Cambridge Solutions

1 Provision for tax
 
 The Company operates five units, two each in Chennai and Bangalore and
 one in Mumbai. The Bangalore units are registered with the Software
 Technology Parks of India, Bangalore and are eligible to claim tax
 holidays for ten years [up-to the financial year 2009-10] under section
 10A of the Indian Income-tax Act, 1961 (the Act). In Chennai, the
 Company has two has commenced operation in Shimoga which is registered
 with STPI as an extension of the existing Bangalore facility.
 
 The current tax charge reflects the tax liability determined under
 section 115JB of the Income-tax Act, 1961. The Company has reversed
 deferred tax asset amounting to Rs 7 million and also not created
 deferred tax asset on brought forward losses as per its accounting
 policies.
 
 2 Contingent liabilities and commitments
 
 i. The Company has export obligations under the Software Technology
 Park (STP) scheme. In accordance with such scheme, the Company procures
 capital goods without payment of duties, for which, agreements and
 bonds are executed by the Company in favour of the Government. In case
 the Company does not fulfill the export obligation, it shall be liable
 to pay, on demand an amount equal to such duties saved including
 interest and liquidated damages. As at December 31, 2008, the Company
 has availed duty benefits amounting to Rs 62 million (March 31, 2008 --
 Rs 26.19 million). The Company expects to meet its commitment to earn
 the requisite revenue in foreign currency as stipulated by the STP
 regulations.
 
 ii. As at December 31, 2008, Cambridge Australia, Scandent USA
 (formerly Albion) and Cambridge UK, the subsidiary companies of
 Cambridge have negative net assets amounting to Rs 565 million (March
 31, 2008 -- Rs 505 million), Rs 1,532 million (March 31, 2008 - Rs 856
 million) and Rs 32 million (March 31, 2008 -- Rs 29 million),
 respectively. Whilst the respective subsidiaries are confident of
 generating funds from their operations for the year ending December 31,
 2009, the Company has committed to fund the shortfall, if any. Further,
 on account of uncertainty of renewal of one of the key contracts of
 Cambridge Australia, the Company has committed to provide financial
 support to enable Cambridge Australia to continue on a going concern
 basis.
 
 iii. On March 31, 2006, the Company received an assessment order for
 the Assessment year 2003-04 which included transfer pricing adjustment
 for arms length price of Rs 126 million. The Company has filed an
 appeal with the Commissioner of Income tax (Appeals) and is confident
 of succeeding in reversal of such adjustment and does not expect any
 liability on this account.
 
 iv. During the year ended March 31, 2007, the Company received an
 assessment order for the Assessment year 2004-05 which included
 transfer pricing adjustment for arms length price of Rs 95 million.
 Consequently, an amount of Rs 6 million has been demanded as tax
 payable by the Company. As at the period end, the Company has paid Rs 3
 million (March 31, 2008 - Rs 3 million) [Includes Rs 1 million paid
 during the previous year] of taxes and has made an application for stay
 of demand for the balance amount and penalty proceedings. Also, the
 Company has filed an appeal with the Commissioner of Income tax
 (Appeals) and is confident of succeeding in reversal of such
 adjustment.
 
 v. During the period ended December 31, 2008, the Company received tax
 demand for the assessment year ended March 31, 2006 amounting to Rs 119
 million, (including interest on account of transfer pricing adjustments
 amounting to Rs 233 million). Subsequent to the balance sheet date, the
 Company has paid Rs 15 million against which the income tax authorities
 have accepted the application for stay of demand for the balance amount
 and penalty proceedings.  Further, the Company has filed appeal against
 aforementioned demand. The Company believes that the final outcome of
 the above dispute should be in favour of the Company and there should
 not be any material impact on the financial statements.
 
 vi. During the year ended March 31, 2007, the Company had entered into
 a Bank Guarantee facility with Yes Bank for Rs 320 million plus
 variations on account of exchange rate fluctuations, for the purpose of
 issuance of standby letter of credit (SBLC) by Yes Bank in favour of
 a correspondent bank in India for extending credit facilities to its
 subsidiaries. As at December 31, 2008, the Company has utilized Rs 355
 million (March 31, 2008 - Rs 343 million) of the facility towards SBLCs
 issued to secure facility extended to CISGI, USA and Cambridge
 Australia by a correspondent bank. In the event of default by the
 subsidiaries, the Company will need to indemnify Yes Bank to the extent
 of the facility availed.
 
 vii. The Company has given corporate guarantee for Rs 1,461 million
 (March 31, 2008 -- Rs 1,688 million) in respect of loans taken by its
 subsidiaries from banks.
 
