The following tables set out the funded status of the gratuity plans and the amounts recognized in the Company's financial statements as of March 31, 2010, 2009 and 2008:
As of March 31, |
|||
| 2010 | 2009 | 2008 | |
| Change in benefit obligations | |||
| Benefit obligations at the beginning | 267 | 224 | 225 |
| Actuarial (gains)/ losses | (5) | 1 | (8) |
| Service cost | 80 | 51 | 50 |
| Interest cost | 19 | 16 | 17 |
| Benefits paid | (36) | (25) | (23) |
| Amendment in benefit plan | – | – | (37) |
| Benefit obligations at the end | 325 | 267 | 224 |
| Change in plan assets | |||
| Fair value of plan assets at the beginning | 268 | 236 | 225 |
| Expected return on plan assets | 25 | 17 | 18 |
| Actuarial gains | 1 | 5 | 2 |
| Employer contributions | 69 | 35 | 14 |
| Benefits paid | (36) | (25) | (23) |
| Fair value of plan assets at the end | 327 | 268 | 236 |
| Funded status | 2 | 1 | 12 |
| Prepaid benefit | 2 | 1 | 12 |
Net gratuity cost for the year ended March 31, 2010 and 2009 comprises the following components:
Year ended March 31, |
||
| 2010 | 2009 | |
| Service cost | 80 | 51 |
| Interest cost | 19 | 16 |
| Expected return on plan assets | (25) | (17) |
| Actuarial gains | (6) | (4) |
| Plan amendments | (3) | (4) |
| Net gratuity cost | 65 | 42 |
The net gratuity cost has been apportioned between cost of sales, selling and marketing expenses and administrative expenses on the basis of direct employee cost as follows:
Year ended March 31, |
||
| 2010 | 2009 | |
| Cost of sales | 57 | 37 |
| Selling and marketing expenses | 5 | 3 |
| Administrative expenses | 3 | 2 |
| 65 | 42 | |
Effective July 1, 2007, the Company amended its Gratuity Plan, to suspend the voluntary defined death benefit component of the Gratuity Plan. This amendment resulted in a negative past service cost amounting to Rs. 37 crore, which is being amortized on a straight-line basis over the average remaining service period of employees which is 10 years. The unamortized negative past service cost of Rs. 26 crore and Rs. 29 crore as of March 31, 2010 and 2009, respectively, has been included under other current liabilities.
The weighted-average assumptions used to determine benefit obligations as of March 31, 2010, 2009 and 2008 are set out below:
As of March 31, |
|||
| 2010 | 2009 | 2008 | |
| Discount rate | 7.8% | 7.0% | 7.9% |
| Weighted average rate of increase in compensation levels | 7.3% | 5.1% | 5.1% |
The weighted-average assumptions used to determine net periodic benefit cost for the year ended March 31, 2010 and 2009 are set out below:
Year ended March 31, |
||
| 2010 | 2009 | |
| Discount rate | 7.0% | 7.9% |
| Weighted average rate of increase in compensation levels | 7.3% | 5.1% |
| Rate of return on plan assets | 9.0% | 7.0% |
The Company contributes all ascertained liabilities towards gratuity to the Infosys Technologies Limited Employees' Gratuity Fund Trust. In case of Infosys BPO, contributions are made to the Infosys BPO Employees' Gratuity Fund Trust. Trustees administer contributions made to the trust and contributions are invested in specific designated instruments as permitted by Indian law and investments are also made in mutual funds that invest in the specific designated instruments. As of March 31, 2010 and 2009, the plan assets have been primarily invested in government securities.
Actual return on assets for the year ended March 31, 2010 and 2009 was Rs. 26 crore and Rs. 22 crore, respectively.
The Company assesses these assumptions with its projected long-term plans of growth and prevalent industry standards. The Company's overall expected long-term rate-of-return on assets has been determined based on consideration of available market information, current provisions of Indian law specifying the instruments in which investments can be made, and historical returns. Historical returns during the year ended March 31, 2010 and 2009 have not been lower than the expected rate of return on plan assets estimated for those years. The discount rate is based on the government securities yield.
