and 20112012 are derived from our consolidated financial statements which are not included elsewhere in this Annual Report. The following selected consolidated financial data should be read in conjunction with our consolidated financial statements, the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report. The historical results are not necessarily indicative of the results to be expected for any future period.

Consolidated statements of income data

Consolidated balance sheets data

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The following discussion and analysis of our financial condition and results of our operations should be read together with our consolidated financial statements and related notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements.

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Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" and elsewhere in this Annual Report.

Business overview

        We areVirtusa Corporation (the "Company", "Virtusa", "we", "us" or "our") is a global information technology services company. We useprovider. Using an offshore delivery model to provide a broad range of IT services, including IT consulting, technology implementation and application outsourcing. Using our enhanced global delivery model, innovative platformingwe provide end-to-end information technology ("IT") services to Global 2000 companies. These services include IT and business consulting, digital enablement services, user experience ("UX") design, development of IT applications, maintenance and support services, systems integration, infrastructure and managed services. Our services leverage our distinctive consulting approach and unique platforming methodology to transform our clients' businesses through the innovative use of technology and domain knowledge to solve critical business problems. Our services enable our clients to accelerate business outcomes by consolidating, rationalizing and modernizing our clients' core customer-facing processes into one or more core systems. We deliver cost-effective solutions through a global delivery model, applying advanced methods such as Agile, an industry expertise,standard technique designed to accelerate application development. We also use our consulting methodology, which we provide cost-effective servicesrefer to as Accelerated Solution Design ("ASD"), which is a collaborative decision-making and design process performed with the client, to ensure our solutions meet the client's specifications and requirements. We have built targeted solutions that enable our clients to usereduce their IT operations cost, while simultaneously increasing their ability to enhanceaccelerate business performance, accelerate time-to-market, increase productivitygrowth in existing and new market segments. We further differentiate ourselves by enabling our clients to expand their addressable market through our millennial offerings and to improve customer service.the efficiencies of operating their business through our industry leading transformational solutions.

        Headquartered in Massachusetts, we have offices in the United States, Canada, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, GermanyAustria, the United Arab Emirates, Hong Kong, Japan, Australia and Austria, andNew Zealand, with global delivery centers in India, Sri Lanka, Hungary, Singapore and Malaysia, as well as a near shore centerdelivery centers in the United States.

        On March 3, 2016, pursuant to a share purchase agreement dated as of November 5, 2015, by and among Virtusa Consulting Services Private Limited ("Virtusa India"), a subsidiary of the Company, Polaris Consulting & Services Limited ("Polaris") and the promoter sellers named therein, as amended on February 25, 2016 (the "SPA"), the Company completed the purchase of 53,133,127 shares, or approximately 51.7% of the fully-diluted capitalization of Polaris from certain Polaris shareholders for approximately $168.3 million in cash (the "Polaris SPA Transaction"). The primary strategic purpose and goal of Virtusa's acquisition of Polaris was, and is, as follows:

•

The combination of Virtusa and Polaris creates a unique, fully integrated provider of comprehensive solutions and services across the banking and financial services industry,



•

The combination meaningfully expands our addressable market, and



•

The transaction enhances our ability to pursue larger consulting and outsourcing contracts.

        In addition, on April 6, 2016, as part of the Polaris acquisition, Virtusa India completed an unconditional mandatory open offer (the "Mandatory Tender Offer") with successful tender to purchase an additional 26% of the fully diluted outstanding shares of Polaris from Polaris' public shareholders. The Mandatory Tender Offer was conducted in accordance with requirements of the Securities and Exchange

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Board of India ("SEBI") and the applicable Indian rules on takeovers. Virtusa India purchased 26,719,942 shares of Polaris common stock for approximately $3.25 per share for an aggregate purchase price of approximately $88.8 million (Indian rupees 5,914 million). Upon the closing of the Mandatory Tender Offer, Virtusa India's ownership interest in Polaris increased from approximately 51.7% to 77.7% of Polaris' fully diluted shares outstanding, and from approximately 52.9% to 78.8% of Polaris' basic shares outstanding. Under applicable Indian rules on takeovers, Virtusa India is required to sell within one year of the settlement of the Mandatory Tender Offer its shareholdings in Polaris in excess of 75% of the basic outstanding share capital of Polaris.

        In connection with, and as part of the Polaris acquisition, on November 5, 2015, the Company entered into an amendment with Citigroup Technology, Inc. ("Citi") and Polaris, which became effective upon the closing of the Polaris SPA Transaction, pursuant to which, (i) Citi agreed to appoint the Company and Polaris as a preferred vendor for Global Technology Resource Strategy ("GTRS") for the provision of IT services to Citi on an enterprise wide basis ("GTRS Preferred Vendor"), (ii) the Company agreed to certain productivity savings and associated reduced spend commitments for a period of two years, which, if not achieved, would require the Company to provide certain minimum discounts to Citi, (iii) the parties amended Polaris' master services agreement with Citi such that the Company would also be deemed a contracting party and the Company would assume, and agree to perform, or cause Polaris to perform, all applicable obligations under the master services agreement, as amended by the amendment (the "Citi/Virtusa MSA"), and (iv) Virtusa agreed to terminate Virtusa's existing master services agreement with Citi, and have the Citi/Virtusa MSA be the sole surviving agreement.

        At March 31, 2015,2016, we had 9,24718,226 employees, or team members, an increase from 8,0549,247 at March 31, 2014.2015. For the fiscal year ended March 31, 2015,2016, we had revenue of $479.0$600.3 million and income from operations of $52.6$45.3 million. In our fiscal year ended March 31, 2015,2016, our revenue increased by $82.1$121.3 million, or 20.7%25.3%, to $479.0$600.3 million, as compared to $396.9$479.0 million in our fiscal year ended March 31, 2014.2015. Our net income increased from $34.4 million in our fiscal year ended March 31, 2014 to $42.4 million in our fiscal year ended March 31, 2015.2015 to $44.8 million in our fiscal year ended March 31, 2016.

        The key drivers of the increase in revenue in our fiscal year ended March 31, 2015,2016, as compared to our fiscal year ended March 31, 2014,2015, were as follows:

•

Broad based revenue growth, amongparticularly from our clients existing at March 31, 2014, particularly our non- topnon-top ten clients collectively



•

Broad based revenue growth withinacross our industry groups lead by our financial services and communication and technology ("C&T") and banking financial services and insurance ("BFSI") industry groups



•

Broad based growth in all geographies



•

Revenue generated from clients acquired by us in the acquisitionacquisitions of OSB Consulting LLCApparatus Inc. ("OSB"Apparatus") on NovemberApril 1, 2013 and TradeTech Consulting Scandinavia AB and its subsidiaries2015, the Agora Group Inc. ("TradeTech"Agora") on January 2, 2014July 28, 2015 and Polaris on March 3, 2016

        The key drivers of our increase in net income in our fiscal year ended March 31, 2015,2016, as compared to our fiscal year ended March 31, 2014,2015, were as follows:

•

HigherBroad based revenue contributiongrowth from existing clients, as well as revenue from the Apparatus, Agora and Polaris acquisitions



•

Increase in gross profit, which also reflects lower delivery costs due to the depreciation of the Indian rupee, partially offset by higher operating costs, including an increased investment in our sales and business development organization and facilities to support our growth, and acquisitionacquisition-related expenses, including amortization and Polaris transaction costs



•

Further offset by increased income tax expenseForeign currency transaction gains related to higher taxable profitsthe revaluation of the $200 million Indian rupee denominated intercompany note as part of the Polaris transaction financing

        High repeat business and client concentration are common in our industry. During the fiscal year ended March 31, 2015, 87%2016, 85% of our revenue was derived from clients who had been using our services for

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more than one year. Accordingly, our global account management and service delivery teams focus on expanding client relationships and converting new engagements to long-term relationships to generate repeat revenue and expand revenue streams from existing clients. We also have a dedicated business development team focused on generating engagements with new clients to continue to expand our client base and, over time, reduce client concentration.

        For the fiscal years ended March 31, 2016, 2015 2014 and 2013,2014, we generated 55%54%, 56%55%, and 58%56%, respectively, of revenue from application outsourcing and 45%46%, 44%45% and 42%44%, respectively, of revenue

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from consulting services. We perform our services under both time-and-materials and fixed-price contracts. Revenue from fixed-price contracts was 37%39%, 28%37%, and 18%28% of total revenue for the fiscal years ended March 31, 2016, 2015 2014 and 2013,2014, respectively. The revenue earned from fixed-price contracts reflects our clients' preferences during the fiscal years ended March 31, 2015, 2014 and 2013.preferences.

        At March 31, 2015,2016, we had cash and cash equivalents, short-term and long-term investments of $235.9$231.7 million as compared to $200.7$235.9 million at March 31, 2014.2015. The increasedecrease related primarily to funding of acquisitions, partially offset by our growth in income from operations.operations, as well as an increase in cash and investments acquired from Polaris.

        From time to time, we have also supplemented organic revenue growth with acquisitions. These acquisitions have focused on adding domain expertise, expanding our professional services teams and expanding our client base. For instance, for the fiscal year ended March 31, 2016 we acquiredcompleted the business and assetsacquisition of OSB Consulting LLC, a New Jersey limited liability company ("OSB") on November 1, 2013 to extend our service offerings to include a broader set of finance transformation services in the financial services and insurance domains, to existing and new clients. Additionally, on January 2, 2014, we acquired all of the outstanding stock of TradeTech Consulting Scandinavia AB and its subsidiaries ("TradeTech") to expand our position within the banking, financial services and insurance industries by increasing our asset management and treasury services domain and technology expertise, as well as expanding our global presence into the Nordics. To strengthen(i) Apparatus, which expands our infrastructure management services ("IMS") practice and solutionservice offerings, (ii) Agora, which expands our business process management service offerings and enable us to deliver network operating center ("NOC") support through nearshore facilities,(iii) Polaris, which expands our banking and financial services offerings and domain expertise as well as IMS services globally, on April 1, 2015, we acquired all of the outstanding shares of Apparatus, Inc., a leading provider of end-to-end IT IMS headquartered in Indianapolis, Indiana ("Apparatus").described above. We expect that for our long-term growth, from time to time, we will continue to seek evolving market opportunities through a combination of organic growth and acquisitions.

        For the fiscal year ending March 31, 2016,2017, we expect the following factors, among others, to affect our business and our operating results:

•

Demand from our clients particularly for millennial and transformational solutions and outsourcing services



•

Ability to integrate Polaris and realize intended benefits, including revenue and other synergies



•

Foreign currency volatility



•

Impact of an increased effective income tax rate as a result of a higher tax rate in India andour geographical mix of our profits

        For the fiscal year ending March 31, 2016,2017, we plan to:

•

Pursue synergistic revenue opportunities as a result of the Polaris acquisition which expands our addressable market and broadens our end-to-end capabilities in BFS



•

Invest in millennial and domain-led transformational solutions within core verticals like banking, healthcare, insurance and telecommunications



•

Continue our focus on client acquisition and expansion of revenue gained from existing clients, particularly our non- topnon-top ten clients



•

Leverage our expertise in customer experience management, business process management, user interface ("UI")/user experience ("UX") and SAP



•

Deepen our domain expertise in our service offerings related to enterprise mobile applications, social media, gamification, big data analytics, robotics process automation, and cloud computing



•

Broaden our business and IT consulting and solutions capabilities related to our service offerings



•

Continue to invest in our talent base, including new onsite campus recruitment programs

IT professionals in a given period, excluding trainees. We track our utilization rates to measure




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revenue potential and gross profit margins. Management's target for the utilization rate is in the low 80% range. Our utilization rates were 81%82%, 83%81% and 78%83% for the fiscal years ended March 31, 2016, 2015 2014 and 20132014 respectively. The utilization rate is affected by the rate of quarterly sequential revenue growth, as well as ability to staff existing IT professionals on billable engagements. In growth periods, utilization tends to rise as more resources are deployed to meet rising demand. Utilization rates above the targeted range may also indicate that there are insufficient IT professionals to staff existing or future engagements, which may result in loss of revenue or inability to service client engagements.

•

Attrition rate is the ratio of terminated team members during the latest twelve months to the total number of team members at the end of such period, which measures team member turnover. Increased voluntary attrition rates result in increased hiring, training and on-boarding costs and productivity losses, which may adversely affect our revenue, gross margin and operating profit margin. Our attrition rate for the fiscal year ended March 31, 2016 was 16.7%, of which voluntary attrition rate was 13.3%, while our involuntary attrition rate was 3.4%. Our attrition rate for the fiscal year ended March 31, 2015 was 18.4%, of which voluntary attrition rate was 14.7%, while our involuntary attrition rate was 3.7%, for the fiscal year ended March 31, 2015. Our voluntary attrition rate was 14.8% for the fiscal year ended March 31, 2014, while our involuntary attrition rate was 4.7% for the same fiscal year..



•

Operating expense efficiency is a measure of operating expenses as a percentage of revenue. If we continue to successfully grow our revenue, we anticipate that operating expenses will decrease as a percentage of revenue as such expenses are absorbed across a larger revenue base. In the near term, however, any operating expense efficiency may decline if our revenue declines.



•

Effective tax rate is our worldwide tax expense as a percentage of our consolidated net income before tax, which measures the impact of income taxes worldwide on our operations and net income. We monitor and assess our effective tax rate to evaluate whether our tax structure is competitive as compared to our industry. Our effective tax rate was 26.1%21.9% and 25.1%26.1% for the fiscal years ended March 31, 20152016 and 2014,2015, respectively. Our effective tax rate was impacted by thedecreased primarily due to certain currency gains subject to a lower tax rate, geographical mix of incomeprofits and increased holiday benefits, partially offset by jurisdiction,non-deductible transaction costs related to the Polaris transaction, as well as the non-deductible stock-based compensation and increases of uncertain tax positions identified during the fiscal year ended March 31, 2015.2016. Increases in our effective tax rate or a high effective tax rate will also have a negative effect on our earnings in future periods.



•

Onsite-to-offshore mix is the measurement of hours billed by resources located offshore to hours billed by our team members onsite over a defined period. We strive to manage both fixed-price contracts and time-and-materials engagements to a targeted 25% to 75% onsite-to-offshoreonsite- to-offshore service delivery team mix, although such delivery mix may be impacted by several factors including our new and existing client delivery requirements as well as the impact of any acquisitions.

Sources of revenue

        We generate revenue by providing IT services to our clients located primarily in North America and Europe. We have historically earned, and believe that over the next few fiscal years we will continue to earn a significant portion of our revenue from a limited number of clients. For the fiscal year ended March 31, 2015,2016, collectively, our five largest and ten largest clients accounted for 40%32% and 52%47% of our revenue, respectively. Our two largest clients accounted for 12%10% and 11%9% respectively, of our revenue for the fiscal year ended March 31, 2015.2016. The loss of any one of our major clients could reduce our revenue and operating profit and harm our reputation in the industry. During the fiscal year ended March 31, 2015, 67%2016, 70% of our revenue was generated in North America, 27%22% in Europe and 6%8% in rest of the world. We provide IT services on either a time-and-materials or a fixed-price basis. For the fiscal year ended March 31, 2015,2016, the percentage of revenue from time-and-materials and fixed-price contracts was 63%61% and 37%39%, respectively.




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        Revenue from services provided on a time-and-materials basis is derived from the number of billable hours in a period multiplied by the contractual rates at which we bill our clients. Revenue from services provided on a fixed-price basis is recognized as efforts are expended pursuant to theeither on a percentage-of-completion method or on a straight-line method. Revenue also includes reimbursements of travel and out-of-pocket expenses with equivalent amounts of expense recorded in costs of revenue. Most of our client contracts, including those that are on a fixed-price basis, can be terminated by our clients with or without cause on 30 to 90 days prior written notice. All fees for services provided by us through the date of cancellation are generally due and payable under the contract terms.

        Our unit pricing is driven by business need, delivery timeframes, complexity of the engagement, operating differences (such as onsite/offshore ratio), competitive environment and engagement size or volume. As a pricing strategy to encourage clients to increase the volume of services that we provide to them, we, on occasion may offer volume discounts or longer payment terms. We manage our business carefully to protect our account margins and our overall profit margins. We find that our clients generally purchase on the basis of total value, rather than on minimum cost, considering all of the factors listed above.

        While we are subject to the effects of overall market pricing pressure, we believe that there is a fairly broad range of pricing offered by different competitors for each service we provide. We believe that no one competitor, or set of competitors, sets pricing in our industry. We find that our unit pricing, as a result of our global delivery model, is generally competitive with other firms who operate with a predominately offshore operating model.

        The proportion of work performed at our offshore facilities and at onsite client locations varies from period-to-period. Effort, in terms of the percentage of hours billed to clients by onsite resources, was 20%23% and 21%20% of total hours billed in each of the fiscal years ended March 31, 20152016 and 2014,2015, respectively, while the revenue from resources located onsite and offshore accounted for 54%56% and 46%44% respectively in the fiscal year ended March 31, 2015,2016, and 53%54% and 47%46% respectively during the fiscal year ended March 31, 2014.2015. We charge higher rates and incur higher compensation costs and other expenses for work performed at client locations in the United States, the United Kingdom and Europe as compared to work performed at our global delivery centers in Asia, particularly our largest centers in India and Sri Lanka. Services performed at client locations or at our offices in the United States or the United Kingdom generate higher revenue per-capita at lower gross margins than similar services performed at our global delivery centers in Asia, particularly our largest centers in India and Sri Lanka. We manage to a targeted 25% to 75% onsite-to-offshore service delivery mix, although such delivery mix may be impacted by several factors including our new and existing client delivery requirements as well as the impact of any acquisitions.

Costs of revenue and gross profit

        Costs of revenue consist principally of payroll and related fringe benefits, reimbursable and non-reimbursable costs, immigration-related expenses, fees for subcontractors working on client engagements and share-based compensation expense for IT professionals including account management personnel. Wage costs in India and Sri Lanka have historically been significantly lower than wage costs in the United States and Europe for comparably-skilled IT professionals. However, wages in India and Sri Lanka are increasing in local currency, which will result in increased costs for IT professionals, particularly project managers and other mid-level professionals. We may need to increase the levels of our team member compensation more rapidly than in the past to remain competitive without the ability to make corresponding increases to our billing rates. Compensation increases may reduce our profit margins, make us less competitive in pricing potential projects against those companies with lower cost resources and otherwise harm our business, operating results and financial condition. We deploy a campus hiring philosophy and encourage internal promotions to minimize the effects of wage inflation pressure and recruiting costs. Additionally, any material appreciation in the Indian rupee or Sri Lankan rupee against the U.S. dollar or U.K. pound sterling could have a material adverse impact on our cost of services.




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        Our revenue and gross profit are also affected by our ability to efficiently manage and utilize our IT professionals and fluctuations in foreign currency exchange rates. We define utilization rate as the total number of days billed in a given period divided by the total available days of our IT professionals during that same period, excluding trainees. We manage employee utilization by continually monitoring project requirements and timetables to efficiently staff our projects and meet our clients' needs. The number of IT professionals assigned to a project will vary according to the size, complexity, duration and demands of the project. An unanticipated termination or reduction of a significant project could cause us to experience a higher than expected number of unassigned IT professionals, thereby lowering our utilization rate.

        Although we have adopted a twelvean eight quarter cash flow hedging program to minimize the effect of the Indian rupee movement on our financial condition, particularly our costs of revenue, these hedges may not be effective or may cause us to forego benefits, especially given the volatility of these currencies. In addition, to the extent that these hedges do not qualify for hedge accounting, we may have to recognize gains or losses on the aggregate amount of hedges remaining outstanding as of the balance sheet date.

Operating expenses

        Operating expenses consist primarily of payroll and related fringe benefits, commissions, selling, share-based compensation and non-reimbursable costs, as well as promotion, communications, management, finance, administrative, occupancy, marketing and depreciation and amortization expenses. In the fiscal years ended March 31, 2016, 2015, 2014, and 2013,2014, we invested in all aspects of our business, including sales, marketing, IT infrastructure, facilities, human resources programs and financial operations. Additionally, any material appreciation in the Indian rupee or Sri Lankan rupee against the U.S. dollar or U.K. pound sterling could have a material adverse impact on our cost of operating expenses.

Other income (expense)

        Other income (expense) includes interest income, interest expense, investment gains and losses, foreign currency transaction gains and losses and disposal of fixed assets. We generate interest income by investing in time deposits, money market instruments, short-term investments and long-term investments. The functional currencies of our subsidiaries are their local currencies, except for Hungary which operates in the euro.euro and certain Netherlands entities which operate in the U.S. dollar. Foreign currency gains and losses are generated primarily by fluctuations of the Indian rupee, Sri Lankan rupee, Swedish Krona ("SEK"), euro, and U.K. pound sterling and the Singapore dollar, against the U.S. dollar on intercompany transactions. This includes fluctuations on an Indian rupee denominated intercompany note in a U.S. dollar functional currency entity in the Netherlands that was put in place as part of the structuring of the Polaris acquisition. At March 31, 2016, the approximate value of the intercompany note was $205,026 (Indian rupee 13,600,000). We place our cash in liquid investments at highly-rated financial institutions based on our investment policy approved by our audit committee and board of directors. We believe that our credit policies reflect normal industry terms and business risk.

Income tax expense

        Our net income is subject to income tax in those countries in which we perform services and have operations, including the United States, the United Kingdom, the Netherlands, India, Sri Lanka, Germany, Singapore, Austria, Hungary, Malaysia and Sweden. In the fiscal year ended March 31, 2015,2016, our effective tax rate was impacted by the mix of income by jurisdiction and availability and term of certain tax holidays identified during the fiscal year ended March 31, 2015.2016. Historically, we have benefited from long-term income tax holiday arrangements in both India and Sri Lanka that are offered to certain export-oriented IT services firms. As a result of these tax holiday arrangements, our worldwide profit has been subject to a relatively low effective tax rate as compared to the statutory rates in the countries in which we operate.generate the substantial portion of our revenue. The effect of the income tax holidays in India and Sri Lanka decreased our income tax expense in the fiscal years ended March 31, 2016 and 2015 by $7.5 million and 2014 by $5.0 million, and $4.5 million,




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respectively. However, our tax expense increaseddecreased by $3.4$2.3 million in the fiscal year ended March 31, 20152016 compared to our tax expense for our fiscal year ended March 31, 20142015 due to certain currency gains subject to a lower tax rate, the increase in income from operations in high tax jurisdictions,geographical mix of profits and increased nondeductible stock-based compensation,holiday benefits, partially offset by statutory rate changes




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and other discrete adjustments.non-deductible transaction costs as well as the non-deductible stock-based compensation during the fiscal year ended March 31, 2016. Increases in our effective tax rate, or a high effective tax rate, has a negative effect on our earnings in future periods.

        Our effective tax rate was 26.1%21.9% and 25.1%26.1% for each of the fiscal years ended March 31, 20152016 and 20142015 respectively. Our effective tax rate in future periods will be affected by the geographic distribution of our earnings, as well as the availability of tax holidays in India, Sri Lanka and Malaysia. We expect our effective tax rate to increase as a result of a higher tax rate in India and geographical mix of our profits.

Application of critical accounting estimates and risks

        Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting estimate to be critical to the preparation of our consolidated financial statements when both of the following are present:

•

the estimate is complex in nature or requires a high degree of judgment; and



•

the use of different estimates and assumptions could have a material impact on the consolidated financial statements.

        We have discussed the development and selection of our critical accounting estimates and related disclosures with the audit committee of our board of directors. Those estimates critical to the preparation of our consolidated financial statements are listed below.

Revenue recognition

        OurWe derive our revenue is derived from a variety of IT consulting, technology implementation and application outsourcing services. OurContracts for these services are performed under both time-and-materialhave different terms and fixed-priceconditions based on the scope, deliverables, and complexity of the engagement which require management to make judgments and estimates in determining the overall cost to the customer. Fees for these contracts may be in the form of time and materials or fixed price arrangements. All revenue is recognized pursuant to U.S. GAAP.

        Revenue is recognized as work is performed and amounts are earned. We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is reasonably assured. ForVolume discounts are recorded as a reduction of revenue over the contractual period as services are performed.

        Revenue on time and material contracts with fees billed on a time-and-materials basis, we generally recognize revenueis recognized as the service is performed.services are performed and amounts are earned.

        Fixed-price engagements areRevenue from fixed price contracts related to complex design, development and customization is accounted for under the percentage-of-completionpercentage of completion method. Under the percentage-of-completionpercentage of completion method, we estimatemanagement estimates the percentage-of-completionpercentage of completion based upon efforts incurred to date toas a percentage of the total estimated efforts for the specified engagement. When total cost estimates exceed revenue, we accrue for the estimated total efforts required to complete each engagement.losses immediately. The use of the percentage-of-completionpercentage of completion method requires significant judgment relative to estimating total contract revenue and costs to completion,efforts, including assumptions and estimates relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in other engagement-relatedengagement related costs. Our analysis of these contracts also contemplates whether contracts should be combined or segmented. We combine closely related contracts when all the applicable criteria under U.S. GAAP are met. Similarly, we may segment a project, which may consist of a




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single contract or a group of contracts, with varying rates of profitability, only if all the applicable criteria under U.S. GAAP are met. Estimates of total contract revenue and costs to completionefforts are continuallycontinuously monitored during the term of the contract and are subject to revision as the contract progresses. Unforeseen circumstances may arise during an engagement requiring us to revise our original estimates and may cause the estimated profitability to decrease. When revisions in estimated contract revenue and efforts are determined, such adjustments are recorded in the period in which they are first identified.

        Revenue from fixed-price contracts related to consulting or other IT services is accounted for using a proportional performance method. Performance is generally measured based upon the efforts incurred to date in relation to the total estimated efforts to the completion of the contract. The cumulative impact of any change in estimates of the contract revenue is reflected in the period in which the changes become known.

        Revenue from fixed-price applications management, maintenance or support engagements is recognized as earned which generally results in straight-line revenue recognition as services are performed continuously over the term of the engagement.

        We may enter into arrangements that consist of multiple elements and in these types of arrangements the transaction price is allocated to the individual units of accounting at the inception of the arrangement based on the relative selling price. The company uses a hierarchy to determine the selling prices to be used for allocating revenue: (i) vendor-specific objective, evidence of fair value (VSOE), (ii) third-party evidence of selling price (TPE), and (iii) best estimate of the selling price (ESP).

        We may enter into hosting arrangements where revenue is recognized as the service is delivered, generally on a straight-line basis, over the contractual period of performance. In these type of arrangements the company considers the rights provided to the customer in determining whether the arrangement includes the sale of a software license.

        Differences between the timing of billings and the recognition of revenue based on various methods of accounting are recorded as unbilled revenue or deferred revenue.

Valuation and impairment of investments and/or marketable securities

        We classify our marketable securities as available-for-sale or trading securities, and carry them at fair market value. Changes in fair value subsequent to the balance sheet date are recorded in the period in




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which they occur. The difference between amortized cost and fair market value, net of tax effect, for available-for-sale securities is recorded as a separate component of stockholders' equity. The difference between amortized cost and fair market value for trading securities is reflected in "other income, net" on our consolidated statements of income. Investments and/or marketable securities classified as available-for-sale are considered to be impaired when a decline in fair value below cost basis is determined to be other than temporary. We conduct a periodic review and evaluation of our investment securities to determine if the decline in fair value of any security is deemed to be other-than-temporary. Other-than-temporary impairment losses are recognized on securities when: (i) the holder has an intention to sell the security; (ii) it is more likely than not that the security will be required to be sold prior to recovery; or (iii) the holder does not expect to recover the entire amortized cost basis of the security. Other-than-temporaryOther-than- temporary losses are reflected in earnings as a charge against gain on sale of investments to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. We have no intention to sell any securities in an unrealized loss position at March 31, 20152016 nor is it more likely than not that we would be required to sell such securities prior to the recovery of the unrealized losses and we expect to recover the entire amortization cost basis of the security. At March 31, 2015,2016, we believe that all impairments of investment securities are temporary in nature.




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Derivative instruments and hedging activities

        We enter into forward foreign exchange contracts to mitigate the risk of changes in foreign exchange rates on intercompany transactions and forecasted transactions denominated in foreign currencies. Certain of these transactions meet the criteria for hedge accounting as cash flow hedges under accounting standards codification. Changes in the fair values of these hedges are deferred and recorded as a component of accumulated other comprehensive income (loss), net of tax, until the hedged transactions occur and are then recognized in the consolidated statements of income in the same line item as the item being hedged. The Company measures the effectiveness of these hedges at the time of inception, as well as on an ongoing basis. If any portion of the hedges is deemed ineffective, the respective portion is recorded in the consolidated statement of income in other income (expense). AtFor derivative contracts that are not designated as cash flow hedges, at maturity changes in the fair value, for other derivative contracts, if any, are recognized in the same line item as the underlying exposure being hedged in the statements of income. We value our derivatives based on market observable inputs including both forward and spot prices for currencies. Any significant change in the forward or spot prices for currencies would have a significant impact on the value of our derivatives.

Goodwill and other intangible assets

        We account for our business combinations under the acquisition method of accounting. We allocate the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price for acquisitions over the fair value of the net assets acquired, including other intangible assets, is recorded as goodwill. Goodwill is not amortized but is tested for impairment at the reporting unit level, defined at the Company level, at least annually in the fourth quarter of each fiscal year or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred. In assessing goodwill for impairment, an entity has the option to assess qualitative factors to determine whether events or circumstances indicate that it is not more likely than not that fair value of a reporting unit is less than its carry amount. If this is the case, then performing the quantitative two-step goodwill impairment test is unnecessary. An entity can choose not to perform a qualitative assessment for any or all of its reporting units, and proceed directly to the use of the two-step impairment test. The two-step process begins with an estimation of the fair value of a reporting unit. Goodwill impairment exists when a reporting unit's carrying value of goodwill exceeds its implied fair value. Significant judgment is applied when goodwill is assessed for impairment.




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        For our goodwill impairment analysis, we operate under one reporting unit. Any impairment would be measured based upon the fair value of the related assets. In performing the first step of the goodwill impairment testing and measurement process, we compare our entity-wide estimated fair value to net book value to identify potential impairment. Management estimates the entity-wide fair value utilizing our market capitalization, plus an appropriate control premium. Market capitalization is determined by multiplying the shares outstanding on the assessment date by the market price of our common stock. If the market capitalization is not sufficiently in excess of our book value, we will calculate the control premium which considers appropriate industry, market and other pertinent factors. If the fair value of the reporting unit is less than the book value, the second step is performed to determine if goodwill is impaired. If we determine through the impairment evaluation process that goodwill has been impaired, an impairment charge would be recorded in the consolidated statement of income. We completed the annual impairment test required during the fourth quarter of the fiscal year ended March 31, 20152016 and determined that there was no impairment. We continue to closely monitor our market capitalization. If our market capitalization, plus an estimated control premium, is below its carrying value for a period considered to be other-than-temporary,other- than-temporary, it is possible that we may be required to record an impairment of goodwill either as a result of the annual assessment that we conduct in the fourth quarter of each fiscal year, or in a future quarter if an indication of potential impairment is evident. The estimated fair value of the reporting unit on the assessment date significantly exceeded the carrying book value.




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        Other intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods appropriate for the type of intangible asset and reported separately from goodwill. Intangible assets with definite lives are amortized over the estimated useful lives and tested for impairment when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred. We test other intangible assets with definite lives for impairment by comparing the carrying amount to the sum of the net undiscounted cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds its net undiscounted cash flows, then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value.

Income taxes

        The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in multiple jurisdictions where the Company has operations. We record liabilities for estimated tax obligations in the United States and other tax jurisdictions. Determining the consolidated provision for income tax expense, tax reserves, deferred tax assets and liabilities and related valuation allowance, if any, involves judgment. We calculate and provide for income taxes in each of the jurisdictions in which we operate, including the United States, the United Kingdom, India, Sri Lanka, the Netherlands, Germany, Singapore, Sweden and Hungary, and these calculations and determinations can involve complex issues which require an extended period of time to resolve. In the fiscal year of any such resolution, additional adjustments may need to be recorded that result in increases or decreases to income. Our overall effective tax rate fluctuates due to a variety of factors, including arm's-length prices for our intercompany transactions, changes in the geographic mix or estimated level of annual pretax income, as well as newly enacted tax legislation in each of the jurisdictions in which we operate. Applicable transfer pricing regulations require that transactions between and among our subsidiaries be conducted at an arm's-length price. On an ongoing basis, we estimate appropriate arm's-length prices and use such estimates for our intercompany transactions.

        At each financial statement date, we evaluate whether a valuation allowance is needed to reduce our deferred tax assets to the amount that is more likely than not to be realized. This evaluation considers the weight of all available evidence, including both future taxable income and ongoing prudent and feasible tax planning strategies. In the event that we determine that we will not be able to realize a recognized deferred tax asset in the future, an adjustment to the valuation allowance would be made, resulting in a decrease in




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income (or equity in the case of excess stock option tax benefits) in the period such determination was made. Likewise, should we determine that we will be able to realize all or part of an unrecognized deferred tax asset in the future, an adjustment to the valuation allowance would be made, resulting in an increase to income (or equity in the case of excess stock option tax benefits).

