Guidance note on "Accounting for employee share based payments" (‘the guidance note’) issued by 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.
The company applies the intrinsic value-based method of accounting to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price on this date. The options vest on a graded basis; however there is no compensation expense since the grants are made at exercise prices equal to or greater than fair market value, as of the date of the grant.
The company's 2002 Plan provides for the grant of stock options to employees of the company and was approved by the Board of Directors and shareholders in June 2002. All options under the 2002 Plan are exercisable for equity shares. The 2002 Plan is administered by a Compensation Committee comprising three members, all of whom are directors of the company. The 2002 Plan provides for the issue of 52,50,000 equity shares to employees, at an exercise price, which shall not be less than the Fair Market Value ("FMV") on the date of grant. Options may also be issued to employees at exercise prices that are less than the FMV only if specifically approved by the members of the company in general meeting. Options granted under the 2002 plan vests over 1-6 years.
Year ended March 31, 2010 |
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| Shares arising out of options |
Weighted average exercise prices (in Rs.) |
|
| Outstanding at the beginning of the year | 16,04,867 | 308.93 |
| Granted during the year | – | – |
| Forfeitures during the year | 2,68,536 | 186.38 |
| Exercised during the year | – | – |
| Outstanding at the end of the year | 13,36,331 | 333.55 |
| Exercisable at the end of the year | 8,98,806 | 306.55 |
The company has not granted any options during the year ended March 31, 2010. Further there were no exercises for the year ended March 31,2010.
Year ended March 31, 2009 |
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| Shares arising out of options |
Weighted average exercise prices (in Rs.) |
|
| Outstanding at the beginning of the year | 17,14,417 | 294.53 |
| Granted during the year | – | – |
| Forfeitures during the year | 1,09,550 | 83.69 |
| Exercised during the year | – | – |
| Outstanding at the end of the year | 16,04,867 | 308.93 |
| Exercisable at the end of the year | 7,66,151 | 283.02 |
As at March 31, 2010, 13,36,331 (March 31,2009: 16,04,867) options are held by Infosys Technologies Limited ( refer note 16.2.18b). Options held by Infosys Technologies Limited cannot be exercised due to legal restrictions and will expire in due course. Accordingly these options have not been considered while computing dilutive earnings per share of the company from the date Infosys Technologies Limited owned these options.
The following table summarizes information about stock options as of March 31, 2010 and March 31, 2009
| Range of exercise prices (in Rs.) | Stock options outstanding at the end of the period |
Weighted average remaining contractual life |
||
| March 31, 2010 | March 31, 2009 | March 31, 2010 | March 31, 2009 | |
| 33.12-58.33 | 1,64,846 | 1,64,846 | 0.02 | 0.72 |
| 58.34-77.89 | 1,05,975 | 1,18,475 | 0.33 | 1.31 |
| 77.90-99.20 | 82,500 | 87,600 | 0.51 | 1.43 |
| 99.21-162.23 | – | 23,500 | – | 2.26 |
| 162.24-195.00 | 2,03,000 | 4,03,961 | 0.85 | 1.74 |
| 195.01-214.00 | – | 26,475 | – | 0.77 |
| 214.01-230.00 | 1,49,610 | 1,49,610 | 1.42 | 2.42 |
| 230.01-310.00 | 1,19,300 | 1,19,300 | 1.82 | 3.03 |
| 310.01-604.00 | 5,11,100 | 5,11,100 | 1.86 | 2.92 |
| 13,36,331 | 16,04,867 | 1.22 | 2.11 | |
On March 12, 2007, Infosys Technologies Limited purchased 12,19,532 unvested options held by the employees of Infosys BPO Limited for a cash consideration of Rs. 57.87 crore and has swapped 5,18,360 unvested options with 1,51,932 unvested stock options of Infosys. In addition, certain employees were granted additional 4,86,828 Infosys stock options under the Infosys 1999 Employee Stock Option Plan. The Infosys 1999 Employees Stock Option Plan was approved by the Board of Directors and stockholders in June 1999. All options under the 1999 Plan are exercisable for equity shares. The options granted under the 1999 plan vests over 2-6 years.
Year ended March 31, 2010 |
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| Shares arising out of options |
Weighted average exercise prices (in Rs.) |
|
| Outstanding at the beginning of the year | 3,95,998 | 2,121 |
| Granted during the year | – | – |
| Forfeitures during the year | 2,97,451 | 2,121 |
| Exercised during the year | 46,254 | 2,121 |
| Outstanding at the end of the year | 52,293 | 2,121 |
| Exercisable at the end of the year | 52,293 | 2,121 |
Year ended March 31, 2009 |
||
| Shares arising out of options |
Weighted average exercise prices (in Rs.) |
|
| Outstanding at the beginning of the year | 5,50,592 | 2,121 |
| Granted during the year | – | – |
| Forfeitures during the year | 1,54,594 | 2,121 |
| Exercised during the year | – | – |
| Outstanding at the end of the year | 3,95,998 | 2,121 |
| Exercisable at the end of the year | 3,95,998 | 2,121 |
The following table summarizes information about stock options as of March 31, 2010 and March 31,2009
Range of exercise prices (in Rs.) |
Stock options outstanding at the end of the period |
Weighted average remaining contractual life |
||
| March 31, 2010 | March 31, 2009 | March 31, 2010 | March 31, 2009 | |
| 0- 2120.95 | 52,293 | 3,95,998 | 1.02 | 1.44 |
| 52,293 | 3,95,998 | 1.02 | 1.44 | |
As permitted by the guidance note, the company 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. Had compensation cost for the company’s stock-based compensation plan been determined in a manner consistent with the fair value approach described in guidance note, the company’s net income and basic earnings per share as reported would have reduced to the proforma amounts indicated below.
Year ended March 31, |
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| 2010 | 2009 | |
| Net profit as reported | 273,81,32,067 | 178,42,28,901 |
| Less: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | 5,10,30,304 | 6,83,45,198 |
| Adjusted proforma profit | 268,71,01,763 | 171,58,83,703 |
| Basic EPS as reported | 80.94 | 52.74 |
| Adjusted proforma | 79.43 | 50.72 |
| Diluted EPS as reported | 80.94 | 52.74 |
| Adjusted proforma | 79.43 | 50.72 |
The provision for service level agreement compliance is based on estimates made by the management for on going contracts. In accordance with paragraphs 66 and 67 of the Accounting Standard 29, the movement in provision for service level agreement is given below
As at March 31, |
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| 2010 | 2009 | |
| Balance at the beginning of the period | 2,67,69,832 | 1,63,42,186 |
| Balance assumed on the amalgamation of PAN Financial Shared Services India Private Limited (refer note 16.2.14) | – | 5,83,256 |
| Additional provision made during the period | 4,23,46,603 | 1,50,73,089 |
| Provision used during the period | 65,23,719 | 52,28,699 |
| Unused amounts reversed during the period | 1,06,78,553 | - |
| Balance at the end of the period | 5,19,14,163 | 2,67,69,832 |
Management believes that the aforesaid provision will be utilized within a year.