Assumptions regarding future mortality experience are set in accordance with the published statistics by the Life Insurance Corporation of India.
The Company expects to contribute approximately Rs. 61 crore to the gratuity trusts during fiscal 2011.
The Company contributed Rs. 91 crore and Rs. 80 crore to the superannuation plan during the year ended March 31, 2010 and 2009, respectively. Since fiscal 2008, a substantial portion of the monthly contribution amount is being paid directly to the employees as an allowance and a nominal amount has been contributed to the plan.
Superannuation contributions have been apportioned between cost of sales, selling and marketing expenses and administrative expenses on the basis of direct employee cost as follows:
Year ended March 31, |
||
| 2010 | 2009 | |
| Cost of sales | 80 | 71 |
| Selling and marketing expenses | 7 | 6 |
| Administrative expenses | 4 | 3 |
| 91 | 80 | |
The Company has an obligation to fund any shortfall on the yield of the trust’s investments over the administered interest rates on an annual basis. These administered rates are determined annually predominantly considering the social rather than economic factors and in most cases the actual return earned by the Company has been higher in the past years. In the absence of reliable measures for future administered rates and due to the lack of measurement guidance, the Company’s actuary has expressed its inability to determine the actuarial valuation for such provident fund liabilities. Accordingly, the Company is unable to exhibit the related information.
The Company contributed Rs. 171 crore and Rs. 153 crore to the provident fund during the year ended March 31, 2010 and 2009, respectively.
Provident fund contributions have been apportioned between cost of sales, selling and marketing expenses and administrative expenses on the basis of direct employee cost as follows:
Year ended March 31, |
||
| 2010 | 2009 | |
| Cost of sales | 150 | 136 |
| Selling and marketing expenses | 13 | 11 |
| Administrative expenses | 8 | 6 |
| 171 | 153 | |
Year ended March 31, |
||
| 2010 | 2009 | |
| Salaries and bonus | 11,765 | 11,130 |
| Defined contribution plans | 112 | 96 |
| Defined benefit plans | 215 | 179 |
| Share-based compensation | 1 | 7 |
| 12,093 | 11,412 | |
The employee benefit cost is recognized in the following line items in the statement of comprehensive income:
Year ended March 31, |
||
| 2010 | 2009 | |
| Cost of sales | 10,617 | 10,112 |
| Selling and marketing expenses | 935 | 834 |
| Administrative expenses | 541 | 466 |
| 12,093 | 11,412 | |
The Company has only one class of shares referred to as equity shares having a par value of Rs. 5. The amount received in excess of the par value has been classified as share premium. Additionally, share-based compensation recognized in net profit in the statement of comprehensive income is credited to share premium. 2,833,600 shares were held by controlled trusts, each as of March 31, 2010 and 2009.
Retained earnings represent the amount of accumulated earnings of the Company.
Other components of equity consist of currency translation and fair value changes on available-for-sale financial assets.
The Company’s objective when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value. In order to maintain or achieve an optimal capital structure, the Company may adjust the amount of dividend payment, return capital to shareholders, issue new shares or buy back issued shares. As of March 31, 2010, the Company has only one class of equity shares and has no debt. Consequent to the above capital structure there are no externally imposed capital requirements.
The rights of equity shareholders are set out below.
Each holder of equity shares is entitled to one vote per share. The equity shares represented by American Depositary Shares (ADS) carry similar rights to voting and dividends as the other equity shares. Each ADS represents one underlying equity share.
The Company declares and pays dividends in Indian rupees. Indian law mandates that any dividend be declared out of accumulated distributable profits only after the transfer to a general reserve of a specified percentage of net profit computed in accordance with current regulations. The remittance of dividends outside India is governed by Indian law on foreign exchange and is subject to applicable taxes.