        We have benefited from long-term income tax holiday arrangements in both India and Sri Lanka. We have located new development centers in areas designated as Special Economic Zones ("SEZ") to secure tax exemptions for these operations for a period of ten years, which could extend to 15 years if we meet certain reinvestment requirements. During the fiscal year endingended March 31, 2013, we elected the tax holiday for our SEZ Co-developer located in Hyderabad, India for a period of 10 years. Our India profits ineligible for SEZ benefits are subject to corporate income tax at the current rate of 33.99%34.61%. Our Sri Lanka subsidiary has been granted an income tax holiday by the Sri Lanka Board of Investment ("BOI") which expires on March 31, 2019. The tax holiday is contingent upon a certain level of job creation by us during a given timetable. Although we believe we have met the job creation requirements, if the BOI concludes otherwise, this would jeopardize the maximum benefits from this holiday arrangement. Primarily as a result of these tax holiday arrangements, our worldwide profit has been subject to a relatively low effective tax rate, and the loss of any of these arrangements would increase our overall effective tax rate and reduce our net income.




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        It is our intent to reinvest all accumulated earnings from foreign operations back into their respective businesses to fund growth. As a component of this strategy, we do not accrue incremental U.S. taxes on foreign earnings as these earnings are considered to be indefinitely reinvested outside of the United States. If such earnings were to be repatriated in the future or are no longer deemed to be indefinitely reinvested, we will accrue the applicable amount of taxes associated with such earnings, which would increase our overall effective tax rate.

Share-based compensation

        Under the fair value recognition provisions of accounting standards, share-based compensation cost is measured at the grant date based on the value of the award and is recognized over the vesting period. Determining the fair value of the share-based awards at the grant date requires judgment, including estimating the expected term over which stock options will be outstanding before they are exercised, the expected volatility of our stock and the number of share-based awards that are expected to be forfeited. If actual results differ significantly from our estimates, share-based compensation expense and our results of operations could be materially impacted.

        The risk-free interest rate assumptions are based on the interpolation of various U.S. Treasury bill rates in effect during the month in which stock option awards are granted. Our volatility assumption is based on the historical volatility rates of the common stock of our publicly held peers over periods commensurate with the expected term of each grant.

        The expected term of employee share-based awards represents the weighted average period of time that awards are expected to remain outstanding. The expected term of our options is based on historical employee exercise patterns.

Results of operations

Fiscal year ended March 31, 2016 compared to fiscal year ended March 31, 2015

        The following table presents an overview of our results of operations for the fiscal years ended March 31, 2016 and 2015:

		Fiscal Year Ended March 31,
		2016			2015			$ Change			% Change
		(Dollars in thousands)
Revenue		$	600,302		$	478,986		$	121,316			25.3	%
Costs of revenue			389,310			304,422			84,888			27.9	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Gross profit			210,992			174,564			36,428			20.9	%
Operating expenses			165,672			121,996			43,676			35.8	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income from operations			45,320			52,568			(7,248	)		(13.8	)%
Other income			12,349			4,832			7,517			155.6	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income before income tax expense			57,669			57,400		$	269			0.5	%
Income tax expense			12,649			14,954			(2,305	)		(15.4	)%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income			45,020			42,446			2,574			6.1	%
Net income attributable to noncontrolling interests			218			—			218			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income attributable to Virtusa stockholders		$	44,802		$	42,446		$	2,356			5.6	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​




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ResultsRevenue

        Revenue increased by 25.3%, or $121.3 million, from $479.0 million during the fiscal year ended March 31, 2015 to $600.3 million in the fiscal year ended March 31, 2016, due primarily to broad based growth, particularly our non-top ten clients, and revenue from the Apparatus, Agora and Polaris acquisitions of $55.2 million. Revenue from clients existing as of March 31, 2015, increased by $47.7 million, and revenue from new clients was $73.6 million during the fiscal year ended March 31, 2016, as compared to the fiscal year ended March 31, 2015. Revenue from North American clients increased by $101.9 million, or 31.9%, as compared to the fiscal year ended March 31, 2015. Revenue from European clients in the fiscal year ended March 31, 2016 increased by $4.7 million, or 3.6%, as compared to the fiscal year ended March 31, 2015. Revenue growth was led by C&T and M&I and other industry groups, which increased by 29% and 67% respectively, in the fiscal year ended March 31, 2016 as compared to the fiscal year ended March 31, 2015. Our number of clients increased from 114 at March 31, 2015 to 174 at March 31, 2016, primarily from the Apparatus, Agora and Polaris acquisitions.

Costs of revenue

        Costs of revenue increased from $304.4 million in the fiscal year ended March 31, 2015 to $389.3 million in the fiscal year ended March 31, 2016, an increase of $84.9 million, or 27.9%, which includes a foreign currency benefit of $6.5 million due to the depreciation of the Indian rupee. The increase in cost of revenue was primarily due to an increase in the number of IT professionals and related compensation and benefit costs of $68.0 million. The increased costs of revenue are also due to increase in subcontractor costs of $8.5 million, and an increase of $3.9 million in travel expenses. At March 31, 2016, we had 16,321 IT professionals as compared to 8,229 at March 31, 2015, primarily due to the Polaris acquisition.

Gross profit

        Our gross profit increased by $36.4 million or 20.9%, to $211.0 million for the fiscal year ended March 31, 2016 as compared to $174.6 million in the fiscal year ended March 31, 2015 primarily due to our growth in revenue, partially offset by increased cost of revenue related to the growth in the number of IT professionals and use of subcontractors. As a percentage of revenue, our gross margin was 35.1% and 36.4% in the fiscal years ended March 31, 2016 and 2015, respectively. The decrease in gross margin was primarily a result of lower gross margins on our larger transformational programs that begin with higher onsite effort as well as an increase in onsite work as a result of the Apparatus and Agora acquisitions.

Operating expenses

        Operating expenses increased from $122.0 million in the fiscal year ended March 31, 2015 to $165.7 million in the fiscal year ended March 31, 2016, an increase of $43.7 million, which includes a foreign currency benefit of $3.5 million due to the depreciation of the Indian rupee. The increase in operating expenses was primarily due to an increase of $22.2 million in compensation related expenses, an increase of $13.4 million in acquisition-related expenses, $4.9 million in facilities expenses and an increase of $2.2 million in travel expenses. As a percentage of revenue, our operating expenses increased to 27.6% in the fiscal year ended March 31, 2016 from 25.5% in the fiscal year ended March 31, 2015.

Income from operations

        Income from operations decreased from $52.6 million in the fiscal year ended March 31, 2015 to $45.3 million in the fiscal year ended March 31, 2016, a decrease of $7.2 million or 13.8%. This decrease in income from operations was primarily driven by Apparatus, Agora and Polaris acquisition-related expenses, increase in onsite work and negative impact of foreign currency on non-U.S. denominated revenues, when converted in to U.S. dollars. As a percentage of revenue, income from operations




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decreased from 11.0% in the fiscal year ended March 31, 2015 to 7.5% in the fiscal year ended March 31, 2016. The decrease in income from operatiions was primarily a result of lower gross margins on our larger transformational programs that begin with higher onsite effort as well as an increase in onsite work as a result of the Apparatus and Agora acquisitions.

Other income

        Other income increased from $4.8 million in the fiscal year ended March 31, 2015 to $12.3 million in the fiscal year ended March 31, 2016. The increase is primarily attributed to an increase in foreign currency transaction gains of $7.4 million, which includes $6.6 million in foreign currency transaction gains related to the revaluation of the $200 million Indian rupee denominated intercompany note as part of the Polaris transaction financing.

Income tax expense

        We had income tax expense of $12.6 million and $15.0 million for the fiscal years ended March 31, 2016 and 2015, respectively. Our effective tax rate was 21.9% and 26.1% for the fiscal years ended March 31, 2016 and 2015, respectively. The decrease in the effective tax rate primarily due to certain currency gains subject to a lower tax rate, the geographical mix of profits and increased holiday benefits, partially offset by non-deductible transaction costs as well as the non-deductible stock-based compensation during the fiscal year ended March 31, 2016.

Noncontrolling interests

        In connection with the Polaris acquisition, for the fiscal year ended March 31, 2016, we recorded a noncontrolling interest of $0.2 million, representing a 47.6% share of profits of Polaris held by parties other than Virtusa.

Net income attributable to Virtusa stockholders

        Net income for the fiscal year ended March 31, 2016 was $44.8 million, an increase of 5.6% or $2.4 million compared to net income of $42.4 million for the fiscal year ended March 31, 2015 due in part to higher revenue partially offset by higher cost of revenue and increased operating expenses.

Fiscal year ended March 31, 2015 compared to fiscal year ended March 31, 2014

        The following table presents an overview of our results of operations for the fiscal years ended March 31, 2015 and 2014:

		Fiscal Year Ended March 31,
		2015			2014			$ Change			% Change
		(Dollars in thousands)
Revenue		$	478,986		$	396,933		$	82,053			20.7	%
Costs of revenue			304,422			250,533			53,889			21.5	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Gross profit			174,564			146,400			28,164			19.2	%
Operating expenses			121,996			103,988			18,008			17.3	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income from operations			52,568			42,412			10,156			23.9	%
Other income			4,832			3,512			1,320			37.6	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income before income tax expense			57,400			45,924			11,476			25.0	%
Income tax expense			14,954			11,549			3,405			29.5	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income		$	42,446		$	34,375		$	8,071			23.5	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​




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Revenue

        Revenue increased by 20.7%, or $82.1 million, from $396.9 million during the fiscal year ended March 31, 2014 to $479.0 million in the fiscal year ended March 31, 2015, due primarily to broad based growth, particularly our non-top ten clients, and revenue from the TradeTech and OSB acquisitions of $20.5 million. Revenue from clients existing as of March 31, 2014, increased by $47.5 million, and revenue from new clients was $34.6 million during the fiscal year ended March 31, 2015, as compared to the fiscal year ended March 31, 2014. Revenue from North American clients increased by $41.0 million, or 14.7%, as compared to the fiscal year ended March 31, 2014. Revenue from European clients in the fiscal year ended March 31, 2015 increased by $32.7 million, or 33.7%, as compared to the fiscal year ended March 31, 2014. Revenue growth was led by C&T and BFSI industry groups, which increased by 32% and 19% respectively, in the fiscal year ended March 31, 2015 as compared to the fiscal year ended March 31, 2014. Our number of clients increased from 104 at March 31, 2014 to 114 at March 31, 2015.

Costs of revenue

        Costs of revenue increased from $250.5 million in the fiscal year ended March 31, 2014 to $304.4 million in the fiscal year ended March 31, 2015, an increase of $53.9 million, or 21.5%, which includes a foreign currency benefit of $5.0 million due to the depreciation of the Indian rupee. The increase in cost of revenue was primarily due to an increase in the number of IT professionals and related compensation and benefit costs of $35.6 million. The increased costs of revenue are also due to increase in subcontractor costs of $13.5 million, and an increase of $4.3 million in travel expenses. At March 31, 2015, we had 8,229 IT professionals as compared to 7,192 at March 31, 2014.

Gross profit

        Our gross profit increased by $28.2 million or 19.2%, to $174.6 million for the fiscal year ended March 31, 2015 as compared to $146.4 million in the fiscal year ended March 31, 2014 primarily due to our growth in revenue, partially offset by increased cost of revenue related to the growth in the number of IT professionals and use of subcontractors. As a percentage of revenue, our gross margin was 36.4% and 36.9% in the fiscal years ended March 31, 2015 and 2014, respectively.




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Operating expenses

        Operating expenses increased from $104.0 million in the fiscal year ended March 31, 2014 to $122.0 million in the fiscal year ended March 31, 2015, an increase of $18.0 million, which includes a foreign currency benefit of $2.5 million due to the depreciation of the Indian rupee. The increase in operating expenses was primarily due to an increase of $12.2 million in compensation related expenses, $4.3 million in facilities expenses, an increase of $1.0 million in travel expenses, an increase of $1.4 million in professional services, partially offset by decrease in bad debt expense of $0.9 million. As a percentage of revenue, our operating expenses decreased from 26.2% in the fiscal year ended March 31, 2014 to 25.5% in the fiscal year ended March 31, 2015.

Income from operations

        Income from operations increased from $42.4 million in the fiscal year ended March 31, 2014 to $52.6 million in the fiscal year ended March 31, 2015, an increase of $10.2 million or 23.9%. This increase in income from operations resulted primarily from higher gross profit and our operating expenses being allocated over a larger revenue base. As a percentage of revenue, income from operations increased from 10.7% in the fiscal year ended March 31, 2014 to 11.0% in the fiscal year ended March 31, 2015.




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Other income

        Other income increased from $3.5 million in the fiscal year ended March 31, 2014 to $4.8 million in the fiscal year ended March 31, 2015. The increase is primarily attributed to an increase in interest income of $1.5 million reflecting larger cash and investment balances.

Income tax expense

        We had income tax expense of $15.0 million and $11.5 million for the fiscal years ended March 31, 2015 and 2014, respectively. Our effective tax rate was 26.1% and 25.1% for the fiscal years ended March 31, 2015 and 2014, respectively. The increase in the effective tax rate was primarily driven by geographical mix of operating profits and non-deductible stock-based compensation.

Net income

        Net income for the fiscal year ended March 31, 2015 was $42.4 million, an increase of 23.5% or $8.0 million compared to net income of $34.4 million for the fiscal year ended March 31, 2014 due in part to higher revenue partially offset by higher cost of revenue and increased operating expenses, which were leveraged over a larger revenue base.




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Fiscal year ended March 31, 2014 compared to fiscal year ended March 31, 2013

        The following table presents an overview of our results of operations for the fiscal years ended March 31, 2014 and 2013:

		Fiscal Year Ended March 31,
		2014			2013			$ Change			% Change
		(Dollars in thousands)
Revenue		$	396,933		$	333,175		$	63,758			19.1	%
Costs of revenue			250,533			215,866			34,667			16.1	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Gross profit			146,400			117,309			29,091			24.8	%
Operating expenses			103,988			84,450			19,538			23.1	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income from operations			42,412			32,859			9,553			29.1	%
Other income			3,512			3,000			512			17.1	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income before income tax expense			45,924			35,859			10,065			28.1	%
Income tax expense			11,549			7,461			4,088			54.8	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income		$	34,375		$	28,398		$	5,977			21.0	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​

Revenue

        Revenue increased by 19.1%, or $63.7 million, from $333.2 million during the fiscal year ended March 31, 2013 to $396.9 million in the fiscal year ended March 31, 2014, due primarily to broad based growth in all of our clients, particularly our non-top ten clients, and revenue from the TradeTech and OSB acquisitions. Revenue from clients existing as of March 31, 2013, increased by $35.2 million, and revenue from new clients was $28.5 million during the fiscal year ended March 31, 2014, as compared to the fiscal year ended March 31, 2013. Revenue from North American clients increased by $27.1 million, or 10.8%, as compared to the fiscal year ended March 31, 2013. Revenue from European clients in the fiscal year ended March 31, 2014 increased by $31.3 million, or 47.6%, as compared to the fiscal year ended March 31, 2013. Revenue growth was led by C&T and BFSI industry groups, which increased by 37% and 15% respectively, in the fiscal year ended March 31, 2014 as compared to the fiscal year ended March 31, 2013. Our number of clients increased from 92 at March 31, 2013 to 104 at March 31, 2014, including clients from our acquisition of TradeTech.

Costs of revenue

        Costs of revenue increased from $215.9 million in the fiscal year ended March 31, 2013 to $250.5 million in the fiscal year ended March 31, 2014, an increase of $34.6 million, or 16.1%, which includes a foreign currency benefit of $6.8 million due to the depreciation of the Indian rupee. The increase in cost of revenue was primarily due to an increase in the number of IT professionals and related compensation and benefit costs of $33.4 million. The increased costs of revenue are also due to increased recruiting expense of $1.2 million, an increase of $1.4 million in travel expenses, and an increase in client related infrastructure cost of $0.9 million, partially offset by a decrease in subcontractor costs of $2.4 million. At March 31, 2014, we had 7,192 IT professionals as compared to 6,336 at March 31, 2013.

Gross profit

        Our gross profit increased by $29.1 million or 24.8%, to $146.4 million for the fiscal year ended March 31, 2014 as compared to $117.3 million in the fiscal year ended March 31, 2013 primarily due to our growth in revenue, partially offset by increased cost of revenue related to the growth in the number of IT professionals. As a percentage of revenue, our gross margin was 36.9% and 35.2% in the fiscal years ended March 31, 2014 and 2013, respectively.




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Operating expenses

        Operating expenses increased from $84.4 million in the fiscal year ended March 31, 2013 to $104.0 million in the fiscal year ended March 31, 2014, an increase of $19.6 million, which includes a foreign currency benefit of $3.8 million due to the depreciation of the Indian rupee. The increase in operating expenses was primarily due to an increase of $9.0 million in compensation related expenses, $4.9 million in facilities expenses, an increase of $1.4 million in travel expenses, an increase of $2.6 million in professional services and an increase in bad debt expense of $0.6 million. As a percentage of revenue, our operating expenses increased from 25.3% in the fiscal year ended March 31, 2013 to 26.2% in the fiscal year ended March 31, 2014.

Income from operations

        Income from operations increased from $32.9 million in the fiscal year ended March 31, 2013 to $42.4 million in the fiscal year ended March 31, 2014, an increase of $9.5 million or 29.1%. This increase in income from operations resulted primarily from higher gross profit and our operating expenses being allocated over a larger revenue base. As a percentage of revenue, income from operations increased from 9.9% in the fiscal year ended March 31, 2013 to 10.7% in the fiscal year ended March 31, 2014.

Other income

        Other income increased from $3.0 million in the fiscal year ended March 31, 2013 to $3.5 million in the fiscal year ended March 31, 2014. The increase is primarily attributed to an increase in interest income of $0.8 million reflecting larger cash balances, partially offset by an increase in foreign currency losses by $0.3 million.

Income tax expense

        We had income tax expense of $11.5 million and $7.5 million for the fiscal years ended March 31, 2014 and 2013, respectively. Our effective tax rate was 25.1% and 20.8% for the fiscal years ended March 31, 2014 and 2013, respectively. The increase in the effective tax rate was primarily driven by geographical mix of operating profits, partial expiration of certain special economic zone ("SEZ") benefits in India partly offset by a discrete tax benefit in the United Kingdom recognized in the fiscal year ended March 31, 2014.

Net income

        Net income for the fiscal year ended March 31, 2014 was $34.4 million, an increase of 21.0% or $6.0 million compared to net income of $28.4 million for the fiscal year ended March 31, 2013 due in part to higher revenue partially offset by higher cost of revenue and increased operating expenses, which were leveraged over a larger revenue base.

Non-GAAP Financial Measures

        We include certain non-GAAP financial metrics as defined by Regulation G by the Securities and Exchange Commission. These non-GAAP financial metrics are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial metrics calculated in accordance with GAAP, and may be different from non-GAAP metrics used by other companies. In addition, these non-GAAP metrics should be read in conjunction with our financial statements prepared in accordance with GAAP.

        We believe the following financial metrics will provide additional insights to measure the operational performance of our business.

•

We present the following consolidated statement of income metrics that exclude acquisition-related charges, stock-based compensation expense and foreign currency transaction gains and losses to




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provide further insights into the comparison of our operating results among the periods, as well as enhancing comparability with the operating results of peer companies:





•

Non-GAAP income from operations: income from operations, as reported on our consolidated statements of income, excluding stock-based compensation expense and acquisition-related charges



•

Non-GAAP operating margin: non-GAAP income from operations as a percentage of reported revenues



•

Non-GAAP net income: net income, as reported on our consolidated statements of income, excluding the tax adjusted impact of the following: stock-basedstock- based compensation, acquisition-related charges and foreign currency transaction gains and losses



•

Non-GAAP diluted earnings per share: diluted earnings per share, as reported on our consolidated statements of income, excluding tax adjusted per share impact of the following: stock-based compensation, acquisition-related charges and foreign currency transaction gains and losses




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        The following table presents a reconciliation of each non-GAAP financial metric to the most comparable GAAP metric for the years ended March 31:

		Fiscal Year Ended March 31,							Fiscal Year Ended March 31,
		2015			2014				2016			2015
		(in thousands, except per share amounts)							(in thousands, except per share amounts)
GAAP income from operation		$	52,568		$	42,412
GAAP income from operations									$	45,320		$	52,568
Add: Stock-based compensation expense			11,098			8,166				16,179			11,098
Add: Acquisition-related charges(1)			4,674			4,275				18,049			4,674
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Non-GAAP income from operations		$	68,340		$	54,853			$	79,548		$	68,340
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
GAAP operating margin			11.0	%		10.7	%			7.6	%		11.0	%
Effect of above adjustments to income from operations			3.3	%		3.1	%			5.7	%		3.3	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Non-GAAP operating margin			14.3	%		13.8	%			13.3	%		14.3	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
GAAP net income		$	42,446		$	34,375			$	44,802		$	42,446
Add: Stock-based compensation expense			11,098			8,166				16,179			11,098
Add: Acquisition-related charges(1)			4,674			4,275				18,049			4,674
Add: Foreign currency transaction (gains) losses(2)			357			396				(7,050	)		357
Tax adjustments(3)			(4,202	)		(3,228	)			(10,090	)		(4,202	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Non-GAAP net income		$	54,373		$	43,984			$	61,890		$	54,373
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
GAAP diluted earnings per share		$	1.44		$	1.27			$	1.49		$	1.44
Effect of stock-based compensation expense			0.28			0.23				0.38			0.28
Effect of acquisition-related charges(1)			0.12			0.12				0.42			0.12
Effect of foreign currency transaction (gains) losses(2)			0.00			0.01				(0.23	)		0.00
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Non-GAAP diluted earnings per share		$	1.84		$	1.63			$	2.06		$	1.84
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

---

(1)

Acquisition-related charges include, when applicable, amortization of purchased intangibles, external deal costs, acquisition-related retention bonuses, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs.




Tablecosts including integration expenses consisting of Contents

outside professional and consulting services and direct and incremental travel costs.



(2)

Foreign currency transaction gains and losses are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes.



(3)

Tax adjustments reflect the tax effect of the non-GAAP adjustments using the effective tax rate for the respective periods.

Liquidity and capital resources

        We have financed our operations primarily from sales of shares of common stock, and from cash from operations. For instance,operations and debt financing.

        On March 3, 2016, Virtusa Consulting Services Private Limited ("Virtusa India"), a subsidiary of Virtusa Corporation ("Virtusa" or the "Company"), purchased 53,133,127 shares, or approximately 51.7%, of the fully-diluted capitalization of Polaris Consulting & Services Limited ("Polaris") from certain Polaris shareholders for approximately $168.3 million in cash (the "Polaris SPA Transaction") pursuant to a definitive share purchase agreement ("SPA") by and among Virtusa India, the Polaris founding shareholders, promoters, and certain other Polaris minority stockholders, which was entered into on January 14, 2014, we




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November 5, 2015. On April 6, 2016, Virtusa India completed its purchase of an underwritten public offeringadditional 26% of 2,645,000the fully diluted outstanding shares of our commonPolaris from public shareholders for approximately $88.8 million in cash under a mandatory tender open offer as required under applicable India takeover rules. Pursuant to the mandatory offer, during the fiscal year ended March 31, 2016, the Company transferred $89.2 million into an escrow account in accordance with the India takeover rules, which is recorded as restricted cash at March 31, 2016. On April 6, 2016, the restricted cash was released from the escrow account and used for settlement for the mandatory open offer.

        To finance the Polaris acquisition, on February 25, 2016, the Company entered into a credit agreement (the "Credit Agreement") by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The Credit Agreement replaces the Company's existing $25.0 million credit agreement with JP Morgan Chase Bank, N.A. and provides for a $100.0 million revolving credit facility and a $200.0 million delayed-draw term loan (together, the "Credit Facility"). In connection with the Polaris acquisition, on February 25, 2016, the Company drew down the full $200.0 million of the term loan. Interest under these facilities accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company's ratio of debt to adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense ("EBITDA"). We are required under the terms of the Credit Agreement to make quarterly principle payments on the term loan. For the fiscal year ending March 31, 2017 we are required to make principle payments of $2.5 million per quarter. The Credit Agreement includes customary minimum cash, maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the Credit Agreement is five years, ending February 24, 2021.

        The Credit Agreement has financial covenants that require that the Company maintain a Total Leverage Ratio, commencing on June 30, 2016, of not more than 3.25 to 1.00 for the first year of the Credit Facility, of not more than 3.00 to 1.00 for the second year of the Credit Facility, and 2.75 to 1.00 thereafter, each as determined for the four consecutive quarter period ending on each fiscal quarter (the "Reference Period"). In addition, for a period, expected to be at least one year from the completion of the Company's closing of the Polaris SPA Transaction, until the occurrence of certain events described in the Credit Agreement, at any time when the Total Leverage Ratio exceeds 1.50 to 1.00 as of the last day of a quarter, the Company must maintain at least $30.0 million in unrestricted cash, cash equivalents and certain permitted investments under the Credit Facility held in bank deposits in the U.S., and $20.0 million in unrestricted cash and certain permitted investments under the Credit Facility and long-term securities investments held in accordance with the Company's current investment policy. The financial covenants also require that the Company maintain a Fixed Charge Coverage Ratio, commencing on June 30, 2016, of not less than 1.25 to 1.00, as of the last day of any Reference Period. For purposes of these covenants, "Total Leverage Ratio" means, as of the last day of any fiscal quarter, the ratio of Funded Debt to Adjusted EBITDA for the reference period ended on such date. "Funded Debt" refers generally to total indebtedness to third-parties for borrowed money, capital leases, deferred purchase price and earn-out obligations and related guarantees and "Adjusted EBITDA" is defined as consolidated net income plus (a) (i) GAAP depreciation and amortization, (ii) non-cash equity-based compensation expenses, (iii) fees and expenses incurred during such period in connection with the Credit Facility and loans made thereunder, (iv) fees and expenses incurred during such period in connection with any permitted acquisition, (v) one-time regulatory charges, (vi) other extraordinary and non-recurring losses or expenses, and (vii) all other non-cash charges, expenses and losses for such period, minus (b) (i) extraordinary or non-recurring income or gains for such period, and (ii) any cash payments made during such period in respect of non-cash charges, expenses or losses described in clauses (a)(ii), (a)(v) and (a)(vi) above taken in a prior period, subject to other adjustments and certain caps and limits on adjustments. The Fixed Charge Coverage Ratio is calculated under the Credit Agreement generally as the ratio of Adjusted EBITDA, excluding capital expenditures made during such period (to the extent not financed with indebtedness (other than Revolving Loans), an issuance of equity interests or capital contributions, or




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proceeds of asset sales, the proceeds of casualty insurance used to replace or restore assets), to fixed charges (regularly scheduled consolidated interest expense paid in cash, regularly scheduled amortization payments on indebtedness in cash, income taxes paid in cash and the interest component of capital lease obligation payments), on a consolidated basis.

        The Credit Facility is secured by substantially all of the Company's assets, including all intellectual property and all securities in domestic subsidiaries (other than certain domestic subsidiaries where the material assets of such subsidiaries are equity in foreign subsidiaries), subject to customary exceptions and exclusions from the collateral. All obligations under the Credit Agreement are unconditionally guaranteed by substantially all of the Company's material direct and indirect domestic subsidiaries, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.

        As of March 31, 2016, we are in compliance with our debt covenants and have provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the credit agreement to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the revolving credit facility as of March 31, 2016 and through the date of this filing.

        On July 28, 2015, we acquired the business of Agora Group, Inc., an IT consulting organization headquartered in Atlanta, Georgia, USA and its Indian affiliate (collectively, "Agora"), focused on implementing and integrating business process management (BPM) solutions on leading BPM suites. Agora employs approximately $86.260 experienced practitioners with deep knowledge in BPM-related solutions.

        Under the terms of the asset purchase agreement by and among Virtusa, Agora Group, Inc. and the sole stockholder of the Agora Group, Inc., we acquired Agora's business for approximately $7.4 million after deducting commissionsin cash (net of working capital adjustments). We have also agreed to issue an aggregate of up to $2.9 million in restricted stock awards from our stock option and transaction expensesincentive plan, not to exceed 77,067 shares, to certain Agora employees. The restricted stock awards will vest annually over a four year period.

        From the purchase price, we deposited approximately $0.9 million into escrow for a period of 12 months as security for the Agora Group's and after giving effectthe sole stockholder's indemnification obligations under the asset purchase agreement. The Company, the Agora Group and sole stockholder made customary representations, warranties and covenants in the asset purchase agreement. The asset purchase agreement also contains non-solicitation and non-competition provisions pursuant to the reimbursement of certain transactional expenses for which the underwriters haveAgora Group and the sole stockholder agreed not to reimburse us.solicit any employee or affiliate or client of the Company and to not engage in any competitive business or activities, in each case, for a period of three years after the date of closing of the transaction.

        On April 1, 2015, we entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") by and among Virtusa, Apparatus, Inc. an Indiana corporation ("Apparatus"), the majority stock holder of Apparatus ("Major Stockholder") and the other stockholders (collectively with the Major Stockholder, the "Sellers"), to acquire all of the issued and outstanding stock of Apparatus (the "Acquisition"). We also completed the Acquisition on April 1, 2015, and Apparatus is now a wholly-owned subsidiary of the Company.

        Under the terms of the Stock Purchase Agreement, the purchase price for the Acquisition was approximately $34,200$34.2 million in cash, subject to post-closingpost closing working capital adjustments. The purchase price iswas also subject to adjustment after the closing by up to an additional $1,700$1.7 million in earn-outearn out consideration to the Sellers and an additional payment of approximately $1,500 ("Bonus Pool") in the form of variable cash compensation to certain Apparatus employees, in each case, in the event of Apparatus' achievement at 100% of certain revenue and profit milestones for the fiscal year ending March 31, 2016. The Sellers earned $0.8 million of the earn-out based on achievement against these performance targets. We deposited 8.5% of the purchase price into escrow for a period of 12 months as security for the Sellers' indemnification obligations under the Stock Purchase Agreement. Virtusa,The Company, Sellers and Apparatus made customary representations, warranties and covenants in the Stock Purchase Agreement. The Stock Purchase Agreement also contains non-solicitation and non-competition provisions pursuant to which the Sellers agreed not to solicit any employee or affiliate or clientfair value of the Virtusa and, in the casecontingent consideration at March 31, 2016 is $0.8 million.




Table of the Major Stockholder, to also not engage in any competitive business or activities, in each case, for a period of three years after the date of closing of the transaction.Contents

        In connection with the Acquisition, we offered employment to all of Apparatus' employees. In addition to the Bonus Pool, we alsoWe have agreed to issue an aggregate ofoffer up to $3,500$1.5 million in sharesthe form of restricted stock from our 2007 Plan, not to exceed 93,333 shares,variable cash compensation to certain Apparatus employees.employees in the event of Apparatus' achievement of certain revenue and profit milestones for the fiscal year ending March 31, 2016. These Apparatus employees earned $0.8 million based on achievement against these performance targets, which is accrued. The shares will vest annually over a four year period.variable cash compensation payable at March 31, 2016 is $0.8 million

        On December 31, 2013, weBeginning in fiscal 2009, our U.K. subsidiary entered into an amended and restated credit agreement with JPM expiring Decemberan unrelated financial institution to sell, without recourse, certain of its European-based accounts receivable balances from one client to such financial institution. During the fiscal year ended March 31, 2018. The credit2016, we sold $24.2 million of receivables under the terms of the financing agreement. Fees paid pursuant to this agreement amends and restates our $3.0 million secured revolving credit agreement with JPM and provides for a $25 million secured revolving credit facility, which shallwere immaterial during the fiscal year ended March 31, 2016. We may elect to use this program again in future periods. However, we cannot provide any assurance that this or any other financing facilities will be available to fund working capital and other corporate purposes, as well as to serve as securityor utilized in support of our foreign currency hedging programs. The credit agreement contains financial and reporting covenants and limitations. We are in compliance with all covenants under this credit agreement. On January 14, 2014, we repaid the $20.0 million in outstanding borrowings from the proceeds of our underwritten public offering. At March 31, 2015, there were no borrowings outstanding under the credit facility.future.

        At March 31, 2015,2016, we had approximately $235.9$231.7 million of cash, cash equivalents, short term investments and long term investments, of which we hold approximately $99.2$146.5 million of cash, cash equivalents, and short term investments and long-term investments in non-U.S. locations, particularly in India, Sri Lanka and the United Kingdom. Cash in these non-U.S. locations may not otherwise be available for potential




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investments or operations in the United States or certain other geographies where needed, as we have stated that this cash is indefinitely reinvested in these non-U.S. locations. We do not currently plan to repatriate this cash to the United States. However, if our intent were to change and we elected to repatriate this cash back to the United States, or this cash was deemed no longer permanently invested, this cash would be subject to substantial taxes and the change in such intent could have a material adverse effect on our cash balances as well as our overall statement of income. Due to various methods by which cash could be repatriated to the United States in the future, the amount of taxes attributable to the cash is dependent on circumstances existing if and when remittance occurs. We estimate that it could cost us as much as $31.3$46.1 million to repatriate cash back to the United States. In addition, some countries could have tight restrictions on the movement and exchange of foreign currencies which could further limit our ability to use such funds for global operations or capital or other strategic investments.

        Beginning in fiscal 2009, our U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse, certain of its European-based accounts receivable balances from one client to such financial institution. During the fiscal year ended March 31, 2015, we sold $28.3 million of receivables under the terms of the financing agreement. Fees paid pursuant to this agreement were immaterial during the fiscal year ended March 31, 2015. We may elect to use this program again in future periods. However, we cannot provide any assurance that this or any other financing facilities will be available or utilized in the future.

