Directors' report

24.2.1. Aggregate expenses

The aggregate amounts incurred on expenses are as follows :

in crore

Particulars	Year ended March 31,
Particulars	2011	2010
Salaries and bonus including overseas staff expenses	14,306	11,733
Contribution to provident and other funds	456	306
Staff welfare	94	46
Overseas travel expenses	839	610
Travel and conveyance	115	82
Technical sub-contractors	603	372
Software packages for own use	350	336
Third party items bought for service delivery to clients	139	17
Professional charges	344	278
Telephone charges	153	139
Communication expenses	84	86
Power and fuel	167	145
Office maintenance	222	165
Guesthouse maintenance	9	4
Rent	146	125
Brand building	74	57
Commission charges	15	16
Insurance charges	33	31
Printing and stationery	14	12
Computer maintenance	53	29
Consumables	27	25
Rates and taxes	54	31
Advertisements	7	3
Donations	1	44
Marketing expenses	22	15
Professional membership and seminar participation fees	12	9
Repairs to buildings	45	34
Repairs to plant and machinery	36	32
Postage and courier	13	12
Provision for post-sales client support and warranties	5	(2)
Books and periodicals	4	4
Recruitment and training	2	2
Provision for bad and doubtful debts	2	–
Provision for doubtful loans and advances	2	1
Commission to non-whole-time directors	6	6
Sales promotion expenses	1	1
Auditor’s remuneration
Statutory audit fees	2	2
Bank charges and commission	2	2
Freight charges	2	1
Research grants	18	23
Miscellaneous expenses	54	47
	18,533	14,881

24.2.2. Capital commitments and contingent liabilities

in crore

Particulars	As at March 31,
Particulars	2011		2010

Estimated amount of unexecuted capital contracts (net of advances and deposits)	814		301
Outstanding guarantees and counter guarantees to various banks, in respect of the guarantees given by those banks in favor of various government authorities and others	21		18
Claims against the Company, not acknowledged as debts ⁽¹⁾[Net of amount paid to statutory authorities of 469 crore (241 crore)]	271		28
	in million	in crore	in million	in crore
Forward contracts outstanding
In USD	546	2,433	267	1,199
In Euro	28	177	22	130
In GBP	15	108	11	71
In AUD	10	46	3	12
Options contracts outstanding
In USD	–	–	200	898
		2,764		2,310

⁽¹⁾

Claims against the Company not acknowledged as debts include demand from the Indian tax authorities for payment of additional tax of 671 crore (214 crore), including interest of 177 crore (39 crore) upon completion of their tax review for fiscal 2005, fiscal 2006 and fiscal 2007. The tax demands are mainly on account of disallowance of a portion of the deduction claimed by the Company under Section 10A of the Income tax Act. The deductible amount is determined by the ratio of export turnover to total turnover. The disallowance arose from certain expenses incurred in foreign currency being reduced from export turnover but not reduced from total turnover. The tax demand for fiscal 2007 also includes disallowance of portion of profit earned outside India from the STP units and disallowance of profits earned from SEZ units. The matter for fiscal 2005, 2006 and 2007 is pending before the Commissioner of Income tax ( Appeals), Bangalore.

The Company is contesting the demands and the Management, including its tax advisors, believes that its position will likely be upheld in the appellate process. No tax expense has been accrued in the financial statements for the tax demand raised. The Management believes that the ultimate outcome of this proceeding will not have a material adverse effect on the Company’s financial position and results of operations.

24.2.3. Obligations on long-term, non-cancelable operating leases

The lease rentals charged for the year ended March 31, 2011 and March 31, 2010 and maximum obligations on long-term non-cancelable operating leases payable as per the rentals are stated in the respective agreements :

in crore

Particulars	Year ended March 31,
Particulars	2011	2010
Lease rentals recognized during the year	146	125

in crore

Lease Obligations payable	Year ended March 31,
Lease Obligations payable	2011	2010
Within one year of the Balance Sheet date	109	84
Due in a period between one year and five years	251	249
Due after five years	71	62

The operating lease arrangements extend upto 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.

24.2.4. Related party transactions

During the year ended March 31, 2011, an amount of nil (35 crore for the year ended March 31, 2010) was donated to Infosys Foundation, a not-for-profit foundation, in which certain directors and officers of the Company are trustees. Related parties include Infosys Science Foundation and Infosys Technologies Limited Employees’ Welfare Trust which are controlled trusts.

24.2.5. Transactions with key management personnel

Particulars of remuneration and other benefits paid to key management personnel during the year ended March 31, 2011 and March 31, 2010 have been detailed in Schedule 24.4.

24.2.6. Research and development expenditure

in crore

Particulars	Year ended March 31,
Particulars	2011	2010
Capital	6	3
Revenue	527	435

24.2.7. Stock option plans

The Company has two Stock option plans that are currently operational.

1998 Stock Option Plan (‘the 1998 Plan’)

The 1998 Plan was approved by the Board of Directors in December 1997 and by the shareholders in January 1998, and is for issue of 1,17,60,000 ADSs representing 1,17,60,000 equity shares. All options under the 1998 Plan are exercisable for ADSs representing equity shares. A Compensation Committee comprising independent members of the Board of Directors administers the 1998 Plan. All options have been granted at 100% of fair market value. The 1998 Plan lapsed on January 6, 2008, and consequently no further shares will be issued to employees under this plan.

