Notes to the financial statements for the year ended 31 March, 2016 1. Company overview Timex Group India Limited ('TGIL' or the 'Company'), a subsidiary of Timex Group Luxury Watches B.V., is a limited liability company incorporated on 4 October 1988. The Company is listed on Bombay Stock Exchange in India. The Company is engaged in the business of manufacturing and trading of watches and rendering of related after sales service. The Company's manufacturing facilities are located at Baddi, Himachal Pradesh. The Company also provides accounting and information and technology support services to group companies. 2. Significant accounting policies The accounting policies set out below have been applied consistently to the periods brsented in these financial statements. a. Basis of brparation of financial statements These financial statements have been brpared and brsented under the historical cost convention on a going concern basis, on the accrual basis of accounting and comply with the Generally Accepted Accounting Principles (GAAP) in India. Indian GAAP comprises mandatory accounting standards as specified under the section 133 of the Companies Act, 2013 read with Rule 7 of Companies (Accounts) Rules, 2014 and other accounting pronouncements of the Institute of Chartered Accountants of India. The financial statements are brsented in Indian rupees rounded off to the nearest lakhs. b. Use of going concern assumption The accumulated losses of the company as at 31 March 2016 are Rs. 7,814 lakhs, which have resulted in complete erosion of the net worth of the Company. The Company has also incurred losses of Rs 927 lakhs for the year ended 31 March 2016 and as at that date, the Company's current liabilities are in excess of its current assets by Rs. 3,539 lakhs. The Company expects growth in its operations in coming years and is taking measures to improve its operational efficiency. However, the company expects to incur losses during the year 2016-17. As per the business plans approved by the board of directors, the funding requirements of the company will be met through funds from operations and bank borrowings, which have been guaranteed by Timex Group B.V., a fellow subsidiary. Further, brference shares amounting to Rs. 3,500 lakhs, subject to shareholders approval, are proposed to be issued to the holding company during the year 2016-17. In view of the above, the use of going concern assumption has been considered appropriate in brparation of financial statements of the Company. c. Use of estimates The brparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses and the disclosure of contingent assets and liabilities on the date of the financial statements. Examples of such estimates include estimated provision for doubtful debts, warranties, future obligations under employee retirement benefit plans and estimated useful life of fixed assets, classification of assets/liabilities as current or non current in certain circumstances etc. Differences between actual results and estimates are recognised in the year in which the actual results are known or materialised. Any revision to accounting estimates is recognised in accordance with the requirements of the respective accounting standard. d. Current-non-current classification All assets and liabilities are classified into current and non-current. Assets An asset is classified as current when it satisfies any of the following criteria: a. it is expected to be realised in, or is intended for sale or consumption in, the company's normal operating cycle; b. it is held primarily for the purpose of being traded; c. it is expected to be realised within 12 months after the reporting date; or d. it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date. Current assets include the current portion of non-current financial assets. All other assets are classified as non-current. Liabilities A liability is classified as current when it satisfies any of the following criteria: a. it is expected to be settled in the company's normal operating cycle; b. it is held primarily for the purpose of being traded; c. it is due to be settled within 12 months after the reporting date; or d. the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. Current liabilities include current portion of non-current financial liabilities. All other liabilities are classified as non-current. Operating cycle Operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. Based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of current - non current classification of assets and liabilities. e. Fixed assets and debrciation Fixed assets are carried at cost of acquisition less accumulated debrciation. Cost is inclusive of freight, duties, taxes and any other directly attributable costs to bring the assets to their working condition for intended use. Debrciation on tangible assets other than leasehold land and leasehold improvements is provided under the straight line method based on management's assessment of useful economic lives of the asset. Debrciation is provided at the useful lives brscribed under Part C of Schedule II of The Companies Act, 2013, except for the following block of assets: • Office Equipment (Mobile Phones) 3 years • Furniture and fixtures 5 years • Computers 4 years • Tools and moulds 1 year For these class of assets, based on internal technical evaluation, the management believes that useful lives given above best rebrsent the period over which company expects to use these assets. Debrciation on additions is provided on a pro-rata basis from the date of acquisition/installation. Debrciation on sale/deduction from fixed assets is provided for upto the date of sale/adjustment, as the case may be. Leasehold land is amortised over the period of lease. Leasehold improvements are debrciated under the straight line method over the lowest of the following: • period of the lease • useful life as estimated by management Gain or loss arising from derecognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the assets and are recognised in the Statement of Profit and Loss when assets are derecognised. f. Intangible assets and amortisation Intangible assets comprising software are carried at cost of acquisition less accumulated amortisation. Cost is inclusive of duties, taxes and any other directly attributable costs to bring the assets to their working condition for intended use. Software is amortised over 5-7 years, depending on its estimated useful life, on a straight-line basis. Gain or loss arising from derecognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the assets and are recognised in the Statement of Profit and Loss when assets are derecognised. g. Impairment The carrying amounts of assets are reviewed at each balance sheet date in accordance with Accounting Standard - 28 on 'Impairment of Assets' to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated. An impairment loss is recognised whenever the carrying amount of an asset or cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the Statement of Profit and Loss. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined net of debrciation or amortisation, if no impairment loss had been recognised. h. Inventories Inventories are valued at the lower of cost and net realisable value. Cost of inventories includes all costs incurred in bringing the inventories to their brsent location and condition. In determining the cost, the weighted average cost method is used. Fixed production overheads are allocated on the basis of normal capacity of production facilities. Finished goods and work-in-progress include appropriate share of allocable overheads. The net realisable value of work-in-progress is determined with reference to the selling prices of related finished products. Raw materials and other supplies held for use in the production of finished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the finished products will exceed their net realisable value. i. Employee benefits The Company's obligations towards various employee benefits have been recognised as follows: Short term employee benefits All employee benefits payable/available within twelve months of rendering the service are classified as short-term employee benefits. Benefits such as salaries, wages and bonus etc. are recognised in the Statement of Profit and Loss in the period in which the employee renders the related service. Post employment benefits Superannuation:- In respect of defined contribution plan in the form of Superannuation, the Trustees of the Scheme have entrusted the administration of the Scheme to the Life Insurance Corporation of India (LIC). Annual contribution to the LIC is recognised as an expense in the Statement of Profit and Loss. Gratuity:- Charge for the year in respect of unfunded defined benefit plan in the form of gratuity has been ascertained based on actuarial valuation carried out by an independent actuary as at the year end using the Projected Unit Credit Method, which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation. The obligation is measured at the brsent value of the estimated future cash flows. The discount rate used for determining the brsent value of the obligation under defined benefit plans is based on the market yields on Government securities as at the valuation date having maturity periods approximating to the terms of related obligations. Actuarial gains and losses are recognised immediately in the Statement of Profit and Loss. Provident Fund: The Company deposits certain portion of the Provident Fund contribution with the Regional Provident Fund Commissioner and will have no obligation to pay further amounts. Accordingly, this plan is considered as a defined contribution plan. For the remaining portion of Provident Fund, the Company contributes to the Provident Fund Trust which is administered by trustees of an independently constituted Trust recognised by the Income-tax Act, 1961. Contributions, including shortfall, if any, to the Trust are charged to the Statement of Profit and Loss on an accrual basis. As the provident fund scheme has a guaranteed return linked with that under Employee Provident Fund Scheme, 1952, the same has been considered as a defined benefit plan. The brsent value of obligation has been determined based on actuarial valuation done by independent actuary using the Projected Accrued Benefit Method. Under this