We expect capital expenditures made in the normal course of business during the fiscal year ended March 31, 2016,2017, without regarding to any past or future acquisitions, to be consistent with our historical capital expenditures.

Cash flows

        The following table summarizes our cash flows for the periods presented:

		Fiscal Year Ended March 31,										Fiscal Year Ended March 31,
		2015			2014			2013				2016			2015			2014
		(In thousands)										(In thousands)
Net cash provided by operating activities		$	48,917		$	48,919		$	22,753			$	45,891		$	48,917		$	48,919
Net cash used for investing activities			(10,077	)		(113,044	)		(23,705	)			(217,936	)		(10,077	)		(113,044	)
Net cash provided by financing activities			5,225			91,740			494				197,366			5,225			91,740
Effect of exchange rates on cash			(2,024	)		(2,053	)		(448	)			(1,137	)		(2,024	)		(2,053	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net increase (decrease) in cash and cash equivalents			42,041			25,562			(906	)
Net increase in cash and cash equivalents													24,184			42,041			25,562
Cash and cash equivalents, beginning of fiscal year			82,761			57,199			58,105				124,802			82,761			57,199
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Cash and cash equivalents, end of fiscal year		$	124,802		$	82,761		$	57,199			$	148,986		$	124,802		$	82,761
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​




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Net cash provided by operating activities

        Net cash provided by operating activities decreased by $3.0 million from $48.9 million during the fiscal year ended March 31, 2015 to $45.9 million during the fiscal year ended March 31, 2016. During the fiscal year ended March 31, 2016, the decrease in cash provided by operating activities compared to the fiscal year ended March 31, 2015, primarily resulted from an increase in working capital, partially offset by an increase in net income.

        Net cash provided by operating activities was $48.9 million during the fiscal years ended March 31, 2015 and 2014. During the fiscal year ended March 31, 2015, the primary drivers compared to the fiscal year ended March 31, 2014, werereflecting an increase in net income of $8.1 million, primarilysubstantially offset by a decrease of $8.0 million in working capital.

Net cash provided by operatingused for investing activities

        Net cash used for investing activities was $48.9$217.9 million during the fiscal year ended March 31, 20142016 as compared to $22.8$10.1 million during the fiscal year ended March 31, 2013. This increase was2015, primarily attributablereflecting the use of cash to an increase in net income of $6.0 million, an increased change in accounts receivable of $16.6 million, an increased change in accrued employee compensation of $5.9 million, an increased change in income tax payable $3.3 million, an increased change in deferred income taxes of $3.5 million,acquire Polaris, Apparatus and Agora during the fiscal year ended March 31, 2016 and an increase in depreciation, amortization and share based compensation of $4.7 million. These wererestricted cash related to the Polaris mandatory tender offering, partially




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offset by a decreased change in accrued liabilities of $6.6 million, a decreased change in other long term assets and liabilities by $2.0 million, an increase in excess tax benefitsproceeds from stock option exercises of $2.4 million, a decreased change in accounts payable of $1.8 million, and a decreased change in prepaid expenses and other current assets of $1.4 million.

Net cash used for investing activitiesinvestments.

        Net cash used for investing activities was $10.1 million during the fiscal year ended March 31, 2015 as compared to $113.0 million during the fiscal year ended March 31, 2014. The change was primarily due to net proceeds of investments of $4.5 million during the fiscal year ended March 31, 2015 as compared to net purchases of investments of $81.9 million for the fiscal year ended March 31, 2014, reflecting the investment of proceeds from our issuance of common stock during the fiscal year ended March 31, 2014. In addition, during the fiscal year ended March 31, 2015, there was a decrease in cash used for business acquisitions of $18.8 million partially offset by an increase in cash used for the purchase of property and equipment of $7.2 million.

Net cash used for investingprovided by financing activities

        Net cash provided by financing activities was $113.0$197.4 million during the fiscal year ended March 31, 20142016, as compared to $23.7$5.2 million during the fiscal year ended March 31, 2013.2015. The change was primarily due to the net decreases in the proceeds of investments of $70.9 million, an increase in restricted cash of $4.9 million, the use of $18.7 million in cash for the acquisition of TradeTech and OSB, partially offset by an increased change in purchase of property and equipment of $5.1 million.

Net cash provided by financing activities is primarily due to net proceeds primarily from the draw-down of $200 million from the Credit Facility to fund the Polaris acquisition and proceeds from exercise of stock options, partially offset by payment of debt issuance costs.

        Net cash provided by financing activities was $5.2 million during the fiscal year ended March 31, 2015, as compared to $91.7 million during the fiscal year ended March 31, 2014. The decrease in cash provided by financing activities is primarily due to proceeds from issuance of common stock of $86.2 million during the fiscal year ended March 31, 2014.

        Net cash provided by financing activities was $91.7 million during the fiscal year ended March 31, 2014, as compared to $0.5 million during the fiscal year ended March 31, 2013. The increase in cash provided is primarily due to $86.2 million proceeds received from our underwritten public offering of 2,645,000 shares of our common stock on January 14, 2014, an increase in excess tax benefits from stock option exercises of $2.4 million, an increase in proceeds from the exercise of common stock options of $0.4 million, an increased change due to a decrease in repurchase of shares of our common stock of $1.4 million under our stock repurchase program and an increased change in principal payment of capital leases of $1.0 million, partially offset by payment for debt issuance cost of $0.2 million.




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Contractual obligations

        We have no long term debt and have various contractual obligations and commercial commitments.        The following table sets forth our future contractual obligations and commercial commitments at March 31, 2015.2016.

		Payments Due by Period
		Total			Less Than 1 Year			1 - 3 Years			3 - 5 Years			5+ Years
		(In thousands)
Operating lease obligations(1)		$	24,804		$	7,502		$	12,666		$	3,311		$	1,325
Capital lease obligations(2)			303			118			173			12			—
Contingent Consideration(3)			2,432			2,432			—			—			—
Defined benefit plans(4)			11,332			775			1,487			2,268			6,802
Capital and other purchase commitments(5)			3,255			3,255			—			—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total		$	42,126		$	14,082		$	14,326		$	5,591		$	8,127
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

		Payments Due by Period
		Total			Less Than 1 Year			1 - 3 Years			3 - 5 Years			5+ Years
		(In thousands)
Long-term debt obligation(1)		$	200,000		$	10,000		$	25,000		$	165,000			—
Interest on long-term debt(2)			31,573			7,904			13,343			10,326			—
Operating lease obligations(3)			27,717			10,239			10,585			3,983			2,910
Capital lease obligations(4)			304			153			145			6			—
Contingent Consideration(5)			839			839			—			—			—
Defined benefit plans(6)			11,006			984			2,067			2,120			5,835
Capital and other purchase commitments(7)			3,587			3,587			—			—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total		$	275,026		$	33,706		$	51,140		$	181,435		$	8,745
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

---

(1)

Our obligations towards repayments of our long-term debt



(2)

Interest on the term loan of 3.7% was calculated using interest rates effective as of March 31, 2016



(3)

Our obligations under our operating leases consist of future payments related to our real estate leases.



(2)(4)

Capital lease relates to purchase of vehicles.



(3)(5)

Relates to the OSB acquisitionsApparatus acquisition



(4)(6)

We accrue and contribute to benefit funds covering our employees in India and Sri Lanka. The amounts in the table represent the expected benefits to be paid out over the next ten years. We are not able to quantify expected benefit payments beyond ten years with any certainty. We make periodic contributions to the plans such that the unfunded amounts are immaterial.



(5)(7)

Relates to build-out of various facilities in India, and other purchase commitments, net of advances.

        As of March 31, 2015,2016, we had $0.5$6.7 million of unrecognized tax benefits. This represents the tax benefits associated with tax positions on our domestic and international tax returns that have not been recognized on our financial statements due to uncertainty regarding their resolution. Resolution of the related tax positions with the relevant tax authorities may take years to complete, since such timing is not entirely within our control. It is reasonably possible that within the next 12 months certain positions will be resolved, which could result in a decrease in unrecognized tax benefits. These decreases may be offset by increases to unrecognized tax benefits if new positions are identified. The resolution or settlement of positions with the relevant taxing authorities is at various stages and therefore it is not practical to estimate the eventual cash flows by period that may be required to settle these matters.

Off-balance sheet arrangements

        We do not have any investments in special purpose entities or undisclosed borrowings or debt.

        We have entered into foreign currency derivative contracts with the objective of limiting our exposure to changes in the Indian rupee, the U.K. pound sterling, the euro and the Swedish Krona as described below and in "Quantitative and Qualitative Disclosures about Market Risk."

        We maintain a foreign currency cash flow hedging program designed to further mitigate the risks of volatility in the Indian rupee against the U.S. dollar and U.K. pound sterling as described below in "Quantitative and Qualitative Disclosures about Market Risk." From time to time, we may also purchase




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multiple foreign currency forward contracts designed to hedge fluctuation in foreign currencies, such as the U.K. pound sterling, euro and Swedish Krona against the U.S. dollar, or the U.K. pound sterling against the Sri Lankan rupee, and other multiple foreign currency hedges designed to hedge foreign currency transaction gains and losses on our intercompany balances as well as to minimize the impact of foreign




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currency fluctuations on foreign currency denominated revenue and expenses. Other than these foreign currency derivative contracts, we have not entered into off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of or requirements for capital resources.

Recent accounting pronouncements

        In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on April 1, 2017.2018. Early application is permitted but not permitted.before periods beginning on or after January 1, 2017. In March, April and May 2016, the FASB issued updates to the new revenue standard to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross versus net, identifying performance obligations, accounting for licenses of intellectual property, transition, contract modifications, collectability, non-cash consideration and presentation of sales and other similar taxes with the same effective date. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

        In June 2014, the FASB issued ASU No. 2014-12—"Stock Compensation—Accounting for Share-Based Payments In some cases, the terms of an award may provide that a performance target that affects vesting could be achieved after an employee completes the requisite service period. That is, the employee would be eligible to vest in the award regardless of whether the employee is rendering service on the date the performance target is achieved. A performance target that affects vesting and that could be achieved after an employee's requisite service period shall be accounted for as a performance condition. As such, the performance target shall not be reflected in estimating the fair value of the award at the grant date. Compensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service already has been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost for which requisite service has not yet been rendered shall be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period shall reflect the number of awards that are expected to vest and shall be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The ASU is effective for annual and interim periods for fiscal years beginning on or after December 15, 2015. Entities can apply the amendment either a) prospectively to all awards granted or modified after the effective date or b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The ASU does not have an impact on the consolidated financial statements.

        In April 2015, the FASB issued ASU 2015-03, "Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". This update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. The Company adopted this guidance in the current




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fiscal year. The Company adopted this guidance in the current fiscal year and recorded debt issuance cost as a direct deduction from the carrying value of that debt.

        In September 2015, the FASB issued ASU 2015-16, which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. The ASU is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. The Company adopted this guidance in the current fiscal year. The adoption of this guidance did not have a material impact on the consolidated financial statements.

        In November 2015, the FASB issued Accounting Standards Update ("ASU") 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"), which will require entities to present all deferred tax liabilities and assets as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. The standard can be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company early adopted this ASU in the three month period ending March 31, 2016, which resulted in all deferred taxes being reported as non-current in its consolidated balance sheet. The Company has elected not to retrospectively restate its deferred tax assets and liabilities in prior periods.

        In January 2016, the FASB issued an update (ASU 2016-01) to the standard on financial instruments. The update significantly revises an entity's accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The update also amends certain disclosure requirements. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Upon adoption, entities will be required to make a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. However, the specific guidance on equity securities without readily determinable fair value will apply prospectively to all equity investments that exist as of the date of adoption. Early adoption of certain sections of this update is permitted. The Company is currently evaluating the effect the new standard will have on the Company's consolidated financial statements and related disclosures.

        In February 2016, the FASB issued as update (ASU 2016-02) to the standard on leases to increase transparency and comparability among organizations. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. For public business entities this standard is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption of this new standard is permitted. Entities will be required to use a modified retrospective transition which provides for certain practical expedients. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements and related disclosures.

        In March 2016, the FASB issued an update (ASU 2016-05) to the standard on derivatives and hedging on the effect of derivative contract notations on existing hedge accounting relationships. As it relates to derivative instruments, novation refers to replacing one of the parties to a derivative instrument with a new party, which may occur for a variety of reasons such as: financial institution mergers, intercompany transactions, an entity exiting a particular derivatives business or relationship, or because of laws or regulatory requirements. The update clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require designation of that hedge accounting relationship provided that all other hedge accounting criteria continue to be met. The




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update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2017. Upon adoption, the entities can choose to apply on either a prospective basis or a modified retrospective basis. Early adoption of this update is permitted. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

        In March 2016, the FASB issued an update (ASU 2016-09) to the standard on Compensation- Stock Compensation, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. Upon adoption, entities will be required to apply a modified retrospective, prospective or retrospective transition method depending on the specific section of the guidance being adopted. The Company is currently evaluating the effect the update will have on its consolidated financial statements and related disclosures.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.


Foreign currency exchange rate risk

        We are exposed to foreign currency exchange rate risk in the ordinary course of business. We have historically entered into, and in the future we may enter into, foreign currency derivative contracts to minimize the impact of foreign currency fluctuations on foreign currency denominated assets as well as revenue and forecasted expenses. Certain of these contracts meet the criteria for hedge accounting as cash flow hedges. We evaluate our foreign exchange policy on an ongoing basis to assess our ability to address foreign exchange exposures on our consolidated balance sheets, consolidated statements of income and operating cash flows from all foreign currencies, including most significantly the Indian rupee, the U.K. pound sterling, the euro and the Sri Lankan rupee.




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        We have entered intotwo 24 month rolling programs comprised of a series of foreign exchange forward contracts that are designated as cash flow hedges,hedges. One program is designed to mitigate the impact of volatility in the U.S. dollar equivalent of our Indian rupee denominated expenses over a rolling 36 month period.expenses. The second program was assumed as part of the Polaris acquisition and is intended to mitigate the volatility of the U.S. dollar denominated revenue that is translated into Indian rupees. While these hedges are achieving the designed objective, upon consolidation they may cause volatility in revenue. As of March 31, 2015,2016, the notional value of these contracts was $121.4$273.9 million. The outstanding contracts as of March 31, 20152016 are scheduled to mature each month through December 29, 2017. At March 31, 2015,2016, the net unrealized gain on our outstanding cash flow hedge contracts was $2.8$7.2 million. Based upon a sensitivity analysis of our cash flow hedge contracts at March 31, 2015,2016, which estimates the fair value of the contracts based upon market exchange rate fluctuations, a 10% change in the foreign currency exchange rate against the U.S. dollar with all other variables held constant would have resulted in an increase or decrease in fair value of approximately $12.3$17.6 million.

Interest rate risk

        We had noIn connection with the Polaris acquisition, on February 25, 2016, we drew down the full $200.0 million of the term loan under the Credit Facility. Interest under this facility accrues at a rate per annum of LIBOR plus 2.75%, subject to step-downs based on the Company's ratio of debt outstanding at March 31, 2015.to EBITDA. The Credit Agreement includes customary minimum cash, maximum debt to EBITDA and minimum fixed charge coverage covenants—see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources". The term of the Credit Agreement ends on February 24, 2021.




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        We do not believe we are exposed to material direct risks associated with changes in interest rates other than with respect to our Credit Facility, our cash and cash equivalents, short-term investments and long-term investments. AtAs of March 31, 2015,2016, we had $235.9$231.7 million in cash and cash equivalents, short-term investments and long-term investments, the interest income from which is affected by changes in interest rates. Our invested securities primarily consist of government sponsored entity bonds, money market mutual funds, commercial paper and corporate debts. Our investments in debt securities are classified as "available-for-sale" and are recorded at fair value. Our "available-for-sale" investments are sensitive to changes in interest rates. Interest rate changes would result in a change in the net fair value of these financial instruments due to the difference between the market interest rate and the market interest rate at the date of purchase of the financial instrument. A 100 basis point increase or decrease in market interest rates at March 31, 20152016 would impact the net fair value of such interest sensitive financial instruments by $0.5$0.4 million.

Concentration of credit risk

        Financial instruments which potentially expose us to concentrations of credit risk primarily consist of cash and cash equivalents, short-term investments and long-term investments, accounts receivable, derivative contracts, other financial assets and unbilled accounts receivable. We place our operating cash, investments and derivatives in highly-rated financial institutions. We adhere to a formal investment policy with the primary objective of preservation of principal, which contains credit rating minimums and diversification requirements. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties and, accordingly, do not require collateral. Credit losses and write-offs of accounts receivable balances have historically not been material to our consolidated financial statements and have not exceeded our expectations.




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Item 8.    Financial Statements and Supplementary Data.


Virtusa Corporation and Subsidiaries
Index to Consolidated Financial Statements


		Page
Reports of Independent Registered Public Accounting Firm			7178
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 20152016 and 20142015			7380
Consolidated Statements of Income for the Fiscal Years Ended March 31, 2016, 2015 2014 and 20132014			7481
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended March 31, 2016, 2015 2014 and 20132014			7582
Consolidated Statements of Changes in Stockholders' Equity for the Fiscal Years Ended March 31, 2016, 2015 2014 and 20132014			7683
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2016, 2015 2014 and 20132014			7784
Notes to Consolidated Financial Statements			7885




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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Virtusa Corporation and Subsidiaries:Corporation:

        We have audited the accompanying consolidated balance sheets of Virtusa Corporation and Subsidiaries (the Company)subsidiaries as of March 31, 20152016 and 2014,2015, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three yearthree-year period ended March 31, 2015.2016. In connection with our audits of the consolidated financial statements, we also have also audited financial statement schedule II, Valuation and Qualifying Accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Virtusa Corporation and Subsidiariessubsidiaries as of March 31, 20152016 and 2014,2015, and the results of their operations and their cash flows for each of the years in the three yearthree-year period ended March 31, 2015,2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Virtusa Corporation and Subsidiaries'Corporation's internal control over financial reporting as of March 31, 2015,2016, based on criteria established inInternal Control—Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 20, 201527, 2016 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

/s/ KPMG LLP

Boston, Massachusetts


May 20, 201527, 2016




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Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders
Virtusa Corporation and Subsidiaries:Corporation:

        We have audited Virtusa Corporation and Subsidiaries'Corporation's internal control over financial reporting as of March 31, 2015,2016, based on criteria established inInternal Control—Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Virtusa Corporation and Subsidiaries'Corporation's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, Virtusa Corporation and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2015,2016, based on criteria established inInternal Control—Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

        The Company acquired a controlling interest in Polaris Consulting & Services, Limited on March 3, 2016, and management excluded from its assessment of the effectiveness of Virtusa Corporation's internal control over financial reporting as of March 31, 2016, Polaris Consulting & Services, Limited's internal control over financial reporting associated with 40.6% of total assets (of which 16.2% represents goodwill and intangible assets excluded from the scope of management's assessment) and 3.2% of total revenues included in the consolidated financial statements of the Company as of and for the year ended March 31, 2016. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Polaris Consulting & Services, Limited.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Virtusa Corporation and Subsidiariessubsidiaries as of March 31, 20152016 and 2014,2015, and the related consolidated statements of income,operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2015,2016, and our report dated May 20, 201527, 2016 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Boston, Massachusetts
May 20, 201527, 2016




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Virtusa Corporation and Subsidiaries

Consolidated Balance Sheets

(In thousands, except per share amounts)


		March 31, 2015			March 31, 2014				March 31, 2016			March 31, 2015
ASSETS	ASSETS							ASSETS
Current assets:
Cash and cash equivalents		$	124,802		$	82,761			$	148,986		$	124,802
Short-term investments			90,414			55,888				53,917			90,414
Accounts receivable, net of allowance of $881 and $1,130 at March 31, 2015 and 2014, respectively			75,431			64,662
Accounts receivable, net of allowance of $1,046 and $881 at March 31, 2016 and 2015, respectively										138,530			75,431
Unbilled accounts receivable			27,914			26,548				58,063			27,914
Prepaid expenses			7,428			9,036				12,094			7,428
Deferred income taxes			7,639			6,610				—			7,639
Restricted cash			45			2,662				93,921			45
Other current assets			13,565			11,922				23,268			13,565
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total current assets			347,238			260,089				528,779			347,238
Property and equipment, net			37,988			35,346				116,282			37,988
Investments accounted for using equity method										2,869			—
Long-term investments			20,732			62,015				28,817			20,732
Deferred income taxes			4,764			4,651				15,890			4,764
Goodwill			50,360			53,448				200,424			50,360
Intangible assets, net			21,909			28,661				66,846			21,909
Other long-term assets			6,746			5,215				20,105			6,746
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total assets		$	489,737		$	449,425			$	980,012		$	489,737
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY							LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	8,693		$	11,002			$	27,452		$	8,693
Accrued employee compensation and benefits			26,915			27,175				53,897			26,915
Deferred revenue										5,971			1,337
Accrued expenses and other			23,762			27,299				42,763			22,425
Current portion of long-term debt										8,881			—
Income taxes payable			1,834			1,294				2,300			1,834
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total current liabilities			61,204			66,770				141,264			61,204
Deferred income taxes			1,996			2,744				16,121			1,996
Long-term debt, less current portion										185,633			—
Long-term liabilities			2,762			5,841				9,039			2,762
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total liabilities			65,962			75,355				352,057			65,962
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Commitments and contingencies (See Note 16)
Commitments and contingencies (See Note 17)
Stockholders' equity:
Undesignated preferred stock, $0.01 par value; Authorized 5,000,000 shares at March 31, 2015 and 2014, respectively; Issued zero shares at March 31, 2015 and 2014, respectively			—			—
Common stock, $0.01 par value; Authorized 120,000,000 shares at March 31, 2015 and 2014, respectively; Issued 30,854,979 and 30,263,243 shares at March 31, 2015 and 2014, respectively; Outstanding 28,998,276 and 28,406,540 shares at March 31, 2015 and 2014, respectively			309			303
Treasury stock, 1,856,703 common shares, at cost, at March 31, 2015 and 2014, respectively			(9,652	)		(9,652	)
Undesignated preferred stock, $0.01 par value; Authorized 5,000,000 shares at March 31, 2016 and 2015, respectively; Issued zero shares at March 31, 2016 and 2015, respectively										—			—
Common stock, $0.01 par value; Authorized 120,000,000 shares at March 31, 2016 and 2015, respectively; Issued 31,287,074 and 30,854,979 shares at March 31, 2016 and 2015, respectively; Outstanding 29,430,371 and 28,998,276 shares at March 31, 2016 and 2015, respectively										313			309
Treasury stock, 1,856,703 common shares, at cost, at March 31, 2016 and 2015, respectively										(9,652	)		(9,652	)
Additional paid-in capital			283,178			269,511				297,621			283,178
Retained earnings			184,068			141,622				228,870			184,068
Accumulated other comprehensive loss			(34,128	)		(27,714	)			(42,139	)		(34,128	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total stockholders' equity			423,775			374,070
Total Virtusa stockholders' equity										475,013			423,775
Noncontrolling interest in subsidiaries										152,942			—
​								​	​	​	​	​	​	​
Total Equity										627,955			423,775
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total liabilities, undesignated preferred stock and stockholders' equity		$	489,737		$	449,425			$	980,012		$	489,737
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

   

See accompanying notes to consolidated financial statements




Table of Contents


Virtusa Corporation and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share amounts)


		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Revenue		$	478,986		$	396,933		$	333,175			$	600,302		$	478,986		$	396,933
Costs of revenue			304,422			250,533			215,866				389,310			304,422			250,533
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Gross profit			174,564			146,400			117,309				210,992			174,564			146,400
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Operating expenses:
Selling, general and administrative expenses			121,996			103,988			84,450				165,672			121,996			103,988
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income from operations			52,568			42,412			32,859				45,320			52,568			42,412
Other income (expense):
Interest income			5,264			3,726			2,977				4,777			5,264			3,726
Foreign currency transaction gains (losses)			(357	)		(396	)		(68	)			7,050			(357	)		(396	)
Other, net			(75	)		182			91				522			(75	)		182
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total other income			4,832			3,512			3,000				12,349			4,832			3,512
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income before income tax expense			57,400			45,924			35,859				57,669			57,400			45,924
Income tax expense			14,954			11,549			7,461				12,649			14,954			11,549
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income		$	42,446		$	34,375		$	28,398				45,020			42,446			34,375
Less: net income attributable to noncontrolling interests, net of tax													218			—			—
​											​	​	​	​	​	​	​	​	​	​
Net income attributable to Virtusa common stockholders												$	44,802		$	42,446		$	34,375
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Basic earnings per share		$	1.48		$	1.32		$	1.14			$	1.53		$	1.48		$	1.32
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Diluted earnings per share.		$	1.44		$	1.27		$	1.11			$	1.49		$	1.44		$	1.27
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

   

See accompanying notes to consolidated financial statements




Table of Contents


Virtusa Corporation and Subsidiaries



Consolidated Statements of Comprehensive Income



(In thousands, except per share amounts)


		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Net income		$	42,446		$	34,375		$	28,398			$	45,020		$	42,446		$	34,375
Other comprehensive loss net of tax:
Foreign currency translation adjustments			(12,312	)		(6,335	)		(3,809	)			(9,324	)		(12,312	)		(6,335	)
Pension plan adjustment, net of tax effect of $(12), $0, $0			(354	)		202			(78	)
Unrealized gain (loss) on available-for-sale securities, net of tax effect of $21, $(28), $0			36			(51	)		5
Unrealized gain (loss) on effective cash flow hedges, net of tax effect of $2,017 $(785), $1,506			6,216			(2,816	)		3,511
Pension plan adjustment, net of tax effect of $15, $(12), $0													47			(354	)		202
Unrealized gain (loss) on available-for-sale securities, net of tax effect of $13, $21, $(28)													38			36			(51	)
Unrealized gain (loss) on effective cash flow hedges, net of tax effect of $1,800, $2,017, $(785)													2,513			6,216			(2,816	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Other comprehensive loss		$	(6,414	)	$	(9,000	)	$	(371	)		$	(6,726	)	$	(6,414	)	$	(9,000	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Comprehensive income		$	36,032		$	25,375		$	28,027				38,294			36,032			25,375
Less: comprehensive income attributable to noncontrolling interest, net of tax													1,285			—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Comprehensive income attributable to Virtusa common stockholders												$	37,009		$	36,032		$	25,375
​											​	​	​	​	​	​	​	​	​	​

See accompanying notes to consolidated financial statements




Table of Contents


Virtusa Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity

(In thousands, except per share amounts)


		Common Stock						Treasury Stock												Accumulated Other Comprehensive Loss							Common Stock						Treasury Stock												Accumulated Other Comprehensive Loss			Total Virtusa Stockholders' Equity
														Additional Paid-in Capital			Retained Earnings						Total Stockholders' Equity																Additional Paid-in Capital			Retained Earnings									Non- controlling interest			Total stockholders' equity
		Shares			Amount			Shares			Amount														Accumulated Other Comprehensive Loss		Shares			Amount			Shares			Amount																				Total Virtusa Stockholders' Equity
Balance at March 31, 2012			26,553,299		$	266			(1,759,388	)	$	(8,244	)	$	165,646		$	78,849		$	(18,343	)	$	218,174
Proceeds from the exercise of stock options and vesting of restricted stock			480,519			4			—			—			2,165			—			—			2,169
Restricted stock awards withheld for tax			—			—			—			—			(1,390	)		—			—			(1,390	)
Share based compensation			—			—			—			—			5,876			—			—			5,876
Repurchase of common stock			—			—			(97,315	)		(1,408	)		—			—			—			(1,408	)
Excess tax benefits from stock option exercises			—			—			—			—			759			—			—			759
Other comprehensive loss			—			—			—			—			—			—			(371	)		(371	)
Net income			—			—			—			—			—			28,398			—			28,398
​		​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balance at March 31, 2013			27,033,818		$	270			(1,856,703	)	$	(9,652	)	$	173,056		$	107,247		$	(18,714	)	$	252,207				27,033,818		$	270			(1,856,703	)	$	(9,652	)	$	173,056		$	107,247		$	(18,714	)	$	252,207			—		$	252,207
​		​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Proceeds from the exercise of stock options and vesting of restricted stock			584,425			6			—			—			2,569			—			—			2,575				584,425			6			—			—			2,569			—			—			2,575			—			2,575
Proceeds from issuance of common stock			2,645,000			27									86,200			—			—			86,227				2,645,000			27									86,200			—			—			86,227			—			86,227
Restricted stock awards withheld for tax			—			—			—			—			(3,678	)		—			—			(3,678	)			—			—			—			—			(3,678	)		—			—			(3,678	)		—			(3,678	)
Share based compensation			—			—			—			—			8,166			—			—			8,166				—			—			—			—			8,166			—			—			8,166			—			8,166
Repurchase of common stock			—			—			—			—			—			—			—			—
Excess tax benefits from stock option exercises			—			—			—			—			3,198			—			—			3,198				—			—			—			—			3,198			—			—			3,198			—			3,198
Other comprehensive loss			—			—			—			—			—			—			(9,000	)		(9,000	)			—			—			—			—			—			—			(9,000	)		(9,000	)		—			(9,000	)
Net income			—			—			—			—			—			34,375			—			34,375				—			—			—			—			—			34,375			—			34,375			—			34,375
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balance at March 31, 2014			30,263,243		$	303			(1,856,703	)	$	(9,652	)	$	269,511		$	141,622		$	(27,714	)	$	374,070				30,263,243		$	303			(1,856,703	)	$	(9,652	)	$	269,511		$	141,622		$	(27,714	)	$	374,070			—		$	374,070
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Proceeds from the exercise of stock options and vesting of restricted stock			591,736			6			—			—			2,734			—			—			2,740				591,736			6			—			—			2,734			—			—			2,740			—			2,740
Restricted stock awards withheld for tax			—			—			—			—			(4,857	)		—			—			(4,857	)			—			—			—			—			(4,857	)		—			—			(4,857	)		—			(4,857	)
Share based compensation			—			—			—			—			11,098			—			—			11,098				—			—			—			—			11,098			—			—			11,098			—			11,098
Excess tax benefits from stock option exercises			—			—			—			—			4,692			—			—			4,692				—			—			—			—			4,692			—			—			4,692			—			4,692
Other comprehensive loss			—			—			—			—			—			—			(6,414	)		(6,414	)			—			—			—			—			—			—			(6,414	)		(6,414	)		—			(6,414	)
Net income			—			—			—			—			—			42,446			—			42,446				—			—			—			—			—			42,446			—			42,446			—			42,446
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balance at March 31, 2015			30,854,979		$	309			(1,856,703	)	$	(9,652	)	$	283,178		$	184,068		$	(34,128	)	$	423,775				30,854,979		$	309			(1,856,703	)	$	(9,652	)	$	283,178		$	184,068		$	(34,128	)	$	423,775			—		$	423,775
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Proceeds from the exercise of stock options and vesting of restricted stock																												432,095			4			—			—			1,385			—			—			1,389			—			1,389
Proceeds from the exercise of subsidiary stock options																												—			—			—			—			1,031			—			—			1,031			—			1,031
Restricted stock awards withheld for tax																												—			—			—			—			(6,927	)		—			—			(6,927	)		—			(6,927	)
Share based compensation																												—			—			—			—			16,108			—			—			16,108			—			16,108
Subsidiary share based compensation																												—			—			—			—			71			—			—			71			—			71
Excess tax benefits from stock option exercises																												—			—			—			—			2,775			—			—			2,775			—			2,775
Other																												—			—			—			—			—			—			—			—			248			248
Acquisition of Polaris, noncontrolling interest portion, inclusive of $3,517 of foreign currency translation																												—			—			—			—			—			—			—			—			151,191			151,191
Other comprehensive loss																												—			—			—			—			—			—			(8,011	)		(8,011	)		1,285			(6,726	)
Net income																												—			—			—			—			—			44,802			—			44,802			218			45,020
​																										​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balance at March 31, 2016																												31,287,074		$	313			(1,856,703	)	$	(9,652	)	$	297,621		$	228,870		$	(42,139	)	$	475,013		$	152,942		$	627,955
​																										​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

   

See accompanying notes to consolidated financial statements




Table of Contents


Virtusa Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)