 3 As at December 31, 2008, the Company has a net receivables (after
 eliminating payable) from Scandent USA (formerly Albion) and Cambridge
 UK, its wholly owned subsidiaries, of Rs 973 million (net of payable of
 Rs 392 million) (March 31, 2008 - Rs 731 million) and Rs 72 million
 (net of payable of Rs 289 million) (March 31, 2008 - Rs 166 million),
 respectively.  The Company based on the future funding plans believes
 that these dues will be recovered in due course. [Also refer note
 10(ii)and (iii)].
 
 4 Onerous lease contracts
 
 During the period, the Company has lost certain business due to the
 economic environment and management has also adopted a new strategic
 plan for future utilisation of its vacant leased premises as at
 December 31, 2008. Pursuant to such plan, the management has recorded a
 provision of Rs 70 million towards onerous lease contracts.
 
 5 Segment reporting
 
 The primary reporting of the Company has been performed on the basis of
 business segments. Until March 31, 2008, the Companys operations were
 identified as one business segment. Hence, no primary segment
 information was deemed necessary. Pursuant to Cambridge-India Merger
 Scheme (refer note 2), the Company is organized into two business
 segments, Business Process Outsourcing (BPO) and Information
 Technology (IT) segments. Segments have been identified and reported
 based on the activity of the customer, the risks and returns, the
 organization structure and the internal financial reporting systems.
 
 Secondary segmental reporting is performed on the basis of the
 geographical location of customers. The management views the North
 Americas, Europe and Rest of the world as distinct geographical
 segments.
 
 Corporate activities such as treasury and taxation, which do not
 qualify as operating segments under Accounting Standard 17 notified
 under The Companies (Accounting Standards) Rules, 2006 issued by the
 Institute of Chartered Accountants of India, have been considered as
 unallocated items.
 
 6 Leases
 
 i.  Operating leases
 
 In case of assets taken on lease:
 
 The Company has operating leases for its Office premises, guest houses
 and certain equipments. The lease arrangements for premises and guest
 houses have been entered up to a maximum of six years from the
 respective dates of inception. Some of these lease arrangements have
 price escalation clauses.
 
 In case of assets given on lease
 
 The Company has sub-leased out premises on operating lease. The lease
 is non-cancellable for tenure of 4 years and entails an escalation of
 lease rent on a periodical basis. Rent income for such operating leases
 recognized in the Profit and loss Account for the period ended December
 31, 2008 is Rs 9,845,361 (March 31, 2008 - Rs. Nil).
 
 7 Employee Stock Option Plan
 
 (i) During the year ended March 31, 2004, the Board of Directors
 approved the Employee Stock Option Plan (ESOP Plan 2004) for the
 grant of stock options to the employees of the Company and employees of
 its subsidiary companies. A compensation committee has been constituted
 to administer the plan and to determine the exercise price.
 
 During the year 2003-04, the Compensation Committee had granted 477,268
 options under the ESOP Plan 2004 to be exercised at a grant price of Rs
 10. Further, during the year ended March 31, 2007 additional 15,017
 shares were granted under the above scheme.
 
 The options will vest with the employees in the following manner
 
 - 75% of the options after twelve months from the grant date; and the
 remaining options after twenty-four months from the grant date.
 
 The fair value of the equity shares has been determined by the
 management on the date of the grant for ESOP Plan 2004 based on a
 valuation by an independent appraiser. As per the terms of the ESOP
 Plan 2004, the exercise price equals the face value of the equity
 shares of Cambridge, and accordingly the difference between the fair
 value and the exercise price has been recorded as compensation cost.
 During the period no options have been exercised (March 31, 2008 --
 12,017) and nil options were forfeited (March 31, 2008 - 3,762). No
 options have been granted under the plan in the current period.
 
 The employee stock compensation expense for the period December 31,
 2008 is Rs 4,94,836 (March 31, 2008 Rs 515,781)
 
 (ii) Pursuant to the SSIIT Merger Scheme, the Company needs to issue
 and allot to every holder of options under Employees Stock Option
 Scheme 1999, Employees Stock Option Scheme 2000 and Employees Equity
 Option Plan 2001, being an employee of SSIIT, one option for one equity
 share of Cambridge against every option for one equity share of SSI
 held by him on the record date, aggregating to options for not more
 than 87,617 equity shares, except that the holder of an option to
 receive Global Depository Shares (GDS) of SSI shall be entitled to
 one option for one equity share of Cambridge for every option for 10
 GDSs of SSI held by him.
 