method, the Defined Benefit Obligation is calculated based on deterministic approach in respect of all accrued and accumulated provident fund contributions as at the valuation date. The cost of interest rate guarantee, if any, in respect of future provident fund contributions is not taken into consideration. This approach determines the brsent value of the interest rate guarantee under three interest rate scenarios: base case scenario, rising interest rate scenario and falling interest rate scenario. The Defined Benefit Obligation of the interest rate guarantee is set equal to the average of the brsent values determined under these scenarios in respect of accumulated provident fund contributions as at the valuation date. Gains or losses on the curtailment or settlement of any defined benefit plan are recognised when the curtailment or settlement occurs. Other long term benefits Compensated absences are in the nature of other long term employee benefits. Cost of long term benefit by way of accumulating compensated absences that are expected to be availed after a period of 12 months from the year end are recognised when the employees render the service that increases their entitlement to future compensated absences. The liability in respect of compensated absences is provided on the basis of an actuarial valuation done by an independent actuary at the year end using projected unit credit method. Actuarial gains and losses are recognized immediately in the Statement of Profit and Loss. j. Revenue recognition Revenue from sale of goods is recognised on delivery of goods to the buyer which coincides with transfer of all significant risks and rewards of ownership. The amount recognised as sale is inclusive of excise duty and excludes sales tax and trade and quantity discounts. Revenue from services is recognised on rendering of services to customers on accrual basis. Interest income is recognised on a time proportion basis considering the rate of interest and amount invested. k. Foreign currency transactions Foreign exchange transactions are recorded using the exchange rate brvailing on the date of the transaction. Exchange differences arising on foreign exchange transactions settled during the year are recognised in the Statement of Profit and Loss for the year. Monetary assets and liabilities denominated in foreign currencies remaining unsettled as at the balance sheet date are translated at the exchange rates on that date and the resultant exchange differences are recognised in the Statement of Profit and Loss. l. Warranties Warranty costs are estimated for expected warranty claims in respect of products sold during the year on the basis of a technical evaluation and past experience regarding failure trends of products and costs of rectification or replacement. Provision is made for the estimated liability in respect of warranty costs in the year of sale of goods. m. Provision for sales returns Provision for sales returns is recognised to the extent of estimated margin on expected returns based on past trends. n. Provision for unearned margin Provision for unearned margin relates to certain sales where property in the goods has passed but a significant risk of ownership has not passed to the counterparty by the date of the Balance Sheet. o. Taxation Income tax expense comprises current tax (i.e amount of tax for the year determined in accordance with the Income-tax Act, 1961) and deferred tax charge or credit (reflecting the tax effects of timing difference between accounting income and taxable income for the period). The deferred tax charge or credit and the corresponding deferred tax liability or deferred tax asset is recognised using the tax rates that have been enacted or substantially enacted as at the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty of realisation. Such assets are reviewed at each balance sheet date to reassess realisation. However, where there are carried forward losses or unabsorbed debrciation under taxation laws, deferred tax assets are recognised only if there is virtual certainty of realisation of such assets. The credits arising from Minimum Alternate Tax paid are recognised as receivable only if there is reasonable certainty that the Company will have sufficient taxable income in future years in order to utilize such credits. p. Leases Lease rentals in respect of assets taken on operating lease are charged on a straight-line basis to the Statement of Profit and Loss. q. Other Provisions and Contingent Liabilities A provision arising from claims, litigation, assessment, fines, penalties, etc. is recognised when the Company has a brsent obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. These are reviewed at each balance sheet date and adjusted to reflect current management estimates. Contingent liabilities are disclosed in respect of possible obligations that have risen from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise. When there is a possible obligation or brsent obligation where the likelihood of an outflow is remote, no disclosure or provision is made. r. Cash and cash equivalents Cash and cash equivalents for the purpose of Cash Flow Statement comprise cash at bank and in