		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Cash provided by operating activities:
Net income		$	42,446		$	34,375		$	28,398			$	45,020		$	42,446		$	34,375
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			13,552			11,502			9,040				16,479			13,552			11,502
Share-based compensation expense			11,098			8,166			5,876				16,179			11,098			8,166
Reversal of contingent consideration			(1,833	)		—			—				—			(1,833	)		—
Provision for doubtful accounts, net			(134	)		750			193				208			(134	)		750
Loss (gain) on disposal of property and equipment			127			53			(100	)
(Gain) or loss on disposal of property and equipment													(41	)		127			53
Deferred income taxes, net			(2,969	)		1,618			(1,836	)			(5,398	)		(2,969	)		1,618
Foreign currency losses, net			357			396			68
Foreign currency (gains) losses, net													(7,050	)		357			396
Amortization of discounts and premiums on investments			1,242			—			—				496			1,242			—
Amortization of debt issuance cost													109			—			—
Excess tax benefits from stock option exercises			(4,692	)		(3,198	)		(759	)			(2,775	)		(4,692	)		(3,198	)
Net changes in operating assets and liabilities:
Accounts receivable and unbilled receivable			(17,128	)		(3,429	)		(19,462	)			(17,123	)		(17,128	)		(3,429	)
Prepaid expenses and other current assets			4,497			(4,905	)		(3,501	)			(7,832	)		4,497			(4,905	)
Other long-term assets			(603	)		(1,598	)		471				(126	)		(603	)		(1,598	)
Accounts payable			(212	)		(228	)		1,604				(7,326	)		(212	)		(228	)
Accrued employee compensation and benefits			(4,385	)		4,452			(1,440	)			1,807			(4,385	)		4,452
Accrued expenses and other			4,774			(2,717	)		3,883				8,734			4,774			(2,717	)
Income taxes payable			1,553			3,886			550				4,303			1,553			3,886
Other long-term liabilities			1,227			(204	)		(232	)			227			1,227			(204	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net cash provided by operating activities			48,917			48,919			22,753				45,891			48,917			48,919
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Cash flows used for investing activities:
Proceeds from sale of property and equipment			160			80			117				90			160			80
Purchase of short-term investments			(14,075	)		(23,313	)		(13,676	)			(43,586	)		(14,075	)		(23,313	)
Proceeds from sale or maturity of short-term investments			38,696			10,802			12,717				115,397			38,696			10,802
Purchase of long-term investments			(33,720	)		(70,151	)		(11,303	)			(29,618	)		(33,720	)		(70,151	)
Proceeds from sale or maturity of long-term investments			13,612			800			1,258				9,200			13,612			800
Business acquisitions, net of cash acquired			(2,660	)		(21,460	)		(2,775	)			(164,642	)		(2,660	)		(21,460	)
Decrease (Increase) in restricted cash			2,639			(2,320	)		2,544
(Increase) decrease in restricted cash													(91,286	)		2,639			(2,320	)
Purchase of property and equipment			(14,729	)		(7,482	)		(12,587	)			(13,491	)		(14,729	)		(7,482	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net cash used for investing activities			(10,077	)		(113,044	)		(23,705	)			(217,936	)		(10,077	)		(113,044	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Cash flows provided by financing activities:
Proceeds from exercise of common stock options			2,740			2,575			2,169				1,385			2,740			2,575
Proceeds from exercise of subsidiary stock options													1,031			—			—
Proceeds from issuance of common stock			—			86,227			—				—			—			86,227
Repurchases of common stock			—			—			(1,408	)
Proceeds from debt													200,000			—			—
Payment of debt issuance costs													(5,596	)		—			(242	)
Borrowings on revolving credit facility			—			20,000			—				20,000			—			20,000
Repayment of revolving credit facility			—			(20,000	)		—				(20,000	)		—			(20,000	)
Payment of debt issuance costs			—			(242	)		—
Payment of contingent consideration related to acquisitions			(2,087	)		—			—				(2,097	)		(2,087	)		—
Principal payments on capital lease obligation			(120	)		(18	)		(1,026	)			(132	)		(120	)		(18	)
Excess tax benefits from stock option exercises			4,692			3,198			759				2,775			4,692			3,198
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net cash provided by financing activities			5,225			91,740			494				197,366			5,225			91,740
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Effect of exchange rate changes on cash and cash equivalents			(2,024	)		(2,053	)		(448	)			(1,137	)		(2,024	)		(2,053	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net increase (decrease) in cash and cash equivalents			42,041			25,562			(906	)
Net increase in cash and cash equivalents													24,184			42,041			25,562
Cash and cash equivalents, beginning of year			82,761			57,199			58,105				124,802			82,761			57,199
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Cash and cash equivalents, end of year		$	124,802		$	82,761		$	57,199			$	148,986		$	124,802		$	82,761
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Supplemental disclosure of cash flow information:
Cash paid for interest		$	24		$	13		$	73			$	33		$	24		$	13
Cash receipts from interest		$	5,177		$	3,337		$	2,740			$	5,125		$	5,177		$	3,337
Cash paid for income tax		$	12,696		$	10,063		$	8,426			$	17,137		$	12,696		$	10,063
Non cash investing activities
Assets acquired under capital lease		$	269		$	142		$	37			$	125		$	269		$	142

   

See accompanying notes to consolidated financial statements




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Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(thousands, except share and per share amounts)


(1) Nature of the Business

        Virtusa Corporation (the "Company", "Virtusa", "we", "us" or "Virtusa""our") is a global information technology services company. The Company usesprovider. Using an enhanced global delivery model, towe provide end-to-end information technology ("IT") services to Global 2000 companies. These services include IT and business consulting, digital enablement services, user experience ("UX") design, development of IT applications, maintenance and support services, systems integration, infrastructure and managed services. Using its enhancedOur services leverage our distinctive consulting approach and unique platforming methodology to transform our clients' businesses through the innovative use of technology and domain knowledge to solve critical business problems. Our services enable our clients to accelerate business outcomes by consolidating, rationalizing and modernizing our clients' core customer-facing processes into one or more core systems. We deliver cost-effective solutions through a global delivery model, innovative platforming approachapplying advanced methods such as Agile, an industry standard technique designed to accelerate application development. We also use our consulting methodology, which we refer to as Accelerated Solution Design ("ASD"), which is a collaborative decision-making and industry expertise,design process performed with the Company provides cost-effective servicesclient, to ensure our solutions meet the client's specifications and requirements. We have built targeted solutions that enable itsour clients to reduce their IT operations cost, while simultaneously increasing their ability to accelerate timebusiness growth in existing and new market segments. We further differentiate ourselves by enabling our clients to expand their addressable market through our millennial offerings and to improve service and enhance productivity.the efficiencies of operating their business through our industry leading transformational solutions.

        Headquartered in Massachusetts, Virtusa haswe have offices in the United States, Canada, the United Kingdom, the Netherlands, Germany, Switzerland, Sweden, Germany, NetherlandsAustria, the United Arab Emirates, Hong Kong, Japan, Australia and Austria andNew Zealand, with global delivery centers in India, Sri Lanka, Hungary, Singapore and Malaysia, as well as a near shore centerdelivery centers in the United States.

(2) Summary of Significant Accounting Policies

(a)

Principles of Consolidation

        The accompanying financial statements have been prepared on a consolidated basis and reflect the financial statements of Virtusa Corporation and all of its subsidiaries that are directly or indirectly more than 50% owned or controlled. When the Company does not have a controlling interest in an entity, but exerts a significant influence on the entity, the Company applies the equity method of accounting.

        The consolidated financial statements reflect the accounts of the Company and its direct and indirect subsidiaries, Virtusa Consulting Services Private Limited, Virtusa Software Services Private Limited, and Virtusa Technologies (India) Private Limited and Polaris Consulting & Services Limited, Optimus Global Services Limited, each organized and located in India, Virtusa (Private) Limited, organized and located in Sri Lanka, Virtusa UK Limited, Polaris Consulting & Services Limited, organized and located in the United Kingdom, Virtusa Securities Corporation, a Massachusetts securities corporation, Polaris Consulting & Services Limited, organized and operating in the United States, Virtusa International, B.V., Polaris Software Lab B.V., organized and located in the Netherlands, Virtusa Hungary Kft., Polaris Consulting & Serviced, Kft., incorporated and located in Hungary, Virtusa Germany GmbH, Polaris Software Lab GmbH, organized and located in Germany, Virtusa Switzerland GmbH, Polaris Consulting & Services SA, organized and located in Switzerland, Virtusa Singapore Private Limited, Polaris Consulting & Services Pte Limited, organized and located in Singapore, Virtusa Malaysia Private Limited Company, Polaris Consulting & Services, SND BHD, located in Malayisa,Malaysia, Virtusa Austria GmbH,




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

organized and located in Austria, Virtusa Philippines Inc., organized and located in the Philippines, TradeTech Consulting Scandinavia AB located in Sweden and Virtusa Canada, Inc., a corporation organized under the laws of British Columbia, Canada. Polaris Consulting & Services Inc, organized under the laws of Ontario, Canada. Polaris Consulting & Services Ireland Limited, organized and located in Ireland, Polaris Consulting & Services Japan K.K., organized and located in Japan, Polaris Consulting & Services Pty Ltd., organized and operating in Australia and New Zealand, Polaris Consulting & Services FZ-LLC, organized and located in Dubai, Polaris Consulting & Services Limited, organized and located in Hong Kong, Polaris Software Lab (Shanghai) Limited, organized and located in China. All intercompany transactions and balances have been eliminated in consolidation.

(b)

Use of Estimates

        The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Management re-evaluatesre- evaluates these estimates on an ongoing basis. The most significant estimates relate to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities, intangible assets, contingent consideration and valuation of financial instruments including derivative contracts and investments. Management bases its estimates on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated financial statements.




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

(c)

Foreign Currency Translation

        The functional currencies of the Company's non-U.S. subsidiaries are the local currency of the country in which the subsidiary operates except for Hungary, which operates in the euro.euro and certain Netherlands entities, which operate in the U.S. dollar. Operating and capital expenditures of the Company's subsidiaries located in India, Sri Lanka, the Netherlands, Australia, Canada, Singapore, Malaysia, the Philippines, Germany, Austria, Sweden and the United Kingdom, are denominated in their local currency which is the currency most compatible with their expected economic results. India and Sri Lanka local expenditures form the underlying basis for intercompany transactions which are subsequently conducted in both U.S. dollars and U.K. pounds sterling. U.K. client sales contracts are primarily conducted in U.K. pounds sterling.

        All transactions and account balances are recorded in the functional currency. The Company translates the value of these non-U.S. subsidiaries' local currency denominated assets and liabilities into U.S. dollars at the rates in effect at the balance sheet date. Resulting translation adjustments are recorded in stockholders' equity as a component of accumulated other comprehensive income (loss). The local currency denominated statement of income amounts are translated into U.S. dollars using the average exchange rates in effect during the period. Realized foreign currency transaction gains and losses are included in the consolidated statements of income. The Company's non-U.S. subsidiaries do not operate in "highly inflationary" countries.




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

(d)

Derivative Instruments and Hedging Activities

        The Company enters into forward foreign exchange contracts to mitigate the risk of changes in foreign exchange rates on intercompany transactions and forecasted transactions denominated in foreign currencies. The Company designates derivative contracts as cash flow hedges if they satisfy the criteria for hedge accounting. Changes in fair values of derivatives designated as cash flow hedges are deferred and recorded as a component of accumulated other comprehensive income, net of taxes, until the hedged transactions occur and are then recognized in the consolidated statements of income. Changes in fair value of derivatives not designated as hedging instruments and the ineffective portion of derivatives designated as cash flow hedges are recognized immediately in the consolidated statements of income.

        With respect to derivatives designated as cash flow hedges, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Company also formally assesses both at the inception of the hedge and on an ongoing basis, whether each derivative will be highly effective in offsetting changes in fair values or cash flows of the hedged item. If the Company determines that a derivative or a portion thereof is not highly effective as a hedge, or if a derivative ceases to qualify for hedge accounting, the Company prospectively discontinues hedge accounting with respect to that derivative.

(e)

Cash and Cash Equivalents and Restricted Cash

        The Company considers all highly liquid investments with a remainingan initial maturity of three months or less from the date of purchase to be cash equivalents. At March 31, 2015,2016, cash equivalents consisted of money market instruments and certificates of deposit. The Company had short-term and long-term restricted cash totaling $112$93,940 and $2,755$112 at March 31, 2016 and 2015, and 2014, respectively. During the fiscal year March 31, 2015 the Company released $684 and $1,976 which were held backRestricted cash includes escrow deposits related to the acquisitionmandatory offering for 26% of




Table the outstanding shares of Contents


Virtusa CorporationPolaris as required under India takeover rules, escrow deposits related to acquisitions and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

OSB Consulting LLC ("OSB") and TradeTech Consulting Scandinavia AB ("TradeTech"), respectively. Restricted cash also includes restricted deposits with banks to secure the import of computer and other equipment, bank guarantees associated with the constructionpurchase of property and equipment of the Company's facilityfacilities in India and Sri Lanka.India.

(f)

Investment Securities

        The Company classifies all debt securities as "available for sale". These securities are classified as short-term investments and long-term investments on the consolidated balance sheet and are carried at fair market value. Any unrealized gains and losses on available for sale securities are reported in accumulated other comprehensive income, net of tax, as a separate component of stockholders' equity unless the decline in value is deemed to be other-than-temporary, in which case, investments are written down to fair value and the loss is charged to the consolidated statement of income. Any realized gains and losses on trading securities are charged to the consolidated statement of income. The Company determines the cost of the securities sold based on the specific identification method.

        The Company conducts a periodic review and evaluation of its investment securities to determine if the decline in fair value of any security is deemed to be other-than-temporary. Other-than-temporary impairment losses are recognized on securities when: (i) the holder has an intention to sell the security; (ii) it is more likely than not that the security will be required to be sold prior to recovery; or (iii) the




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

holder does not expect to recover the entire amortized cost basis of the security. Other-than-temporaryOther-than- temporary losses are reflected in earnings as a charge against gain on sale of investments to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. The Company has no intention to sell any securities in an unrealized loss position at March 31, 20152016 nor is it more likely than not that the Company would be required to sell such securities prior to the recovery of the unrealized losses. At March 31, 2015,2016, the Company believes that all impairments of investment securities are temporary in nature.

(g)

Goodwill and Other Intangible Assets

        The Company accounts for its business combinations under the acquisition method of accounting. The Company allocates the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price for acquisitions over the fair value of the net assets acquired, including other intangible assets, is recorded as goodwill. Goodwill is not amortized but is tested for impairment at the reporting unit level, defined as the Company level, at least annually in the fourth quarter of each fiscal year or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred. In assessing goodwill for impairment, an entity has the option to assess qualitative factors to determine whether events or circumstances indicate that it is not more likely than not that fair value of a reporting unit is less than its carrycarrying amount. If this is the case, then performing the quantitative two-step goodwill impairment test is unnecessary. An entity can choose not to perform a qualitative assessment for any or all of its reporting units, and proceed directly to the use of the two-step impairment test. The two-step process begins with an estimation of the fair value of a reporting unit. Goodwill impairment exists when a reporting unit's carrying value of goodwill exceeds its implied fair value. Significant judgment is applied when goodwill is assessed for impairment.




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

        For the Company's goodwill impairment analysis, the Company operates under one reporting unit. Any impairment would be measured based upon the fair value of the related assets. In performing the first step of the goodwill impairment testing and measurement process, the Company compares its entity-wide estimated fair value to net book value to identify potential impairment. Management estimates the entity-wide fair value utilizing the Company's market capitalization, plus an appropriate control premium. Market capitalization is determined by multiplying the shares outstanding on the assessment date by the market price of the Company's common stock. If the market capitalization is not sufficiently in excess of the Company's book value, the Company will calculate the control premium which considers appropriate industry, market and other pertinent factors. If the fair value of the reporting unit is less than the book value, the second step is performed to determine if goodwill is impaired. If the Company determines through the impairment evaluation process that goodwill has been impaired, an impairment charge would be recorded in the consolidated statement of income. The Company completed the annual impairment test required during the fourth quarter of the fiscal year ended March 31, 20152016 and determined that there was no impairment. The Company continues to closely monitor its market capitalization. If the Company's market capitalization, plus an estimated control premium, is below its carrying value for a period considered to be other-than-temporary, it is possible that the Company may be required to record an impairment of goodwill either as a result of the annual assessment that the Company conducts in the fourth quarter of each fiscal year, or in a future quarter if an indication of potential impairment is evident.




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(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

The estimated fair value of the reporting unit on the assessment date significantly exceeded the carrying book value.

        Other intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods appropriate for the type of intangible asset and reported separately from goodwill. Intangible assets with definite lives are amortized over the estimated useful lives and are tested for impairment when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred. The Company tests other intangible assets with definite lives for impairment by comparing the carrying amount to the sum of the net undiscounted cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds its net undiscounted cash flows, then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value.

(h)

Fair Value of Financial Instruments

        At March 31, 20152016 and 20142015, the carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits, and other accrued expenses and long-term debt, approximate their fair values due to the nature of the items. See note 78 for a discussion of the fair value of the Company's other financial instruments.

(i)

Concentration of Credit Risk and Significant Customers

        Financial instruments which potentially expose the Company to concentrations of credit risk are primarily comprised of cash and cash equivalents, investments, derivatives, accounts receivable and unbilled accounts receivable. The Company places its cash, investments and derivatives in highly-rated financial institutions. The Company adheres to a formal investment policy with the primary objective of preservation of principal, which contains credit rating minimums and diversification requirements.




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

Management believes its credit policies reflect normal industry terms and business risk. The Company does not anticipate non-performance by the counterparties and, accordingly, does not require collateral.

        At March 31, 2016, one client accounted for 12%, of gross accounts receivable. At March 31, 2015, two clients accounted for 13% and 10% respectively, of gross accounts receivable. At March 31, 2014, one client accounted for 10% of gross accounts receivable. Revenue from significant clients as a percentage of the Company's consolidated revenue was as follows:

		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Customer A			12	%		13	%		11	%			10	%		11	%		13	%
Customer B			11	%		13	%		14	%			9	%		12	%		13	%

(j)

Property and Equipment

        Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of their lease term or the estimated useful life of the related asset. Upon retirement or sale, the cost of assets disposed of and the




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Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Repair and maintenance costs are expensed as incurred.

(k)

Long-Lived Assets

        The Company reviews the carrying value of its long-lived assets or asset groups with definite useful lives to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying value of an asset to the future net undiscounted cash flows directly associated with the asset. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying value exceeds the fair value of the asset. The Company uses a discounted cash flow approach or other methods, if appropriate, to assess fair value.

        Long-lived assets to be disposed of by sale are reported at the lower of carrying value or fair value less cost to sell and depreciation is ceased. Long-lived assets to be disposed of other than by sale are considered to be held and used until disposal.

(l)

Internally-Developed Software

        The Company capitalizes costs incurred during the application development stage, which include costs to design the software configuration and interfaces, coding, installation and testing. Costs incurred during the preliminary project stage, along with post-implementation stages of internal use computer software, are expensed as incurred. Capitalized development costs are typically amortized over the estimated life of the software, typically three to ten years, using the straight line method, beginning with the date that an asset is ready for its intended use. At March 31, 20152016 and 2014,2015, capitalized software development costs, which include software development work in progress, were approximately $7,302$8,020 and $5,603,$7,302, respectively. These costs were recorded in property and equipment. For the fiscal years ended March 31, 2016, 2015 2014 and 2013,2014, amortization of capitalized software development costs amounted to approximately $556, $706 and $733, and $351, respectively.




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

(m)

Income Taxes

        Income taxes are accounted for using the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

        The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations in multiple jurisdictions. The Company records liabilities for estimated tax obligations in the United States and other tax jurisdictions in which it has operations (see note 12)13).




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

(n)

Revenue Recognition

        The Company derives its revenue from a variety of IT consulting, technology implementation and application outsourcing services. Contracts for these services have different terms and conditions based on the scope, deliverables, and complexity of the engagement which require management to make judgments and estimates in determining the overall cost to the customer. Fees for these contracts may be in the form of time-and-materialstime and materials or fixed-price arrangements and volume discounts are recorded as a reduction of revenue over the contractual period as services are performed.fixed price arrangements.

        Revenue on time-and-material contracts is recognized as the services arework is performed and amounts are earned. The Company considers amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is reasonably assured. For contracts with fees based on time-and-materials, the Company recognizesVolume discounts are recorded as a reduction of revenue over the contractual period of performance.as services are performed.

        Revenue on time and material contracts is recognized as the services are performed and amounts are earned.

        Revenue from fixed-pricefixed price contracts related to complex design, development and customization is accounted for under the percentage-of-completionpercentage of completion method. Under the percentage-of-completionpercentage of completion method, management estimates the percentage of completion based upon efforts incurred as a percentage of the total estimated efforts for the specified engagement. When total cost estimates exceed revenue, the Company accrues for the estimated losses immediately. The use of the percentage-of-completionpercentage of completion method requires significant judgment relative to estimating total contract revenue and efforts, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in other engagement-relatedengagement related costs. The Company's analysis of these contracts also contemplates whether contracts should be combined or segmented. The Company combines closely related contracts when all the applicable criteria under U.S. GAAP are met. Similarly, Thethe Company may segment a project, which may consist of a single contract or a group of contracts, with varying rates of profitability, only if all the applicable criteria under U.S. GAAP are met. Estimates of total contract revenue and efforts are continuously monitored during the term of the contract and are subject to revision as the contract progresses. When revisions in estimated contract revenue and efforts are determined, such adjustments are recorded in the period in which they are first identified.

        Revenue includes reimbursementsfrom fixed-price contracts related to consulting or other IT services is accounted for using a proportional performance method. Performance is generally measured based upon the efforts incurred to date in relation to the total estimated efforts to the completion of travelthe contract. The cumulative impact of any change in estimates of the contract revenue is reflected in the period in which the changes become known.

        Revenue from fixed-price applications management, maintenance or support engagements is recognized as earned which generally results in straight-line revenue recognition as services are performed continuously over the term of the engagement.

        The Company may enter into arrangements that consist of multiple elements and out-of-pocket expenses, with equivalent amountsin these types of expense recorded in costsarrangements the transaction price is allocated to the individual units of revenue,accounting at the inception of $10,877, $5,921the arrangement based on the relative selling price. The Company uses a hierarchy to determine the selling prices to be used for allocating revenue: (i) vendor-specific objective, evidence of fair value (VSOE), (ii) third-party evidence of selling price (TPE), and $7,001 for(iii) best estimate of the fiscal years ended March 31, 2015, 2014 and 2013, respectively.selling price (ESP).




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

        The Company may enter into hosting arrangements where revenue is recognized as the service is delivered, generally on a straight-line basis, over the contractual period of performance. In these types of arrangements the Company considers the rights provided to the customer in determining whether the arrangement includes the sale of a software license.

        Differences between the timing of billings and the recognition of revenue based on various methods of accounting are recorded as unbilled revenue or deferred revenue.

        Revenue includes reimbursements of travel and out-of-pocket expenses, with equivalent amounts of expense recorded in costs of revenue, of $14,142, $10,877 and $5,921 for the fiscal years ended March 31, 2016, 2015 and 2014, respectively.

        Any tax assessed by a governmental authority that is incurred as a result of a revenue transaction (e.g. sales tax) is excluded from revenue and reported on a net basis.

(o)

Costs of Revenue and Operating Expenses

        Costs of revenue consist principally of salaries, employee benefits and stock compensation expense, reimbursable and non-reimbursable travel costs, subcontractor fees, and immigration related expenses for IT professionals. Selling and marketing expenses are charged to operating expenses as incurred. Selling and marketing expenses are those expenses associated with promoting and selling the Company's services and include such items as sales and marketing personnel salaries, stock compensation expense and related fringe benefits, commissions, travel, and the cost of advertising and other promotional activities. Advertising and promotional expenses incurred were approximately $316, $430 $255 and $204$255 for the fiscal years ended March 31, 2016, 2015 2014 and 2013,2014, respectively.

        General and administrative expenses include other operating items such as officers' and administrative personnel salaries, stock compensation expense and related fringe benefits, legal and audit expenses, public company related expenses, insurance, facility costs, provision for doubtful accounts, depreciation and amortization, including amortization of purchased intangibles and operating lease expenses.

(p)

Share-Based Compensation

        Share-based compensation cost is determined by estimating the fair value at the grant date of the Company's common stock using the Black-Scholes option pricing model, and expensing the total compensation cost on a straight line basis (net of estimated forfeitures) over the requisite employee service period. The allocation of total share-based compensation expense between costs of revenue and selling, general and administrative expenses were as follows:

		Year Ended March 31,
		2015			2014			2013
Costs of revenue		$	1,121		$	912		$	718
Selling, general and administrative expenses			9,977			7,254			5,158
​	​	​	​	​	​	​	​	​	​	​
Total share-based compensation expense		$	11,098		$	8,166		$	5,876

        The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing valuation model with the following assumptions:

		Year Ended March 31,
Weighted Average Fair Value Options Pricing Model Assumptions		2015			2014			2013
Risk-free interest rate			1.62	%		1.31	%		0.88	%
Expected term (in years)			5.02			5.60			6.15
Anticipated common stock volatility			42.59	%		52.31	%		62.53	%
Expected dividend yield			0	%		0	%		0	%

		Year Ended March 31,
		2016			2015			2014
Costs of revenue		$	1,204		$	1,121		$	912
Selling, general and administrative expenses			14,975			9,977			7,254
​	​	​	​	​	​	​	​	​	​	​
Total share-based compensation expense		$	16,179		$	11,098		$	8,166




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

        The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing valuation model with the following assumptions:

		Year Ended March 31,
Weighted Average Fair Value Options Pricing Model Assumptions		2016(1)			2015			2014
Risk-free interest rate			—			1.62	%		1.31	%
Expected term (in years)			—			5.02			5.60
Anticipated common stock volatility			—			42.59	%		52.31	%
Expected dividend yield			—			0	%		0	%

---

(1)

There were no options granted during the fiscal year ended March 31, 2016.

        The risk-free interest rate assumptions are based on the interpolation of various U.S. Treasury bill rates in effect during the month in which stock option awards are granted. For the fiscal years ended March 31, 2016, 2015 and 2014, the Company's volatility assumption is based on the historical volatility rates of the Company's common stock from exchange traded shares over periods commensurate with the expected term of each grant. For the fiscal year ended March 31, 2013 the Company's volatility assumption is based on the historical volatility rates of the common stock of its publicly held peers over periods commensurate with the expected term of each grant.grant

        The expected term of employee share-based awards represents the weighted average period of time that awards are expected to remain outstanding. The determination of the expected term of share-based awards assumes that employees' behavior is a function of the awards vested, contractual lives, and the extent to which the award is in the money. Accordingly, for the fiscal years ended March 31, 2016, 2015 and 2014, the expected term of our options is based on historical employee exercise patterns. For fiscal year ended March 31, 2013 the Company had elected to use the "simplified" method of determining the expected term or life of its share-based awards due to the Company's limited trading history. The fair value of restricted awards and deferred stock awards is determined based on the number of stock awards granted and the quoted price of our stock at date of grant.

        As of March 31, 2015,2016, there was $14,988$25,545 of total unrecognized compensation cost related to unvested stock options, restricted stock awards, and deferred stock awards and restricted stock units granted under the Company's Amended and Restated 2000 Option Plan, and the Company's 2007 Stock Option and Incentive Plan and the Company's 2015 Stock Option and Incentive Plan (see note 1112 for a more complete description of these plans). The unrecognized compensation cost is expected to be recognized over a remaining weighted average period of 1.591.71 years.

(q)

Allowance for Doubtful Accounts

        The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of clients to make required payments. The allowance for doubtful accounts is determined by evaluating the relative credit worthiness of each client, historical collections experience and other information, including the aging of the receivables. We evaluate the collectability of our accounts receivables on an on-going basis and write-off accounts when they are deemed to be uncollectible.

(r)

Unbilled Accounts Receivable

        Unbilled accounts receivable represent revenue on contracts to be billed, in subsequent periods, as per the terms of the related contracts.




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Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

(s)

Recent Accounting Pronouncementsaccounting pronouncements

        In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

        The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on April 1, 2017.2018. Early application is permitted but not permitted.before periods beginning on or after January 1, 2017. In March, April and May 2016, the FASB issued updates to the new revenue standard to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross versus net, identifying performance obligations, accounting for licenses of intellectual property, transition, contract modifications, collectability, non-cash consideration and presentation of sales and other similar taxes with the same effective date. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

        In June 2014, the FASB issued ASU No. 2014-12—"Stock Compensation—Accounting for Share-Based Payments In some cases, the terms of an award may provide that a performance target that affects vesting could be achieved after an employee completes the requisite service period. That is, the employee would be eligible to vest in the award regardless of whether the employee is rendering service on the date the performance target is achieved. A performance target that affects vesting and that could be achieved after an employee's requisite service period shall be accounted for as a performance condition. As such, the performance target shall not be reflected in estimating the fair value of the award at the grant date. Compensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service already has been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost for which requisite service has not yet been rendered shall be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period shall reflect the number of awards that are expected to vest and shall be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The ASU is effective for annual and interim periods for fiscal years beginning on or after December 15, 2015. Entities can apply the amendment either a) prospectively to all awards granted or modified after the effective date or b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The ASU does not have an impact on the consolidated financial statements.

        In April 2015, the FASB issued ASU 2015-03, "Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". This update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. The Company adopted this guidance in the current fiscal year and recorded debt issuance cost as a direct deduction from the carrying value of that debt.




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Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

        In September 2015, the FASB issued ASU 2015-16, which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. The ASU is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. The Company adopted this guidance in the current fiscal year. The adoption of this guidance did not have a material impact on the consolidated financial statements.

        In November 2015, the FASB issued Accounting Standards Update ("ASU") 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"), which will require entities to present all deferred tax liabilities and assets as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. The standard can be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company early adopted this ASU in the three month period ending March 31, 2016, which resulted in all deferred taxes being reported as non-current in its consolidated balance sheet. The Company has elected not to retrospectively restate its deferred tax assets and liabilities in prior periods.

        In January 2016, the FASB issued an update (ASU 2016-01) to the standard on financial instruments. The update significantly revises an entity's accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The update also amends certain disclosure requirements. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Upon adoption, entities will be required to make a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. However, the specific guidance on equity securities without readily determinable fair value will apply prospectively to all equity investments that exist as of the date of adoption. Early adoption of certain sections of this update is permitted. The Company is currently evaluating the effect the new standard will have on the Company's consolidated financial statements and related disclosures.

        In February 2016, the FASB issued as update (ASU 2016-02) to the standard on leases to increase transparency and comparability among organizations. The new standard replaces the existing guidance on leases and requires the lessee to recognize a right-of-use asset and a lease liability for all leases with lease terms equal to or greater than twelve months. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize total lease expense on a straight-line basis. For public business entities this standard is effective for the annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption of this new standard is permitted. Entities will be required to use a modified retrospective transition which provides for certain practical expedients. The Company is currently evaluating the effect the new standard will have on its consolidated financial statements and related disclosures.

        In March 2016, the FASB issued an update (ASU 2016-05) to the standard on derivatives and hedging on the effect of derivative contract notations on existing hedge accounting relationships. As it relates to derivative instruments, novation refers to replacing one of the parties to a derivative instrument with a new party, which may occur for a variety of reasons such as: financial institution mergers, intercompany




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Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(2) Summary of Significant Accounting Policies (Continued)

transactions, an entity exiting a particular derivatives business or relationship, or because of laws or regulatory requirements. The update clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require designation of that hedge accounting relationship provided that all other hedge accounting criteria continue to be met. The update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2017. Upon adoption, the entities can choose to apply on either a prospective basis or a modified retrospective basis. Early adoption of this update is permitted. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

        In March 2016, the FASB issued an update (ASU 2016-09) to the standard on Compensation—Stock Compensation, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. Upon adoption, entities will be required to apply a modified retrospective, prospective or retrospective transition method depending on the specific section of the guidance being adopted. The Company is currently evaluating the effect the update will have on its consolidated financial statements and related disclosures.

(3) Earnings per Share

        Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period, and diluted earnings per share is computed by including the dilutive impact of common stock equivalents outstanding for the period in the denominator. Common stock equivalents include shares issuable upon the exercise of outstanding stock options, SARs, issuance of shares on exercise or vesting of restricted stock units, unvested restricted stock, net of shares assumed to have been purchased with the proceeds, using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share for the periods set forth below:

		Year Ended March 31,
		2016			2015			2014
Numerators:
Net income available to Virtusa common stockholders		$	44,802		$	42,446		$	34,375
Denominators:
Weighted average common shares outstanding			29,233,861			28,753,102			26,116,516
Dilutive effect of employee stock options and unvested restricted stock awards and restricted stock units			768,991			794,883			842,864
Dilutive effect of stock appreciation rights			2,130			7,639			13,621
​	​	​	​	​	​	​	​	​	​	​
Weighted average shares—diluted			30,004,982			29,555,624			26,973,001
​	​	​	​	​	​	​	​	​	​	​
Basic earnings per share		$	1.53		$	1.48		$	1.32
​	​	​	​	​	​	​	​	​	​	​
Diluted earnings per share		$	1.49		$	1.44		$	1.27
​	​	​	​	​	​	​	​	​	​	​




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Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(3) Earnings per Share (Continued)

treasury stock method. The following table sets forth the computation of basic and diluted earnings per share for the periods set forth below:

		Year Ended March 31,
		2015			2014			2013
Numerators:
Net income available to common stockholders		$	42,446			34,375		$	28,398
Denominators:
Weighted average common shares outstanding			28,753,102			26,116,516			24,937,162
Dilutive effect of employee stock options and unvested restricted stock awards			794,883			842,864			683,470
Dilutive effect of stock appreciation rights			7,639			13,621			18,207
​	​	​	​	​	​	​	​	​	​	​
Weighted average shares—diluted			29,555,624			26,973,001			25,638,839
​	​	​	​	​	​	​	​	​	​	​
Basic earnings per share		$	1.48		$	1.32		$	1.14
​	​	​	​	​	​	​	​	​	​	​
Diluted earnings per share		$	1.44		$	1.27		$	1.11
​	​	​	​	​	​	​	​	​	​	​

        During the fiscal years ended March 31, 2016, 2015, 2014, and 2013,2014, unvested restricted stock awards and unvested restricted stock units issuable for, and options to purchase, 68,991, 21,629 29,766 and 450,29929,766 shares of common stock in the aggregate for such fiscal years, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive.