The Board of Directors, in their meeting on April 13, 2010, proposed a final dividend of Rs. 15 per equity share. The proposal is subject to the approval of shareholders at the Annual General Meeting to be held on June 12, 2010, and if approved, would result in a cash outflow of approximately Rs. 1,004 crore, inclusive of corporate dividend tax of Rs. 143 crore.
The amount of per share dividend recognized as distributions to equity shareholders for the year ended March 31, 2010 and 2009 was Rs. 23.50 and Rs. 37.25, respectively.
In the event of liquidation of the Company, the holders of shares shall be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts. However, no such preferential amounts exist currently, other than the amounts held by irrevocable controlled trusts. The amount distributed will be in proportion to the number of equity shares held by the shareholders. For irrevocable controlled trusts, the corpus would be settled in favour of the beneficiaries.
There are no voting, dividend or liquidation rights to the holders of options issued under the Company's share option plans.
Other income consists of the following:
Year ended March 31, |
||
| 2010 | 2009 | |
| Interest income on deposits | 779 | 871 |
| Exchange gains/ (losses) on forward and options contracts | 299 | (760) |
| Exchange gains/ (losses) on translation of other assets and liabilities | (269) | 321 |
| Income from available-for-sale financial assets/ investments | 160 | 5 |
| Others(1) | 21 | 36 |
| 990 | 473 | |
The Company has various operating leases, mainly for office buildings, that are renewable on a periodic basis. Rental expense for operating leases was Rs. 125 crore and Rs. 114 crore for the year ended March 31, 2010 and 2009, respectively.
The schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below:
As of March 31, |
||
| 2010 | 2009 | |
| Within one year of the balance sheet date | 84 | 80 |
| Due in a period between one year and five years | 249 | 223 |
| Due after five years | 62 | 72 |
The operating lease arrangements extend up to a maximum of ten years from their respective dates of inception, and relates to rented overseas premises. Some of these lease agreements have a price escalation clause.
1998 Employees Stock Option Plan (the 1998 Plan): The Company’s 1998 Plan provides for the grant of non-statutory share options and incentive share options to employees of the Company. The establishment of the 1998 Plan was approved by the Board of Directors in December 1997 and by the shareholders in January 1998. The Government of India has approved the 1998 Plan, subject to a limit of 11,760,000 equity shares representing 11,760,000 ADS to be issued under the 1998 Plan. All options granted under the 1998 Plan are exercisable for equity shares represented by ADSs. The options under the 1998 Plan vest over a period of one through four years and expire five years from the date of completion of vesting. The 1998 Plan is administered by a compensation committee comprising four members, all of whom are independent members of the Board of Directors. The term of the 1998 Plan ended on January 6, 2008, and consequently no further shares will be issued to employees under this plan.
1999 Employees Stock Option Plan (the 1999 Plan): In fiscal 2000, the Company instituted the 1999 Plan. The Board of Directors and shareholders approved the 1999 Plan in June 1999. The 1999 Plan provides for the issue of 52,800,000 equity shares to employees. The 1999 Plan is administered by a compensation committee comprising four members, all of whom are independent members of the Board of Directors. Under the 1999 Plan, options will be issued to employees at an exercise price, which shall not be less than the fair market value (FMV) of the underlying equity shares on the date of grant. Under the 1999 Plan, options may also be issued to employees at exercise prices that are less than FMV only if specifically approved by the shareholders of the Company in a general meeting. All options under the 1999 Plan are exercisable for equity shares. The options under the 1999 Plan vest over a period of one through six years, although accelerated vesting based on performance conditions is provided in certain instances and expire over a period of 6 months through five years from the date of completion of vesting. The term of the 1999 plan ended on June 11, 2009, and consequently no further shares will be issued to employees under this plan.
The activity in the 1998 Plan and 1999 Plan during the year ended March 31, 2010 and 2009 are set out below.