hand and short term investments with original maturity of less than three months. s. Earnings per share Basic earnings per share are computed using the weighted average number of equity shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of equity and dilutive potential equity shares outstanding during the year, except where the results would be anti- dilutive. Rights, brferences and restrictions attached to equity shares The Company has only one class of equity shares having a par value of Re. 1 per share. Each holder of equity shares is entitled to one vote per share. All equity shareholders rank equally with regard to dividends and share in the Company's residual assets. The equity shareholders are entitled to receive dividend as declared by the Company subject to payment of dividend to brference shareholders. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive remaining assets of the Company, after distribution of all brferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders. Rights, brferences and restrictions attached to brference shares 0.1% Non-cumulative redeemable non-convertible brference shares shall be entitled to dividend at the rate of 0.1% per annum. In case of insufficiency of profits /no profits, the dividend on brference shares shall not be declared and distributed and the dividend liability on the brference shares for the respective year shall lapse. 7.1% Cumulative redeemable non-convertible brference shares shall be entitled to dividend at the rate of 7.1% per annum. In case of insufficiency of profits /no profits, the dividend on brference shares shall not be declared and distributed in the respective year but the dividend liability on the brference shares for that respective year shall be cumulated and paid to the holders of the brference shares. Preference shares of all classes carry a brferential right as to dividend over equity shareholders. Where dividend on cumulative brference shares is not declared for a financial year, the entitlement thereto is carried forward whereas in the case of non-cumulative brference shares, the entitlement for that year lapses. The brference shares are entitled to one vote per share at meetings of the Company on any resolutions of the Company directly affecting their rights. In the event of liquidation, brference shareholders have a brferential right over equity shareholders to be repaid to the extent of capital paid-up and dividend in arrears on such shares. Terms of redemption of brference shares Maturity period for redemption of 0.1% brference shares amounting to Rs. 250 lakhs (brvious year Rs. 250 lakhs) is till 24 March 2018 . Original maturity was ten years from the date of allotment i.e. 25 March 2003, with an option to the Company of an earlier redemption after 24 March 2005. The shares were due for redemption on 24 March 2013 which pursuant to the provisions of section 106 of the Companies Act, 1956 was extended by the Company with the consent of brference shareholders by five years, i.e. till 24 March 2018. Maturity period for redemption of 7.1% brference shares amounting to Rs. 1,570 lakhs (brvious year Rs. 1,570 lakhs) is till 26 March 2019. Original maturity was ten years from the date of allotment i.e. 27 March 2004, with an option to the Company of an earlier redemption after 27 March 2006. The shares were due for redemption on 26 March 2014 which pursuant to the provisions of Section 106 of the Companies Act, 1956 was extended by the Company with the consent of brference shareholders by the five years i.e. till 26 March 2019. (Refer note 32 and note 41) Maturity period for redemption of 7.1% brference shares amounting to Rs. 2,290 lakhs (brvious year Rs. 2,290 lakhs) is till 20 March 2021. Original maturity was ten years from the date of allotment i.e. 21 March 2006, with an option to the Company of an earlier redemption after 21 March 2008. The shares were due for redemption on 20 March 2016 which pursuant to the provisions of Section 106 of the Companies Act, 1956 was extended by the Company with the consent of brference shareholders by five years i.e. till 20 March 2021. (Refer note 32 and note 41) 1. Segment information The Company's business segment comprises: - Watches: Manufacturing and trading of watches; - Others: Providing IT and finance related back office support to other group companies. Segment revenue in the geographical segments considered for disclosure are as follows: - Revenues within India (Domestic) includes sale of watches and spares to consumers located within India; and - Revenues outside India (Overseas) includes sale of watches manufactured in India and service income earned from customers located outside India. Segments have been identified in line with the Accounting Standard 17 on "Segment Reporting" notified by the Companies (Accounting Standards) Rules, 2006, taking into account the nature of products and services, the risks and returns, the organisation structure and the internal financial reporting system. Secondary segment reporting is performed on the basis of the geographical segments. Segment accounting policies Besides the normal accounting policies followed as described in note 2, segment