(4) Acquisitions

        On NovemberApril 1, 2013,2015, the Company acquired substantially all of the business and assets of OSB pursuant to an asset purchase agreement dated November 1, 2013entered into a Stock Purchase Agreement (the "Asset"Stock Purchase Agreement") by and among OSBthe Company, Apparatus, Inc. an Indiana corporation ("Apparatus"), the majority stockholder of Apparatus ("Major Stockholder") and the sole memberother stockholders (collectively with the Major Stockholder, the "Sellers"), to acquire all of OSB.the issued and outstanding stock of Apparatus (the "Acquisition"). The Company completed the Acquisition on April 1, 2015, at which time Apparatus became a wholly owned subsidiary of the Company. The acquisition of OSB extendsstrengthens the Company's service offerings to includegrowing Infrastructure Management Services (IMS) practice and offers the combined Company's clients a broaderstronger set of finance transformation servicesofferings that are focused on simplifying their IT infrastructure and driving high levels of efficiency in IT operations.

        Under the financial services and insurance domains,terms of the Stock Purchase Agreement, the purchase price for the Acquisition was approximately $34,200 in cash, subject to existing and new clients, including service offerings targeted to enable clients to automate their finance and accounting processes, reporting capabilities, including SAP based capabilities, and regulatory compliance programs.

post closing working capital adjustments. The purchase price was $6,840also subject to adjustment after the closing by up to an additional $1,700 in cash. Ten percentearn out consideration to the Sellers in the event of Apparatus' achievement of certain revenue and profit milestones for the fiscal year ending March 31, 2016. The Sellers earned $839 of the earn-out based on achievement against these performance targets which is accrued at March 31, 2016. The Company deposited 8.5% of the purchase price was subject to a hold back by the Companyinto escrow for a period of 12 months as security for the sellers'Sellers' indemnification obligations under the AssetStock Purchase Agreement. The purchase price is subject to adjustment after the closing of up to an additional $6,000 in earn-out consideration,Company, Sellers and Apparatus made customary representations, warranties and covenants in the aggregate, upon the achievement of certain revenue and operating margin targets for the five months ending March 31, 2014, the nine months ending December 31, 2014 and the twelve months ending December 31, 2015. The fair value of the contingent consideration at March 31, 2015 and March 31, 2014 was $2,432 and $4,042, respectively.Stock Purchase Agreement. During the fiscal year ended March 31, 2015,2016, the Company paid $3,000 earn-out considerationand Apparatus agreed to a working capital adjustment of $297, resulting in a reduction to the sellerspurchase price paid.

        In connection with the Acquisition, the Company offered employment to all of OSB, which represents 100%Apparatus' employees. The Company has agreed to offer up to $1,500 in the form of variable cash compensation to certain Apparatus employees in the event of Apparatus' achievement of the targetscertain revenue and profit milestones for the five monthsfiscal year ending March 31, 20142016. These Apparatus employees earned $781 based on achievement against these performance targets. The Company has also agreed to issue an aggregate of up to $3,500 in shares of restricted stock from the Company's stock option and the nine months ending December 31, 2014. Changes in fair value of the contingent consideration were $1,390 during the fiscalincentive plan, not to exceed 93,333 shares, to certain Apparatus employees. The shares will vest annually and will be expensed over a four year ended March 31, 2015period and werewill be recorded to selling, general and administrative expenses. During the fiscal year ended March 31, 2015, the Company paid $684 to OSB with respect to the hold back.as post-acquisition compensation expense.




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Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(4) Acquisitions (Continued)

        Under the termsA summary of the Asset Purchase Agreement, the Company agreed to offer employment to all of the employees of OSB, including certain key employees and the sole member of OSB.purchase price allocation for Apparatus is as follows:

        There are no material relationships between the Company or any of its affiliates and any of the parties to the Asset Purchase Agreement and related agreements, other than with respect to such agreements themselves.

		Amount			Useful Life
Consideration Transferred:
Cash paid at closing		$	31,248
Holdback of 8.5%			2,903
Fair value of contingent consideration			830
Working capital adjustment			(297	)
​	​	​	​	​	​
Fair value of consideration transferred			34,684
Less: Cash acquired			(731	)
​	​	​	​	​	​
Total purchase price, net of cash acquired		$	33,953
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​
Acquisition-related costs		$	631
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​
Purchase Price Allocation:
Cash and cash equivalents		$	731
Accounts receivable and unbilled receivable			2,916
Prepaid expense			79
Property and equipment			1,115
Goodwill			19,229
Customer relationships			12,200		10 years
Technology			500		5 years
Trademark			400		3 years
Other current liabilities			(2,486	)
​	​	​	​	​	​
Total purchase price			34,684
​	​	​	​	​	​
Less: Cash acquired			(731	)
​	​	​	​	​	​
Total purchase price, net of cash acquired		$	33,953
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​

        On January 2, 2014,June 1, 2015, Virtusa International B.V.,AB, a wholly owned subsidiary of the Company organized and formed in Sweden, acquired the Netherlands ("Virtusa BV")assets of a consulting company located in Sweden. The purchase price was approximately $360 in cash subject to adjustment after the closing for up to an additional $540 in earn-out consideration. The purchase price allocation was as follows: goodwill of $505, customer relationships of $446 and other current liabilities of $51. During the fiscal year ended March 31, 2016, the Company paid $540 in earn out consideration.

        On July 28, 2015, the Company acquired the business of Agora Group, Inc., acquired all of the outstanding shares of TradeTech,an IT consulting organization headquartered in Atlanta, Georgia, USA and its subsidiaries (together with TradeTech, the "TradeTech Group"Indian affiliate (collectively, "Agora"), pursuant to a share purchase agreement dated as of January 2, 2014 (the "Share Purchase Agreement") byfocused on implementing and among Virtusa BV and the shareholders of TradeTech (the "TradeTech Shareholders"). The acquisition is intended to expand the Company's position within the banking, financial services and insurance industries by increasing its assetintegrating business process management and treasury services domain and technology expertise, as well as expanding the Company's global presence into the Nordic countries.(BPM) solutions on leading BPM suites. Agora employs approximately 60 professionals.

        Under the terms of the Share Purchase Agreement, Virtusa BVasset purchase agreement by and among the Company, Agora Group, Inc. and the sole stockholder of the Agora Group, Inc., the Company acquired all the outstanding shares of TradeTechAgora's business for $19,555$7,441 in cash as well as up to $4,080 in earn-out consideration subject to the TradeTech Group's achievement(net of certain revenue and EBITA targets for the 12-month period ending December 31, 2014. At June 30, 2014, theworking capital adjustments). The Company determined that the earn-out consideration targets would not be achieved for the 12-month period ending December 31, 2014, resulting in a reduction of $1,833 in the fair value of the recorded earn-out liability for the fiscal year ended March 31, 2015. The fair value of the contingent consideration at March 31, 2015 and 2014 is $0 and $1,883, respectively. The reduction of the entire fair value of the earn-out consideration of $1,833 was recorded as a reduction to selling, general and administration expenses in the fiscal year ended March 31, 2015. Under the terms of the Share Purchase Agreement, 12.5% of the purchase price was also held back and placed into escrow by the Company for a period of 12 months as security for the indemnification obligations of the TradeTech Shareholders. The Companyhas also agreed to issue an aggregate of up to $2,000$2,890 in deferred restricted stock awards from the Company's stock option and incentive plan, not to exceed an aggregate of 65,00077,067 shares, to certain of these new TradeTech GroupAgora employees. The shares will be recognized as compensation cost over the requisite employee service period. The sharesrestricted stock awards will vest annually and will be expensed over a fivefour year period. During




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(4) Acquisitions (Continued)

        From the purchase price, the Company deposited approximately $854 into escrow for a period of 12 months as security for the Agora Group's and the sole stockholder's indemnification obligations under the asset purchase agreement. The Company, the Agora Group and sole stockholder made customary representations, warranties and covenants in the asset purchase agreement. The asset purchase agreement also contains non-solicitation and non-competition provisions pursuant to which the Agora Group and the sole stockholder agreed not to solicit any employee or affiliate or client of the Company and to not engage in any competitive business or activities, in each case, for a period of three years after the date of closing of the transaction.

        A summary of the purchase price allocation for Agora is as follows:

		Amount			Useful Life
Consideration Transferred:
Cash paid at closing		$	6,587
Holdback			854
​	​	​	​	​	​
Total purchase price, net of cash acquired		$	7,441
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​
Acquisition-related costs		$	35
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​
Purchase Price Allocation:
Goodwill		$	6,141
Customer relationships			1,300		5 years
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​
		$	7,441
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​

        On March 3, 2016, pursuant to a share purchase agreement (the "SPA"), dated as of November 5, 2015, by and among Virtusa Consulting Services Private Limited ("Virtusa India"), a subsidiary of the Company, Polaris Consulting & Services Limited ("Polaris") and the Promoter Sellers named therein, as amended, the Company completed the purchase of 53,133,127 shares, or approximately 51.7% of the fully-diluted capitalization of Polaris from certain Polaris shareholders for approximately $168,257 (Indian rupees 11,391,365) in cash (the "Polaris SPA Transaction"). In addition, on April 6, 2016, Virtusa India completed an unconditional mandatory open offer with successful tender to purchase an additional 26% (1) of the fully diluted outstanding shares of Polaris from Polaris' public shareholders. The mandatory open offer was conducted in accordance with requirements of the Securities and Exchange Board of India ("SEBI") and the applicable Indian rules on takeovers. Virtusa India purchased 26,719,942 shares of Polaris common for an aggregate purchase price of approximately $88,820 (Indian rupees 5,913,920). Upon the closing of the mandatory offering, Virtusa's ownership interest in Polaris increased from approximately 51.7% to 77.7% of Polaris' fully diluted shares outstanding, and from approximately 52.9% to 78.8% of Polaris' basic shares outstanding. Under applicable Indian rules on takeovers, Virtusa India is required to sell within one year of the settlement of the unconditional mandatory offer its shareholdings in Polaris in excess of 75% of the basic outstanding share capital of Polaris.

        Pursuant to the mandatory open offer, during the fiscal year ended March 31, 2015,2016, the Company transferred $89,220 into an escrow account in accordance with the India takeover rules, which is recorded as restricted cash at March 31, 2016. The Polaris SPA transaction closed on March 3, 2016 and the




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(4) Acquisitions (Continued)

mandatory open offer closed on April 6, 2016. On April 6, 2016, the restricted cash was released $1,976 to TradeTech with respectfrom the escrow account and used for settlement for the mandatory open offer.

        Under the purchase method of accounting, the total purchase price is allocated to the hold back.preliminary assets acquired and liabilities assumed based on their estimated fair values. The Company may continue to adjust the preliminary estimated purchase price allocation after obtaining more information regarding asset valuations, liabilities assumed, and revision of preliminary estimates. The following is the total preliminary purchase price allocation based on information available as of March 31, 2016 and may be subject to change during the measurement period.

		Amount			Useful Life
Consideration Transferred:
Cash paid at closing		$	168,257
Less: Cash acquired			(40,782	)
​	​	​	​	​	​
Total purchase price, net of cash acquired		$	127,475
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​
Acquisition-related costs		$	9,813
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​
Purchase Price Allocation:
Cash and cash equivalents		$	40,782
Accounts receivable and unbilled receivable			71,844
Short term investments			17,695
Other current assets			13,912
Property and equipment			74,391
Long term investments			8,396
Long term assets			13,575
Goodwill			120,745
Customer relationships			32,000		10 - 15 years
Trademark			2,400		2 years
Accounts Payable			(41,361	)
Deferred revenue			(5,117	)
Accrued expenses and other current liabilities			(13,693	)
Deferred income taxes			(12,298	)
Long term liabilities			(7,340	)
Noncontrolling interest			(147,674	)
​	​	​	​	​	​
Total purchase price			168,257
​	​	​	​	​	​
Less: Cash acquired			(40,782	)
​	​	​	​	​	​
Total purchase price, net of cash acquired		$	127,475
​	​	​	​	​	​
​	​	​	​	​	​
​	​	​	​	​	​

        Acquisition costs are recorded in selling, general and administrative expenses. Noncontrolling interest was fair valued based on the Polaris closing stock price on the date of acquisition for the minority shares outstanding and the fair value of vested options exercisable using the black-Scholes option pricing model. Polaris's assets acquired and liabilities assumed include net assets of $300 related to a business unit that is held for sale.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(4) Acquisitions (Continued)

        On February 25, 2016, the Company entered into a credit agreement (the "Credit Agreement") dated as of February 25, 2016, by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The Credit Agreement replaces the Company's existing $25,000 credit agreement with JP Morgan Chase Bank, N.A. and provides for a $100,000 revolving credit facility and a $200,000 delayed-draw term loan (together, the "Credit Facility"). To finance the Polaris SPA Transaction, on February 25, 2016, the Company drew down the full $200,000 of the term loan. See Note 11 of the notes to our financial statements included herein for a detail description of our debt.

        The following unaudited, pro forma information assumes the Polaris, Apparatus and Agora acquisition occurred on April 1, 2014. The unaudited pro forma consolidated results of operations are provided for informational purposes only and do not purport to represent the Company's actual consolidated results of operations had each acquisition occurred on the dates assumed, nor are these necessarily indicative of the Company's future consolidated results of operations.

		Year Ended
		March 31, 2016			March 31, 2015
Revenue		$	887,943		$	820,736
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
Net income		$	30,508		$	39,956
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​

        Revenue and net loss relating to Polaris, Apparatus and Agora since the acquisition dates, amounting to $55,205 and $1,768, respectively, have been included in the consolidated statement of income for the fiscal year ended March 31, 2016. The unaudited pro forma consolidated results of operations for the fiscal year ended March 31, 2016 and 2015 included amortization of intangible assets, share-based compensation expense, acquisition related costs, earn-out bonuses and changes in the fair value of contingent consideration.

(5) Goodwill and Intangible Assets

Goodwill:

        The Company has one reportable segment at March 31, 2015.2016. The following are details of the changes in goodwill balance at March 31, 2015:2016:

		Amount				Amount
Balance at April 1, 2014		$	53,448
Balance at April 1, 2015						$	50,360
Goodwill arising from acquisitions							146,620
Foreign currency translation adjustments			(3,088	)			3,444
​	​	​	​	​	​	​	​	​
Balance at March 31, 2015		$	50,360
Balance at March 31, 2016						$	200,424
​	​	​	​	​	​	​	​	​

        The acquisition costs and goodwill balance deductible for our business acquisitions for tax purposes are $74,129. The acquisition costs and goodwill balance not deductible for tax purposes are $138,182 and relate to the Company's TradeTech acquisition (closed in January 2, 2014) and the Polaris acquisition.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(5) Goodwill and Intangible Assets (Continued)

        The acquisition costs and goodwill balance deductible for our business acquisitions for tax purposes are $41,834. The acquisition costs and goodwill balance not deductible for tax purposes are $9,917 and relate to the Company's TradeTech acquisition.

        The Company performed the annual assessment of its goodwill during the fourth quarter of the fiscal year ended March 31, 20152016 and determined that the estimated fair value of the Company's reporting unit exceeded its carrying value and therefore goodwill was not impaired. The Company will continue to complete goodwill impairment assessments at least annually during the fourth quarter of each ensuing fiscal year. The Company will continue to evaluate whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets, including intangible assets, may warrant revision or that the carrying value of these assets may be impaired. Any write downs are treated as permanent reductions in the carrying amount of the assets.

Intangible Assets:

        The following are details of the Company's intangible asset carrying amounts acquired and amortization for the fiscal year ended March 31, 20152016 and March 31, 2014:2015:

		March 31, 2015													March 31, 2016
		Weighted Average Useful Life			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount				Weighted Average Useful Life			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Customer relationships			9.4		$	34,070		$	12,259		$	21,811				10.8		$	81,211		$	17,501		$	63,710
Partner relationships			6.5			700			602			98				6.0			700			700			—
Trademark			1.0			57			57			—				1.3			2,916			217			2,699
Backlog			1.0			1,143			1,143			—
Technology																5.0			500			63			437
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
			9.0		$	35,970		$	14,061		$	21,909				10.3		$	85,327		$	18,481		$	66,846
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

 


		March 31, 2014													March 31, 2015
		Weighted Average Useful Life			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount				Weighted Average Useful Life			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Customer relationships			9.4		$	36,410		$	8,978		$	27,432				9.4		$	34,070		$	12,259		$	21,811
Partner relationships			6.5			700			486			214				6.0			700			602			98
Trademark			1.0			75			18			57				1.0			57			57			—
Backlog			1.0			1,512			554			958				1.0			1,143			1,143			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
			9.0		$	38,697		$	10,036		$	28,661				9.0		$	35,970		$	14,061		$	21,909
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(5) Goodwill and Intangible Assets (Continued)

        The Company's amortization expense related to intangible assets acquired through acquisitions was $5,491, $4,436 $3,431 and $2,556$3,431 for the fiscal years ended March 31, 2016, 2015 2014 and 2013,2014, respectively. The components included in the gross carrying amounts of amortization expense in the table above reflect the Company's acquisition of all the outstanding stock of Insource Holdings, Inc. and its subsidiaries on November 4, 2009, the Company's purchase of substantially all of the assets of ConVista Consulting LLC, on February 1, 2010, the Company's purchase of substantially all of the assets of ALaS Consulting LLC, on July 1, 2011, the Company's purchase of substantially all of the assets of OSB on November 1, 2013, and the Company's acquisition of all the outstanding stock of TradeTech on January 2, 2014.2014, the Company's




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(5) Goodwill and Intangible Assets (Continued)

acquisition of all the outstanding stock of Apparatus, Inc. an Indiana corporation on April 1, 2015, the Company's acquisition of Agora's business on July 28, 2015 and the Company's acquisition of a majority interest in Polaris on March 3, 2016. The intangible assets are being amortized on either a straight-line basis or on an accelerated basis using the most appropriate economic pattern of consumption over their estimated useful lives.

        The estimated amortization expense related to the purchased intangible assets listed in the table above at March 31, 20152016 is as follows for the following fiscal years:

Fiscal year		Amount				Amount
2016		$	3,828
2017			3,732			$	9,479
2018			3,455				9,570
2019			2,460				7,177
2020			2,453				7,191
2021							5,813
Thereafter			5,981				27,616
​	​	​	​	​	​	​	​	​
Total		$	21,909			$	66,846
​	​	​	​	​	​	​	​	​

(6) Investment Securities

        At March 31, 20152016 and 2014,2015, all of the Company's investment securities were classified as available-for-sale and were carried on its balance sheet at their fair market value. A fair market value hierarchy based on three levels of inputs was used to measure each security (see note 7)8).

        The following is a summary of investment securities at March 31, 2016:

		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current		$	26,662		$	7		$	(10	)	$	26,659
Non-current			22,187			45			(64	)		22,168
Preference shares:
Non-current			4,149			—			—			4,149
Agency and short-term notes:
Current			1,000			1			—			1,001
Non-current			2,500			1			(1	)		2,500
Mutual funds:
Current			17,309			9			(33	)		17,285
Depository receipts:
Current			414			67			—			481
Time deposits:
Current			8,491			—			—			8,491
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total available-for-sale securities		$	82,712		$	130		$	(108	)	$	82,734
​	​	​	​	​	​	​	​	​	​	​	​	​	​




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(6) Investment Securities (Continued)

        The following is a summary of investment securities at March 31, 2015:

		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current		$	41,873		$	10		$	(22	)	$	41,861
Non-current			10,551			—			(21	)		10,530
Agency and short-term notes:
Current			6,737			3			—			6,740
Non-current			10,203			1			(2	)		10,202
Municipal bonds:
Current			200			—			—			200
Time deposits:
Current			41,613			—			—			41,613
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total available-for-sale securities		$	111,177		$	14		$	(45	)	$	111,146
​	​	​	​	​	​	​	​	​	​	​	​	​	​

        The following is a summary of investment securities at March 31, 2014:

		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Corporate bonds:
Current		$	20,255		$	9		$	(8	)	$	20,256
Non-current			50,264			5			(70	)		50,199
Auction-rate securities:
Non-current			300			—			(12	)		288
Agency and short-term notes:
Current			561			—			—			561
Non-current			11,341			1			(14	)		11,328
Commercial paper:
Current			5,497			—			—			5,497
Municipal bonds:
Non-current			200			—			—			200
Time deposits:
Current			29,574			—			—			29,574
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total available-for-sale securities		$	117,992		$	15		$	(104	)	$	117,903
​	​	​	​	​	​	​	​	​	​	​	​	​	​

        The Company evaluates investments with unrealized losses to determine if the losses are other than temporary. The Company has determined that the gross unrealized losses on its available-for-sale securities at March 31, 20152016 are temporary. The Company conducts a periodic review and evaluation of its investment securities to determine if the decline in fair value of any security is deemed to be




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(6) Investment Securities (Continued)

other-than-temporary. Other-than-temporary losses are reflected in earnings as a charge against gain on sale of investments to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income.

        The following tables show the gross unrealized losses and fair value of the Company's investment securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 20152016 and March 31, 2014:2015:


Less Than 12 Months


		Fair Value			Gross Unrealized Loss				Fair Value			Gross Unrealized Loss
Available-for-sale securities at March 31, 2016:
Corporate bonds									$	21,435		$	(73	)
Agency bonds										1,699			(1	)
Mutual funds										15,991			(33	)
​								​	​	​	​	​	​	​
Total									$	39,125		$	(107	)
​								​	​	​	​	​	​	​
Available-for-sale securities at March 31, 2015:
Corporate bonds		$	36,272		$	(41	)		$	36,272		$	(41	)
Agency bonds			5,001			(2	)			5,001			(2	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total		$	41,273		$	(43	)		$	41,273		$	(43	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Available-for-sale securities at March 31, 2014:
Corporate bonds		$	49,082		$	(78	)
Agency bonds			9,802			(14	)
​		​	​	​	​	​	​
Total		$	58,884		$	(92	)
​		​	​	​	​	​	​





Greater Than 12 Months


		Fair Value			Gross Unrealized Loss
Available-for-sale securities at March 31, 2015:
Corporate bonds		$	1,901			(2	)
Agency bonds			1,100			—
​	​	​	​	​	​	​	​
Total		$	3,001		$	(2	)
​	​	​	​	​	​	​	​
Available-for-sale securities at March 31, 2014:
Auction-rate securities			288			(12	)
​	​	​	​	​	​	​	​
Total		$	288		$	(12	)
​	​	​	​	​	​	​	​

        At March 31, 2015, there were no investment securities owned by the Company for which the fair value was less than the carrying value for a period greater than 12 months.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(6) Investment Securities (Continued)

Greater Than 12 Months


		Fair Value			Gross Unrealized Loss
Available-for-sale securities at March 31, 2016:
Corporate bonds		$	1,005			(1	)
​	​	​	​	​	​	​	​
Total		$	1,005		$	(1	)
​	​	​	​	​	​	​	​
Available-for-sale securities at March 31, 2015:
Corporate bonds		$	1,901			(2	)
Agency bonds			1,100			—
​	​	​	​	​	​	​	​
Total		$	3,001		$	(2	)
​	​	​	​	​	​	​	​

        At March 31, 2016, there were no investment securities owned by the Company for which the fair value was less than the carrying value for a period greater than 12 months.

        Available-for-sale securities by contractual maturity were as follows:

		March 31, 2015				March 31, 2016
Due in one year or less		$	90,414			$	53,917
Due after 1 year through 5 years			20,732				22,606
Due after 5 years			—				6,211
​	​	​	​	​	​	​	​	​
Total		$	111,146			$	82,734
​	​	​	​	​	​	​	​	​

        Proceeds from sales of available-for-sale investment securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:

		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Proceeds from sales of available-for-sale investment securities		$	52,308		$	11,602			13,975			$	124,597		$	52,308		$	11,602
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Gross gains		$	6		$	—		$	—			$	64		$	6		$	—
Gross losses			(5	)		—			—				—			(5	)		—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net realized gains on sales of available-for-sale investment securities		$	1		$	—		$	—			$	64		$	1		$	—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

        The(7) Investments in unconsolidated Affiliates

        Investments in entities in which the Company previously investedowns between 20% and 50% of the voting interest or otherwise acquires management influence are accounted for using the equity method and initially recognized at cost. Under the equity method, the Company's share of the post-acquisition profits and losses is recognized in auction-rate securities whose underlying assets are generally student loans which are substantially backed by the U.S. federal government. AtConsolidated Statements of Income. As of March 31, 2015,2016, through its Polaris subsidiary, the Company does not have any auction rate securities.owns a 50% interest in Intellect Polaris Design LLC, an LLC which holds certain real estate in New Jersey, which is being accounted for using the equity method of accounting. As of




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(7) Investments in unconsolidated Affiliates (Continued)

March 31, 2016, the difference between the carrying amount and our equity in net assets of this investment was $501. This is due to fair value measurement of the investment upon the Polaris acquisition.

(8) Fair Value of Financial Instruments

        The Company uses a framework for measuring fair value under U.S. generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company's financial assets and liabilities reflected in the consolidated financial statements at carrying value include marketable securities and other financial instruments which approximate fair value. Fair value for marketable securities is determined using a market approach based on quoted market prices at period end in active markets. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

•

Level 1—Quoted prices in active markets for identical assets or liabilities.



•

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.






Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(7) Fair Value of Financial Instruments (Continued)

•

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

        An entity is allowed to elect to record financial assets and financial liabilities at fair value upon their initial recognition on a contract- by-contractby- contract basis.

        The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis at March 31, 20152016

		Level 1			Level 2			Level 3			Total				Level 1			Level 2			Level 3			Total
Assets:
Investments:
Available-for-sales securities—current		$	—		$	90,414		$	—		$	90,414			$	—		$	53,917			—		$	53,917
Available-for-sales securities—non-current			—			20,732			—			20,732				—			28,817			—			28,817
Foreign currency derivative contracts			—			4,644			—			4,644				—			5,694			—			5,694
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total assets		$	—		$	115,790		$	—		$	115,790			$	—		$	88,428		$	—		$	88,428
Liabilities:
Foreign currency derivative contracts		$	—		$	1,802		$	—		$	1,802			$	—		$	560		$	—		$	560
Contingent consideration			—			—			2,432			2,432				—			—			839			839
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total liabilities		$	—		$	1,802		$	2,432		$	4,234			$	—		$	560		$	839		$	1,399




        The following table provides a summaryTable of changes in fair valueContents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(8) Fair Value of the Company's Level 3 financial assets at March 31, 2015:Financial Instruments (Continued)

		Level 3 Assets
Balance at April 1, 2014		$	288
Auction-rate securities redeemed at par			(300	)
Total gains reclassified out of other comprehensive income			12
​	​	​	​	​
Balance at March 31, 2015		$	—
​	​	​	​	​

        The Company determines the fair value of the contingent consideration related to the Company's acquisitions of OSB and TradeTechApparatus based on the probability of attaining certain revenue and profit margin targets using an appropriate discount rate to present value the liability. See Note 4 of the notes to our financial statements included herein for a description of OSB and TradeTechApparatus acquisitions and their related




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(7) Fair Value of Financial Instruments (Continued)

contingent consideration targets. The following table provides a summary of changes in fair value of the Company's Level 3 financial liabilities as ofat March 31, 2015.2016.

		Level 3 Liabilities
Balance at April 1, 2014		$	5,925
Payment of OSB contingent consideration (See Note 4)			(3,000	)
Reversal of the TradeTech earn-out recognized in earnings (See Note 4)			(1,833	)
Increase of the OSB earn-out recognized in earnings (See Note 4)			1,390
Foreign currency translation adjustments			(50	)
​	​	​	​	​
Balance at March 31, 2015		$	2,432
​	​	​	​	​

		Level 3 Liabilities
Balance at April 1, 2015		$	2,432
Contingent consideration arising from acquisition (See Note 4)			1,370
Increase in earn-out recognized in earnings			577
Payment of contingent consideration			(3,523	)
Foreign currency translation adjustments			(17	)
​	​	​	​	​
Balance at March 31, 2016		$	839
​	​	​	​	​

(8)(9) Property and Equipment

        Property and equipment and their estimated useful lives in years consist of the following:

				March 31,									March 31,
		Estimated Useful Life (Years)									Estimated Useful Life (Years)
				2015			2014						2016			2015
Computer and other equipment		3 - 5		$	27,513		$	25,623			3 - 10		$	36,866		$	27,513
Furniture and fixtures		7			8,629			8,075			7 - 10			12,274			8,629
Vehicles		3 - 5			1,041			740			3 - 6			1,914			1,041
Software		3 - 10			16,255			12,796			3 - 10			18,742			16,255
Leasehold improvements		Lesser of estimated useful life or lease term			5,418			4,686			Lesser of estimated useful life or lease term			6,574			5,418
Buildings		15 - 30			11,563			11,853			15 - 30			29,959			11,563
Land					320			331						50,050			320
Capital work-in-progress					3,452			1,867						2,625			3,452
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
				$	74,191		$	65,971					$	159,004		$	74,191
Less—accumulated depreciation and amortization					36,203			30,625						42,722			36,203
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Property and equipment, net				$	37,988		$	35,346					$	116,282		$	37,988
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

        Depreciation and amortization expense for the fiscal years ended March 31, 2016, 2015 and 2014 was $10,988, $9,116 and 2013 was $9,116, $8,071, and $6,484, respectively. Capital work-in-progress represents advances paid towards the acquisition of property and equipment, and the cost of property and equipment including internally developed software not placed in service before the balance sheet date. The cost and accumulated amortization of assets under capital leases at March 31, 20152016 were $370$474 and $86,$209, respectively. The cost and accumulated amortization of assets under capital leases at March 31, 2014 were $142 and $26, respectively.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(9) Property and Equipment (Continued)

and accumulated amortization of assets under capital leases at March 31, 2015 were $370 and $86, respectively.

(10) Accrued Expenses and Other

        Accrued expenses and other consists of the following:

		March 31, 2015			March 31, 2014				March 31, 2016			March 31, 2015
Accrued other taxes		$	4,137		$	3,813			$	7,673		$	4,137
Accrued professional fees			6,978			5,804				13,557			6,978
Acquisition related liabilities			2,432			6,890				4,299			2,432
Hedge liability			1,183			4,195				662			1,183
Accrued discounts			3,867			2,261				8,626			3,867
Accrued other			5,165			4,336				7,946			3,828
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total		$	23,762		$	27,299			$	42,763		$	22,425
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

(10)(11) Debt

        On December 31, 2013,February 25, 2016, in connection with the Polaris SPA Transaction, the Company entered into an amendeda credit agreement (the "Credit Agreement") dated as of February 25, 2016, by and restatedamong the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book runners and lead arrangers. The Credit Agreement replaces the Company's existing $25,000 credit agreement with JPMorganJP Morgan Chase Bank, N.A. ("JPM"). The credit agreement amended and restated the Company's $3,000 secured revolving credit agreement with JPM and provides for a $25,000 secured$100,000 revolving credit facility which shall be available to fund working capital and other corporate purposes, as well as to serve as security in supporta $200,000 delayed-draw term loan (together, the "Credit Facility"). To finance the Polaris SPA Transaction, on February 25, 2016, the Company drew down the full $200,000 of the Company's foreign currency hedging programs. The credit agreement contains financial covenants that require the Company to maintain a Funded Debt to Adjusted EBITDA Ratio of not more than 2.00 to 1.00 and a Fixed Charge Coverage Ratio of less than 2.50 to 1.00, each as determined for the trailing twelve month period ending on each fiscal quarter. The Company is currently in compliance with all covenants contained in the credit agreement and believes that the credit agreement provides sufficient flexibility to enable continued compliance with its terms.term loan. Interest under this credit facilitythese facilities accrues at a rate betweenper annum of LIBOR plus 1.5% and LIBOR plus 1.75%2.75%, subject to step-downs based on the Company's ratio of indebtednessdebt to Adjusted EBITDA.adjusted earnings before interest, taxes, depreciation, amortization, and stock compensation expense ("EBITDA"). The Company is required under the terms of the Credit Agreement to make quarterly principle payments on the term loan. For the fiscal year ending March 31, 2017, the Company is required to make principle payments of $2,500 per quarter. The Credit Agreement includes customary minimum cash, maximum debt to EBITDA and minimum fixed charge coverage covenants. The term of the credit facilityCredit Agreement is five years ending December 31, 2018. This facility replaced the Company's prior $3,000 line of credit with JPM.February 24, 2021. At March 31, 2015,2016, there were no borrowings outstanding under the revolving credit facility.