 Accordingly, on November 10, 2004, the Board of Directors of Cambridge
 have approved SSIIT Services - Employees Stock Option Plan, 2004 (ESOP
 II Plan 2004) for grant of options to the holder of options in SSI as
 on July 2, 2004, the Appointed Date. The Company has granted 70,892
 options under the ESOP II Plan 2004 on November 10, 2004 to be
 exercised at a price of Rs 128.24, which approximates to the fair value
 of the options. The validity period of the Scheme shall be for a period
 of 84 months from the date of vesting. Based on the confirmation
 received from SSI, as at September 30, 2004, the options have been
 fully vested under the original stock option schemes. During the
 period, 2,700 options have been forfeited (March 31, 2008 - 39,734) and
 no shares have been exercised (March 31, 2008 -Nil).
 
 Considering that the exercise price equals the fair value [i.e., the
 market value] of the equity shares of Cambridge, no compensation cost
 has been recorded by the Company.
 
 (iii) During the year ended March 31, 2006, the Board of Directors
 approved the Employee Stock Option Plan (ESOP Plan 2005) for the
 grant of stock options to the employees of the Company and the
 employees of its subsidiary companies.  A compensation committee has
 been constituted to administer the plan and to determine the exercise
 price.
 
 Under the ESOP Plan 2005, on May 27, 2005, 179,263 options have been
 issued under Program I at a grant price of Rs 10 and 384,473 options
 under Program II at grant price of Rs 172. During the year ended March
 31, 2007 additional 5,737 shares were granted under Program I and
 68,000 shares were granted under program II, under the above scheme.
 
 The vesting period for Program I shall be one year from the date of
 grant and in a staggered manner for Program II, spread over two years
 as follows: -
 
 - 40% of the options one year from the date of grant
 
 - 60% of the options two years from the date of grant
 
 The difference between the market value and the exercise price under
 Program I is considered as deferred compensation cost and amortised
 over the vesting period. During the year, the Company has recorded
 employee stock compensation expense of Rs Nil (March 31, 2008 -- Rs
 Nil). The exercise price for the options granted under program II are
 at the intrinsic value of the equity shares of Cambridge as at the date
 of grant, and accordingly, no compensation cost has been recorded by
 the Company.
 
 During the period no options were exercised (March 31, 2008 - 15,803)
 and nil options were forfeited (March 31, 2008 - 49,000).
 
 (iv) During the year ended March 31, 2007, the Board of Directors
 approved the Employee Stock Option Plan (ESOP Plan 2006) for the
 grant of stock options to the employees of the Company and the
 employees of its subsidiary companies.  A compensation committee has
 been constituted to administer the plan and to determine the exercise
 price.
 
 Under the ESOP Plan 2006, during the year ended March 31, 2007, 60,000
 options have been issued under Program I at a grant price of Rs 10 and
 2,057,946 options under Program II at a grant price equivalent to the
 market value of the shares on the date of grant. Further, during the
 previous year additional 1,870,000 shares were granted under Program
 II, under the above scheme. The vesting period for Program I shall be
 one year from the date of grant and in a staggered manner for Program
 II, spread over three years as follows:-
 
 - 33.33% of the options one year from the date of grant
 
 - 33.33% of the options two years from the date of grant
 
 - 33.34% of the options three years from the date of grant
 
 The difference between the intrinsic value and the exercise price under
 Program I is considered as deferred compensation cost and amortised
 over the vesting period. The exercise price for the options granted
 under program II are at the intrinsic value of the equity shares of
 Cambridge as at the date of grant, and accordingly, no compensation
 cost has been recorded by the Company.
 
 During the period, 24,000 options were exercised (March 31,
 2008-24,000) and 1,211,000 options were forfeited / expired (March 31,
 2008-1,247,000).
 
 During the period, on account of expiry of options granted to
 employees, the Company recorded a reversal of Rs 1,237,800 within
 employee stock compensation expenses. During the year ended March 31,
 2008, the Company had recorded employee stock compensation expense of
 Rs 2,916,460.
 
 8 Gratuity
 
 The Company has a defined benefit gratuity plan. Every employee who has
 completed five years or more of service gets a gratuity on departure at
 15 days salary (last drawn salary) for each completed year of service.
 
 The following tables summarize the components of net benefit expense
 recognized in the profit and loss account and amounts recognized in the
 balance sheet for the respective plans.
 
 9 Details of utilisation of proceeds raised through preferential
 issues
 
 During the year ended March 31, 2006, the Company had made preferential
 allotment of 1,025,227 equity shares of Rs.10 each at a premium of Rs
 210 per share and preferential allotment of Rs 1,336.50 million 5.22
 per cent Convertible Bonds to Indopark Holdings Limited, a wholly owned
 subsidiary of Merrill Lynch Et Co.
 
 10 Prior year comparatives
 
 Previous years figures have been regrouped / reclassified wherever
 necessary to conform to the current periods presentation.  The current
 year figures are for a period of 9 months and pursuant to the
 Cambridge-India Merger Scheme, CISIPL has been merged with effect from
 April 1, 2008, the appointed date, and hence are not strictly
 comparable with the previous year.