revenues, results, assets and liabilities include the respective amounts directly identified to each of the segments and amounts allocated on a reasonable basis. The description of segment assets and liabilities and the accounting policies in relation to segment accounting are as under: a) Segment assets and liabilities Segment assets include all operating assets used by a segment and consist principally of fixed assets, capital work in progress, current assets and loans and advances. Segment liabilities include all operating liabilities in respect of a segment and consist principally of creditors and accrued liabilities. Segment liabilities do not include share capital, reserves, current tax and deferred tax liability. Primary segment assets do not include advance tax, deferred tax asset, cash and bank balance and fixed deposits. b) Segment revenue and expenses Segment revenue and expenses are directly attributable to the segment and have been allocated to various segments on the basis of specific identification. However, segment revenue and expenses do not include interest and other income/ expense in respect of non-segmental activities. 2. The Ministry of Micro, Small and Medium Enterprises has issued an Office Memorandum dated 26 August 2008 which recommends that the Micro and Small Enterprises should mention in their correspondence with its customers the Entrebrneurs Memorandum Number as allocated after filing of the Memorandum. Accordingly, the disclosure in respect of the amounts payable to such enterprises as on 31 March 2016 and 31 March 2015 has been made in the financial statements based on information received and available with the Company. Based on the information currently available with the Company, there are no dues payable to Micro and Small Suppliers as defined in the Micro, Small and Medium Enterprises Development Act, 2006. 3. The dividend liability on 15,700,000 2.9% cumulative redeemable non-convertible brference shares of Rs.10 each and 22,900,000 5.4% cumulative redeemable non-convertible brference shares of Rs. 10 each, payable until 31 March 2009, was waived off as per the consent of the holders of these brference shares vide their letter dated 15 March 2009. The coupon rate applicable to these series of brference shares was revised to 7.1% effective 1 April 2009 till the date of maturity. The holders of these brference shares have further waived the dividend for the years 2012-13, 2013-14, 2014-15 and 2015-16, subject to the condition that the coupon rate for these series shall be revised from 7.1% to 13.88% effective 1 April 2016. The Company is in the process of obtaining relevant approvals from the regulatory authorities 4. # Amount is below rounding off threshold adopted by the Company. As at 31 March 2016, the Company has foreign currency receivables amounting to Rs. 39 lakhs (brvious year Rs. 39 lakhs) outstanding for a period exceeding nine months. As per Reserve Bank of India's (RBI) Master Circular on Export of Goods and Services, foreign currency receivables should be realized, except with prior approval of RBI, within a period of nine months. The Company is in the process of complying with RBI guidelines in order to write-off these amounts. 5.Transfer Pricing The Company has established a combrhensive system of maintenance of information and documents as required by the transfer pricing regulation under sections 92-92F of the Income-Tax Act, 1961. Since the law requires existence of such information and documentation to be contemporaneous in nature, the Company continuously updates its documentation for the international transactions entered into with the associated enterprises during the financial year and expects such records to be in existence latest by such date as required under law. The management is of the opinion that its international transactions are at arm's length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation. 6.During the year ended 31 March 2015, the Company renegotiated the terms of sales with one of its customers. This has resulted in reversal of provision for unearned margin recognised in the books of accounts in earlier years in respect of this customer amounting to Rs. 171 lakhs. 7.Pursuant to Companies Act, 2013 ("the Act") being effective from April 1, 2014, the Company has revised debrciation rates on tangible assets as per useful life specified in Para 'C' of Schedule II of the Act. As a result of this change, the debrciation charge for the brvious year ended 31 March 2015 is higher by Rs. 19 lakhs. Further, based on transitional provision provided in note no. 7 (b) of Schedule II, an amount of Rs. 67 lakhs has been adjusted against opening balance of reserves and surplus for the year ended 31 March 2015. As per our report of even date attached For B S R & Co. LLP Timex Group India Limited Chartered Accountants Firm Registration No.: 101248W/W-100022 Rajiv Goyal Partner Membership No.: 094549 For and on behalf of the Board of Directors of Colin Davis Arsenault Chairman DIN : 07156629 Sharmila Sahai Managing Director DIN : 00893750 Amit Jain Chief Financial Officer Dhiraj Kumar Maggo Company Secretary Membership No.: F7609 Place : Noida Date : 26 May 2016 |