        The Credit Agreement has financial covenants that require that the Company maintain a Total Leverage Ratio, commencing on June 30, 2016, of not more than 3.25 to 1.00 for the first year of the Credit Facility, of not more than 3.00 to 1.00 for the second year of the Credit Facility, and 2.75 to 1.00 thereafter, each as determined for the four consecutive quarter period ending on each fiscal quarter (the "Reference Period"). In addition, for a period, expected to be at least one year from the completion of the Company's closing of the Polaris SPA Transaction, until the occurrence of certain events described in the Credit Agreement, at any time when the Total Leverage Ratio exceeds 1.50 to 1.00 as of the last day of a quarter, the Company must maintain at least $30,000 in unrestricted cash, cash equivalents and certain permitted investments under the Credit Facility held in bank deposits in the U.S., and $20,000 in unrestricted cash




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(11) Debt (Continued)

and certain permitted investments under the Credit Facility and long-term securities investments held in accordance with the Company's current investment policy. The financial covenants also require that the Company maintain a Fixed Charge Coverage Ratio, commencing on June 30, 2016, of not less than 1.25 to 1.00, as of the last day of any Reference Period. For purposes of these covenants, "Total Leverage Ratio" means, as of the last day of any fiscal quarter, the ratio of Funded Debt to Adjusted EBITDA for the reference period ended on such date. "Funded Debt" refers generally to total indebtedness to third-parties for borrowed money, capital leases, deferred purchase price and earn-out obligations and related guarantees and "Adjusted EBITDA" is defined as consolidated net income plus (a) (i) GAAP depreciation and amortization, (ii) non-cash equity-based compensation expenses, (iii) fees and expenses incurred during such period in connection with the Credit Facility and loans made thereunder, (iv) fees and expenses incurred during such period in connection with any permitted acquisition, (v) one-time regulatory charges, (vi) other extraordinary and non-recurring losses or expenses, and (vii) all other non-cash charges, expenses and losses for such period, minus (b) (i) extraordinary or non-recurring income or gains for such period, and (ii) any cash payments made during such period in respect of non-cash charges, expenses or losses described in clauses (a)(ii), (a)(v) and (a)(vi) above taken in a prior period, subject to other adjustments and certain caps and limits on adjustments. The Fixed Charge Coverage Ratio is calculated under the Credit Agreement generally as the ratio of Adjusted EBITDA, excluding capital expenditures made during such period (to the extent not financed with indebtedness (other than Revolving Loans), an issuance of equity interests or capital contributions, or proceeds of asset sales, the proceeds of casualty insurance used to replace or restore assets), to fixed charges (regularly scheduled consolidated interest expense paid in cash, regularly scheduled amortization payments on indebtedness in cash, income taxes paid in cash and the interest component of capital lease obligation payments), on a consolidated basis.

        The Credit Facility is secured by substantially all of the Company's assets, including all intellectual property and all securities in domestic subsidiaries (other than certain domestic subsidiaries where the material assets of such subsidiaries are equity in foreign subsidiaries), subject to customary exceptions and exclusions from the collateral. All obligations under the Credit Agreement are unconditionally guaranteed by substantially all of the Company's material direct and indirect domestic subsidiaries, with certain exceptions. These guarantees are secured by substantially all of the present and future property and assets of the guarantors, with certain exclusions.

        As of March 31, 2016, we are in compliance with our debt covenants and have provided a quarterly certification to our lenders to that effect. We believe that we currently meet all conditions set forth in the Credit Agreement to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the remaining available capacity under the revolving credit facility as of March 31, 2016 and through the date of this filing.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(11) Debt (Continued)

Current portion of long-term debt

        The following summarizes our short-term debt balance as of:

		March 31,
		2016			2015
Notes outstanding under the revolving credit facility		$	—		$	—
Term loan- current maturities			10,000			—
Less: deferred financing costs, current			(1,119	)		—
​	​	​	​	​	​	​	​
Total		$	8,881		$	—
​	​	​	​	​	​	​	​

Long-term debt, less current portion

        The following summarizes our long-term debt balance as of:

		March 31,
		2016			2015
Term loan		$	200,000		$	—
Less:
Current maturities			(10,000	)		—
Deferred financing costs, long-term			(4,367	)		—
​	​	​	​	​	​	​	​
Total		$	185,633		$	—
​	​	​	​	​	​	​	​

        In accordance with the recently adopted FASB ASU 2015-03, the Company has presented debt issuance costs in the balance sheet as a direct deduction from the carrying value of that debt liability.

        The following represents the schedule of maturities of long-term debt:

Fiscal year ending March 31:
2017		$	10,000
2018			10,000
2019			15,000
2020			20,000
2021			145,000
​	​	​	​	​
Total		$	200,000
​	​	​	​	​

        Beginning in fiscal 2009, the Company's U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse or continuing involvement, certain of its European-based accounts receivable balances from one client to such third party financial institution. During the course of the fiscal year ended March 31, 2015, $28,2912016, $24, 215 of receivables were sold under the terms of the financing agreement. Fees paid pursuant to this agreement were immaterial during the fiscal year ended March 31, 2015.2016. No amounts were due as of March 31, 2015,2016, but the Company may elect to use this program again in future periods. However, the Company cannot provide any assurances that this or any other financing facilities will be available or utilized in the future. The Company had no letters




Table of credit outstanding at March 31, 2015Contents


Virtusa Corporation and 2014.Subsidiaries

(11)Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(12) Stock Options, Restricted Stock Awards and Stock Appreciation Rights

        The Company's Amended and Restated 2000 Stock Option Plan (the "2000 Plan") was adopted in the fiscal year ended March 31, 2001. Under the 2000 Plan, shares were reserved for issuance to the Company's employees, directors, and consultants. The 2000 Plan was amended over the years to reduce the number of shares reserved for issuance to a total of 11,6302,594 as of March 31, 2015.2016. Options granted




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(11) Stock Options, Restricted Stock Awards and Stock Appreciation Rights (Continued)

under the 2000 Plan may be incentive stock options, nonqualified stock options or restricted stock. Incentive stock options may only be granted to employees. Options granted have a term of ten years and generally vest over four years. The Company settles employee stock option exercises with newly issued shares. The compensation committee of the board of directors determines (upon board of director approval) the term of awards on an individual case basis. The exercise price of incentive stock options shall be no less than 100% of the fair market value per share of the Company's common stock on the grant date. If an individual owns stock representing more than 10% of the outstanding shares, the price of each share shall be at least 110% of fair market value. In May 2007, the Company's board of directors determined that no further grants would be made under the 2000 Plan.

        In July 2005, the Company adopted the Virtusa Corporation 2005 Stock Appreciation Rights Plan (the "SAR Plan"). Under the SAR Plan, the Company may grant up to 479,233 SARs to employees and consultants of Virtusa and its foreign subsidiaries, and settles the SARs in cash or common stock, as set forth in the SAR Plan. Prior to the Company's initial public offering ("IPO"), the SARs could only be settled in cash. After the Company's IPO, the cash settlement feature of the SARs ceased and exercises may only be settled in shares of the Company's common stock. In May 2007, the Company's board of directors determined that no further grants would be made under the SAR Plan.

        The Company's board of directors and its stockholders approved the Company's 2007 Stock Option and Incentive Plan (the "2007 Plan"), in May 2007, and the stockholders of the Company again approved the 2007 Plan in September 2008. The 2007 Plan permits the Company to make grants of incentive stock options, non-qualified stock options, SARs, deferred stock awards, restricted stock awards, unrestricted stock awards, and dividend equivalent rights. The Company reserved 830,670 shares of its common stock for the issuance of awards under the 2007 Plan. The 2007 Plan provides that the number of shares reserved and available for issuance under the plan will be automatically increased each April 1, beginning in 2008, by 2.9% of the outstanding number of shares of common stock on the immediately preceding March 31 or such lower number of shares of common stock as determined by the board of directors. This number is subject to adjustment in the event of a stock split, stock dividend or other change in the Company's capitalization. Generally, shares that are forfeited, cancelled or withheld to settle tax liabilities from awards under the 2007 Plan also will be available for future awards. In addition, available shares under the 2000 Plan and the SAR Plan, as a result of the forfeiture, expiration, cancellation, termination or net issuances of awards, are automatically made available for issuance under the 2007 Plan. At March 31,In May 2015, the Company's board of directors determined that no further grants would be made under the 2007 Plan.

        In May 2015, the Company adopted the 2015 Stock Option and Incentive Plan ("2015 Plan") which was also approved the Company's stockholders on September 1, 2015. The 2015 Plan replaces the 2007 Plan and permits the granting of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, unrestricted stock awards, performance share awards, performance-based awards to covered employees, cash-based awards and dividend equivalent rights. The Company reserved 3,000,000 shares of its common stock for the issuance of awards under the 2015 Plan as well as the number of shares reserved for issuance underof stock as is equal to the 2007 Plan is 2,371,828.shares underlying any stock options and awards that are returned to the




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(11)(12) Stock Options, Restricted Stock Awards and Stock Appreciation Rights (Continued)

Company's 2007 Plan after the 2015 Plan's effective date as a result of the expiration, forfeiture, acquisition by the Company prior to vesting, cancellation or termination of such stock options and awards (other than by exercise) as set forth in the 2007 Plan. Additionally, shares that are forfeited or cancelled or otherwise terminated (other than by exercise) or held back by the Company or tendered by the grantee of any equity award to settle applicable taxes on any equity award under the 2015 Plan shall be added back to the shares of common stock available for future issuance under the 2015 Plan. At March 31, 2016, the number of shares reserved for issuance under the 2015 Plan was 2,883,041.

        The following tables summarize stock option and restricted stock activity under the 2000 Plan, the 2007 Plan and the 20072015, as the case may be, Plan for the fiscal years ended March 31, 2016, 2015 2014 and 2013:2014:

		Number of Options to Purchase Common Shares			Weighted Average Exercise Price			Weighted Average Remaining Life (in years)			Aggregate Intrinsic Value
Outstanding at March 31, 2012			1,587,324		$	9.97
Granted			93,153			15.61
Exercised			(267,575	)		8.22
Forfeited or cancelled			(43,560	)		14.28
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Outstanding at March 31, 2013			1,369,342			10.56
Granted			49,201			28.37
Exercised			(321,577	)		8.11
Forfeited or cancelled			(12,037	)		18.00
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Outstanding at March 31, 2014			1,084,929			12.01
Granted			833			33.23
Exercised			(269,384	)		8.56
Forfeited or cancelled			(9,522	)		15.60
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Outstanding at March 31, 2015			806,856		$	13.15			4.94		$	22,781
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Exercisable at March 31, 2015			668,606		$	12.03			4.45		$	19,626
​	​	​	​	​	​	​	​	​	​	​	​	​	​




		Restricted Stock Award Activity
		Number of Restricted Stock Awards			Weighted Average Grant date Fair Value
Unvested at March 31, 2012			831,656		$	15.43
Awarded			465,733			15.04
Vested			(284,833	)		14.27
Forfeited			(43,157	)		16.34
​	​	​	​	​	​	​	​
Unvested at March 31, 2013			969,399			15.55
Awarded			268,578			26.70
Vested			(377,359	)		14.56
Forfeited			(57,898	)		15.51
​	​	​	​	​	​	​	​
Unvested at March 31, 2014			802,720			19.74
Awarded			197,715			33.91
Vested			(296,538	)		18.34
Forfeited			(65,419	)		21.49
​	​	​	​	​	​	​	​
Unvested at March 31, 2015			638,478		$	24.60
​	​	​	​	​	​	​	​

		Number of Options to Purchase Common Shares			Weighted Average Exercise Price			Weighted Average Remaining Life (in years)			Aggregate Intrinsic Value
Outstanding at March 31, 2013			1,369,342		$	10.56
Granted			49,201			28.37
Exercised			(321,577	)		8.11
Forfeited or cancelled			(12,037	)		18.00
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Outstanding at March 31, 2014			1,084,929			12.01
Granted			833			33.23
Exercised			(269,384	)		8.56
Forfeited or cancelled			(9,522	)		15.60
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Outstanding at March 31, 2015			806,856			13.15
Granted			—
Exercised			(127,718	)		10.87
Forfeited or cancelled			—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Outstanding at March 31, 2016			679,138		$	13.58			3.83		$	16,221
​	​	​	​	​	​	​	​	​	​	​	​	​	​
Exercisable at March 31, 2016			650,802		$	13.13			3.68		$	15,834
​	​	​	​	​	​	​	​	​	​	​	​	​	​




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(11)(12) Stock Options, Restricted Stock Awards and Stock Appreciation Rights (Continued)




		Restricted Stock Unit Activity							Restricted Stock Award Activity
		Number of Restricted Stock Units			Weighted Average Grant Date Fair Value				Number of Restricted Stock Awards			Weighted Average Grant date Fair Value
Unvested at March 31, 2012			49,416		$	16.59
Awarded			—			—
Vested			(12,354	)		16.59
Forfeited			—			—
​		​	​	​		​	​
Unvested at March 31, 2013			37,062			16.59				969,399		$	15.55
Awarded			217,147			27.99				268,578			26.70
Vested			(19,875	)		20.00				(377,359	)		14.56
Forfeited			—			—				(57,898	)		15.51
​	​	​	​	​		​	​	​	​	​	​		​	​
Unvested at March 31, 2014			234,334			26.87				802,720			19.74
Awarded			264,579			33.18				197,715			33.91
Vested			(87,783	)		25.61				(296,538	)		18.34
Forfeited			(6,333	)		33.91				(65,419	)		21.49
​	​	​	​	​		​	​	​	​	​	​		​	​
Unvested at March 31, 2015			404,797		$	31.16				638,478			24.60
Awarded										140,185			46.25
Vested										(273,675	)		22.22
Forfeited										(27,597	)		35.51
​	​	​	​	​		​	​	​	​	​	​		​	​
Unvested at March 31, 2016										477,391		$	31.69
​								​	​	​	​		​	​




		Restricted Stock Unit Activity
		Number of Restricted Stock Units			Weighted Average Grant Date Fair Value
Unvested at March 31, 2013			37,062		$	16.59
Awarded			217,147			27.99
Vested			(19,875	)		20.00
Forfeited			—			—
​	​	​	​	​	​	​	​
Unvested at March 31, 2014			234,334			26.87
Awarded			264,579			33.18
Vested			(87,783	)		25.61
Forfeited			(6,333	)		33.91
​	​	​	​	​	​	​	​
Unvested at March 31, 2015			404,797			31.16
Awarded			426,456			49.10
Vested			(182,697	)		27.93
Forfeited			(41,316	)		35.52
​	​	​	​	​	​	​	​
Unvested at March 31, 2016			607,240		$	44.43
​	​	​	​	​	​	​	​

        The aggregate intrinsic value of options exercised during the fiscal years ended March 31, 2016, 2015 and 2014 was $4,246, $7,556 and 2013 was $7,556, $6,304, and $2,873, respectively. There were no options granted during the fiscal year ended March 31, 2016. The weighted average fair value of options granted during the fiscal year ended March 31, 2015 2014 and 20132014 was $13.04 $13.85 and $8.96,$13.85, respectively. During the fiscal yearyears ended March 31, 2016, 2015 2014 and 20132014, the Company realized $2,775, $4,692 $3,198 and $759$3,198 respectively, of income tax benefits from the exercise of stock options as a windfall credit.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(11)(12) Stock Options, Restricted Stock Awards and Stock Appreciation Rights (Continued)

        The tables below summarizesummarizes information about the SAR Plan activity for the fiscal years ended March 31, 2016, 2015 2014 and 20132014 as follows:

		SAR Plan Activity													SAR Plan Activity
		Number of SARs			Weighted Average Exercise Price			Weighted Average Remaining Life (in years)			Aggregate Intrinsic Value				Number of SARs			Weighted Average Exercise Price			Weighted Average Remaining Life (in years)			Aggregate Intrinsic Value
Outstanding at March 31, 2012			31,146			4.36
Granted			—			—
Exercised			(8,378	)		3.72
Forfeited or cancelled			(399	)		4.84
​		​	​	​		​	​		​	​		​	​
Outstanding at March 31, 2013			22,369			4.60										22,369			4.60
Granted			—			—										—			—
Exercised			(8,176	)		4.84										(8,176	)		4.84
Forfeited or cancelled			(2,072	)		2.29										(2,072	)		2.29
​	​	​	​	​		​	​		​	​		​	​	​	​	​	​		​	​		​	​		​	​
Outstanding at March 31, 2014			12,121			4.82										12,121			4.82
Granted			—			—										—			—
Exercised			(6,626	)		5.34										(6,626	)		5.34
Forfeited or cancelled			(385	)		6.28										(385	)		6.28
​	​	​	​	​		​	​		​	​		​	​	​	​	​	​		​	​		​	​		​	​
Outstanding and exercisable at March 31, 2015			5,110		$	4.04			1.22		$	191
Outstanding at March 31, 2015																5,110			4.04
Granted																—			—
Exercised																(3,902	)		3.84
Forfeited or cancelled																—			—
​	​	​	​	​		​	​	​	​	​	​	​	​	​	​	​	​		​	​		​	​		​	​
Outstanding and exercisable at March 31, 2016																1,208		$	4.70			0.41		$	39,581
​														​	​	​	​		​	​	​	​	​	​	​	​

        The aggregate intrinsic value of SARs exercised during the fiscal years ended March 31, 2016, 2015 and 2014 was $180, $216 and 2013 was $216, $221, and $113, respectively.

(12)(13) Income Taxes

        The income before income tax expense shown below is based on the geographic location to which such income is attributed for each of the fiscal years ended March 31, 2016, 2015 2014 and 2013:2014:

		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
United States		$	15,734		$	10,876		$	7,471			$	4,556		$	15,734		$	10,876
Foreign			41,666			35,048			28,388				53,113			41,666			35,048
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total		$	57,400		$	45,924		$	35,859			$	57,669		$	57,400		$	45,924
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(12)(13) Income Taxes (Continued)

        The provision for income taxes for each of the fiscal years ended March 31, 2016, 2015 2014 and 20132014 consisted of the following:

		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Current provision:
Federal		$	8,217		$	2,973		$	3,390			$	6,367		$	8,217		$	2,973
State			2,415			874			1,002				1,961			2,415			874
Foreign			7,291			6,084			4,905				9,719			7,291			6,084
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total current provision		$	17,923		$	9,931		$	9,297			$	18,047		$	17,923		$	9,931
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Deferred (benefit) provision:
Federal		$	(2,066	)	$	1,173		$	(468	)		$	(2,753	)	$	(2,066	)	$	1,173
State			(616	)		272			(146	)			(724	)		(616	)		272
Foreign			(287	)		173			(1,222	)			(1,921	)		(287	)		173
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total deferred (benefit) provision		$	(2,969	)	$	1,618		$	(1,836	)		$	(5,398	)	$	(2,969	)	$	1,618
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total provision for income taxes		$	14,954		$	11,549		$	7,461			$	12,649		$	14,954		$	11,549
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

        The items which gave rise to differences between the income taxes in the statements of income and the income taxes computed at the U.S. statutory rate are summarized as follows:

		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Statutory tax rate			35.0	%		34.0	%		34.0	%			35.0	%		35.0	%		34.0	%
U.S. state and local taxes, net of U.S. federal income tax effects			1.9			1.6			1.6				1.2			1.9			1.6
Benefit from foreign subsidiaries' tax holidays			(8.8	)		(9.8	)		(15.7	)			(13.0	)		(8.8	)		(9.8	)
Foreign rate difference			(3.2	)		(2.2	)		0.1				(7.9	)		(3.2	)		(2.2	)
Nondeductible transactions costs													2.3			—			—
Permanent items			1.3			1.3			2.4				3.7			1.3			1.3
Other adjustments			(0.1	)		0.2			(1.6	)			0.6			(0.1	)		0.2
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Effective income tax rate			26.1	%		25.1	%		20.8	%			21.9	%		26.1	%		25.1	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(12)(13) Income Taxes (Continued)

        Deferred tax assets (liabilities) at March 31, 20152016 and 20142015 were as follows:

		March 31,							March 31,
		2015			2014				2016			2015
Deferred revenue		$	309		$	154			$	1,518		$	309
Bad debt reserve			261			291				545			261
Tax credit carry forwards			3,861			3,983				3,433			3,861
Accrued expenses and reserves			8,418			6,539				12,013			8,418
Share-based compensation expense			3,151			3,298				4,907			3,151
Intangibles			3,058			2,593				—			3,058
Unrealized losses			—			1,610
Net operating loss			1,046			73				2,723			1,046
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total gross deferred tax assets		$	20,104		$	18,541			$	25,139		$	20,104
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Valuation allowance			(902	)		—				(2,649	)		(902	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total deferred tax assets		$	19,202		$	18,541			$	22,490		$	19,202
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Depreciation			(1,050	)		(798	)			(662	)		(1,050	)
Unrealized gains			(409	)		—				(2,598	)		(409	)
Acquisition and other liabilities			(4,212	)		(6,231	)			(14,344	)		(4,212	)
Goodwill			(3,585	)		(2,995	)			(5,117	)		(3,585	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total deferred tax liabilities		$	(9,256	)	$	(10,024	)		$	(22,721	)	$	(9,256	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net deferred tax assets/liabilities		$	9,946		$	8,517
Net deferred tax assets/(liabilities)									$	(231	)	$	9,946
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

        In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes requiring deferred tax assets and liabilities be classified as noncurrent in the consolidated balance sheet. The Company early adopted ASU 2015-17 for the fiscal year ended March 31, 2016, which resulted in all deferred taxes being reported as noncurrent in its consolidated balance sheet. The Company has elected not to retrospectively adjust its deferred tax assets and liabilities in prior periods. At March 31, 2015, and 2014, all current and long-term deferred tax liabilities are offset against the current and long-term deferred tax assets and recorded onassets. At March 31, 2016, the net result is reflected as a net basislong asset or liability by tax jurisdiction.

        The ultimate realization of deferred tax assets is dependent upon management's assessment of the Company's ability to generate sufficient taxable income to realize the deferred tax assets during the periods in which the temporary differences become deductible. Management considers the historical level of taxable income, projections for future taxable income, and tax planning strategies in making this assessment. The Company assessed the available positive and negative evidence to estimate if sufficient future taxable income will be generated to realize the existing deferred tax assets. As of March 31, 2015,2016, the Company determined it is more likely than not that a portion offoreign tax credits in the Netherlands net operating losses ("NOL")U.S. will not be realized and concluded that a partialcomplete valuation allowance was required. The Company recorded increases to the valuation allowance totaling $902$1,747 during the fiscal year ended March 31, 2015,2016, of which $73$142 was recorded in income tax expense, ($17) to foreign currency translation and $829 in other comprehensive loss.$1,622 increase recorded on the opening balance sheet for Polaris. The Polaris valuation allowance of $1,622 relates to certain net operating losses (NOLs) and capital losses that are not likely to be realized. The Company has determined




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(13) Income Taxes (Continued)

for all other deferred assets that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

        At March 31, 2015,2016, the Company has $252$142 of US foreign tax credits which begin to expire in March 2022 $3,609and for which a full valuation allowance has been recorded, $3,292 of Indian Minimum Alternative Tax ("MAT") credits which begin to expire at various dates through 2025March 2026 and $1,046$1,526 of foreign NOL,NOLs, with indefinite life.various lives and $1,196 of capital loss carryover which begin to expire in 2020. The Company has determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the$3,498 of these deferred tax assets.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(12) Income Taxes (Continued)

        During the fiscal year ended March 31, 2015,2016, the Company recorded $2,026$642 of net income tax expense directly in other comprehensive income related to the unrealized gain/loss on available for sale securities, the unrealized gain/loss on effective cash flow hedges and the foreign currency loss on certain long-termlong- term intercompany balances. During the fiscal year ended March 31, 2015,2016, the Company recognized $4,692$2,775 of net income tax benefit directly in additional paid in capital related to net excess tax benefits of share-based compensation.

        The Company created two export oriented units in India, one in Bangalore during the fiscal year ended March 31, 2011 and a second unit in Hyderabad (Special Economic Zone or "SEZ") during the fiscal year ended March 31, 2010 for which no income tax exemptions were availed. The Indian subsidiaries also operate two development centers in areas designated as a SEZ, under the SEZ Act of 2005. In particular, the Company was approved as an SEZ Co-developer and has built a campus on a 6.3 acre parcel of land in Hyderabad, India that has been designated as an SEZ. As an SEZ Co-developer, the Company is entitled to certain tax benefits for any consecutive period of 10 years during the 15 year period starting in fiscal year 2008. The Company has elected to claim SEZ Co-developer income tax benefits starting in fiscal year ended March 31, 2013. In addition, the Company has leased facilities in SEZ designated locations in Hyderabad and Chennai, India. The Company's profits from the Hyderabad and Chennai SEZ operations are eligible for certain income tax exemptions for a period of up to 15 years beginning in fiscal March 31, 2009. OurThe Company's India profits ineligible for SEZ benefits are subject to corporate income tax at the current rate of 33.99%34.61%. In the fiscal year ended March 31, 2014, the Company leased a facility in an SEZ designated location in Bangalore and Pune, India each of which is eligible for tax holidays for up to 15 years beginning in the fiscal year ended March 31, 2014. During the fiscal year ended March 31, 2016, the Company established a new unit in Hyderabad, in an SEZ designated area, for which it is eligible for tax holiday for up to 15 years. Based on the latest changes in tax laws, book profits of SEZ units are subject to MAT, commencing April 1, 2011, which will continue to negatively impact the Company's cash flows.

        In addition, the Company's Sri Lankan subsidiary, Virtusa (Private) Limited, is operating under a 12-year income tax holiday arrangement that is set to expire on March 31, 2019 and required Virtusa (Private) Limited to meet certain job creation and investment criteria by March 31, 2015.2016. During the fiscal year ended March 2015,2016, the Company believes it has fulfilled its hiring and investment commitments and is eligible for tax holiday through March 2019. The current agreement provides income tax exemption for all export business income. The Company has submitted the required support to the Board of Investment and is awaiting confirmation. At March 31, 2015,2016, the Company believes it is eligible for the entire 12-year tax holiday.

        The India and Sri Lanka income tax holidays reduced the overall tax provision and increased both net income and diluted earnings per share in the fiscal years ended March 31, 2015, 2014 and 2013 by $5,048, $4,513 and $5,647, respectively, and by $0.17, $0.17 and $0.22, respectively. As of March 31, 2015, two SEZ tax holidays in Chennai and Hyderabad, India are subject to a partial expiration of fifty percent of their tax benefits. The partial expiration of SEZ tax holidays in Chennai and Hyderabad, respectively, negatively impacted net income and diluted earnings per share in the fiscal year ended March 31, 2015, by $830 and $1,195, and by $0.03 and $0.04, respectively.

        The Company intends to indefinitely reinvest all of its accumulated and future foreign earnings outside the United States. At March 31, 2015, the Company had $193,268 of unremitted earnings from foreign subsidiaries and approximately $99,155 of cash and short-term investments that would otherwise be available for potential distribution, if not indefinitely reinvested. Due to the various methods by which such




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(12)(13) Income Taxes (Continued)

        The India and Sri Lanka income tax holidays reduced the overall tax provision and increased both net income and diluted earnings per share in the fiscal years ended March 31, 2016, 2015 and 2014 by $7,477, $5,048 and $4,513, respectively, and by $0.25, $0.17 and $0.17, respectively. As of March 31, 2016, two SEZ tax holidays in Chennai and Hyderabad, India are subject to a partial expiration of fifty percent of their tax benefits through March 2018. The partial expiration of SEZ tax holidays in Chennai and Hyderabad, respectively, negatively impacted net income and diluted earnings per share in the fiscal year ended March 31, 2016, by $1,088 and $1,639 and by $0.04 and $0.05, respectively.

        The Company intends to indefinitely reinvest all of its accumulated and future foreign earnings outside the United States. At March 31, 2016, the Company had $330,849 of unremitted earnings from foreign subsidiaries and approximately $146,490 of cash, cash equivalents, short-term investments and long-term investments that would otherwise be available for potential distribution, if not indefinitely reinvested. Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings are dependent on circumstances existing if and when remittance occurs and is not practically determinable.

        Due to the geographical scope of the Company's operations, the Company is subject to tax examinations in various jurisdictions. The Company's ongoing assessments of the more-likely-than-not outcomes of these examinations and related tax positions require judgment and can increase or decrease the Company's effective tax rate, as well as impact the Company's operating results. The specific timing of when the resolution of each tax position will be reached is uncertain. The Company does not believe that the outcome of any ongoing examination will have a material effect on its consolidated financial statements within the next twelve months. The Company's major taxing jurisdictions include the United States, the United Kingdom, India and Sri Lanka. In the United States, the Company remains subject to examination for all tax years ended after March 31, 2012.2013. In the foreign jurisdictions, the Company generally remains subject to examination for tax years ended after March 31, 2005.

        Each fiscal year, unrecognized tax benefits may be adjusted upon the closing of the statute of limitations for income tax returns filed in various jurisdictions. The total amount of unrecognized tax benefits that would reduce income tax expense and the effective income tax rate, if recognized, is $6,693, $546 $410 and $512$410 as of March 31, 2016, 2015 2014 and 2013,2014, respectively. Although it would be difficult to anticipate the final outcome on timing of resolution of any particular uncertain tax position, the Company anticipates that $109$198 of unrecognized tax benefits will reverse during the twelve month period ending March 31, 20162017 due to settlement or expiration of statute of limitations on open tax years. All of these benefits are expected to have an impact on the effective tax rate as they are realized.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(13) Income Taxes (Continued)

        The following summarizes the activity related to the gross unrecognized tax benefits:

		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Balance as of beginning of the fiscal year		$	410		$	4,823		$	5,957
Balance at beginning of the fiscal year												$	546		$	410		$	4,823
Balance acquired as part of the Polaris SPA Transaction													6,172			—			—
Foreign currency translation related to prior year tax positions			(3	)		(32	)		—				(42	)		(3	)		(32	)
Decreases related to prior year tax positions			—			(208	)		(499	)			—			—			(208	)
Decreases related to prior year tax positions due to settlements or lapse in applicable statute of limitations			(94	)		(4,311	)		(947	)			(117	)		(94	)		(4,311	)
Increases related to prior year tax positions			233			138			312				134			233			138
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Balance at end of the fiscal year		$	546		$	410		$	4,823			$	6,693		$	546		$	410
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

        The Company continues to classify accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the fiscal years ended March 31, 20152016 and 2014,2015, the Company expensed accrued interest and penalties of $55$52 and $62,$55, respectively, through income tax expense consistent with its prior positions, to reflect interest and penalties on certain unrecognized tax benefits as part of income tax. The total accrued interest and penalties, including foreign currency translation relating to certain foreign and domestic tax matters at March 31, 2016 and 2015, were $1,374 and 2014, were $360, and $324, respectively. During the fiscal year ended March 31, 2015,2016, the Company's unrecognized tax benefits increased by $136.$6,147. The increase in the unrecognized tax benefits during the fiscal year ended March 31, 20152016 was primarily related to a certainprior tax positions of Polaris acquired and exposures related to tax returns where the statute of limitations has not yet expired. The net movement in unrecognized tax benefits for the fiscal year ended March 31, 20152016 was as follows: $183




Table of Contents


Virtusa Corporation and Subsidiaries

Notes$6,172 related to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(12) Income Taxes (Continued)

the Polaris SPA Transaction, $17 recorded in theto income tax expense offset by $44 of cash payments for settlement of prior uncertain tax positions and $3$42 to other comprehensive income ("OCI") for foreign currency impact. The Company has recorded unrecognized tax benefits in long-term liabilities.

        The Company has been under income tax examination in India.India and Germany. The Indian taxing authorities issued an assessment order with respect to their examination of the various tax returns for the fiscal years ended March 31, 2005 to March 31, 2012 of the Company's Indian subsidiary, Virtusa (India) Private Ltd, now merged with and into Virtusa Consulting Services Private Limited (collectively referred to as "Virtusa India"). At issue were several matters, the most significant of which was the redetermination of the arm's-length profit which should be recorded by Virtusa India on the intercompany transactions with its affiliates. During the fiscal year ended March 31, 2011, the Company entered into a competent authority settlement and settled the uncertain tax position for the fiscal years ended March 31, 2004 and 2005. However, the redetermination of arm's-length profit on transactions with respect to the Company's subsidiaries and Virtusa UK Limited has not been resolved and remains under appeal for the fiscal year ended March 31, 2005. The Company is currently appealing assessments for fiscal years ended March 31, 2005 through 2012.

(13)(14) Post-retirement Benefits

        The Company has noncontributory defined benefit plans (the "Benefit Plans") covering its employees in India and Sri Lanka as mandated by the Indian and Sri Lankan governments. Benefits are based on the




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(14) Post-retirement Benefits (Continued)

employee's years of service and compensation at the time of termination. The Company uses March 31 as the measurement date for its plans.

Cost of pension plans

		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Components of net periodic pension expense
Expected return on plan assets		$	(214	)	$	(210	)	$	(188	)		$	(336	)	$	(214	)	$	(210	)
Service costs for benefits earned			564			527			452				780			564			527
Interest cost on projected benefit obligation			233			205			179				281			233			205
Amortization of prior service cost			10			10			11				9			10			10
Recognized net actuarial loss			114			90			92				151			114			90
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net periodic pension expense		$	707		$	622		$	546			$	885		$	707		$	622
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

Actuarial assumptions

		Year Ended March 31,
		2016		2015		2014		2013
Discount rate		7.50% - 11.00%		7.80% - 10.00%		8.00% -  11.5%		8.00% - 12.25%
Compensation increases (annual)		7.00%5.00% -  7.50%		7.00% -  7.50%		7.00% -  7.50%
Expected return on assets		7.50% - 12.00%		8.50% - 12.52%		8.50% - 12.25%		8.50% - 13.13%




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(13) Post-retirement Benefits (Continued)

        The discount rate is based upon high quality fixed income investments in India and Sri Lanka. The discount rates at March 31, 20152016 were used to measure the year-end benefit obligations and the pension cost for the subsequent year.

        To determine the expected long-term rate of return on pension plan assets, the Company considers the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. The Company amortizes unrecognized actuarial gains or losses over a period no longer than the average future service of employees.