Year ended
March 31, 2010 |
Year ended
March 31, 2009 |
|||
| Shares arising out of options |
Weighted average exercise price |
Shares arising out of options |
Weighted average exercise price |
|
| 1998 Plan: | ||||
| Outstanding at the beginning | 916,759 | 904 | 1,530,447 | 813 |
| Forfeited and expired | (60,424) | 1,550 | (158,102) | 1,785 |
| Exercised | (614,071) | 854 | (455,586) | 890 |
| Outstanding at the end | 242,264 | 613 | 916,759 | 904 |
| Exercisable at the end | 242,264 | 613 | 916,759 | 904 |
| 1999 Plan: | ||||
| Outstanding at the beginning | 925,806 | 1,253 | 1,494,693 | 1,163 |
| Forfeited and expired | (340,264) | 1,968 | (190,188) | 1,805 |
| Exercised | (381,078) | 821 | (378,699) | 620 |
| Outstanding at the end | 204,464 | 869 | 925,806 | 1,253 |
| Exercisable at the end | 184,759 | 735 | 851,301 | 1,177 |
The weighted average share price of options exercised under the 1998 Plan during the year ended March 31, 2010 and 2009 was Rs. 2,266 and Rs. 1,683, respectively. The weighted average share price of options exercised under the 1999 Plan during the year ended March 31, 2010 and 2009 was Rs. 2,221 and Rs. 1,566, respectively.
The cash expected to be received upon the exercise of vested options for the 1998 Plan and 1999 Plan is Rs. 15 crore and Rs. 14 crore, respectively.
The following table summarizes information about share options outstanding and exercisable as of March 31, 2010:
Options outstanding |
Options exercisable |
|||||
| Range of exercise prices per share (Rs.) |
No. of shares arising out of options |
Weighted Average remaining contractual life |
Weighted average exercise price |
No. of shares arising out of options |
Weighted Average remaining contractual life |
Weighted average exercise price |
| 1998 Plan: | ||||||
| 300-700 | 174,404 | 0.94 | 551 | 174,404 | 0.94 | 551 |
| 701-1,400 | 67,860 | 1.27 | 773 | 67,860 | 1.27 | 773 |
| 242,264 | 1.03 | 613 | 242,264 | 1.03 | 613 | |
| 1999 Plan: | ||||||
| 300-700 | 152,171 | 0.91 | 439 | 152,171 | 0.91 | 439 |
| 1,400-2,500 | 52,293 | 1.44 | 2,121 | 32,588 | 1.20 | 2,121 |
| 204,464 | 1.05 | 869 | 184,759 | 0.97 | 735 | |
The following table summarizes information about share options outstanding and exercisable as of March 31, 2009:
Options outstanding |
Options exercisable |
|||||
| Range of exercise prices per share (Rs.) |
No. of shares arising out of options |
Weighted Average remaining contractual life |
Weighted average exercise price |
No. of shares arising out of options |
Weighted Average remaining contractual life |
Weighted average exercise price |
| 1998 Plan: | ||||||
| 300-700 | 337,790 | 1.46 | 567 | 337,790 | 1.46 | 567 |
| 701-1,400 | 493,048 | 1.56 | 980 | 493,048 | 1.56 | 980 |
| 1,401-2,100 | 76,641 | 0.46 | 1,693 | 76,641 | 0.46 | 1,693 |
| 2,101-2,800 | 6,880 | 0.13 | 2,453 | 6,880 | 0.13 | 2,453 |
| 2,801-4,200 | 2,400 | 0.02 | 2,899 | 2,400 | 0.02 | 2,899 |
| 916,759 | 1.41 | 904 | 916,759 | 1.41 | 904 | |
| 1999 Plan: | ||||||
| 300-700 | 300,976 | 1.55 | 429 | 300,976 | 1.55 | 429 |
| 701-1,400 | 223,102 | 0.60 | 802 | 223,102 | 0.60 | 802 |
| 1,401-2,500 | 401,728 | 1.06 | 2,121 | 327,223 | 0.75 | 2,121 |
| 925,806 | 1.11 | 1,253 | 851,301 | 1.00 | 1,177 | |
The Company recorded share-based compensation of Rs. 1 crore and Rs. 7 crore during the year ended March 31, 2010 and 2009, respectively.