1999 Stock Option Plan (‘the 1999 Plan’)

In fiscal 2000, the Company instituted the 1999 Plan. The shareholders and the Board of Directors approved the plan in September 1999, which provides for the issue of 5,28,00,000 equity shares to the employees. The Compensation Committee administers the 1999 Plan. Options were issued to employees at an exercise price that is not less than the fair market value. The 1999 Plan lapsed 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, 2011 and March 31, 2010 is as follows :

Particulars	Year ended March 31,
Particulars	2011	2010
The 1998 Plan :
Options outstanding, beginning of year	2,42,264	9,16,759
Less : Exercised	1,88,675	6,14,071
Forfeited	3,519	60,424
Options outstanding, end of year	50,070	2,42,264
The 1999 Plan :
Options outstanding, beginning of year	2,04,464	9,25,806
Less : Exercised	1,37,692	3,81,078
Forfeited	18,052	3,40,264
Options outstanding, end of year	48,720	2,04,464

The weighted average share price of options exercised under the 1998 Plan during the year ended March 31, 2011 and March 31, 2010 was 2,950 and 2,266 respectively. The weighted average share price of options exercised under the 1999 Plan during the year ended March 31, 2011 and March 31, 2010 was 2,902 and 2,221 respectively.

The following tables summarize information about the 1998 and 1999 share options outstanding as of March 31, 2011 and March 31, 2010 :

Range of exercise prices per share ()	As at March 31, 2011
Range of exercise prices per share ()	Number of shares arising out of options	Weighted average remaining contractual life	Weighted average exercise price
The 1998 Plan :
300-700	24,680	0.73	587
701-1,400	25,390	0.56	777
	50,070	0.65	683
The 1999 Plan :
300-700	33,759	0.65	448
701-2,500	14,961	1.71	2,121
	48,720	0.97	962

Range of exercise prices per share ()	As at March 31, 2010
Range of exercise prices per share ()	Number of shares arising out of options	Weighted average remaining contractual life	Weighted average exercise price
The 1998 Plan :
300-700	1,74,404	0.94	551
701-1,400	67,860	1.27	773
	2,42,264	1.03	613
The 1999 Plan :
300-700	1,52,171	0.91	439
701-2,500	52,293	1.44	2,121
	2,04,464	1.05	869

The aggregate options considered for dilution are set out in note 24.2.16

Proforma Accounting for Stock Option Grants

Guidance note on ‘Accounting for employee share based payments’ issued by the Institute of Chartered Accountants of India establishes financial accounting and reporting principles for employee share based payment plans. The guidance note applies to employee share based payment plans, the grant date in respect of which falls on or after April 1, 2005.

As allowed by the guidance note, Infosys has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of the guidance note ‘Accounting for employee share based payments’. Had the compensation cost for Infosys’ stock-based compensation plan been determined in a manner consistent with the fair value approach described in the guidance note, the Company’s net profit and basic and diluted earnings per share as reported would have reduced to the proforma amounts as indicated :

in crore, except per share data

Particulars	Year ended March 31,
Particulars	2011	2010
Net profit after tax, exceptional item and minority interest
As reported	6,835	6,266
Less : Stock-based employee compensation expense	–	1
Adjusted proforma	6,835	6,265
Basic earnings per share as reported	119.66	109.84
Proforma basic earnings per share	119.66	109.83
Diluted earnings per share as reported	119.63	109.72
Proforma diluted earnings per share	119.63	109.71

24.2.8. Income taxes

The provision for taxation includes tax liabilities in India on the Company’s global income as reduced by exempt incomes and any tax liabilities arising overseas on income sourced from those countries. Infosys’ operations are conducted through Software Technology Parks (‘STPs’) and Special Economic Zones (‘SEZs’). Income from STPs are tax exempt for the earlier of ten years commencing from the fiscal year in which the unit commences software development, or March 31, 2011. Income from SEZs is fully tax exempt for the first five years, 50% exempt for the next five years and 50% exempt for another 5 years subject to fulfilling certain conditions. For fiscal 2008 and 2009, the company had calculated its tax liability under Minimum Alternate Tax (MAT). The MAT credit can be carried forward and set off against the future tax payable. In the current year, the Company has calculated its tax liability under normal provisions of the Income Tax Act and utilized the brought forward MAT credit.

As at March 31, 2011, the Company has provided for branch profit tax of 176 crore for its overseas branches, as the Company estimates that these branch profits would be distributed in the foreseeable future. Further, the tax provision for the year ended March 31, 2010, included a net tax reversal of 316 crore relating to SEZ units, for provisions no longer required.

24.2.9. Loans and advances

in crore

Particulars	As at March 31,
Particulars	2011	2010
Deposits with financial institutions :
HDFC Limited	1,571	1,551
Sundaram BNP Paribas Home Finance Limited	–	4
Life Insurance Corporation of India	437	337
	2,008	1,892

Deposit with Life Insurance Corporation of India represents amount deposited to settle employee-related obligations as and when they arise during the normal course of business (refer to note 24.2.21.b).