        The Company's benefit obligations are described in the following tables. Accumulated and projected benefit obligations ("ABO" and "PBO", respectively) represent the obligations of a pension plan for past service as of the measurement date. ABO is the present value of benefits earned to date with benefits computed based on current compensation levels. PBO is ABO increased to reflect expected future compensation.

Accumulated benefit obligation and projected benefit obligation

		As of March 31,
		2015			2014
Accumulated benefit obligation		$	2,393		$	1,939
​	​	​	​	​	​	​	​
Projected benefit obligation:
Beginning balance		$	2,758		$	2,580
Service cost			564			527
Interest cost			233			205
Actuarial (gain) loss			535			(25	)
Benefits paid			(391	)		(352	)
Exchange rate adjustments			(95	)		(177	)
​	​	​	​	​	​	​	​
Ending balance		$	3,604		$	2,758
​	​	​	​	​	​	​	​

Fair value of plan assets

		Plan assets
Balance at April 1, 2014		$	2,822
Employer contributions			447
Actual gain on plan assets			265
Benefits paid			(391	)
Exchange rate adjustments			(89	)
​	​	​	​	​
Balance at March 31, 2015		$	3,054
​	​	​	​	​

        At March 31, 2015, India and Sri Lanka together had $550 of net projected benefit obligation recorded in the consolidated balance sheets as "accrued employee compensation and benefits". At March 31, 2014, India had $258 of excess funding recorded in the consolidated balance sheets as "other




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(13)(14) Post-retirement Benefits (Continued)

long-term assets"Accumulated benefit obligation and projected benefit obligation

		As of March 31,
		2016			2015
Accumulated benefit obligation		$	5,081		$	2,393
​	​	​	​	​	​	​	​
Projected benefit obligation:
Beginning balance		$	3,604		$	2,758
Service cost			780			564
Interest cost			281			233
Actuarial (gain) loss			182			535
Benefits paid			(521	)		(391	)
Polaris SPA Transaction			3,227			—
Exchange rate adjustments			(241	)		(95	)
​	​	​	​	​	​	​	​
Ending balance		$	7,312		$	3,604
​	​	​	​	​	​	​	​

Fair value of plan assets

		Plan assets
Balance at April 1, 2015		$	3,054
Employer contributions			1,036
Actual return on plan assets			301
Actuarial gain or loss			(5	)
Benefits paid			(521	)
Polaris SPA Transaction			2,944
Exchange rate adjustments			(176	)
​	​	​	​	​
Balance at March 31, 2016		$	6,633
​	​	​	​	​

        At March 31, 2016, 2015 India and Sri Lanka together had $194 of$679, $550, respectively, net projected benefit obligation recorded in the consolidated balance sheets as "accrued employee compensation and benefits".

Plan asset allocation

		March 31, 20152016
		Target Allocation		Actual Allocation
Government securities		50%30% - 60%40%			5233	%
Corporate debt		30% - 50%40%			4738	%
Other		1% - 20%30%			129	%

        The Company's plan assets are being managed by insurance companies in India and Sri Lanka.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(14) Post-retirement Benefits (Continued)

Plan Assets

        The following table presents the fair values of the Company's pension plan assets.

		Fair Value Measurements										Fair Value Measurements
Asset Category		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)				Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)
At March 31, 2016
Government Bonds(1)												$	2,187		$	—		$	2,187
Corporate Bonds(2)													2,524			—			2,524
Equity Shares and Others(3)													1,922		$	192			1,730
​											​	​	​	​	​	​	​	​	​	​
												$	6,633		$	192		$	6,441
​											​	​	​	​	​	​	​	​	​	​
At March 31, 2015
Government Bonds(1)		$	1,382		$	—		$	1,382			$	1,382		$	—		$	1,382
Corporate Bonds(2)			1,062			—			1,062				1,062			—			1,062
Equity Shares and Others(3)			610			185			425				610			185			425
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
		$	3,054		$	185		$	2,869			$	3,054		$	185		$	2,869
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
At March 31, 2014
Government Bonds(1)		$	1,166		$	—		$	1,166
Corporate Bonds(2)			1,059			—			1,059
Equity Shares and Others(3)			597			185			412
​		​	​	​	​	​	​	​	​	​
		$	2,822		$	185		$	2,637
​		​	​	​	​	​	​	​	​	​

---

(1)

This category comprises government fixed income investments with investments in India and Sri Lanka.



(2)

This category represents investment in bonds and debentures from diverse industries.



(3)

This category represents equity shares, money market investments and other investments.

        The fair values of the government bonds are measured based on market quotes. Corporate bonds and other bonds are valued based on market quotes as of the balance sheet date. Equity share funds are valued at their market prices as of the balance sheet date. Money market funds are valued at their market price.

Pension liability

		March 31,
		2016			2015
PBO		$	7,312		$	3,604
Fair value of plan assets			6,633			3,054
​	​	​	​	​	​	​	​
Funded status recognized		$	679		$	550
Amount recorded in accumulated other comprehensive income		$	924		$	932
​	​	​	​	​	​	​	​

        The amount in accumulated other comprehensive income (loss) that is expected to be recognized as a component of net periodic benefit cost over the fiscal year ended March 31, 2017 is $170. The Company expects to contribute $1,863 to its gratuity plans during the fiscal year ending March 31, 2017.




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Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(13)(14) Post-retirement Benefits (Continued)

Pension liability

		March 31,
		2015			2014
PBO		$	3,604		$	2,758
Fair value of plan assets			3,054			2,822
​	​	​	​	​	​	​	​
Funded status recognized		$	550		$	(64	)
Amount recorded in accumulated other comprehensive income		$	932		$	578
​	​	​	​	​	​	​	​

        The amount in accumulated other comprehensive income (loss) that is expected to be recognized as a component of net periodic benefit cost over the fiscal year ended March 31, 2016 is $163. The Company expects to contribute $1,000 to its gratuity plans during the fiscal year ending March 31, 2016.

        The pretax amounts of prior service cost and actuarial gain (loss) recognized from accumulated other comprehensive income consists of:

		March 31,										March 31,
		2015			2014			2013				2016			2015			2014
Prior service cost		$	(10	)	$	(10	)	$	(10	)		$	(9	)	$	(10	)	$	(10	)
Net amortization gain (loss)			(114	)		(90	)		82				(151	)		(114	)		(90	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total		$	(124	)	$	(100	)	$	72			$	(160	)	$	(124	)	$	(100	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

Estimated future benefits payments

Fiscal year ending March 31:
2016		$	775
2017			702			$	984
2018			785				916
2019			1,267				1,151
2020			1,001				1,019
2021 - 2025			6,802
2021							1,101
2022 - 2026							5,835

(14)(15) 401(k) Plan

        The Company sponsors a defined contribution retirement savings plan, qualified under Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). Eligible employees may defer a portion of their compensation into the Company's 401(k) Plan on a pre-tax and/or Roth basis. The Company's 401(k) Plan currently offers a safe harbor match feature that provides Company matching contributions for certain employee contributions. For the fiscal periods ended March 31, 20152016 and 2014,2015, the Company recorded $740$1,006 and $746$740 for the employer match, respectively. The Company's 401(k) Plan may be amended at the discretion of the Company's board of directors to discontinue the safe harbor match program at any time.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(15)(16) Accumulated Other Comprehensive Loss

        The changes in the components of accumulated other comprehensive loss were as follows:

		March 31,										March 31,
		2015			2014			2013				2016			2015			2014
Investment securities
Beginning balance		$	(54	)	$	(3	)	$	(8	)		$	(18	)	$	(54	)	$	(3	)
Other comprehensive income (loss) (OCI) before reclassifications, net of tax of $21, $(28), $0			36			(51	)		5
Reclassifications from OCI to other income, net of tax of $0 for all periods			—			—			—
Other comprehensive income (loss) (OCI) before reclassifications, net of tax of $35, $21, $(28)													102			36			(51	)
Reclassifications from OCI to other income, net of tax of $(22), $0, $0													(64	)
Less: Noncontrolling interests, net of tax of $0, $0, $0													3			—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Comprehensive income (loss) on investment securities, net of tax of $21, $(28), $0			36			(51	)		5
Comprehensive income (loss) on investment securities, net of tax of $13, $21, $(28)													41			36			(51	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Closing Balance		$	(18	)	$	(54	)	$	(3	)		$	23		$	(18	)	$	(54	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Currency translation adjustments
Beginning balance		$	(23,253	)	$	(16,918	)	$	(13,109	)		$	(35,565	)	$	(23,253	)	$	(16,918	)
Recognized in OCI			(12,312	)		(6,335	)		(3,809	)			(9,324	)		(12,312	)		(6,335	)
Less: Noncontrolling interests													(322	)		—			—
​											​	​	​	​	​	​	​	​	​	​
Comprehensive income (loss) on currency translation adjustments													(9,646	)		(12,312	)		(6,335	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Closing balance		$	(35,565	)	$	(23,253	)	$	(16,918	)		$	(45,211	)	$	(35,565	)	$	(23,253	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Cash flow hedges
Beginning balance		$	(3,829	)	$	(1,013	)	$	(4,524	)		$	2,387		$	(3,829	)	$	(1,013	)
OCI before reclassifications net of tax of $1,511, $(2,993), $(954)			5,169			(7,291	)		(1,210	)
OCI before reclassifications net of tax of $1,797, $1,511, $(2,993)													3,373			5,169			(7,291	)
Reclassifications from OCI to
—Costs of revenue, net of tax of $321, $1,377, $1,578			659			2,793			3,030
—Selling, general and administrative expenses, net of tax of $185, $831, $882			388			1,682			1,691
—Revenue, net of tax of $(94), $0, $0													(178	)
—Costs of revenue, net of tax of $55, $321, $1,377													(446	)		659			2,793
—Selling, general and administrative expenses, net of tax of $42, $185, $831													(236	)		388			1,682
Less: Noncontrolling interests, net of tax of $(512), $0, $0													(966	)		—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Comprehensive income (loss) on cash flow hedges, net of tax of $2,017, $(785), $1,506			6,216			(2,816	)		3,511
Comprehensive income (loss) on cash flow hedges, net of tax of $1,288, $2,017 $(785)													1,547			6,216			(2,816	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Closing balance		$	2,387		$	(3,829	)	$	(1,013	)		$	3,934		$	2,387		$	(3,829	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Benefit plans
Beginning balance		$	(578	)	$	(780	)	$	(702	)		$	(932	)	$	(578	)	$	(780	)
OCI before reclassifications net of tax of $(16), $0, $0			(477	)		37			(175	)
OCI before reclassifications net of tax of $(52), $(16), $0													(173	)		(477	)		37
Reclassifications from net actuarial gain (loss) amortization to:
—Costs of revenue, net of tax of $24,$2,$0													78			66			71
—Selling, general and administrative expenses, net of tax of $11, $2, $0													36			45			19
Reclassifications from OCI for prior service credit (cost) to:
—Costs of revenue, net of tax of $2,$0,$0			66			71			56				6			8			8
—Selling, general and administrative expenses, net of tax of $2, $0, $0			45			19			37
Reclassifications from OCI for net actuarial gain (loss) amortization to:
—Costs of revenue, net of tax of $0 for all periods			8			8			6
—Selling, general and administrative expenses, net of tax of $0 for all periods			2			2			4				1			2			2
Other adjustments			2			65			(6	)			99			2			65
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Comprehensive income (loss) on benefit plans, net of tax of $(12), $0, $0			(354	)		202			(78	)
Comprehensive income (loss) on benefit plans, net of tax of $15, $(12), $0													47			(354	)		202
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Closing balance		$	(932	)	$	(578	)	$	(780	)		$	(885	)	$	(932	)	$	(578	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Accumulated other comprehensive income (loss)		$	(34,128	)	$	(27,714	)	$	(18,714	)		$	(42,139	)	$	(34,128	)	$	(27,714	)
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(16)(17) Commitments, Contingencies and Guarantees

        The Company leases office space under operating leases, which expire at various dates through fiscal year 2023.2025. Certain leases contain renewal provisions and generally require the Company to pay utilities, insurance, taxes, and other operating expenses.

        Future minimum lease payments under non-cancelable leases for the five fiscal years following March 31, 20152016 and thereafter are:

		Operating Leases			Capital Leases				Operating Leases			Capital Leases
Fiscal year ending March 31:
2016		$	7,502		$	118
2017			7,308			115			$	10,239		$	153
2018			5,358			58				7,184			100
2019			2,031			12				3,401			45
2020			1,280			—				2,337			6
2021 and thereafter			1,325			—
2021										1,646			—
2022 and thereafter										2,910			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Total minimum lease payments		$	24,804		$	303			$	27,717		$	304
​	​	​	​	​		​	​	​	​	​	​		​	​
​
​	​	​	​	​		​	​	​	​	​	​		​	​
Less: amount representing interest						47							40
​	​		​	​	​	​	​	​		​	​	​	​	​
Present value of future lease payments					$	256						$	264
Less: current portion						91							127
​	​		​	​	​	​	​	​		​	​	​	​	​
Long term capital lease obligation					$	165						$	137
​	​		​	​	​	​	​	​		​	​	​	​	​
​
​	​		​	​	​	​	​	​		​	​	​	​	​

        Total rental expense for operating leases was approximately $9,350, $8,015 $6,535 and $5,367$6,535 for the fiscal years ended March 31, 2016, 2015 2014 and 2013,2014, respectively. Total amortization expenses for the assets purchased under capital leases were $130, $77 $17 and $6$17 for the fiscal year ended March 31, 2016, 2015 2014 and 20132014 respectively.

        The Company indemnifies its officers and directors for certain events or occurrences under its charter or by-laws and under indemnification agreements while the officer or director is, or was, serving at its request in a defined capacity. The term of the indemnification period is with respect to the period that such person was an officer or director of the Company. The maximum potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited. The costs incurred to defend lawsuits or settle claims related to these indemnification obligations have not been material. As a result, the Company believes that its estimated exposure on these obligations is minimal. Accordingly, the Company had no liabilities recorded for these obligations as of March 31, 2015.2016.

        The Company is insured against any actual or alleged act, error, omission, neglect, misstatement or misleading statement or breach of duty by any current or former officer, director or employee while rendering information technology services. The Company believes that its financial exposure from such actual or alleged actions, should they arise, is minimal and no liability was recorded at March 31, 2015.2016.

        The Company is not a party to any pending litigation or other legal proceedings that are likely to have a material adverse effect on its consolidated financial statements.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(17)(18) Derivative Financial Instruments and Trading Activities

        The Company evaluates its foreign exchange policy on an ongoing basis to assess its ability to address foreign exchange exposures on its consolidated balance sheets, statements of income and consolidated statement of cash flows from all foreign currencies, including most significantly the U.K. pound sterling, the euro, Indian rupee and Sri Lankan rupee. The Company enters into hedging programs with highly rated financial institutions in accordance with its foreign exchange policy (as approved by the Company's audit committee and board of directors) which permits hedging of material, known foreign currency exposures. There is no margin required, no cash collateral posted or received by us related to our foreign exchange forward contracts. Currently, the Company maintains threefour hedging programs, each with varying contract types, duration and purposes. The Company's "Cash Flow Program" is designed to mitigate the impact of volatility in the U.S. dollar equivalent of the Company's Indian rupee denominated expenses over a rolling 36-month24-month period. The Cash Flow Program transactions currently meet the criteria for hedge accounting as cash flow hedges. In addition, as part of the Polaris acquisition, the Company has assumed a cash flow program designed to mitigate the impact of the volatility of the translation of Polaris U.S. dollar denominated revenue into Indian rupees over a rolling 24 month period ("Polaris Cash Flow Program"). These cash flow hedges meet the criteria for hedge accounting as cash flow hedges. The Company's "Balance Sheet Program" involves the use of 30-day derivative instruments designed to mitigate the monthly impact of foreign exchange gains/losses on certain intercompany balances and payments. The Company's "Economic Hedge Program" involves the purchase of derivative instruments with maturities of up to 92 days, and is designed to mitigate the impact of foreign exchange on U.K. pound sterling, the euro and Swedish krona denominated revenue and costs with respect to the quarter for which such instruments are purchased. The Balance Sheet Program and the Economic Hedge Program are treated as economic hedges as these programs do not meet the criteria for hedge accounting and all gains and losses are recognized in consolidated statement of income under the same line item as the underlying exposure being hedged.

        Changes in fair value of the designated cash flow hedges for our Cash Flow Program as well as the Polaris Cash Flow Program are recorded as a component of accumulated other comprehensive income (loss) ("AOCI"), net of tax until the forecasted hedged transactions occur and are then recognized in the consolidated statements of income in the same line item as the item being hedged. The Company evaluates hedge effectiveness at the time a contract is entered into, as well as on an ongoing basis. If and when hedge relationships are discontinued, and should the forecasted transaction be deemed probable of not occurring by the end of the originally specified period or within an additional two-month period of time thereafter, any related derivative amounts recorded in equity are reclassified to earnings in other income (expense). There were no amounts reclassified to earnings as a result of hedge ineffectiveness for the fiscal years ended March 31, 20152016 or 2014.2015.

        Changes in the fair value of the hedges for the Balance Sheet Program and the Economic Hedge Program, if any, are recognized in the same line item as the underlying exposure being hedged and the ineffective portion of cash flow hedges, if any, is recognized as other income (expense). The Company values its derivatives based on market observable inputs including both forward and spot prices for currencies. Any significant change in the forward or spot prices for hedged currencies would have a significant impact on the value of the Company's derivatives.

        The U.S. dollar equivalent market value, which consists of the notional value and net unrealized gain or loss, of all outstanding foreign currency derivative contracts was $121,380$273,862 and $102,801$121,380 at March 31, 2015 and 2014, respectively. Unrealized net gains related to these contracts which are expected to be reclassified from AOCI to earnings during the next 12 months are $2,102 at March 31, 2015. At March 31, 2015, the maximum outstanding term of any derivative instrument was 33 months.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(17)(18) Derivative Financial Instruments and Trading Activities (Continued)

2016 and 2015, respectively. Unrealized net gains related to these contracts which are expected to be reclassified from AOCI to earnings during the next 12 months are $4,934 at March 31, 2016. At March 31, 2016, the maximum outstanding term of any derivative instrument was 27 months.

        The following tables set forth the fair value of derivative instruments included in the consolidated balance sheets at March 31, 20152016 and March 31, 2014:2015:

Derivatives designated as hedging instruments

		March 31, 2015			March 31, 2014				March 31, 2016			March 31, 2015
Foreign currency exchange contracts:
Other current assets		$	3,285		$	398			$	3,706		$	3,285
Other long-term assets		$	1,359		$	586			$	1,988		$	1,359
Accrued expenses and others		$	1,183		$	3,925
Accrued expenses and other									$	278		$	1,183
Long-term liabilities		$	619		$	2,449			$	282		$	619

        The following tables set forth the effect of the Company's foreign currency exchange contracts on the consolidated financial statements of the Company for the fiscal years ended March 31, 20152016 and 2014:2015:

		Amount of Gain or (Loss) Recognized in AOCI on Derivatives (Effective Portion)							Amount of Gain or (Loss) Recognized in AOCI on Derivatives (Effective Portion)
Derivatives Designated as Cash Flow Hedging Relationships		March 31, 2015			March 31, 2014				March 31, 2016			March 31, 2015
Foreign currency exchange contracts		$	6,680		$	(10,284	)		$	5,170		$	6,680

 


		Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)							Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)		March 31, 2015			March 31, 2014				March 31, 2016			March 31, 2015
Revenue									$	272			—
Costs of revenue		$	(980	)	$	(4,170	)		$	391		$	(980	)
Operating expenses		$	(573	)	$	(2,513	)		$	194		$	(573	)

 


				Amount of Gain or (Loss) Recognized in Income on Derivatives									Amount of Gain or (Loss) Recognized in Income on Derivatives
Derivatives not Designated as Hedging Instruments		Location of Gain Or (Loss) Recognized in Income on Derivatives		March 31, 2015			March 31, 2014				Location of Gain Or (Loss) Recognized in Income on Derivatives		March 31, 2016			March 31, 2015
Foreign currency exchange contracts		Foreign currency transaction gains (losses)		$	66		$	(2,388	)		Foreign currency transaction gains (losses)		$	(1,236	)	$	66
		Revenue		$	(389	)	$	(847	)		Revenue		$	(29	)	$	(389	)
		Costs of revenue		$	(279	)	$	343			Costs of revenue		$	(13	)	$	(279	)
		Selling, general and administrative expenses		$	(93	)	$	50			Selling, general and administrative expenses		$	(17	)	$	(93	)




(18)Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(19) Business Segment Information

        Accounting pronouncements establish standards for the manner in which public companies report information about operating segments in annual and interim financial statements. Operating segments are component of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker on deciding on how to allocate resources and in assessing performance. The Company's chief operating decision-maker is considered to be the Company's Chief




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(18) Business Segment Information (Continued)

Executive Officer. The Company's Chief Executive Officer reviewsReviews financial information presented on an entity level basis for purposes of making operating decisions and assessing financial performance. Therefore, the Company has determined that it operates in a single operating and reportable segment.

Geographic information:

        Total revenue is attributed to geographic areas based on location of the client. Geographic information is summarized as follows:

		Year Ended March 31,										Year Ended March 31,
		2015			2014			2013				2016			2015			2014
Customer revenue:
North America		$	319,285		$	278,318		$	251,219			$	421,215		$	319,285		$	278,318
Europe			129,904			97,178			65,863				134,639			129,904			97,178
Other			29,797			21,437			16,093				44,448			29,797			21,437
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Consolidated revenue		$	478,986		$	396,933		$	333,175			$	600,302		$	478,986		$	396,933
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

 


		March 31,							March 31,
		2015			2014				2016			2015
Long-lived assets, net of accumulated depreciation and amortization:
North America		$	59,316		$	61,562			$	96,031		$	59,316
Asia			32,896			32,235				268,636			32,896
Europe			18,045			23,658
Europe and others										18,885			18,045
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Consolidated long-lived assets, net		$	110,257		$	117,455			$	383,552		$	110,257
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(19) Quarterly Results of Operations (unaudited)

		Three Months Ended
		March 31, 2015			December 31, 2014			September 30, 2014			June 30, 2014			March 31, 2014			December 31, 2013			September 30, 2013			June 30, 2013
Revenue		$	126,016		$	122,996		$	117,700		$	112,274		$	111,100		$	101,043		$	94,301		$	90,489
Costs of revenue			79,722			77,144			74,968			72,588			68,407			63,821			60,503			57,802
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Gross profit			46,294			45,852			42,732			39,686			42,693			37,222			33,798			32,687
Operating expenses			31,816			31,233			30,491			28,456			30,182			26,026			24,022			23,758
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income from operations			14,478			14,619			12,241			11,230			12,511			11,196			9,776			8,929
Other income			1,221			1,360			1,257			994			1,116			1,155			105			1,136
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income before income tax expense			15,699			15,979			13,498			12,224			13,627			12,351			9,881			10,065
Income tax expense			4,149			4,200			3,384			3,221			3,580			3,023			2,403			2,543
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income		$	11,550		$	11,779		$	10,114		$	9,003		$	10,047		$	9,328		$	7,478		$	7,522
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Basic earnings per share		$	0.40		$	0.41		$	0.35		$	0.32		$	0.36		$	0.36		$	0.29		$	0.30
Diluted earnings per share		$	0.39		$	0.40		$	0.34		$	0.31		$	0.35		$	0.35		$	0.28		$	0.29

(20) Subsequent Events

        On April 1, 2015, Virtusa Corporation (the "Company") entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") by and among the Company, Apparatus, Inc. an Indiana corporation ("Apparatus"), the majority stockholder of Apparatus ("Major Stockholder") and the other stockholders (collectively with the Major Stockholder, the "Sellers"), to acquire all of the issued and outstanding stock of Apparatus (the "Acquisition"). The Company also completed the Acquisition on April 1, 2015, and Apparatus is now a wholly-owned subsidiary of the Company.

        Under the terms of the Stock Purchase Agreement, the purchase price for the Acquisition was approximately $34,200 in cash, subject to post-closing working capital adjustments. The purchase price is also subject to adjustment after the closing by up to an additional $1,700 in earn-out consideration to the Sellers, and an additional payment of approximately $1,500 ("Bonus Pool") in the form of variable cash compensation to certain Apparatus employees, in each case, in the event of Apparatus' achievement at 100% of certain revenue and profit milestones for the fiscal year ending March 31, 2016. The Company deposited 8.5% of the purchase price into escrow for a period of 12 months as security for the Sellers' indemnification obligations under the Stock Purchase Agreement. The Company, Sellers and Apparatus made customary representations, warranties and covenants in the Stock Purchase Agreement. The Stock Purchase Agreement also contains non-solicitation and non-competition provisions pursuant to which the Sellers agreed not to solicit any employee or affiliate or client of the Company and, in the case of the Major Stockholder, to also not engage in any competitive business or activities, in each case, for a period of three years after the date of closing of the transaction.

        In connection with the Acquisition, the Company offered employment to all of Apparatus' employees. In addition to the Bonus Pool, the Company has also agreed to issue an aggregate of up to $3,500 in shares of restricted stock from the Company's 2007 Stock Option and Incentive, not to exceed 93,333 shares, to certain Apparatus employees. The shares will vest annually over a four year period.




Table of Contents


Virtusa Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(thousands, except share and per share amounts)

(20) Quarterly Results of Operations (unaudited)

		Three Months Ended
		March 31, 2016			December 31, 2015			September 30, 2015			June 30, 2015			March 31, 2015			December 31, 2014			September 30, 2014			June 30, 2014
Revenue		$	171,853		$	150,603		$	143,002		$	134,844		$	126,016		$	122,996		$	117,700		$	112,274
Costs of revenue			111,540			96,908			93,500			87,362			79,722			77,144			74,968			72,588
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Gross profit			60,313			53,695			49,502			47,482			46,294			45,852			42,732			39,686
Operating expenses			54,793			39,561			36,246			35,072			31,816			31,233			30,491			28,456
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income from operations			5,520			14,134			13,256			12,410			14,478			14,619			12,241			11,230
Other income			7,476			1,653			1,830			1,390			1,221			1,360			1,257			994
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Income before income tax expense			12,996			15,787			15,086			13,800			15,699			15,979			13,498			12,224
Income tax expense			488			4,474			4,000			3,687			4,149			4,200			3,384			3,221
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Net income		$	12,508		$	11,313		$	11,086		$	10,113		$	11,550		$	11,779		$	10,114		$	9,003
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Noncontrolling interest			218			—			—			—			—			—			—			—
Net income attributable to Virtusa common stockholders.		$	12,290		$	11,313		$	11,086		$	10,113		$	11,550		$	11,779		$	10,114		$	9,003
Basic earnings per share		$	0.42		$	0.39		$	0.38		$	0.35		$	0.40		$	0.41		$	0.35		$	0.32
Diluted earnings per share		$	0.41		$	0.38		$	0.37		$	0.34		$	0.39		$	0.40		$	0.34		$	0.31

(21) Subsequent Events (Continued)

        On April 24, 2015,6, 2016, Virtusa India completed an unconditional mandatory open offer with successful tender to purchase an additional 26% of the fully diluted outstanding shares of Polaris from Polaris' public shareholders. The mandatory open offer was conducted in accordance with requirements of the Securities and Exchange Board of India ("SEBI") and the applicable Indian rules on takeovers. Virtusa India purchased 26,719,942 shares of Polaris common for an aggregate purchase price of approximately $88,820 (Indian rupees 5,913,920). Upon the closing of the mandatory offering, Virtusa's ownership interest in Polaris increased from approximately 51.7% to 77.7% of Polaris' fully diluted shares outstanding, and from approximately 52.9% to 78.8% of Polaris' basic shares outstanding. Under applicable Indian rules on takeovers, Virtusa India is required to sell within one year of the settlement of the unconditional mandatory offer its shareholdings in Polaris in excess of 75% of the basic outstanding share capital of Polaris.

        On April 25, 2016, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the U.K. pound sterling ("GBP") against the U.S. dollar. The contracts have an aggregate notional amount of approximately £2,961 (approximately $4,470) and will expire on various dates through June 30, 2015. The weighted average U.S. dollar, settlement rate associated with the U.K. pound sterling contracts is approximately $1.51.

        On May 7, 2015, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the Swedish Krona ("SEK") against the U.S. dollar and the Euro ("EUR") against the U.S. dollar (the "Euro contracts"), each of which will expire on various dates during the period ending June 30, 2015.2016. The GBP contracts have an aggregate notional amount of approximately £4,252 (approximately $ 6,141), the SEK contracts have an aggregate notional amount of approximately SEK 4,3411,950 (approximately $527)$242) and the EUR contracts have an aggregate notional amount of approximately EUR 675689 (approximately $757)$ 775). The weighted average U.S. dollar settlement rate associated with the GBP contracts is $ 1.444, the weighted average U.S dollar settlement rate associated with the SEK contracts is approximately $0.121,$0.124, and the weighted average U.S. dollar settlement rate associated with the EUR contracts is approximately $1.121.

        On May 7, 2015, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the Indian rupee against the U.S. dollar and U.K. pound sterling. The U.S dollar contracts have an aggregate notional amount of approximately 884,253 Indian rupees (approximately $12,824) and have an average settlement rate of 69.21 Indian rupees. The U.K. pound sterling contracts have an aggregate notional amount of approximately 662,388 Indian rupees (approximately £6,295) and have an average settlement rate of 105.44 Indian rupees. These contracts will expire at various dates during the 36 month period ending on March 31, 2018. The Company will be obligated to settle these contracts based upon the Reserve Bank of India published Indian rupee exchange rates. Based on the U.S. dollar to U.K. pound sterling spot rate on May 7, 2015 of $1.52, the blended weighted average Indian rupee rate associated with both the U.S. dollar and U.K. pound sterling contracts would be approximately 69.05 Indian rupees per U.S. dollar.

        On May 8, 2015, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the U.K. pound sterling against the U.S. dollar. The contracts have an aggregate notional amount of approximately £1,902 (approximately $2,915) and will expire on various dates through June 30, 2015. The weighted average U.S. dollar settlement rate associated with the U.K. pound sterling contracts is approximately $1.53.$1.125




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Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.


        None.

Item 9A.    Controls and Procedures.


(1)   Evaluation of Disclosure Controls and Procedures

        We have carried out an evaluation, under the supervision and the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Securities Exchange Act), as of March 31, 2015.2016. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of that period, our disclosure controls and procedures are effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (b) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(2)   Report of Management on Internal Control over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act as a process designed by, or under the supervision of, the issuers principal executive and principal financial officers or other persons performing similar functions and effected by the issuers board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

•

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer;



•

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the receipts and expenditures of the issuers are being made only in accordance with authorizations of the management and directors of the issuer; and



•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2015.2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control—Integrated Framework 1992.2013.




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        Based on this assessment, our management has concluded that, as of March 31, 2015,2016, our internal control over financial reporting was effective based on those criteria.

        We acquired a controlling interest in Polaris Consulting & Services Limited on March 3, 2016, and management excluded from its assessment of the effectiveness of our internal controls over financial reporting as of March 31, 2016 the Polaris internal controls over financial reporting associated with 40.6% of total assets (of which 16.2% represents goodwill and intangibles excluded from the scope of management's assessment) and 3.2% of total revenues included in our consolidated financial statements as of March 31, 2016.

        The effectiveness of our internal control over financial reporting as of March 31, 20152016 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

(3)   Changes in Internal Controls over Financial Reporting

        Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate annually the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal control over financial reporting in all annual reports. There were no changes in our internal control over financial reporting during the fiscal year ended March 31, 20152016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information.


        None.




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PART III


Item 10.    Directors, Executive Officers and Corporate Governance.


        The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, which proxy statement is expected to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended March 31, 2015.2016.

Item 11.    Executive Compensation.


        The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, which proxy statement is expected to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended March 31, 2015.2016.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.


        The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, which proxy statement is expected to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended March 31, 2015.2016.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.


        The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, which proxy statement is expected to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended March 31, 2015.2016.

Item 14.    Principal Accountant Fees and Services.


        The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, which proxy statement is expected to be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended March 31, 2015.2016.




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PART IV


Item 15.    Exhibits and Financial Statement Schedules.


        The following are filed as part of this Annual Report on Form 10-K:

1.     Financial Statements

        The following consolidated financial statements are included in Item 8:

Reports of Independent Registered Public Accounting Firm			7178
Consolidated Balance Sheets at March 31, 20152016 and 20142015			7380
Consolidated Statements of Income for the Years Ended March 31, 2016, 2015 2014 and 20132014			7481
Consolidated Statements of Comprehensive Income for the Years ended March 31, 2016, 2015 2014 and 20132014			7582
Consolidated Statements of Changes in Stockholders' Equity for the Years ended March 31, 2016, 2015 2014 and 20132014			7683
Consolidated Statements of Cash Flows for the Years Ended March 31, 2016, 2015 2014 and 20132014			7784
Notes to Consolidated Financial Statements			7885

2.     Financial Statement Schedules

        The financial statement schedule entitled "Schedule II—Valuation and Qualifying Accounts" is filed as part of this Annual Report on Form 10-K under this Item 15.

        All other schedules have been omitted since the required information is not present, or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the Notes thereto.




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Virtusa Corporation and Subsidiaries


Schedule II—Valuation and Qualifying Accounts
For the years ended March 31, 2016, 2015, 2014, and 20132014


Description		Balance at Beginning of Period			Charged to Costs and Expenses			Deductions/ Other			Balance at End of Period				Balance at Beginning of Period			Charged to Costs and Expenses			Deductions/ Other			Balance at End of Period
		(In thousands)													(In thousands)
Accounts receivable allowance for doubtful accounts:
Year ended March 31, 2013		$	582		$	193		$	(35	)	$	740
Year ended March 31, 2014		$	740		$	539		$	(149	)	$	1,130			$	740		$	539		$	(149	)	$	1,130
Year ended March 31, 2015		$	1,130		$	(134	)	$	(115	)	$	881			$	1,130		$	(134	)	$	(115	)	$	881
Year ended March 31, 2016															$	881		$	208		$	(43	)	$	1,046




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3.

Exhibits

        The following exhibits are filed as part of and incorporated by reference into this Annual Report:

Exhibit No.			Exhibit Title
	2.1	++	Share Purchase Agreement dated as of November 5, 2015 by and among Virtusa Consulting & Services Private Limited, the stockholders listed in Schedules I and II therein and Polaris Consulting Services & Limited (previously filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K (File No. 001-33625) filed on November 5, 2015 and incorporated by reference herein).
	2.2	++	Amendment to Share Purchase Agreement, dated as of February 25, 2016, by and among the Company, Polaris Consulting & Services Ltd. and the other parties thereto. Limited (previously filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K (File No. 001-33625) filed on March 2, 2016 and incorporated by reference herein).
	3.1		Amended and Restated By-laws of the Registrant (previously filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	3.2		Form of Seventh Amended and Restated Certificate of Incorporation of the Registrant (previously filed as Exhibit 3.3 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952)333- 141952) and incorporated herein by reference).
	4.1		Specimen certificate evidence shares of the Registrant's common stock (previously filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.1		Lease Agreement by and between the Registrant and W9/TIB Real Estate Limited Partnership, dated June 2000, as amended (previously filed as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.2		Third Amendment to Lease by and between the Registrant and Westborough Investors Limited Partnership dated as of March 31, 2010 (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed April 6, 2010, and incorporated herein by reference).
	10.3	+	Amended and Restated 2000 Stock Option Plan and forms of agreements thereunder (previously filed as Exhibit 10.4 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952)333- 141952) and incorporated herein by reference).
	10.4	+	2005 Stock Appreciation Rights Plan and form of agreements thereunder (previously filed as Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.5	†++	Master Service ProviderStock Purchase Agreement by and betweenamong Virtusa Corporation, Apparatus, Inc., an Indiana corporation, and Kelly Pfledderer and the Registrant and JPMorgan Chase Bank, N.A.,other selling stockholder listed therein, dated as of December 6, 2004, as amendedApril 1, 2015 (previously filed as Exhibit 10.610.1 to the Registrant's Registration StatementCurrent Report on Form S-1, as amended (Registration No. 333-141952)8-K, filed April 1, 2015, and incorporated herein by reference).
	10.6	++	Amendment No. 236169,Asset Purchase Agreement by and Virtusa Corporation, Agora Group, Inc. ("Agora") and the sole stockholder of Agora dated as of March 1, 2008 to the Master Service Provider Agreement by and between the Registrant and JPMorgan Chase Bank, N.A.July 28, 2015 (previously filed as Exhibit 10.610.1 to the Registrant's AnnualQuarterly Report on Form 10-K,10-Q (File No. 001-33625) filed May 29, 2009,July 30, 2015 and incorporated herein by reference).
	10.7	†	Amendment No. 3, dated as of January 1, 2009 to the Master Service Provider Agreement by and between the Registrant and JPMorgan Chase Bank, N.A. (previously filed as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K, filed May 29, 2009, and incorporated herein by reference).
	10.8	†	Amendment—CW483516, dated as of March 29, 2012 to the Master Service Provider Agreement by and between the Registrant and JPMorgan Chase Bank, N.A. (previously filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K, filed May 25, 2012 and incorporated herein by reference)reference herein).




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Exhibit No.			Exhibit Title
	10.9	†	Amendment—CW644410, dated as of March 19, 2014 to the Master Service Provider Agreement by and between the Registrant and JPMorgan Chase Bank, N.A. (previously filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.10	+	Form of Indemnification Agreement between the Registrant and each of its directors (previously filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.11	†	Global Frame Contract by and between Virtusa UK Limited and British Telecommunications plc, dated as of January 31, 2012 (previously filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K, filed May 25, 2012, and incorporated herein by reference).
	10.1210.8	†	Amendment No. 001, dated as of September 13, 2013 to the Global Frame Contract by and between Virtusa UK Limited and British Telecommunications plc. (previously filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.9	†	Amendment No. 010, dated as of April 24, 2015 to the Global Frame Contract by and between Virtusa UK Limited and British Telecommunications plc (previously filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K filed May 20, 2015 and incorporated herein by reference).
	10.10	†	Amendment No. 011 dated December 31, 2015 to Contract No. 8006340 by and between British Telecommunications Plc and Virtusa UK Limited. (previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on February 8, 2016, and incorporated herein by reference).
	10.11	†	Amendment No. 011 dated September 30, 2015 to Contract No. 8006340 by and between British Telecommunications Plc and Virtusa UK Limited. (previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on November 5, 2015, and incorporated herein by reference).
	10.12	†	Amendment No. 012 dated October 31, 2015 to Contract No. 8006340 by and between British Telecommunications Plc and Virtusa UK Limited. (previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on November 5, 2015, and incorporated herein by reference).
	10.13	+	Form of Indemnification Agreement between the Registrant and each of its directors (previously filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333- 141952) and incorporated herein by reference).
	10.14	+	Virtusa Corporation Executive Variable Cash Compensation Plan (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed May 11, 2011, and incorporated herein by reference).
	10.15	+	Executive Agreement between the Registrant and Kris Canekeratne, dated as of April 5, 2007 (previously filed as Exhibit 10.10 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952)333- 141952) and incorporated herein by reference).
	10.1410.16	+	Executive Agreement between the Registrant and Ranjan Kalia, dated as of July 15, 2009 (previously filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed July 17, 2009 and incorporated herein by reference).
	10.1510.17	+	Executive Agreement between the Registrant and Thomas R. Holler, dated as of April 5, 2007 (previously filed as Exhibit 10.12 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952)333- 141952) and incorporated herein by reference).
	10.1610.18	+	Executive Agreement between the Registrant and Roger Keith Modder, dated as of April 5, 2007 (previously filed as Exhibit 10.13 to the Registrant's Registration Statement on Form S-1, as amended (Registration No.��333-141952) and incorporated herein by reference).




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Exhibit No.			Exhibit Title
	10.1710.19	+	Executive Agreement between the Registrant and Raj Rajgopal, dated as of July 15, 2009 (previously filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed July 17, 2009 and incorporated herein by reference).
	10.1810.20	+	Executive Agreement between the Registrant and Samir Dhir dated as of May 16, 2011 (previously filed as Exhibit 10.33 to the Registrant's Annual Report on Form 10-K filed May 27, 2011 and incorporated herein by reference).
	10.1910.21		Co-Developer Agreement and Lease Deed between the Registrant and APIICL, a state government agency in India, dated as of March 2007 (previously filed as Exhibit 10.15 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.2010.22	+	2007 Stock Option and Incentive Plan, including Form of Incentive Stock Option Agreement, Form of Non-Qualified Stock Option Agreement for Company Employees, Form of Non-Qualified Stock Option Agreement for Non-Employee Directors, and Form of Employee Restricted Stock Agreement (previously filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K, filed June 3, 2008, and incorporated herein by reference).




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Exhibit No.			Exhibit Title
	10.2110.23	+	Form of Deferred Stock Award Agreement under the 2007 Stock Option and Incentive Plan (previously filed as Exhibit 10.34 to the Registrant's Annual Report on Form 10-K filed May 27, 2011 and incorporated herein by reference).
	10.2210.24	+	AmendedVirtusa Corporation 2015 Stock Option and RestatedIncentive Plan, including, Form of Non-Qualified Stock Option Agreement for Company Employees, Form of Non-Qualified Stock Option Agreement for Non-Employee Director Compensation PolicyDirectors, Form of Non-Qualified Stock Option Agreement for Company Employees—INDIA, Form of Employee Restricted Stock Award Agreement, Form of Restricted Stock Award Agreement for Non-Employee Directors Form of Employee Restricted Stock Award Agreement—INDIA, Form of Employee Restricted Stock Unit Agreement, Form of Restricted Stock Unit Agreement for Non-Employee Directors, Form of Employee Restricted Stock Unit Agreement—INDIA, Form of Employee Performance Based Restricted Stock Award Agreement, Form of Employee Performance Based Restricted Stock Award Agreement—INDIA, Form of Employee Performance Based Restricted Stock Unit Agreement, Form of Employee Performance Based Restricted Stock Unit Agreement—INDIA (previously filed as Exhibit 10.2810.1 to the Registrant's AnnualCurrent Report on Form 10-K,8-K (File No. 001-33625) filed May 27, 2010,September 4, 2015 and incorporated herein by reference)reference herein).
	10.2310.25		Lease Deed by and between DLF Assets Private Limited and Virtusa Software Services Pvt. Ltd. dated as of May 6, 2014. (previously filed as Exhibit 10.23 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.2410.26		LEASE DEEDLease Deed by and between Andhra Pradesh Industrial Infrastructure Corporation Limited and Virtusa (India) Private Limited dated as of August 22, 2007 (previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q, filed September 7, 2007, and incorporated herein by reference).
	10.2510.27		Lease Deed by and between DLF Assets Private Limited and Virtusa Software Services, Inc. dated as of May 26, 2011 (previously filed as Exhibit 10.35 to the Registrant's Annual Report on Form 10-K filed May 27, 2011 and incorporated herein by reference).
	10.26	+	Virtusa Corporation Executive Variable Cash Compensation Plan (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed May 11, 2011, and incorporated herein by reference).
	10.27		Amended and Restated Credit Agreement dated as of December 31, 2013 by and among Virtusa Corporation, its subsidiaries, InSource Holdings, Inc., InSource LLC and JPMorgan Chase Bank, N.A. ("Credit Agreement"), as Lender and Administrative Agent, including Exhibit A, Form of Assignment and Assumption Agreement, Exhibit B, Form of Compliance Certificate, Exhibit C, Form of Joinder Agreement, Exhibit D, Forms of U.S. Tax Compliance Certificates, and Exhibit E, Form of Borrowing Notice (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.28		Revolving Credit Note dated as of December 31, 2013 executed by Virtusa Corporation in favor of Lender (previously filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.29		Pledge and Security Agreement dated as of December 31, 2013, by and among Virtusa Corporation, its subsidiaries, InSource Holdings, Inc., InSource LLC and JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders (previously filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.30		Patent Security Agreement dated as of December 31, 2013 by Virtusa Corporation in favor of JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders party to the Credit Agreement (previously filed as Exhibit 10.4 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.31		Trademark Security Agreement dated as of December 31, 2013 by Virtusa Corporation in favor of JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders party to the Credit Agreement (previously filed as Exhibit 10.5 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).




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Exhibit No.			Exhibit Title
	10.32		Fee Letter Agreement by and between Virtusa Corporation and JPMorgan Chase Bank, N.A. dated as of December 31, 2013 (previously filed as Exhibit 10.6 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.33		Lease Deed by and between Virtusa India Private Limited and DLF Assets Private Limited dated as of September 29, 2012, (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed October 3, 2012, and incorporated herein by reference).




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Exhibit No.			Exhibit Title
	10.3410.29		Lease Deed by and between Virtusa (Private) Limited and Orion Development (Private) Limited dated as of December 14, 2012, (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed January 9, 2013, and incorporated herein by reference).
	10.3510.30	†	Professional ServicesCredit Agreement, by and between the Registrant and AIG Global Services, Inc., dated as of April 28, 2008February 25, 2016, by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint bookrunners and lead arrangers. (previously filed as Exhibit 10.3810.1 to Registrant's AnnualCurrent Report on Form 10-K,8-K, filed May 29, 2013,March 2, 2016, and incorporated herein by reference).
	10.3610.31		Amendment No. 1, dated as of June 27, 2011, to the Professional Services Agreement by and between the Registrant and AIG Global Services, Inc. (previously filed as Exhibit 10.36 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.37	†	Amendment No. 2, dated as of January 28, 2014, to the Professional Services Agreement by and between the Registrant and AIG Global Services, Inc. (previously filed as Exhibit 10.37 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.38	++	Asset Purchase Agreement by and among the Company, OSB Consulting, LLC., a New Jersey limited liability company, and the sole member thereof dated November 1, 2013 (previously filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K, filed November 4, 2013, and incorporated herein by reference).
	10.3910.32	++	Share Purchase Agreement by and among Virtusa International B.V. and the shareholders of TradeTech Consulting Scandinavia AB listed on the signature pages thereto dated as of January 2, 2014 (previously filed as Exhibit 10.7 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.40	*	Amendment No. 010, dated as of April 24, 2015 to the Global Frame Contract by and between Virtusa UK Limited and British Telecommunications plc.
	10.4110.33	+	Second Amended and Restated Non-Employee Director Compensation Policy, effective July 1, 2014 (previously filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q, filed August 5, 2014, and incorporated herein by reference).
	10.4210.34		Stock Purchase Agreement by and among Virtusa Corporation, Apparatus, Inc., an Indiana corporation, and Kelly Pfledderer and the other selling stockholder listed therein, dated as of April 1, 2015 (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed April 1, 2015, and incorporated herein by reference).
	10.43	*†	Master Professional Services Agreement for Application Development and Maintenance Services dated as of May 15, 2015 by and between AIG Procurement Services, Inc., and Virtusa Corporation.Corporation (previously filed as Exhibit 10.43 to the Registrant's Annual Report on Form 10-K filed May 20, 2015 and incorporated herein by reference).
	10.4410.35	*†	Amendment No. 1 to the Master Service ProviderProfessional Services Agreement (CITI-CONTRACT-14084-2015) dated as of January 5,July 1, 2015 by and between JPMORGAN CHASE BANK, NATIONAL ASSOCIATIONPolaris Consulting & Services Ltd and Citigroup Technology, Inc. (previously filed as Exhibit 10.2 to the Registrant.Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on February 8, 2016, and incorporated herein by reference).
	10.36	†	Amendment #1 to Polaris Master Professional Services Agreement and Termination of Virtusa Master Professional Services Agreement by and among Polaris Consulting & Services Ltd, Citigroup Technology, Inc. and Virtusa Corporation dated as of November 5, 2015 (previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on February 8, 2016, and incorporated herein by reference).
	10.37	*	Amendment #2 to Master Professional Services Agreement (CITI-CONTRACT-14084-2015) dated as of May 10, 2016 by and between Polaris Consulting & Services Ltd and Citigroup Technology, Inc.
	10.38	+	Polaris Employment Contract, dated September 26, 2012, between Polaris Software Lab Ltd. and Jitin Goyal (previously filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K, filed March 9, 2016, and incorporated herein by reference).
	10.39	†*	Contractual Change Note in accordance with Contract NO. 8006340 between British Telecommunications PLC, AND VIRTUSA UK LTD dated as of March 16, 2016.
	21.1	*	Subsidiaries of Registrant.
	23.1	*	Consent of KPMG LLP.




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Exhibit No.			Exhibit Title
	23.1	*	Consent of KPMG LLP.
	24.1	*	Power of Attorney (included on signature page).
	31.1	*	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	*	Certification of principal accounting and financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	**	Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
	32.2	**	Certification of principal accounting and financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
	101	*	The following materials from the Registrant's Annual Report on Form 10-K for the year ended March 31, 20152016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements.

---

+

Indicates a management contract or compensation plan, contract or arrangement.



++

Schedules (or similar attachments) to the applicable share or stock purchase agreement or asset purchase agreement, as the case may be, have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplementally copies of such omitted schedules (or similar attachments) to the Securities and Exchange Commission upon request.



†

Confidential treatment has been requested for certain provisions of this Exhibit.



*

Filed herewith.



**

Furnished herewith. This certification shall not be deemed filed for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933, amended or the Exchange Act of 1934, as amended.




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SIGNATURES


        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 2027^th day of May, 2015.2016.

		VIRTUSA CORPORATION
		By:		/s/ KRIS CANEKERATNE Kris Canekeratne Chairman and Chief Executive Officer (Principal Executive Officer)

Date: May 20, 201527, 2016


POWER OF ATTORNEY AND SIGNATURES


        We the undersigned officers and directors of Virtusa Corporation, hereby severally constitute and appoint Kris Canekeratne and Ranjan Kalia, and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, to sign for us and in our names in the capacities indicated below, any amendments to this Annual Report on Form 10-K, and generally to do all things in our names and on our behalf in such capacities to enable Virtusa Corporation to comply with the provisions of the Securities Act of 1934, as amended, and all the requirements of the Securities Exchange Commission.

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 2027^th day of May, 2015.2016.

Signature		Title
/s/ KRIS CANEKERATNE Kris Canekeratne		Chairman and Chief Executive Officer (Principal Executive Officer)
/s/ RANJAN KALIA Ranjan Kalia		Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ ROBERT E. DAVOLI Robert E. Davoli		Director
/s/ IZHAR ARMONY Izhar Armony		Director
/s/ RONALD T. MAHEU Ronald T. Maheu		Director




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Signature		Title
/s/ MARTIN TRUST Martin Trust		Director
/s/ ROWLAND MORIARTY Rowland Moriarty		Director
/s/ WILLIAM K. O'BRIEN William K. O'Brien		Director
/s/ AL-NOOR RAMJI AL-NoorAl-Noor Ramji		Director
/s/ BARRY R NEARHOS Barry R. Nearhos		Director




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EXHIBIT INDEX


        The following exhibits are filed as part of and incorporated by reference into this Annual Report:

Exhibit No.			Exhibit Title
	2.1	++	Share Purchase Agreement dated as of November 5, 2015 by and among Virtusa Consulting & Services Private Limited, the stockholders listed in Schedules I and II therein and Polaris Consulting Services & Limited (previously filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K (File No. 001-33625) filed on November 5, 2015 and incorporated by reference herein).
	2.2	++	Amendment to Share Purchase Agreement, dated as of February 25, 2016, by and among the Company, Polaris Consulting & Services Ltd. and the other parties thereto. Limited (previously filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K (File No. 001-33625) filed on March 2, 2016 and incorporated by reference herein).
	3.1		Amended and Restated By-laws of the Registrant (previously filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	3.2		Form of Seventh Amended and Restated Certificate of Incorporation of the Registrant (previously filed as Exhibit 3.3 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952)333- 141952) and incorporated herein by reference).
	4.1		Specimen certificate evidence shares of the Registrant's common stock (previously filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.1		Lease Agreement by and between the Registrant and W9/TIB Real Estate Limited Partnership, dated June 2000, as amended (previously filed as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.2		Third Amendment to Lease by and between the Registrant and Westborough Investors Limited Partnership dated as of March 31, 2010 (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed April 6, 2010, and incorporated herein by reference).
	10.3	+	Amended and Restated 2000 Stock Option Plan and forms of agreements thereunder (previously filed as Exhibit 10.4 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952)333- 141952) and incorporated herein by reference).
	10.4	+	2005 Stock Appreciation Rights Plan and form of agreements thereunder (previously filed as Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.5	†++	Master Service ProviderStock Purchase Agreement by and betweenamong Virtusa Corporation, Apparatus, Inc., an Indiana corporation, and Kelly Pfledderer and the Registrant and JPMorgan Chase Bank, N.A.,other selling stockholder listed therein, dated as of December 6, 2004, as amendedApril 1, 2015 (previously filed as Exhibit 10.610.1 to the Registrant's Registration StatementCurrent Report on Form S-1, as amended (Registration No. 333-141952)8-K, filed April 1, 2015, and incorporated herein by reference).
	10.6	++	Amendment No. 236169,Asset Purchase Agreement by and Virtusa Corporation, Agora Group, Inc. ("Agora") and the sole stockholder of Agora dated as of March 1, 2008 to the Master Service Provider Agreement by and between the Registrant and JPMorgan Chase Bank, N.A.July 28, 2015 (previously filed as Exhibit 10.610.1 to the Registrant's AnnualQuarterly Report on Form 10-K,10-Q (File No. 001-33625) filed May 29, 2009,July 30, 2015 and incorporated herein by reference).
	10.7	†	Amendment No. 3, dated as of January 1, 2009 to the Master Service Provider Agreement by and between the Registrant and JPMorgan Chase Bank, N.A. (previously filed as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K, filed May 29, 2009, and incorporated herein by reference).
	10.8	†	Amendment—CW483516, dated as of March 29, 2012 to the Master Service Provider Agreement by and between the Registrant and JPMorgan Chase Bank, N.A. (previously filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K, filed May 25, 2012 and incorporated herein by reference)reference herein).




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Exhibit No.			Exhibit Title
	10.9	†	Amendment—CW644410, dated as of March 19, 2014 to the Master Service Provider Agreement by and between the Registrant and JPMorgan Chase Bank, N.A. (previously filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.10	+	Form of Indemnification Agreement between the Registrant and each of its directors (previously filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.11	†	Global Frame Contract by and between Virtusa UK Limited and British Telecommunications plc, dated as of January 31, 2012 (previously filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K, filed May 25, 2012, and incorporated herein by reference).
	10.1210.8	†	Amendment No. 001, dated as of September 13, 2013 to the Global Frame Contract by and between Virtusa UK Limited and British Telecommunications plc. (previously filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.9	†	Amendment No. 010, dated as of April 24, 2015 to the Global Frame Contract by and between Virtusa UK Limited and British Telecommunications plc (previously filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K filed May 20, 2015 and incorporated herein by reference).
	10.10	†	Amendment No. 011 dated December 31, 2015 to Contract No. 8006340 by and between British Telecommunications Plc and Virtusa UK Limited. (previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on February 8, 2016, and incorporated herein by reference).
	10.11	†	Amendment No. 011 dated September 30, 2015 to Contract No. 8006340 by and between British Telecommunications Plc and Virtusa UK Limited. (previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on November 5, 2015, and incorporated herein by reference).
	10.12	†	Amendment No. 012 dated October 31, 2015 to Contract No. 8006340 by and between British Telecommunications Plc and Virtusa UK Limited. (previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on November 5, 2015, and incorporated herein by reference).
	10.13	+	Form of Indemnification Agreement between the Registrant and each of its directors (previously filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333- 141952) and incorporated herein by reference).
	10.14	+	Virtusa Corporation Executive Variable Cash Compensation Plan (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed May 11, 2011, and incorporated herein by reference).
	10.15	+	Executive Agreement between the Registrant and Kris Canekeratne, dated as of April 5, 2007 (previously filed as Exhibit 10.10 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952)333- 141952) and incorporated herein by reference).
	10.1410.16	+	Executive Agreement between the Registrant and Ranjan Kalia, dated as of July 15, 2009 (previously filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed July 17, 2009 and incorporated herein by reference).
	10.1510.17	+	Executive Agreement between the Registrant and Thomas R. Holler, dated as of April 5, 2007 (previously filed as Exhibit 10.12 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952)333- 141952) and incorporated herein by reference).
	10.1610.18	+	Executive Agreement between the Registrant and Roger Keith Modder, dated as of April 5, 2007 (previously filed as Exhibit 10.13 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).




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Exhibit No.			Exhibit Title
	10.1710.19	+	Executive Agreement between the Registrant and Raj Rajgopal, dated as of July 15, 2009 (previously filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed July 17, 2009 and incorporated herein by reference).
	10.1810.20	+	Executive Agreement between the Registrant and Samir Dhir dated as of May 16, 2011 (previously filed as Exhibit 10.33 to the Registrant's Annual Report on Form 10-K filed May 27, 2011 and incorporated herein by reference).
	10.1910.21		Co-Developer Agreement and Lease Deed between the Registrant and APIICL, a state government agency in India, dated as of March 2007 (previously filed as Exhibit 10.15 to the Registrant's Registration Statement on Form S-1, as amended (Registration No. 333-141952) and incorporated herein by reference).
	10.2010.22	+	2007 Stock Option and Incentive Plan, including Form of Incentive Stock Option Agreement, Form of Non-Qualified Stock Option Agreement for Company Employees, Form of Non-Qualified Stock Option Agreement for Non-Employee Directors, and Form of Employee Restricted Stock Agreement (previously filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K, filed June 3, 2008, and incorporated herein by reference).




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Exhibit No.			Exhibit Title
	10.2110.23	+	Form of Deferred Stock Award Agreement under the 2007 Stock Option and Incentive Plan (previously filed as Exhibit 10.34 to the Registrant's Annual Report on Form 10-K filed May 27, 2011 and incorporated herein by reference).
	10.2210.24	+	AmendedVirtusa Corporation 2015 Stock Option and RestatedIncentive Plan, including, Form of Non-Qualified Stock Option Agreement for Company Employees, Form of Non-Qualified Stock Option Agreement for Non-Employee Director Compensation PolicyDirectors, Form of Non-Qualified Stock Option Agreement for Company Employees—INDIA, Form of Employee Restricted Stock Award Agreement, Form of Restricted Stock Award Agreement for Non-Employee Directors Form of Employee Restricted Stock Award Agreement—INDIA, Form of Employee Restricted Stock Unit Agreement, Form of Restricted Stock Unit Agreement for Non-Employee Directors, Form of Employee Restricted Stock Unit Agreement—INDIA, Form of Employee Performance Based Restricted Stock Award Agreement, Form of Employee Performance Based Restricted Stock Award Agreement—INDIA, Form of Employee Performance Based Restricted Stock Unit Agreement, Form of Employee Performance Based Restricted Stock Unit Agreement—INDIA (previously filed as Exhibit 10.2810.1 to the Registrant's AnnualCurrent Report on Form 10-K,8-K (File No. 001-33625) filed May 27, 2010,September 4, 2015 and incorporated herein by reference)reference herein).
	10.2310.25		Lease Deed by and between DLF Assets Private Limited and Virtusa Software Services Pvt. Ltd. dated as of May 6, 2014. (previously filed as Exhibit 10.23 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.2410.26		LEASE DEEDLease Deed by and between Andhra Pradesh Industrial Infrastructure Corporation Limited and Virtusa (India) Private Limited dated as of August 22, 2007 (previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q, filed September 7, 2007, and incorporated herein by reference).
	10.2510.27		Lease Deed by and between DLF Assets Private Limited and Virtusa Software Services, Inc. dated as of May 26, 2011 (previously filed as Exhibit 10.35 to the Registrant's Annual Report on Form 10-K filed May 27, 2011 and incorporated herein by reference).
	10.26	+	Virtusa Corporation Executive Variable Cash Compensation Plan (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed May 11, 2011, and incorporated herein by reference).
	10.27		Amended and Restated Credit Agreement dated as of December 31, 2013 by and among Virtusa Corporation, its subsidiaries, InSource Holdings, Inc., InSource LLC and JPMorgan Chase Bank, N.A. ("Credit Agreement"), as Lender and Administrative Agent, including Exhibit A, Form of Assignment and Assumption Agreement, Exhibit B, Form of Compliance Certificate, Exhibit C, Form of Joinder Agreement, Exhibit D, Forms of U.S. Tax Compliance Certificates, and Exhibit E, Form of Borrowing Notice (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.28		Revolving Credit Note dated as of December 31, 2013 executed by Virtusa Corporation in favor of Lender (previously filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.29		Pledge and Security Agreement dated as of December 31, 2013, by and among Virtusa Corporation, its subsidiaries, InSource Holdings, Inc., InSource LLC and JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders (previously filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.30		Patent Security Agreement dated as of December 31, 2013 by Virtusa Corporation in favor of JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders party to the Credit Agreement (previously filed as Exhibit 10.4 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.31		Trademark Security Agreement dated as of December 31, 2013 by Virtusa Corporation in favor of JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders party to the Credit Agreement (previously filed as Exhibit 10.5 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).




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Exhibit No.			Exhibit Title
	10.32		Fee Letter Agreement by and between Virtusa Corporation and JPMorgan Chase Bank, N.A. dated as of December 31, 2013 (previously filed as Exhibit 10.6 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.33		Lease Deed by and between Virtusa India Private Limited and DLF Assets Private Limited dated as of September 29, 2012, (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed October 3, 2012, and incorporated herein by reference).




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Exhibit No.			Exhibit Title
	10.3410.29		Lease Deed by and between Virtusa (Private) Limited and Orion Development (Private) Limited dated as of December 14, 2012, (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed January 9, 2013, and incorporated herein by reference).
	10.3510.30	†	Professional ServicesCredit Agreement, by and between the Registrant and AIG Global Services, Inc., dated as of April 28, 2008February 25, 2016, by and among the Company, its guarantor subsidiaries party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint bookrunners and lead arrangers. (previously filed as Exhibit 10.3810.1 to Registrant's AnnualCurrent Report on Form 10-K,8-K, filed May 29, 2013,March 2, 2016, and incorporated herein by reference).
	10.3610.31		Amendment No. 1, dated as of June 27, 2011, to the Professional Services Agreement by and between the Registrant and AIG Global Services, Inc. (previously filed as Exhibit 10.36 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.37	†	Amendment No. 2, dated as of January 28, 2014, to the Professional Services Agreement by and between the Registrant and AIG Global Services, Inc. (previously filed as Exhibit 10.37 to the Registrant's Annual Report on Form 10-K filed May 23, 2014 and incorporated herein by reference).
	10.38	++	Asset Purchase Agreement by and among the Company, OSB Consulting, LLC., a New Jersey limited liability company, and the sole member thereof dated November 1, 2013 (previously filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K, filed November 4, 2013, and incorporated herein by reference).
	10.3910.32	++	Share Purchase Agreement by and among Virtusa International B.V. and the shareholders of TradeTech Consulting Scandinavia AB listed on the signature pages thereto dated as of January 2, 2014 (previously filed as Exhibit 10.7 to the Registrant's Current Report on Form 8-K, filed January 6, 2014, and incorporated herein by reference).
	10.40	*	Amendment No. 010, dated as of April 24, 2015 to the Global Frame Contract by and between Virtusa UK Limited and British Telecommunications plc.
	10.4110.33	+	Second Amended and Restated Non-Employee Director Compensation Policy, effective July 1, 2014 (previously filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q, filed August 5, 2014, and incorporated herein by reference).
	10.4210.34		Stock Purchase Agreement by and among Virtusa Corporation, Apparatus, Inc., an Indiana corporation, and Kelly Pfledderer and the other selling stockholder listed therein, dated as of April 1, 2015 (previously filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed April 1, 2015, and incorporated herein by reference).
	10.43	*†	Master Professional Services Agreement for Application Development and Maintenance Services dated as of May 15, 2015 by and between AIG Procurement Services, Inc., and Virtusa Corporation.Corporation (previously filed as Exhibit 10.43 to the Registrant's Annual Report on Form 10-K filed May 20, 2015 and incorporated herein by reference).
	10.4410.35	*†	Amendment No. 1 to the Master Service ProviderProfessional Services Agreement (CITI-CONTRACT-14084-2015) dated as of January 5,July 1, 2015 by and between JPMORGAN CHASE BANK, NATIONAL ASSOCIATIONPolaris Consulting & Services Ltd and Citigroup Technology, Inc. (previously filed as Exhibit 10.2 to the Registrant.Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on February 8, 2016, and incorporated herein by reference).
	10.36	†	Amendment #1 to Polaris Master Professional Services Agreement and Termination of Virtusa Master Professional Services Agreement by and among Polaris Consulting & Services Ltd, Citigroup Technology, Inc. and Virtusa Corporation dated as of November 5, 2015 (previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q (File No. 001-33625) filed on February 8, 2016, and incorporated herein by reference).
	10.37	*	Amendment #2 to Master Professional Services Agreement (CITI-CONTRACT-14084-2015) dated as of May 10, 2016 by and between Polaris Consulting & Services Ltd and Citigroup Technology, Inc.
	10.38	+	Polaris Employment Contract, dated September 26, 2012, between Polaris Software Lab Ltd. and Jitin Goyal (previously filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K, filed March 9, 2016, and incorporated herein by reference).
	10.39	†*	Contractual Change Note in accordance with Contract NO. 8006340 between British Telecommunications PLC, AND VIRTUSA UK LTD dated as of March 16, 2016.
	21.1	*	Subsidiaries of Registrant.
	23.1	*	Consent of KPMG LLP.




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Exhibit No.			Exhibit Title
	23.1	*	Consent of KPMG LLP.
	24.1	*	Power of Attorney (included on signature page).
	31.1	*	Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	*	Certification of principal accounting and financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	**	Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
	32.2	**	Certification of principal accounting and financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350.
	101	*	The following materials from the Registrant's Annual Report on Form 10-K for the year ended March 31, 20152016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements.

---

+

Indicates a management contract or compensation plan, contract or arrangement.



++

Schedules (or similar attachments) to the applicable share or stock purchase agreement or asset purchase agreement, as the case may be, have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company supplementally will furnish copies of such omitted schedules (or similar attachments) to the Securities and Exchange Commission upon request.



†

Confidential treatment has been requested for certain provisions of this Exhibit.



*

Filed herewith.



**

Furnished herewith. This certification shall not be deemed filed for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933, amended or the Exchange Act of 1934, as amended.